```

[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1058 Enrolled Bill (ENR)]

        H.R.1058

                       One Hundred Fourth Congress

                                 of the

                        United States of America

                          AT THE FIRST SESSION

         Begun and held at the City of Washington on Wednesday,
  the fourth day of January, one thousand nine hundred and ninety-five

                                 An Act

 
    To reform Federal securities litigation, and for other purposes.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Private Securities 
Litigation Reform Act of 1995''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.

                TITLE I--REDUCTION OF ABUSIVE LITIGATION

Sec. 101. Private securities litigation reform.
Sec. 102. Safe harbor for forward-looking statements.
Sec. 103. Elimination of certain abusive practices.
Sec. 104. Authority of Commission to prosecute aiding and abetting.
Sec. 105. Loss causation.
Sec. 106. Study and report on protections for senior citizens and 
          qualified retirement plans.
Sec. 107. Amendment to Racketeer Influenced and Corrupt Organizations 
          Act.
Sec. 108. Applicability.

               TITLE II--REDUCTION OF COERCIVE SETTLEMENTS

Sec. 201. Proportionate liability.
Sec. 202. Applicability.
Sec. 203. Rule of construction.

            TITLE III--AUDITOR DISCLOSURE OF CORPORATE FRAUD

Sec. 301. Fraud detection and disclosure.

                TITLE I--REDUCTION OF ABUSIVE LITIGATION

SEC. 101. PRIVATE SECURITIES LITIGATION REFORM.

    (a) Securities Act of 1933.--Title I of the Securities Act of 1933 
(15 U.S.C. 77a et seq.) is amended by adding at the end the following 
new section:

``SEC. 27. PRIVATE SECURITIES LITIGATION.

    ``(a) Private Class Actions.--
        ``(1) In general.--The provisions of this subsection shall 
    apply to each private action arising under this title that is 
    brought as a plaintiff class action pursuant to the Federal Rules 
    of Civil Procedure.
        ``(2) Certification filed with complaint.--
            ``(A) In general.--Each plaintiff seeking to serve as a 
        representative party on behalf of a class shall provide a sworn 
        certification, which shall be personally signed by such 
        plaintiff and filed with the complaint, that--
                ``(i) states that the plaintiff has reviewed the 
            complaint and authorized its filing;
                ``(ii) states that the plaintiff did not purchase the 
            security that is the subject of the complaint at the 
            direction of plaintiff's counsel or in order to participate 
            in any private action arising under this title;
                ``(iii) states that the plaintiff is willing to serve 
            as a representative party on behalf of a class, including 
            providing testimony at deposition and trial, if necessary;
                ``(iv) sets forth all of the transactions of the 
            plaintiff in the security that is the subject of the 
            complaint during the class period specified in the 
            complaint;
                ``(v) identifies any other action under this title, 
            filed during the 3-year period preceding the date on which 
            the certification is signed by the plaintiff, in which the 
            plaintiff has sought to serve, or served, as a 
            representative party on behalf of a class; and
                ``(vi) states that the plaintiff will not accept any 
            payment for serving as a representative party on behalf of 
            a class beyond the plaintiff's pro rata share of any 
            recovery, except as ordered or approved by the court in 
            accordance with paragraph (4).
            ``(B) Nonwaiver of attorney-client privilege.--The 
        certification filed pursuant to subparagraph (A) shall not be 
        construed to be a waiver of the attorney-client privilege.
        ``(3) Appointment of lead plaintiff.--
            ``(A) Early notice to class members.--
                ``(i) In general.--Not later than 20 days after the 
            date on which the complaint is filed, the plaintiff or 
            plaintiffs shall cause to be published, in a widely 
            circulated national business-oriented publication or wire 
            service, a notice advising members of the purported 
            plaintiff class--

                    ``(I) of the pendency of the action, the claims 
                asserted therein, and the purported class period; and
                    ``(II) that, not later than 60 days after the date 
                on which the notice is published, any member of the 
                purported class may move the court to serve as lead 
                plaintiff of the purported class.

                ``(ii) Multiple actions.--If more than one action on 
            behalf of a class asserting substantially the same claim or 
            claims arising under this title is filed, only the 
            plaintiff or plaintiffs in the first filed action shall be 
            required to cause notice to be published in accordance with 
            clause (i).
                ``(iii) Additional notices may be required under 
            federal rules.--Notice required under clause (i) shall be 
            in addition to any notice required pursuant to the Federal 
            Rules of Civil Procedure.
            ``(B) Appointment of lead plaintiff.--
                ``(i) In general.--Not later than 90 days after the 
            date on which a notice is published under subparagraph 
            (A)(i), the court shall consider any motion made by a 
            purported class member in response to the notice, including 
            any motion by a class member who is not individually named 
            as a plaintiff in the complaint or complaints, and shall 
            appoint as lead plaintiff the member or members of the 
            purported plaintiff class that the court determines to be 
            most capable of adequately representing the interests of 
            class members (hereafter in this paragraph referred to as 
            the `most adequate plaintiff') in accordance with this 
            subparagraph.
                ``(ii) Consolidated actions.--If more than one action 
            on behalf of a class asserting substantially the same claim 
            or claims arising under this title has been filed, and any 
            party has sought to consolidate those actions for pretrial 
            purposes or for trial, the court shall not make the 
            determination required by clause (i) until after the 
            decision on the motion to consolidate is rendered. As soon 
            as practicable after such decision is rendered, the court 
            shall appoint the most adequate plaintiff as lead plaintiff 
            for the consolidated actions in accordance with this 
            subparagraph.
                ``(iii) Rebuttable presumption.--

                    ``(I) In general.--Subject to subclause (II), for 
                purposes of clause (i), the court shall adopt a 
                presumption that the most adequate plaintiff in any 
                private action arising under this title is the person 
                or group of persons that--

                        ``(aa) has either filed the complaint or made a 
                    motion in response to a notice under subparagraph 
                    (A)(i);
                        ``(bb) in the determination of the court, has 
                    the largest financial interest in the relief sought 
                    by the class; and
                        ``(cc) otherwise satisfies the requirements of 
                    Rule 23 of the Federal Rules of Civil Procedure.

                    ``(II) Rebuttal evidence.--The presumption 
                described in subclause (I) may be rebutted only upon 
                proof by a member of the purported plaintiff class that 
                the presumptively most adequate plaintiff--

                        ``(aa) will not fairly and adequately protect 
                    the interests of the class; or
                        ``(bb) is subject to unique defenses that 
                    render such plaintiff incapable of adequately 
                    representing the class.
                ``(iv) Discovery.--For purposes of this subparagraph, 
            discovery relating to whether a member or members of the 
            purported plaintiff class is the most adequate plaintiff 
            may be conducted by a plaintiff only if the plaintiff first 
            demonstrates a reasonable basis for a finding that the 
            presumptively most adequate plaintiff is incapable of 
            adequately representing the class.
                ``(v) Selection of lead counsel.--The most adequate 
            plaintiff shall, subject to the approval of the court, 
            select and retain counsel to represent the class.
                ``(vi) Restrictions on professional plaintiffs.--Except 
            as the court may otherwise permit, consistent with the 
            purposes of this section, a person may be a lead plaintiff, 
            or an officer, director, or fiduciary of a lead plaintiff, 
            in no more than 5 securities class actions brought as 
            plaintiff class actions pursuant to the Federal Rules of 
            Civil Procedure during any 3-year period.
        ``(4) Recovery by plaintiffs.--The share of any final judgment 
    or of any settlement that is awarded to a representative party 
    serving on behalf of a class shall be equal, on a per share basis, 
    to the portion of the final judgment or settlement awarded to all 
    other members of the class. Nothing in this paragraph shall be 
    construed to limit the award of reasonable costs and expenses 
    (including lost wages) directly relating to the representation of 
    the class to any representative party serving on behalf of the 
    class.
        ``(5) Restrictions on settlements under seal.--The terms and 
    provisions of any settlement agreement of a class action shall not 
    be filed under seal, except that on motion of any party to the 
    settlement, the court may order filing under seal for those 
    portions of a settlement agreement as to which good cause is shown 
    for such filing under seal. For purposes of this paragraph, good 
    cause shall exist only if publication of a term or provision of a 
    settlement agreement would cause direct and substantial harm to any 
    party.
