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 Securi-
ties 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 retire-
ment 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.—
H. R. 1058—2
‘‘(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 com-
plaint 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 nec-
essary;
‘‘(iv) sets forth all of the transactions of the plain-
tiff 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 pur-
ported 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 accord-
ance 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.—
H. R. 1058—3
‘‘(i) IN
GENERAL.—Not later than 90 days after
the date on which a notice is published under subpara-
graph (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 ade-
quately representing the interests of class members
(hereafter in this paragraph referred to as the ‘most
adequate plaintiff’) in accordance with this subpara-
graph.
‘‘(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 Proce-
dure.
‘‘(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 plain-
tiff—
‘‘(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 subpara-
graph, discovery relating to whether a member or mem-
bers of the purported plaintiff class is the most ade-
quate 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.
H. R. 1058—4
‘‘(v) SELECTION OF LEAD COUNSEL.—The most ade-
quate 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 judg-
ment 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 reason-
able percentage of the amount of any damages and prejudgment
interest actually paid to the class.
‘‘(7) DISCLOSURE
OF
SETTLEMENT
TERMS
TO
CLASS
MEM-
BERS.—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 aver-
age 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 dam-
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 concern-
ing the issue or issues on which the parties disagree.
H. R. 1058—5
‘‘(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 represent-
ing 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 other-
wise 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.—
H. R. 1058—6
‘‘(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 Proce-
dure 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 dis-
positive 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 Fed-
eral Rules of Civil Procedure is an award to the oppos-
ing 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 bur-
den 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.’’.
H. R. 1058—7
(b) SECURITIES EXCHANGE ACT OF 1934.—Title I of the Securi-
ties 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 com-
plaint 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 nec-
essary;
‘‘(iv) sets forth all of the transactions of the plain-
tiff 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 representa-
tive 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 pur-
ported 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.
H. R. 1058—8
‘‘(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 accord-
ance 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 subpara-
graph (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 ade-
quately representing the interests of class members
(hereafter in this paragraph referred to as the ‘most
adequate plaintiff’) in accordance with this subpara-
graph.
‘‘(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 Proce-
dure.
‘‘(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 plain-
tiff—
‘‘(aa) will not fairly and adequately protect
the interests of the class; or
H. R. 1058—9
‘‘(bb) is subject to unique defenses that
render such plaintiff incapable of adequately
representing the class.
‘‘(iv) DISCOVERY.—For purposes of this subpara-
graph, discovery relating to whether a member or mem-
bers of the purported plaintiff class is the most ade-
quate 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 ade-
quate 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 judg-
ment 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 reason-
able percentage of the amount of any damages and prejudgment
interest actually paid to the class.
‘‘(7) DISCLOSURE
OF
SETTLEMENT
TERMS
TO
CLASS
MEM-
BERS.—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 aver-
age 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 dam-
H. R. 1058—10
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 concern-
ing 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 Proce-
dure, 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 represent-
ing the plaintiff class.
‘‘(b) REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.—
H. R. 1058—11
‘‘(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 cir-
cumstances 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 particu-
lar state of mind, the complaint shall, with respect to each
act or omission alleged to violate this title, state with particular-
ity 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 other-
wise 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,
H. R. 1058—12
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 Proce-
dure 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 dis-
positive 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 Fed-
eral Rules of Civil Procedure is an award to the oppos-
ing 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 bur-
den 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
H. R. 1058—13
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 informa-
tion 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 ref-
erence 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
H. R. 1058—14
‘‘(ii) has been made the subject of a judicial or
administrative decree or order arising out of a govern-
mental 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 secu-
rities laws; or
‘‘(III) determines that the issuer violated the
antifraud provisions of the securities laws;
‘‘(B) makes the forward-looking statement in connec-
tion with an offering of securities by a blank check com-
pany;
‘‘(C) issues penny stock;
‘‘(D) makes the forward-looking statement in connec-
tion with a rollup transaction; or
‘‘(E) makes the forward-looking statement in connec-
tion 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 other-
wise 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 com-
pany, 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 execu-
tive 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.
