In the Senate of the United States,
June 28 (legislative day, June 19), 1995.
Resolved, That the bill from the House of Representa-
tives (H.R. 1058) entitled ‘‘An Act to reform Federal securi-
ties litigation, and for other purposes’’, do pass with the fol-
lowing
AMENDMENTS:
Strike out all after the enacting clause and insert:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the ‘‘Pri-
vate 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. Elimination of certain abusive practices.
Sec. 102. Securities class action reform.
Sec. 103. Sanctions for abusive litigation.
Sec. 104. Requirements for securities fraud actions.
Sec. 105. Safe harbor for forward-looking statements.
Sec. 106. Written interrogatories.
Sec. 107. Amendment to Racketeer Influenced and Corrupt Organizations Act.
Sec. 108. Authority of Commission to prosecute aiding and abetting.
Sec. 109. Loss causation.
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Sec. 110. Study and report on protections for senior citizens and qualified retire-
ment plans.
Sec. 111. Amendment to Racketeer Influenced and Corrupt Organizations Act.
Sec. 112. Applicability.
TITLE II—REDUCTION OF COERCIVE SETTLEMENTS
Sec. 201. Limitation on damages.
Sec. 202. Proportionate liability.
Sec. 203. Applicability.
TITLE III—AUDITOR DISCLOSURE OF CORPORATE FRAUD
Sec. 301. Fraud detection and disclosure.
TITLE I—REDUCTION OF
ABUSIVE LITIGATION
SEC. 101. 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 para-
graph:
‘‘(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 ac-
tion arising under this title or under the Securities
Act of 1933.’’.
(b) ATTORNEY CONFLICT OF INTEREST.—
(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:
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‘‘(f) ATTORNEY CONFLICT OF INTEREST.—In any pri-
vate action arising under this title, if a plaintiff is rep-
resented 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 con-
flict of interest sufficient to disqualify the attorney from
representing the party.’’.
(2) SECURITIES EXCHANGE ACT OF 1934.—Sec-
tion 21 of the Securities Exchange Act of 1934 (15
U.S.C. 78u) is amended by adding at the end the fol-
lowing new subsection:
‘‘(i) ATTORNEY CONFLICT OF INTEREST.—In any pri-
vate action arising under this title, in which a plaintiff
is represented by an attorney who directly owns or other-
wise has a beneficial interest in the securities that are the
subject of the litigation, the court shall make a determina-
tion of whether such ownership or other interest constitutes
a conflict of interest sufficient to disqualify the attorney
from representing the party.’’.
(c) 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:
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‘‘(g) 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 ac-
tion 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 dis-
gorged funds.’’.
(2) SECURITIES EXCHANGE ACT OF 1934.—Sec-
tion 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 ac-
tion, 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 dis-
tributed as payment for attorneys’ fees or expenses in-
curred by private parties seeking distribution of the
disgorged funds.’’.
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SEC. 102. SECURITIES CLASS ACTION REFORM.
(a) RECOVERY RULES.—
(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:
‘‘(h) RECOVERY RULES
FOR PRIVATE CLASS AC-
TIONS.—
‘‘(1) IN GENERAL.—The rules contained in this
subsection shall apply in each private action arising
under this title that is brought as a plaintiff class ac-
tion pursuant to the Federal Rules of Civil Procedure.
‘‘(2) CERTIFICATION FILED WITH COMPLAINTS.—
‘‘(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 re-
viewed the complaint and authorized its fil-
ing;
‘‘(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;
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‘‘(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 pe-
riod specified in the complaint;
‘‘(v) identifies any action under this
title, filed during the 3-year period preced-
ing the date on which the certification is
signed by the plaintiff, in which the plain-
tiff 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 rep-
resentative party on behalf of a class beyond
the plaintiff’s pro rata share of any recov-
ery, except as ordered or approved by the
court in accordance with paragraph (3).
‘‘(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.
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‘‘(3) 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 calculated in the same manner as
the shares 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.
‘‘(4) 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 settle-
ment, 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 pur-
poses 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.
‘‘(5) RESTRICTIONS ON PAYMENT OF ATTORNEYS’
FEES AND EXPENSES.—Total attorneys’ fees and ex-
penses awarded by the court to counsel for the plain-
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tiff class shall not exceed a reasonable percentage of
the amount of damages and prejudgment interest
awarded to the class.
‘‘(6) 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 state-
ments, along with a cover page summarizing the in-
formation contained in such statements:
‘‘(A) STATEMENT
OF
PLAINTIFF
RECOV-
ERY.—The amount of the settlement proposed to
be distributed to the parties to the action, deter-
mined in the aggregate and on an average per
share basis.