        ``(6) Restrictions on payment of attorneys' fees and 
    expenses.--Total attorneys' fees and expenses awarded by the court 
    to counsel for the plaintiff class shall not exceed a reasonable 
    percentage of the amount of any damages and prejudgment interest 
    actually paid to the class.
        ``(7) Disclosure of settlement terms to class members.--Any 
    proposed or final settlement agreement that is published or 
    otherwise disseminated to the class shall include each of the 
    following statements, along with a cover page summarizing the 
    information contained in such statements:
            ``(A) Statement of plaintiff recovery.--The amount of the 
        settlement proposed to be distributed to the parties to the 
        action, determined in the aggregate and on an average per share 
        basis.
            ``(B) Statement of potential outcome of case.--
                ``(i) Agreement on amount of damages.--If the settling 
            parties agree on the average amount of damages per share 
            that would be recoverable if the plaintiff prevailed on 
            each claim alleged under this title, a statement concerning 
            the average amount of such potential damages per share.
                ``(ii) Disagreement on amount of damages.--If the 
            parties do not agree on the average amount of damages per 
            share that would be recoverable if the plaintiff prevailed 
            on each claim alleged under this title, a statement from 
            each settling party concerning the issue or issues on which 
            the parties disagree.
                ``(iii) Inadmissibility for certain purposes.--A 
            statement made in accordance with clause (i) or (ii) 
            concerning the amount of damages shall not be admissible in 
            any Federal or State judicial action or administrative 
            proceeding, other than an action or proceeding arising out 
            of such statement.
            ``(C) Statement of attorneys' fees or costs sought.--If any 
        of the settling parties or their counsel intend to apply to the 
        court for an award of attorneys' fees or costs from any fund 
        established as part of the settlement, a statement indicating 
        which parties or counsel intend to make such an application, 
        the amount of fees and costs that will be sought (including the 
        amount of such fees and costs determined on an average per 
        share basis), and a brief explanation supporting the fees and 
        costs sought.
            ``(D) Identification of lawyers' representatives.--The 
        name, telephone number, and address of one or more 
        representatives of counsel for the plaintiff class who will be 
        reasonably available to answer questions from class members 
        concerning any matter contained in any notice of settlement 
        published or otherwise disseminated to the class.
            ``(E) Reasons for settlement.--A brief statement explaining 
        the reasons why the parties are proposing the settlement.
            ``(F) Other information.--Such other information as may be 
        required by the court.
        ``(8) Attorney conflict of interest.--If a plaintiff class is 
    represented by an attorney who directly owns or otherwise has a 
    beneficial interest in the securities that are the subject of the 
    litigation, the court shall make a determination of whether such 
    ownership or other interest constitutes a conflict of interest 
    sufficient to disqualify the attorney from representing the 
    plaintiff class.
    ``(b) Stay of Discovery; Preservation of Evidence.--
        ``(1) In general.--In any private action arising under this 
    title, all discovery and other proceedings shall be stayed during 
    the pendency of any motion to dismiss, unless the court finds, upon 
    the motion of any party, that particularized discovery is necessary 
    to preserve evidence or to prevent undue prejudice to that party.
        ``(2) Preservation of evidence.--During the pendency of any 
    stay of discovery pursuant to this subsection, unless otherwise 
    ordered by the court, any party to the action with actual notice of 
    the allegations contained in the complaint shall treat all 
    documents, data compilations (including electronically recorded or 
    stored data), and tangible objects that are in the custody or 
    control of such person and that are relevant to the allegations, as 
    if they were the subject of a continuing request for production of 
    documents from an opposing party under the Federal Rules of Civil 
    Procedure.
        ``(3) Sanction for willful violation.--A party aggrieved by the 
    willful failure of an opposing party to comply with paragraph (2) 
    may apply to the court for an order awarding appropriate sanctions.
    ``(c) Sanctions for Abusive Litigation.--
        ``(1) Mandatory review by court.--In any private action arising 
    under this title, upon final adjudication of the action, the court 
    shall include in the record specific findings regarding compliance 
    by each party and each attorney representing any party with each 
    requirement of Rule 11(b) of the Federal Rules of Civil Procedure 
    as to any complaint, responsive pleading, or dispositive motion.
        ``(2) Mandatory sanctions.--If the court makes a finding under 
    paragraph (1) that a party or attorney violated any requirement of 
    Rule 11(b) of the Federal Rules of Civil Procedure as to any 
    complaint, responsive pleading, or dispositive motion, the court 
    shall impose sanctions on such party or attorney in accordance with 
    Rule 11 of the Federal Rules of Civil Procedure. Prior to making a 
    finding that any party or attorney has violated Rule 11 of the 
    Federal Rules of Civil Procedure, the court shall give such party 
    or attorney notice and an opportunity to respond.
        ``(3) Presumption in favor of attorneys' fees and costs.--
            ``(A) In general.--Subject to subparagraphs (B) and (C), 
        for purposes of paragraph (2), the court shall adopt a 
        presumption that the appropriate sanction--
                ``(i) for failure of any responsive pleading or 
            dispositive motion to comply with any requirement of Rule 
            11(b) of the Federal Rules of Civil Procedure is an award 
            to the opposing party of the reasonable attorneys' fees and 
            other expenses incurred as a direct result of the 
            violation; and
                ``(ii) for substantial failure of any complaint to 
            comply with any requirement of Rule 11(b) of the Federal 
            Rules of Civil Procedure is an award to the opposing party 
            of the reasonable attorneys' fees and other expenses 
            incurred in the action.
            ``(B) Rebuttal evidence.--The presumption described in 
        subparagraph (A) may be rebutted only upon proof by the party 
        or attorney against whom sanctions are to be imposed that--
                ``(i) the award of attorneys' fees and other expenses 
            will impose an unreasonable burden on that party or 
            attorney and would be unjust, and the failure to make such 
            an award would not impose a greater burden on the party in 
            whose favor sanctions are to be imposed; or
                ``(ii) the violation of Rule 11(b) of the Federal Rules 
            of Civil Procedure was de minimis.
            ``(C) Sanctions.--If the party or attorney against whom 
        sanctions are to be imposed meets its burden under subparagraph 
        (B), the court shall award the sanctions that the court deems 
        appropriate pursuant to Rule 11 of the Federal Rules of Civil 
        Procedure.
    ``(d) Defendant's Right to Written Interrogatories.--In any private 
action arising under this title in which the plaintiff may recover 
money damages only on proof that a defendant acted with a particular 
state of mind, the court shall, when requested by a defendant, submit 
to the jury a written interrogatory on the issue of each such 
defendant's state of mind at the time the alleged violation 
occurred.''.
    (b) Securities Exchange Act of 1934.--Title I of the Securities 
Exchange Act of 1934 (78a et seq.) is amended by inserting after 
section 21C the following new section:

``SEC. 21D. PRIVATE SECURITIES LITIGATION.

    ``(a) Private Class Actions.--
        ``(1) In general.--The provisions of this subsection shall 
    apply in each private action arising under this title that is 
    brought as a plaintiff class action pursuant to the Federal Rules 
    of Civil Procedure.
        ``(2) Certification filed with complaint.--
            ``(A) In general.--Each plaintiff seeking to serve as a 
        representative party on behalf of a class shall provide a sworn 
        certification, which shall be personally signed by such 
        plaintiff and filed with the complaint, that--
                ``(i) states that the plaintiff has reviewed the 
            complaint and authorized its filing;
                ``(ii) states that the plaintiff did not purchase the 
            security that is the subject of the complaint at the 
            direction of plaintiff's counsel or in order to participate 
            in any private action arising under this title;
                ``(iii) states that the plaintiff is willing to serve 
            as a representative party on behalf of a class, including 
            providing testimony at deposition and trial, if necessary;
                ``(iv) sets forth all of the transactions of the 
            plaintiff in the security that is the subject of the 
            complaint during the class period specified in the 
            complaint;
                ``(v) identifies any other action under this title, 
            filed during the 3-year period preceding the date on which 
            the certification is signed by the plaintiff, in which the 
            plaintiff has sought to serve as a representative party on 
            behalf of a class; and
                ``(vi) states that the plaintiff will not accept any 
            payment for serving as a representative party on behalf of 
            a class beyond the plaintiff's pro rata share of any 
            recovery, except as ordered or approved by the court in 
            accordance with paragraph (4).
            ``(B) Nonwaiver of attorney-client privilege.--The 
        certification filed pursuant to subparagraph (A) shall not be 
        construed to be a waiver of the attorney-client privilege.