H. R. 1058—15
‘‘(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 accom-
panied 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 accom-
panied by an oral statement that additional informa-
tion 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 Commis-
sion or generally disseminated shall be deemed to be readily
available for purposes of paragraph (2).
‘‘(4) EFFECT ON OTHER SAFE HARBORS.—The exemption pro-
vided 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 for-
ward-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 regula-
tion, 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,
H. R. 1058—16
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 author-
ity of the Commission to exercise similar authority or to adopt
similar rules and regulations with respect to forward-looking state-
ments under any other statute under which the Commission exer-
cises 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 earn-
ings loss) per share, capital expenditures, dividends, capital
structure, or other financial items;
‘‘(B) a statement of the plans and objectives of manage-
ment 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 com-
pany’ 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 pursu-
ant 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’, ‘roll-
up transaction’, ‘partnership’, ‘limited liability company’, ‘execu-
tive officer of an entity’ and ‘direct participation investment
program’, have the meanings given those terms by rule or
regulation of the Commission.’’.
H. R. 1058—17
(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 govern-
mental 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 secu-
rities laws; or
‘‘(III) determines that the issuer violated the
antifraud provisions of the securities laws;
‘‘(B) makes the forward-looking statement in connec-
tion with an offering of securities by a blank check com-
pany;
‘‘(C) issues penny stock;
‘‘(D) makes the forward-looking statement in connec-
tion with a rollup transaction; or
‘‘(E) makes the forward-looking statement in connec-
tion 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 other-
wise 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 com-
pany, or a direct participation investment program; or
H. R. 1058—18
‘‘(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 execu-
tive 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 accom-
panied 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 accom-
panied by an oral statement that additional informa-
tion 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).
H. R. 1058—19
‘‘(3) AVAILABILITY.—Any document filed with the Commis-
sion or generally disseminated shall be deemed to be readily
available for purposes of paragraph (2).
‘‘(4) EFFECT ON OTHER SAFE HARBORS.—The exemption pro-
vided 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 dis-
pute, 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 regula-
tion, 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 author-
ity of the Commission to exercise similar authority or to adopt
similar rules and regulations with respect to forward-looking state-
ments under any other statute under which the Commission exer-
cises 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 earn-
ings loss) per share, capital expenditures, dividends, capital
structure, or other financial items;
‘‘(B) a statement of the plans and objectives of manage-
ment 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;
H. R. 1058—20
‘‘(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 com-
pany’ 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’, ‘roll-
up transaction’, ‘partnership’, ‘limited liability company’, ‘execu-
tive 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 Secu-
rities 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 COMMIS-
SION 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
H. R. 1058—21
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 follow-
ing:
‘‘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 VIOLA-
TIONS.—For purposes of any action brought by the Commission
under paragraph (1) or (3) of section 21(d), any person that know-
ingly 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 commu-
nication, 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 mislead-
ing, 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 amend-
ments 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
H. R. 1058—22
this Act are sufficient to protect their investments from such
litigation; and
(3) if so, submit to the Congress a report containing rec-
ommendations on protections from securities fraud and abusive
or unnecessary securities fraud litigation that the Commission
determines to be appropriate to thoroughly protect such inves-
tors.
(b) DEFINITIONS.—For purposes of this section—
(1) the term ‘‘qualified retirement plan’’ has the same mean-
ing 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 trans-
action 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 stand-
ard for liability associated with any action arising under the
securities laws.
‘‘(2) LIABILITY FOR DAMAGES.—
‘‘(A) JOINT AND SEVERAL LIABILITY.—Any covered per-
son 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
H. R. 1058—28
‘‘(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, conclu-
sion, or statement expressed in a report made pursuant to para-
graph (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 pro-
vided 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.