PUBLIC LAW 104–67—DEC. 22, 1995 109 STAT. 737

Public Law 104–67

104th Congress

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.—

15 USC 77z–1.

15 USC 78a note.

Private

Securities

Litigation

Reform Act of

1995.

Dec. 22, 1995

[H.R. 1058]

109 STAT. 738 PUBLIC LAW 104–67—DEC. 22, 1995

‘‘(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.—

Publication.

PUBLIC LAW 104–67—DEC. 22, 1995 109 STAT. 739

‘‘(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.

109 STAT. 740 PUBLIC LAW 104–67—DEC. 22, 1995

‘‘(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.

PUBLIC LAW 104–67—DEC. 22, 1995 109 STAT. 741

‘‘(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.—

109 STAT. 742 PUBLIC LAW 104–67—DEC. 22, 1995

‘‘(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.’’.

Records.

PUBLIC LAW 104–67—DEC. 22, 1995 109 STAT. 743

(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.

Publication.

15 USC 78u–4.

109 STAT. 744 PUBLIC LAW 104–67—DEC. 22, 1995

‘‘(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

PUBLIC LAW 104–67—DEC. 22, 1995 109 STAT. 745

‘‘(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 damVerDate 22-DEC-95 01:25 Jan 17, 1996 Jkt 029139 PO 00067 Frm 00009 Fmt 6580 Sfmt 6581 PUBL67.104 apps06
109 STAT. 746 PUBLIC LAW 104–67—DEC. 22, 1995

ages 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.—

PUBLIC LAW 104–67—DEC. 22, 1995 109 STAT. 747

‘‘(1) MISLEADING STATEMENTS AND OMISSIONS.—In any pri- vate 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 aris- ing 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,

Records.

109 STAT. 748 PUBLIC LAW 104–67—DEC. 22, 1995

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

PUBLIC LAW 104–67—DEC. 22, 1995 109 STAT. 749

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 forwardlooking 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

15 USC 77z–2.

109 STAT. 750 PUBLIC LAW 104–67—DEC. 22, 1995

‘‘(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 forwardlooking 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.

PUBLIC LAW 104–67—DEC. 22, 1995 109 STAT. 751

‘‘(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 forwardlooking 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,

109 STAT. 752 PUBLIC LAW 104–67—DEC. 22, 1995

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 ‘forwardlooking 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.’’.

PUBLIC LAW 104–67—DEC. 22, 1995 109 STAT. 753

(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 forwardlooking 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

15 USC 78u–5.

109 STAT. 754 PUBLIC LAW 104–67—DEC. 22, 1995

‘‘(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 forwardlooking 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 forwardlooking 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).

PUBLIC LAW 104–67—DEC. 22, 1995 109 STAT. 755

‘‘(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 ‘forwardlooking 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;

109 STAT. 756 PUBLIC LAW 104–67—DEC. 22, 1995

‘‘(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

PUBLIC LAW 104–67—DEC. 22, 1995 109 STAT. 757

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

109 STAT. 758 PUBLIC LAW 104–67—DEC. 22, 1995

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

15 USC 78u–4.

15 USC 77l note.

Reports.

PUBLIC LAW 104–67—DEC. 22, 1995 109 STAT. 759

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

109 STAT. 760 PUBLIC LAW 104–67—DEC. 22, 1995

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

PUBLIC LAW 104–67—DEC. 22, 1995 109 STAT. 761

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;

109 STAT. 762 PUBLIC LAW 104–67—DEC. 22, 1995

‘‘(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.

15 USC 78j–1.

15 USC 78j–1

note.

15 USC 77k note.

15 USC 77k.

PUBLIC LAW 104–67—DEC. 22, 1995 109 STAT. 763

‘‘(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.

109 STAT. 764 PUBLIC LAW 104–67—DEC. 22, 1995

‘‘(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.

NEWT GINGRICH

Speaker of the House of Representatives.

STROM THURMOND

President of the Senate pro tempore.

IN THE HOUSE OF REPRESENTATIVES, U.S.

December 20, 1995.

The House of Representatives having proceeded to reconsider the bill (H.R. 1058)

entitled ‘‘An Act to reform Federal securities litigation, and for other purposes’’, returned by the President of the United States with his objections, to the House of

Representatives, in which it originated, it was

15 USC 78j–1

note.

PUBLIC LAW 104–67—DEC. 22, 1995 109 STAT. 765

LEGISLATIVE HISTORY—H.R. 1058 (S. 240):

HOUSE REPORTS: No. 104–369 (Comm. of Conference).

SENATE REPORTS: No. 104–98 accompanying S. 240 (Comm. on Banking, Housing, and Urban Affairs).

CONGRESSIONAL RECORD, Vol. 141 (1995):

Mar. 7, 8, considered and passed House.

June 22, 23, 26–28, considered and passed Senate, amended, in lieu of S. 240.

Dec. 5, Senate agreed to conference report.

Dec. 6, House agreed to conference report.

WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 31 (1995):

Dec. 19, Presidential veto message.

CONGRESSIONAL RECORD, Vol. 141 (1995):

Dec. 20, House overrode veto.

Dec. 22, Senate overrode veto.

Æ

Resolved, That the said bill pass, two-thirds of the House of Representatives

agreeing to pass the same.

ROBIN H. CARLE

Clerk.

I certify that this Act originated in the House of Representatives.

ROBIN H. CARLE

Clerk.

IN THE SENATE OF THE UNITED STATES,

December 22, 1995.

The Senate having proceeded to reconsider the bill (H.R. 1058) entitled ‘‘An Act

to reform Federal securities litigation, and for other purposes’’, returned by the

President of the United States with his objections, to the House of Representatives,

in which it originated, and passed by the House of Representatives on reconsideration of the same, it was

Resolved, That the said bill pass, two-thirds of the Senators present having voted

in the affirmative.

Attest:

KELLY P. JOHNSTON

Secretary.