        ``(3) Appointment of lead plaintiff.--
            ``(A) Early notice to class members.--
                ``(i) In general.--Not later than 20 days after the 
            date on which the complaint is filed, the plaintiff or 
            plaintiffs shall cause to be published, in a widely 
            circulated national business-oriented publication or wire 
            service, a notice advising members of the purported 
            plaintiff class--

                    ``(I) of the pendency of the action, the claims 
                asserted therein, and the purported class period; and
                    ``(II) that, not later than 60 days after the date 
                on which the notice is published, any member of the 
                purported class may move the court to serve as lead 
                plaintiff of the purported class.

                ``(ii) Multiple actions.--If more than one action on 
            behalf of a class asserting substantially the same claim or 
            claims arising under this title is filed, only the 
            plaintiff or plaintiffs in the first filed action shall be 
            required to cause notice to be published in accordance with 
            clause (i).
                ``(iii) Additional notices may be required under 
            federal rules.--Notice required under clause (i) shall be 
            in addition to any notice required pursuant to the Federal 
            Rules of Civil Procedure.
            ``(B) Appointment of lead plaintiff.--
                ``(i) In general.--Not later than 90 days after the 
            date on which a notice is published under subparagraph 
            (A)(i), the court shall consider any motion made by a 
            purported class member in response to the notice, including 
            any motion by a class member who is not individually named 
            as a plaintiff in the complaint or complaints, and shall 
            appoint as lead plaintiff the member or members of the 
            purported plaintiff class that the court determines to be 
            most capable of adequately representing the interests of 
            class members (hereafter in this paragraph referred to as 
            the `most adequate plaintiff') in accordance with this 
            subparagraph.
                ``(ii) Consolidated actions.--If more than one action 
            on behalf of a class asserting substantially the same claim 
            or claims arising under this title has been filed, and any 
            party has sought to consolidate those actions for pretrial 
            purposes or for trial, the court shall not make the 
            determination required by clause (i) until after the 
            decision on the motion to consolidate is rendered. As soon 
            as practicable after such decision is rendered, the court 
            shall appoint the most adequate plaintiff as lead plaintiff 
            for the consolidated actions in accordance with this 
            paragraph.
                ``(iii) Rebuttable presumption.--

                    ``(I) In general.--Subject to subclause (II), for 
                purposes of clause (i), the court shall adopt a 
                presumption that the most adequate plaintiff in any 
                private action arising under this title is the person 
                or group of persons that--

                        ``(aa) has either filed the complaint or made a 
                    motion in response to a notice under subparagraph 
                    (A)(i);
                        ``(bb) in the determination of the court, has 
                    the largest financial interest in the relief sought 
                    by the class; and
                        ``(cc) otherwise satisfies the requirements of 
                    Rule 23 of the Federal Rules of Civil Procedure.

                    ``(II) Rebuttal evidence.--The presumption 
                described in subclause (I) may be rebutted only upon 
                proof by a member of the purported plaintiff class that 
                the presumptively most adequate plaintiff--

                        ``(aa) will not fairly and adequately protect 
                    the interests of the class; or
                        ``(bb) is subject to unique defenses that 
                    render such plaintiff incapable of adequately 
                    representing the class.
                ``(iv) Discovery.--For purposes of this subparagraph, 
            discovery relating to whether a member or members of the 
            purported plaintiff class is the most adequate plaintiff 
            may be conducted by a plaintiff only if the plaintiff first 
            demonstrates a reasonable basis for a finding that the 
            presumptively most adequate plaintiff is incapable of 
            adequately representing the class.
                ``(v) Selection of lead counsel.--The most adequate 
            plaintiff shall, subject to the approval of the court, 
            select and retain counsel to represent the class.
                ``(vi) Restrictions on professional plaintiffs.--Except 
            as the court may otherwise permit, consistent with the 
            purposes of this section, a person may be a lead plaintiff, 
            or an officer, director, or fiduciary of a lead plaintiff, 
            in no more than 5 securities class actions brought as 
            plaintiff class actions pursuant to the Federal Rules of 
            Civil Procedure during any 3-year period.
        ``(4) Recovery by plaintiffs.--The share of any final judgment 
    or of any settlement that is awarded to a representative party 
    serving on behalf of a class shall be equal, on a per share basis, 
    to the portion of the final judgment or settlement awarded to all 
    other members of the class. Nothing in this paragraph shall be 
    construed to limit the award of reasonable costs and expenses 
    (including lost wages) directly relating to the representation of 
    the class to any representative party serving on behalf of a class.
        ``(5) Restrictions on settlements under seal.--The terms and 
    provisions of any settlement agreement of a class action shall not 
    be filed under seal, except that on motion of any party to the 
    settlement, the court may order filing under seal for those 
    portions of a settlement agreement as to which good cause is shown 
    for such filing under seal. For purposes of this paragraph, good 
    cause shall exist only if publication of a term or provision of a 
    settlement agreement would cause direct and substantial harm to any 
    party.
        ``(6) Restrictions on payment of attorneys' fees and 
    expenses.--Total attorneys' fees and expenses awarded by the court 
    to counsel for the plaintiff class shall not exceed a reasonable 
    percentage of the amount of any damages and prejudgment interest 
    actually paid to the class.
        ``(7) Disclosure of settlement terms to class members.--Any 
    proposed or final settlement agreement that is published or 
    otherwise disseminated to the class shall include each of the 
    following statements, along with a cover page summarizing the 
    information contained in such statements:
            ``(A) Statement of plaintiff recovery.--The amount of the 
        settlement proposed to be distributed to the parties to the 
        action, determined in the aggregate and on an average per share 
        basis.
            ``(B) Statement of potential outcome of case.--
                ``(i) Agreement on amount of damages.--If the settling 
            parties agree on the average amount of damages per share 
            that would be recoverable if the plaintiff prevailed on 
            each claim alleged under this title, a statement concerning 
            the average amount of such potential damages per share.
                ``(ii) Disagreement on amount of damages.--If the 
            parties do not agree on the average amount of damages per 
            share that would be recoverable if the plaintiff prevailed 
            on each claim alleged under this title, a statement from 
            each settling party concerning the issue or issues on which 
            the parties disagree.
                ``(iii) Inadmissibility for certain purposes.--A 
            statement made in accordance with clause (i) or (ii) 
            concerning the amount of damages shall not be admissible in 
            any Federal or State judicial action or administrative 
            proceeding, other than an action or proceeding arising out 
            of such statement.
            ``(C) Statement of attorneys' fees or costs sought.--If any 
        of the settling parties or their counsel intend to apply to the 
        court for an award of attorneys' fees or costs from any fund 
        established as part of the settlement, a statement indicating 
        which parties or counsel intend to make such an application, 
        the amount of fees and costs that will be sought (including the 
        amount of such fees and costs determined on an average per 
        share basis), and a brief explanation supporting the fees and 
        costs sought. Such information shall be clearly summarized on 
        the cover page of any notice to a party of any proposed or 
        final settlement agreement.
            ``(D) Identification of lawyers' representatives.--The 
        name, telephone number, and address of one or more 
        representatives of counsel for the plaintiff class who will be 
        reasonably available to answer questions from class members 
        concerning any matter contained in any notice of settlement 
        published or otherwise disseminated to the class.
            ``(E) Reasons for settlement.--A brief statement explaining 
        the reasons why the parties are proposing the settlement.
            ``(F) Other information.--Such other information as may be 
        required by the court.
        ``(8) Security for payment of costs in class actions.--In any 
    private action arising under this title that is certified as a 
    class action pursuant to the Federal Rules of Civil Procedure, the 
    court may require an undertaking from the attorneys for the 
    plaintiff class, the plaintiff class, or both, or from the 
    attorneys for the defendant, the defendant, or both, in such 
    proportions and at such times as the court determines are just and 
    equitable, for the payment of fees and expenses that may be awarded 
    under this subsection.
        ``(9) Attorney conflict of interest.--If a plaintiff class is 
    represented by an attorney who directly owns or otherwise has a 
    beneficial interest in the securities that are the subject of the 
    litigation, the court shall make a determination of whether such 
    ownership or other interest constitutes a conflict of interest 
    sufficient to disqualify the attorney from representing the 
    plaintiff class.
    ``(b) Requirements for Securities Fraud Actions.--
        ``(1) Misleading statements and omissions.--In any private 
    action arising under this title in which the plaintiff alleges that 
    the defendant--
            ``(A) made an untrue statement of a material fact; or
            ``(B) omitted to state a material fact necessary in order 
        to make the statements made, in the light of the circumstances 
        in which they were made, not misleading;

    the complaint shall specify each statement alleged to have been 
    misleading, the reason or reasons why the statement is misleading, 
    and, if an allegation regarding the statement or omission is made 
    on information and belief, the complaint shall state with 
    particularity all facts on which that belief is formed.
        ``(2) Required state of mind.--In any private action arising 
    under this title in which the plaintiff may recover money damages 
    only on proof that the defendant acted with a particular state of 
    mind, the complaint shall, with respect to each act or omission 
    alleged to violate this title, state with particularity facts 
    giving rise to a strong inference that the defendant acted with the 
    required state of mind.
        ``(3) Motion to dismiss; stay of discovery.--
            ``(A) Dismissal for failure to meet pleading 
        requirements.--In any private action arising under this title, 
        the court shall, on the motion of any defendant, dismiss the 
        complaint if the requirements of paragraphs (1) and (2) are not 
        met.
            ``(B) Stay of discovery.--In any private action arising 
        under this title, all discovery and other proceedings shall be 
        stayed during the pendency of any motion to dismiss, unless the 
        court finds upon the motion of any party that particularized 
        discovery is necessary to preserve evidence or to prevent undue 
        prejudice to that party.
            ``(C) Preservation of evidence.--
                ``(i) In general.--During the pendency of any stay of 
            discovery pursuant to this paragraph, unless otherwise 
            ordered by the court, any party to the action with actual 
            notice of the allegations contained in the complaint shall 
            treat all documents, data compilations (including 
            electronically recorded or stored data), and tangible 
            objects that are in the custody or control of such person 
            and that are relevant to the allegations, as if they were 
            the subject of a continuing request for production of 
            documents from an opposing party under the Federal Rules of 
            Civil Procedure.
                ``(ii) Sanction for willful violation.--A party 
            aggrieved by the willful failure of an opposing party to 
            comply with clause (i) may apply to the court for an order 
            awarding appropriate sanctions.
        ``(4) Loss causation.--In any private action arising under this 
    title, the plaintiff shall have the burden of proving that the act 
    or omission of the defendant alleged to violate this title caused 
    the loss for which the plaintiff seeks to recover damages.
    ``(c) Sanctions for Abusive Litigation.--
        ``(1) Mandatory review by court.--In any private action arising 
    under this title, upon final adjudication of the action, the court 
    shall include in the record specific findings regarding compliance 
    by each party and each attorney representing any party with each 
    requirement of Rule 11(b) of the Federal Rules of Civil Procedure 
    as to any complaint, responsive pleading, or dispositive motion.
        ``(2) Mandatory sanctions.--If the court makes a finding under 
    paragraph (1) that a party or attorney violated any requirement of 
    Rule 11(b) of the Federal Rules of Civil Procedure as to any 
    complaint, responsive pleading, or dispositive motion, the court 
    shall impose sanctions on such party or attorney in accordance with 
    Rule 11 of the Federal Rules of Civil Procedure. Prior to making a 
    finding that any party or attorney has violated Rule 11 of the 
    Federal Rules of Civil Procedure, the court shall give such party 
    or attorney notice and an opportunity to respond.
        ``(3) Presumption in favor of attorneys' fees and costs.--
            ``(A) In general.--Subject to subparagraphs (B) and (C), 
        for purposes of paragraph (2), the court shall adopt a 
        presumption that the appropriate sanction--
                ``(i) for failure of any responsive pleading or 
            dispositive motion to comply with any requirement of Rule 
            11(b) of the Federal Rules of Civil Procedure is an award 
            to the opposing party of the reasonable attorneys' fees and 
            other expenses incurred as a direct result of the 
            violation; and
                ``(ii) for substantial failure of any complaint to 
            comply with any requirement of Rule 11(b) of the Federal 
            Rules of Civil Procedure is an award to the opposing party 
            of the reasonable attorneys' fees and other expenses 
            incurred in the action.
            ``(B) Rebuttal evidence.--The presumption described in 
        subparagraph (A) may be rebutted only upon proof by the party 
        or attorney against whom sanctions are to be imposed that--
                ``(i) the award of attorneys' fees and other expenses 
            will impose an unreasonable burden on that party or 
            attorney and would be unjust, and the failure to make such 
            an award would not impose a greater burden on the party in 
            whose favor sanctions are to be imposed; or
                ``(ii) the violation of Rule 11(b) of the Federal Rules 
            of Civil Procedure was de minimis.
            ``(C) Sanctions.--If the party or attorney against whom 
        sanctions are to be imposed meets its burden under subparagraph 
        (B), the court shall award the sanctions that the court deems 
        appropriate pursuant to Rule 11 of the Federal Rules of Civil 
        Procedure.
    ``(d) Defendant's Right to Written Interrogatories.--In any private 
action arising under this title in which the plaintiff may recover 
money damages, the court shall, when requested by a defendant, submit 
to the jury a written interrogatory on the issue of each such 
defendant's state of mind at the time the alleged violation occurred.
    ``(e) Limitation on Damages.--
        ``(1) In general.--Except as provided in paragraph (2), in any 
    private action arising under this title in which the plaintiff 
    seeks to establish damages by reference to the market price of a 
    security, the award of damages to the plaintiff shall not exceed 
    the difference between the purchase or sale price paid or received, 
    as appropriate, by the plaintiff for the subject security and the 
    mean trading price of that security during the 90-day period 
    beginning on the date on which the information correcting the 
    misstatement or omission that is the basis for the action is 
    disseminated to the market.
        ``(2) Exception.--In any private action arising under this 
    title in which the plaintiff seeks to establish damages by 
    reference to the market price of a security, if the plaintiff sells 
    or repurchases the subject security prior to the expiration of the 
    90-day period described in paragraph (1), the plaintiff's damages 
    shall not exceed the difference between the purchase or sale price 
    paid or received, as appropriate, by the plaintiff for the security 
    and the mean trading price of the security during the period 
    beginning immediately after dissemination of information correcting 
    the misstatement or omission and ending on the date on which the 
    plaintiff sells or repurchases the security.
        ``(3) Definition.--For purposes of this subsection, the `mean 
    trading price' of a security shall be an average of the daily 
    trading price of that security, determined as of the close of the 
    market each day during the 90-day period referred to in paragraph 
    (1).''.

SEC. 102. SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.

    (a) Amendment to the Securities Act of 1933.--Title I of the 
Securities Act of 1933 (15 U.S.C. 77a et seq.) is amended by inserting 
after section 27 (as added by this Act) the following new section:

``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;
        ``(2) a person acting on behalf of such issuer;
        ``(3) an outside reviewer retained by such issuer making a 
    statement on behalf of such issuer; or
        ``(4) an underwriter, with respect to information provided by 
    such issuer or information derived from information provided by the 
    issuer.
    ``(b) Exclusions.--Except to the extent otherwise specifically 
provided by rule, regulation, or order of the Commission, this section 
shall not apply to a forward-looking statement--
        ``(1) that is made with respect to the business or operations 
    of the issuer, if the issuer--
            ``(A) during the 3-year period preceding the date on which 
        the statement was first made--
                ``(i) was convicted of any felony or misdemeanor 
            described in clauses (i) through (iv) of section 
            15(b)(4)(B) of the Securities Exchange Act of 1934; or
                ``(ii) has been made the subject of a judicial or 
            administrative decree or order arising out of a 
            governmental action that--

                    ``(I) prohibits future violations of the antifraud 
                provisions of the securities laws;
                    ``(II) requires that the issuer cease and desist 
                from violating the antifraud provisions of the 
                securities laws; or
                    ``(III) determines that the issuer violated the 
                antifraud provisions of the securities laws;

            ``(B) makes the forward-looking statement in connection 
        with an offering of securities by a blank check company;
            ``(C) issues penny stock;
            ``(D) makes the forward-looking statement in connection 
        with a rollup transaction; or
            ``(E) makes the forward-looking statement in connection 
        with a going private transaction; or
        ``(2) that is--
            ``(A) included in a financial statement prepared in 
        accordance with generally accepted accounting principles;
            ``(B) contained in a registration statement of, or 
        otherwise issued by, an investment company;
            ``(C) made in connection with a tender offer;
            ``(D) made in connection with an initial public offering;
            ``(E) made in connection with an offering by, or relating 
        to the operations of, a partnership, limited liability company, 
        or a direct participation investment program; or
            ``(F) made in a disclosure of beneficial ownership in a 
        report required to be filed with the Commission pursuant to 
        section 13(d) of the Securities Exchange Act of 1934.
    ``(c) Safe Harbor.--
        ``(1) In general.--Except as provided in subsection (b), in any 
    private action arising under this title that is based on an untrue 
    statement of a material fact or omission of a material fact 
    necessary to make the statement not misleading, a person referred 
    to in subsection (a) shall not be liable with respect to any 
    forward-looking statement, whether written or oral, if and to the 
    extent that--
            ``(A) the forward-looking statement is--
                ``(i) identified as a forward-looking statement, and is 
            accompanied by meaningful cautionary statements identifying 
            important factors that could cause actual results to differ 
            materially from those in the forward-looking statement; or
                ``(ii) immaterial; or
            ``(B) the plaintiff fails to prove that the forward-looking 
        statement--
                ``(i) if made by a natural person, was made with actual 
            knowledge by that person that the statement was false or 
            misleading; or
                ``(ii) if made by a business entity; was--

                    ``(I) made by or with the approval of an executive 
                officer of that entity, and
                    ``(II) made or approved by such officer with actual 
                knowledge by that officer that the statement was false 
                or misleading.

        ``(2) Oral forward-looking statements.--In the case of an oral 
    forward-looking statement made by an issuer that is subject to the 
    reporting requirements of section 13(a) or section 15(d) of the 
    Securities Exchange Act of 1934, or by a person acting on behalf of 
    such issuer, the requirement set forth in paragraph (1)(A) shall be 
    deemed to be satisfied--
            ``(A) if the oral forward-looking statement is accompanied 
        by a cautionary statement--
                ``(i) that the particular oral statement is a forward-
            looking statement; and
                ``(ii) that the actual results could differ materially 
            from those projected in the forward-looking statement; and
            ``(B) if--
                ``(i) the oral forward-looking statement is accompanied 
            by an oral statement that additional information concerning 
            factors that could cause actual results to differ 
            materially from those in the forward-looking statement is 
            contained in a readily available written document, or 
            portion thereof;
                ``(ii) the accompanying oral statement referred to in 
            clause (i) identifies the document, or portion thereof, 
            that contains the additional information about those 
            factors relating to the forward-looking statement; and
                ``(iii) the information contained in that written 
            document is a cautionary statement that satisfies the 
            standard established in paragraph (1)(A).
        ``(3) Availability.--Any document filed with the Commission or 
    generally disseminated shall be deemed to be readily available for 
    purposes of paragraph (2).
        ``(4) Effect on other safe harbors.--The exemption provided for 
    in paragraph (1) shall be in addition to any exemption that the 
    Commission may establish by rule or regulation under subsection 
    (g).
    ``(d) Duty To Update.--Nothing in this section shall impose upon 
any person a duty to update a forward-looking statement.
    ``(e) Dispositive Motion.--On any motion to dismiss based upon 
subsection (c)(1), the court shall consider any statement cited in the 
complaint and cautionary statement accompanying the forward-looking 
statement, which are not subject to material dispute, cited by the 
defendant.
    ``(f) Stay Pending Decision on Motion.--In any private action 
arising under this title, the court shall stay discovery (other than 
discovery that is specifically directed to the applicability of the 
exemption provided for in this section) during the pendency of any 
motion by a defendant for summary judgment that is based on the grounds 
that--
        ``(1) the statement or omission upon which the complaint is 
    based is a forward-looking statement within the meaning of this 
    section; and
        ``(2) the exemption provided for in this section precludes a 
    claim for relief.
    ``(g) Exemption Authority.--In addition to the exemptions provided 
for in this section, the Commission may, by rule or regulation, provide 
exemptions from or under any provision of this title, including with 
respect to liability that is based on a statement or that is based on 
projections or other forward-looking information, if and to the extent 
that any such exemption is consistent with the public interest and the 
protection of investors, as determined by the Commission.
    ``(h) Effect on Other Authority of Commission.--Nothing in this 
section limits, either expressly or by implication, the authority of 
the Commission to exercise similar authority or to adopt similar rules 
and regulations with respect to forward-looking statements under any 
other statute under which the Commission exercises rulemaking 
authority.
    ``(i) Definitions.--For purposes of this section, the following 
definitions shall apply:
        ``(1) Forward-looking statement.--The term `forward-looking 
    statement' means--
            ``(A) a statement containing a projection of revenues, 
        income (including income loss), earnings (including earnings 
        loss) per share, capital expenditures, dividends, capital 
        structure, or other financial items;
            ``(B) a statement of the plans and objectives of management 
        for future operations, including plans or objectives relating 
        to the products or services of the issuer;
            ``(C) a statement of future economic performance, including 
        any such statement contained in a discussion and analysis of 
        financial condition by the management or in the results of 
        operations included pursuant to the rules and regulations of 
        the Commission;
            ``(D) any statement of the assumptions underlying or 
        relating to any statement described in subparagraph (A), (B), 
        or (C);
            ``(E) any report issued by an outside reviewer retained by 
        an issuer, to the extent that the report assesses a forward-
        looking statement made by the issuer; or
            ``(F) a statement containing a projection or estimate of 
        such other items as may be specified by rule or regulation of 
        the Commission.
        ``(2) Investment company.--The term `investment company' has 
    the same meaning as in section 3(a) of the Investment Company Act 
    of 1940.
        ``(3) Penny stock.--The term `penny stock' has the same meaning 
    as in section 3(a)(51) of the Securities Exchange Act of 1934, and 
    the rules and regulations, or orders issued pursuant to that 
    section.
        ``(4) Going private transaction.--The term `going private 
    transaction' has the meaning given that term under the rules or 
    regulations of the Commission issued pursuant to section 13(e) of 
    the Securities Exchange Act of 1934.
        ``(5) Securities laws.--The term `securities laws' has the same 
    meaning as in section 3 of the Securities Exchange Act of 1934.
        ``(6) Person acting on behalf of an issuer.--The term `person 
    acting on behalf of an issuer' means an officer, director, or 
    employee of the issuer.
        ``(7) Other terms.--The terms `blank check company', `rollup 
    transaction', `partnership', `limited liability company', 
    `executive officer of an entity' and `direct participation 
    investment program', have the meanings given those terms by rule or 
    regulation of the Commission.''.
    (b) Amendment to the Securities Exchange Act of 1934.--The 
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by 
inserting after section 21D (as added by this Act) the following new 
section:

``SEC. 21E. 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);
        ``(2) a person acting on behalf of such issuer;
        ``(3) an outside reviewer retained by such issuer making a 
    statement on behalf of such issuer; or
        ``(4) an underwriter, with respect to information provided by 
    such issuer or information derived from information provided by 
    such issuer.
    ``(b) Exclusions.--Except to the extent otherwise specifically 
provided by rule, regulation, or order of the Commission, this section 
shall not apply to a forward-looking statement--
        ``(1) that is made with respect to the business or operations 
    of the issuer, if the issuer--
            ``(A) during the 3-year period preceding the date on which 
        the statement was first made--
                ``(i) was convicted of any felony or misdemeanor 
            described in clauses (i) through (iv) of section 
            15(b)(4)(B); or
                ``(ii) has been made the subject of a judicial or 
            administrative decree or order arising out of a 
            governmental action that--

                    ``(I) prohibits future violations of the antifraud 
                provisions of the securities laws;
                    ``(II) requires that the issuer cease and desist 
                from violating the antifraud provisions of the 
                securities laws; or
                    ``(III) determines that the issuer violated the 
                antifraud provisions of the securities laws;

            ``(B) makes the forward-looking statement in connection 
        with an offering of securities by a blank check company;
            ``(C) issues penny stock;
            ``(D) makes the forward-looking statement in connection 
        with a rollup transaction; or
            ``(E) makes the forward-looking statement in connection 
        with a going private transaction; or
        ``(2) that is--
            ``(A) included in a financial statement prepared in 
        accordance with generally accepted accounting principles;
            ``(B) contained in a registration statement of, or 
        otherwise issued by, an investment company;
            ``(C) made in connection with a tender offer;
            ``(D) made in connection with an initial public offering;
            ``(E) made in connection with an offering by, or relating 
        to the operations of, a partnership, limited liability company, 
        or a direct participation investment program; or
            ``(F) made in a disclosure of beneficial ownership in a 
        report required to be filed with the Commission pursuant to 
        section 13(d).
    ``(c) Safe Harbor.--
        ``(1) In general.--Except as provided in subsection (b), in any 
    private action arising under this title that is based on an untrue 
    statement of a material fact or omission of a material fact 
    necessary to make the statement not misleading, a person referred 
    to in subsection (a) shall not be liable with respect to any 
    forward-looking statement, whether written or oral, if and to the 
    extent that--
            ``(A) the forward-looking statement is--
                ``(i) identified as a forward-looking statement, and is 
            accompanied by meaningful cautionary statements identifying 
            important factors that could cause actual results to differ 
            materially from those in the forward-looking statement; or
                ``(ii) immaterial; or
            ``(B) the plaintiff fails to prove that the forward-looking 
        statement--
                ``(i) if made by a natural person, was made with actual 
            knowledge by that person that the statement was false or 
            misleading; or
                ``(ii) if made by a business entity; was--

                    ``(I) made by or with the approval of an executive 
                officer of that entity; and
                    ``(II) made or approved by such officer with actual 
                knowledge by that officer that the statement was false 
                or misleading.

        ``(2) Oral forward-looking statements.--In the case of an oral 
    forward-looking statement made by an issuer that is subject to the 
    reporting requirements of section 13(a) or section 15(d), or by a 
    person acting on behalf of such issuer, the requirement set forth 
    in paragraph (1)(A) shall be deemed to be satisfied--
            ``(A) if the oral forward-looking statement is accompanied 
        by a cautionary statement--
                ``(i) that the particular oral statement is a forward-
            looking statement; and
                ``(ii) that the actual results might differ materially 
            from those projected in the forward-looking statement; and
            ``(B) if--
                ``(i) the oral forward-looking statement is accompanied 
            by an oral statement that additional information concerning 
            factors that could cause actual results to materially 
            differ from those in the forward-looking statement is 
            contained in a readily available written document, or 
            portion thereof;
                ``(ii) the accompanying oral statement referred to in 
            clause (i) identifies the document, or portion thereof, 
            that contains the additional information about those 
            factors relating to the forward-looking statement; and
                ``(iii) the information contained in that written 
            document is a cautionary statement that satisfies the 
            standard established in paragraph (1)(A).
        ``(3) Availability.--Any document filed with the Commission or 
    generally disseminated shall be deemed to be readily available for 
    purposes of paragraph (2).
        ``(4) Effect on other safe harbors.--The exemption provided for 
    in paragraph (1) shall be in addition to any exemption that the 
    Commission may establish by rule or regulation under subsection 
    (g).
    ``(d) Duty To Update.--Nothing in this section shall impose upon 
any person a duty to update a forward-looking statement.
    ``(e) Dispositive Motion.--On any motion to dismiss based upon 
subsection (c)(1), the court shall consider any statement cited in the 
complaint and any cautionary statement accompanying the forward-looking 
statement, which are not subject to material dispute, cited by the 
defendant.
    ``(f) Stay Pending Decision on Motion.--In any private action 
arising under this title, the court shall stay discovery (other than 
discovery that is specifically directed to the applicability of the 
exemption provided for in this section) during the pendency of any 
motion by a defendant for summary judgment that is based on the grounds 
that--
        ``(1) the statement or omission upon which the complaint is 
    based is a forward-looking statement within the meaning of this 
    section; and
        ``(2) the exemption provided for in this section precludes a 
    claim for relief.
    ``(g) Exemption Authority.--In addition to the exemptions provided 
for in this section, the Commission may, by rule or regulation, provide 
exemptions from or under any provision of this title, including with 
respect to liability that is based on a statement or that is based on 
projections or other forward-looking information, if and to the extent 
that any such exemption is consistent with the public interest and the 
protection of investors, as determined by the Commission.
    ``(h) Effect on Other Authority of Commission.--Nothing in this 
section limits, either expressly or by implication, the authority of 
the Commission to exercise similar authority or to adopt similar rules 
and regulations with respect to forward-looking statements under any 
other statute under which the Commission exercises rulemaking 
authority.
    ``(i) Definitions.--For purposes of this section, the following 
definitions shall apply:
        ``(1) Forward-looking statement.--The term `forward-looking 
    statement' means--
            ``(A) a statement containing a projection of revenues, 
        income (including income loss), earnings (including earnings 
        loss) per share, capital expenditures, dividends, capital 
        structure, or other financial items;
            ``(B) a statement of the plans and objectives of management 
        for future operations, including plans or objectives relating 
        to the products or services of the issuer;
            ``(C) a statement of future economic performance, including 
        any such statement contained in a discussion and analysis of 
        financial condition by the management or in the results of 
        operations included pursuant to the rules and regulations of 
        the Commission;
            ``(D) any statement of the assumptions underlying or 
        relating to any statement described in subparagraph (A), (B), 
        or (C);
            ``(E) any report issued by an outside reviewer retained by 
        an issuer, to the extent that the report assesses a forward-
        looking statement made by the issuer; or
            ``(F) a statement containing a projection or estimate of 
        such other items as may be specified by rule or regulation of 
        the Commission.
        ``(2) Investment company.--The term `investment company' has 
    the same meaning as in section 3(a) of the Investment Company Act 
    of 1940.
        ``(3) Going private transaction.--The term `going private 
    transaction' has the meaning given that term under the rules or 
    regulations of the Commission issued pursuant to section 13(e).
        ``(4) Person acting on behalf of an issuer.--The term `person 
    acting on behalf of an issuer' means any officer, director, or 
    employee of such issuer.
        ``(5) Other terms.--The terms `blank check company', `rollup 
    transaction', `partnership', `limited liability company', 
    `executive officer of an entity' and `direct participation 
    investment program', have the meanings given those terms by rule or 
    regulation of the Commission.''.

SEC. 103. ELIMINATION OF CERTAIN ABUSIVE PRACTICES.

    (a) Prohibition of Referral Fees.--Section 15(c) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78o(c)) is amended by adding at the end 
the following new paragraph:
        ``(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.''.
    (b) Prohibition of Attorneys' Fees Paid From Commission 
Disgorgement Funds.--
        (1) Securities act of 1933.--Section 20 of the Securities Act 
    of 1933 (15 U.S.C. 77t) is amended by adding at the end the 
    following new subsection:
    ``(f) Prohibition of Attorneys' Fees Paid From Commission 
Disgorgement Funds.--Except as otherwise ordered by the court upon 
motion by the Commission, or, in the case of an administrative action, 
as otherwise ordered by the Commission, funds disgorged as the result 
of an action brought by the Commission in Federal court, or as a result 
of any Commission administrative action, shall not be distributed as 
payment for attorneys' fees or expenses incurred by private parties 
seeking distribution of the disgorged funds.''.
        (2) Securities exchange act of 1934.--Section 21(d) of the 
    Securities Exchange Act of 1934 (15 U.S.C. 78u(d)) is amended by 
    adding at the end the following new paragraph:
        ``(4) Prohibition of attorneys' fees paid from commission 
    disgorgement funds.--Except as otherwise ordered by the court upon 
    motion by the Commission, or, in the case of an administrative 
    action, as otherwise ordered by the Commission, funds disgorged as 
    the result of an action brought by the Commission in Federal court, 
    or as a result of any Commission administrative action, shall not 
    be distributed as payment for attorneys' fees or expenses incurred 
    by private parties seeking distribution of the disgorged funds.''.

SEC. 104. AUTHORITY OF COMMISSION TO PROSECUTE AIDING AND ABETTING.

    Section 20 of the Securities Exchange Act of 1934 (15 U.S.C. 78t) 
is amended--
        (1) by striking the section heading and inserting the 
    following:

     ``liability of controlling persons and persons who aid and abet 
                             violations'';

    and
        (2) by adding at the end the following new subsection:
    ``(f) 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. 105. LOSS CAUSATION.

    Section 12 of the Securities Act of 1933 (15 U.S.C. 77l) is 
amended--
        (1) by inserting ``(a) In General.--'' before ``Any person'';
        (2) by inserting ``, subject to subsection (b),'' after ``shall 
    be liable''; and
        (3) by adding at the end the following:
    ``(b) Loss Causation.--In an action described in subsection (a)(2), 
if the person who offered or sold such security proves that any portion 
or all of the amount recoverable under subsection (a)(2) represents 
other than the depreciation in value of the subject security resulting 
from such part of the prospectus or oral communication, with respect to 
which the liability of that person is asserted, not being true or 
omitting to state a material fact required to be stated therein or 
necessary to make the statement not misleading, then such portion or 
amount, as the case may be, shall not be recoverable.''.

SEC. 106. STUDY AND REPORT ON PROTECTIONS FOR SENIOR CITIZENS AND 
              QUALIFIED RETIREMENT PLANS.

    (a) In General.--Not later than 180 days after the date of 
enactment of this Act, the Securities and Exchange Commission shall--
        (1) determine whether investors that are senior citizens or 
    qualified retirement plans require greater protection against 
    securities fraud than is provided in this Act and the amendments 
    made by this Act;
        (2) determine whether investors that are senior citizens or 
    qualified retirement plans have been adversely impacted by abusive 
    or unnecessary securities fraud litigation, and whether the 
    provisions in this Act or amendments made by this Act are 
    sufficient to protect their investments from such litigation; and
        (3) if so, submit to the Congress a report containing 
    recommendations on protections from securities fraud and abusive or 
    unnecessary securities fraud litigation that the Commission 
    determines to be appropriate to thoroughly protect such investors.
    (b) Definitions.--For purposes of this section--
        (1) the term ``qualified retirement plan'' has the same meaning 
    as in section 4974(c) of the Internal Revenue Code of 1986; and
        (2) the term ``senior citizen'' means an individual who is 62 
    years of age or older as of the date of the securities transaction 
    at issue.

SEC. 107. AMENDMENT TO RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS 
              ACT.

    Section 1964(c) of title 18, United States Code, is amended by 
inserting before the period ``, except that no person may rely upon any 
conduct that would have been actionable as fraud in the purchase or 
sale of securities to establish a violation of section 1962. The 
exception contained in the preceding sentence does not apply to an 
action against any person that is criminally convicted in connection 
with the fraud, in which case the statute of limitations shall start to 
run on the date on which the conviction becomes final''.

SEC. 108. APPLICABILITY.

    The amendments made by this title shall not affect or apply to any 
private action arising under title I of the Securities Exchange Act of 
1934 or title I of the Securities Act of 1933, commenced before and 
pending on the date of enactment of this Act.

              TITLE II--REDUCTION OF COERCIVE SETTLEMENTS

SEC. 201. PROPORTIONATE LIABILITY.

    (a) Amendment to Securities and Exchange Act of 1934.--Section 21D 
of the Securities Exchange Act of 1934 (as added by this Act) is 
amended by adding at the end the following new subsection:
    ``(g) 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), 
            a covered person against whom 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).
                ``(ii) Recovery by and costs of covered person.--In any 
            case in which a contractual relationship permits, a covered 
            person that prevails in any private action may recover the 
            attorney's fees and costs of that covered person in 
            connection with the action.
        ``(3) Determination of responsibility.--
            ``(A) In general.--In any private action, the court shall 
        instruct the jury to answer special interrogatories, or if 
        there is no jury, shall make findings, with respect to each 
        covered person and each of the other persons claimed by any of 
        the parties to have caused or contributed to the loss incurred 
        by the plaintiff, including persons who have entered into 
        settlements with the plaintiff or plaintiffs, concerning--
                ``(i) whether such person violated the securities laws;
                ``(ii) the percentage of responsibility of such person, 
            measured as a percentage of the total fault of all persons 
            who caused or contributed to the loss incurred by the 
            plaintiff; and
                ``(iii) whether such person knowingly committed a 
            violation of the securities laws.
            ``(B) Contents of special interrogatories or findings.--The 
        responses to interrogatories, or findings, as appropriate, 
        under subparagraph (A) shall specify the total amount of 
        damages that the plaintiff is entitled to recover and the 
        percentage of responsibility of each covered person found to 
        have caused or contributed to the loss incurred by the 
        plaintiff or plaintiffs.
            ``(C) Factors for consideration.--In determining the 
        percentage of responsibility under this paragraph, the trier of 
        fact shall consider--
                ``(i) the nature of the conduct of each covered person 
            found to have caused or contributed to the loss incurred by 
            the plaintiff or plaintiffs; and
                ``(ii) the nature and extent of the causal relationship 
            between the conduct of each such person and the damages 
            incurred by the plaintiff or plaintiffs.
        ``(4) Uncollectible share.--
            ``(A) In general.--Notwithstanding paragraph (2)(B), upon 
        motion made not later than 6 months after a final judgment is 
        entered in any private action, the court determines that all or 
        part of the share of the judgment of the covered person is not 
        collectible against that covered person, and is also not 
        collectible against a covered person described in paragraph 
        (2)(A), each covered person described in paragraph (2)(B) shall 
        be liable for the uncollectible share as follows:
                ``(i) Percentage of net worth.--Each covered person 
            shall be jointly and severally liable for the uncollectible 
            share if the plaintiff establishes that--

                    ``(I) the plaintiff is an individual whose 
                recoverable damages under the final judgment are equal 
                to more than 10 percent of the net worth of the 
                plaintiff; and
                    ``(II) the net worth of the plaintiff is equal to 
                less than $200,000.

                ``(ii) Other plaintiffs.--With respect to any plaintiff 
            not described in subclauses (I) and (II) of clause (i), 
            each covered person shall be liable for the uncollectible 
            share in proportion to the percentage of responsibility of 
            that covered person, except that the total liability of a 
            covered person under this clause may not exceed 50 percent 
            of the proportionate share of that covered person, as 
            determined under paragraph (3)(B).
                ``(iii) Net worth.--For purposes of this subparagraph, 
            net worth shall be determined as of the date immediately 
            preceding the date of the purchase or sale (as applicable) 
            by the plaintiff of the security that is the subject of the 
            action, and shall be equal to the fair market value of 
            assets, minus liabilities, including the net value of the 
            investments of the plaintiff in real and personal property 
            (including personal residences).
            ``(B) Overall limit.--In no case shall the total payments 
        required pursuant to subparagraph (A) exceed the amount of the 
        uncollectible share.
            ``(C) Covered persons subject to contribution.--A covered 
        person against whom judgment is not collectible shall be 
        subject to contribution and to any continuing liability to the 
        plaintiff on the judgment.
        ``(5) Right of contribution.--To the extent that a covered 
    person is required to make an additional payment pursuant to 
    paragraph (4), that covered person may recover contribution--
            ``(A) from the covered person originally liable to make the 
        payment;
            ``(B) from any covered person liable jointly and severally 
        pursuant to paragraph (2)(A);
            ``(C) from any covered person held proportionately liable 
        pursuant to this paragraph who is liable to make the same 
        payment and has paid less than his or her proportionate share 
        of that payment; or
            ``(D) from any other person responsible for the conduct 
        giving rise to the payment that would have been liable to make 
        the same payment.
        ``(6) Nondisclosure to jury.--The standard for allocation of 
    damages under paragraphs (2) and (3) and the procedure for 
    reallocation of uncollectible shares under paragraph (4) shall not 
    be disclosed to members of the jury.
        ``(7) Settlement discharge.--
            ``(A) In general.--A covered person who settles any private 
        action at any time before final verdict or judgment shall be 
        discharged from all claims for contribution brought by other 
        persons. Upon entry of the settlement by the court, the court 
        shall enter a bar order constituting the final discharge of all 
        obligations to the plaintiff of the settling covered person 
        arising out of the action. The order shall bar all future 
        claims for contribution arising out of the action--
                ``(i) by any person against the settling covered 
            person; and
                ``(ii) by the settling covered person against any 
            person, other than a person whose liability has been 
            extinguished by the settlement of the settling covered 
            person.
            ``(B) Reduction.--If a covered person enters into a 
        settlement with the plaintiff prior to final verdict or 
        judgment, the verdict or judgment shall be reduced by the 
        greater of--
                ``(i) an amount that corresponds to the percentage of 
            responsibility of that covered person; or
                ``(ii) the amount paid to the plaintiff by that covered 
            person.
        ``(8) Contribution.--A covered person who becomes jointly and 
    severally liable for damages in any private action may recover 
    contribution from any other person who, if joined in the original 
    action, would have been liable for the same damages. A claim for 
    contribution shall be determined based on the percentage of 
    responsibility of the claimant and of each person against whom a 
    claim for contribution is made.
        ``(9) Statute of limitations for contribution.--In any private 
    action determining liability, an action for contribution shall be 
    brought not later than 6 months after the entry of a final, 
    nonappealable judgment in the action, except that an action for 
    contribution brought by a covered person who was required to make 
    an additional payment pursuant to paragraph (4) may be brought not 
    later than 6 months after the date on which such payment was made.
        ``(10) Definitions.--For purposes of this subsection--
            ``(A) a covered person `knowingly commits a violation of 
        the securities laws'--
                ``(i) with respect to an action that is based on an 
            untrue statement of material fact or omission of a material 
            fact necessary to make the statement not misleading, if--

                    ``(I) that covered person makes an untrue statement 
                of a material fact, with actual knowledge that the 
                representation is false, or omits to state a fact 
                necessary in order to make the statement made not 
                misleading, with actual knowledge that, as a result of 
                the omission, one of the material representations of 
                the covered person is false; and
                    ``(II) persons are likely to reasonably rely on 
                that misrepresentation or omission; and

                ``(ii) with respect to an action that is based on any 
            conduct that is not described in clause (i), if that 
            covered person engages in that conduct with actual 
            knowledge of the facts and circumstances that make the 
            conduct of that covered person a violation of the 
            securities laws;
            ``(B) reckless conduct by a covered person shall not be 
        construed to constitute a knowing commission of a violation of 
        the securities laws by that covered person;
            ``(C) the term `covered person' means--
                ``(i) a defendant in any private action arising under 
            this title; or
                ``(ii) a defendant in any private action arising under 
            section 11 of the Securities Act of 1933, who is an outside 
            director of the issuer of the securities that are the 
            subject of the action; and
            ``(D) the term `outside director' shall have the meaning 
        given such term by rule or regulation of the Commission.''.
    (b) Amendments to the Securities Act of 1933.--Section 11(f) of the 
Securities Act of 1933 (12 U.S.C. 77k(f)) is amended--
        (1) by striking ``All'' and inserting ``(1) Except as provided 
    in paragraph (2), all''; and
        (2) by adding at the end the following new paragraph:
    ``(2)(A) The liability of an outside director under subsection (e) 
shall be determined in accordance with section 38 of the Securities 
Exchange Act of 1934.
    ``(B) For purposes of this paragraph, the term `outside director' 
shall have the meaning given such term by rule or regulation of the 
Commission .''.

SEC. 202. APPLICABILITY.

    The amendments made by this title shall not affect or apply to any 
private action arising under the securities laws commenced before and 
pending on the date of enactment of this Act.

SEC. 203. RULE OF CONSTRUCTION.

    Nothing in this Act or the amendments made by this Act shall be 
deemed to create or ratify any implied private right of action, or to 
prevent the Commission, by rule or regulation, from restricting or 
otherwise regulating private actions under the Securities Exchange Act 
of 1934.

            TITLE III--AUDITOR DISCLOSURE OF CORPORATE FRAUD

SEC. 301. FRAUD DETECTION AND DISCLOSURE.

    (a) In General.--The Securities Exchange Act of 1934 (15 U.S.C. 78a 
et seq.) is amended by inserting immediately after section 10 the 
following new section:

``SEC. 10A. AUDIT REQUIREMENTS.

    ``(a) In General.--Each audit required pursuant to this title of 
the financial statements of an issuer by an independent public 
accountant shall include, in accordance with generally accepted 
auditing standards, as may be modified or supplemented from time to 
time by the Commission--
        ``(1) procedures designed to provide reasonable assurance of 
    detecting illegal acts that would have a direct and material effect 
    on the determination of financial statement amounts;
        ``(2) procedures designed to identify related party 
    transactions that are material to the financial statements or 
    otherwise require disclosure therein; and
        ``(3) an evaluation of whether there is substantial doubt about 
    the ability of the issuer to continue as a going concern during the 
    ensuing fiscal year.
    ``(b) Required Response To Audit Discoveries.--
        ``(1) Investigation and report to management.--If, in the 
    course of conducting an audit pursuant to this title to which 
    subsection (a) applies, the independent public accountant detects 
    or otherwise becomes aware of information indicating that an 
    illegal act (whether or not perceived to have a material effect on 
    the financial statements of the issuer) has or may have occurred, 
    the accountant shall, in accordance with generally accepted 
    auditing standards, as may be modified or supplemented from time to 
    time by the Commission--
            ``(A)(i) determine whether it is likely that an illegal act 
        has occurred; and
            ``(ii) if so, determine and consider the possible effect of 
        the illegal act on the financial statements of the issuer, 
        including any contingent monetary effects, such as fines, 
        penalties, and damages; and
            ``(B) as soon as practicable, inform the appropriate level 
        of the management of the issuer and assure that the audit 
        committee of the issuer, or the board of directors of the 
        issuer in the absence of such a committee, is adequately 
        informed with respect to illegal acts that have been detected 
        or have otherwise come to the attention of such accountant in 
        the course of the audit, unless the illegal act is clearly 
        inconsequential.
        ``(2) Response to failure to take remedial action.--If, after 
    determining that the audit committee of the board of directors of 
    the issuer, or the board of directors of the issuer in the absence 
    of an audit committee, is adequately informed with respect to 
    illegal acts that have been detected or have otherwise come to the 
    attention of the accountant in the course of the audit of such 
    accountant, the independent public accountant concludes that--
            ``(A) the illegal act has a material effect on the 
        financial statements of the issuer;
            ``(B) the senior management has not taken, and the board of 
        directors has not caused senior management to take, timely and 
        appropriate remedial actions with respect to the illegal act; 
        and
            ``(C) the failure to take remedial action is reasonably 
        expected to warrant departure from a standard report of the 
        auditor, when made, or warrant resignation from the audit 
        engagement;
    the independent public accountant shall, as soon as practicable, 
    directly report its conclusions to the board of directors.
        ``(3) Notice to commission; response to failure to notify.--An 
    issuer whose board of directors receives a report under paragraph 
    (2) shall inform the Commission by notice not later than 1 business 
    day after the receipt of such report and shall furnish the 
    independent public accountant making such report with a copy of the 
    notice furnished to the Commission. If the independent public 
    accountant fails to receive a copy of the notice before the 
    expiration of the required 1-business-day period, the independent 
    public accountant shall--
            ``(A) resign from the engagement; or
            ``(B) furnish to the Commission a copy of its report (or 
        the documentation of any oral report given) not later than 1 
        business day following such failure to receive notice.
        ``(4) Report after resignation.--If an independent public 
    accountant resigns from an engagement under paragraph (3)(A), the 
    accountant shall, not later than 1 business day following the 
    failure by the issuer to notify the Commission under paragraph (3), 
    furnish to the Commission a copy of the accountant's report (or the 
    documentation of any oral report given).
    ``(c) Auditor Liability Limitation.--No independent public 
accountant shall be liable in a private action for any finding, 
conclusion, or statement expressed in a report made pursuant to 
paragraph (3) or (4) of subsection (b), including any rule promulgated 
pursuant thereto.
    ``(d) Civil Penalties in Cease-and-Desist Proceedings.--If the 
Commission finds, after notice and opportunity for hearing in a 
proceeding instituted pursuant to section 21C, that an independent 
public accountant has willfully violated paragraph (3) or (4) of 
subsection (b), the Commission may, in addition to entering an order 
under section 21C, impose a civil penalty against the independent 
public accountant and any other person that the Commission finds was a 
cause of such violation. The determination to impose a civil penalty 
and the amount of the penalty shall be governed by the standards set 
forth in section 21B.
    ``(e) Preservation of Existing Authority.--Except as provided in 
subsection (d), nothing in this section shall be held to limit or 
otherwise affect the authority of the Commission under this title.
    ``(f) Definition.--As used in this section, the term `illegal act' 
means an act or omission that violates any law, or any rule or 
regulation having the force of law.''.
    (b) Effective Dates.--The amendment made by subsection (a) shall 
apply to each annual report--
        (1) for any period beginning on or after January 1, 1996, with 
    respect to any registrant that is required to file selected 
    quarterly financial data pursuant to the rules or regulations of 
    the Securities and Exchange Commission; and
        (2) for any period beginning on or after January 1, 1997, with 
    respect to any other registrant.

                               Speaker of the House of Representatives.

                            Vice President of the United States and    
                                               President of the Senate.
```