‘‘(B) STATEMENT OF POTENTIAL OUTCOME
OF CASE.—
‘‘(i) AGREEMENT ON AMOUNT OF DAM-
AGES.—If the settling parties agree on the
average amount of damages per share that
would be recoverable if the plaintiff pre-
vailed 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
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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 accord-
ance 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.
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‘‘(D) IDENTIFICATION
OF
LAWYERS’ REP-
RESENTATIVES.—The name, telephone number,
and address of one or more representatives of
counsel for the plaintiff class who will be reason-
ably 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 in-
formation as may be required by the court.’’.
(2) SECURITIES EXCHANGE ACT OF 1934.—Sec-
tion 21 of the Securities Exchange Act of 1934 (15
U.S.C. 78u) is amended by adding at the end the fol-
lowing new subsection:
‘‘(j) RECOVERY RULES
FOR PRIVATE CLASS AC-
TIONS.—
‘‘(1) IN GENERAL.—The rules contained in this
subsection shall apply in each private action arising
under this title that is brought as a plaintiff class ac-
tion pursuant to the Federal Rules of Civil Procedure.
‘‘(2) CERTIFICATION FILED WITH COMPLAINTS.—
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‘‘(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 re-
viewed the complaint and authorized its fil-
ing;
‘‘(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 pe-
riod specified in the complaint;
‘‘(v) identifies any action under this
title, filed during the 3-year period preced-
ing the date on which the certification is
signed by the plaintiff, in which the plain-
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tiff 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 rep-
resentative party on behalf of a class beyond
the plaintiff’s pro rata share of any recov-
ery, except as ordered or approved by the
court in accordance with paragraph (3).
‘‘(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) 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 calculated in the same manner as
the shares 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 to
any representative party serving on behalf of a class
of reasonable costs and expenses (including lost
wages) directly relating to the representation of the
class.
‘‘(4) RESTRICTIONS
ON
SETTLEMENTS
UNDER
SEAL.—The terms and provisions of any settlement
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agreement of a class action shall not be filed under
seal, except that on motion of any party to the settle-
ment, 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 pur-
poses 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.
‘‘(5) RESTRICTIONS ON PAYMENT OF ATTORNEYS’
FEES AND EXPENSES.—Total attorneys’ fees and ex-
penses awarded by the court to counsel for the plain-
tiff class shall not exceed a reasonable percentage of
the amount of damages and prejudgment interest
awarded to the class.
‘‘(6) 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 state-
ments, along with a cover page summarizing the in-
formation contained in such statements:
‘‘(A) STATEMENT
OF
PLAINTIFF
RECOV-
ERY.—The amount of the settlement proposed to
be distributed to the parties to the action, deter-
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mined in the aggregate and on an average per
share basis.
‘‘(B) STATEMENT OF POTENTIAL OUTCOME
OF CASE.—
‘‘(i) AGREEMENT ON AMOUNT OF DAM-
AGES.—If the settling parties agree on the
average amount of damages per share that
would be recoverable if the plaintiff pre-
vailed 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 accord-
ance 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
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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’ REP-
RESENTATIVES.—The name, telephone number,
and address of one or more representatives of
counsel for the plaintiff class who will be reason-
ably 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.
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‘‘(F) OTHER INFORMATION.—Such other in-
formation as may be required by the court.’’.
(b) APPOINTMENT OF LEAD PLAINTIFF.—
(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:
‘‘(i) PROCEDURES GOVERNING APPOINTMENT OF LEAD
PLAINTIFF IN CLASS ACTIONS.—
‘‘(1) EARLY NOTICE TO CLASS MEMBERS.—
‘‘(A) IN GENERAL.—In any private action
arising under this title that is brought on behalf
of a class, 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.
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‘‘(B) ADDITIONAL
NOTICES
MAY
BE
RE-
QUIRED
UNDER
FEDERAL
RULES.—Notice re-
quired under subparagraph (A) shall be in addi-
tion to any notice required pursuant to the Fed-
eral Rules of Civil Procedure.
‘‘(2) APPOINTMENT OF LEAD PLAINTIFF.—
‘‘(A) IN GENERAL.—Not later than 90 days
after the date on which a notice is published
under paragraph (1)(A), the court shall consider
any motion made by a purported class member
in response to the notice, and shall appoint as
lead plaintiff the member or members of the pur-
ported plaintiff class that the court determines to
be most capable of adequately representing the
interests of class members (hereafter in this sub-
section referred to as the ‘most adequate plain-
tiff’) in accordance with this paragraph.
‘‘(B) 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 subparagraph (A)
until after the decision on the motion to consoli-
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date 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.
‘‘(C) REBUTTABLE PRESUMPTION.—
‘‘(i) IN
GENERAL.—Subject to clause
(ii), for purposes of subparagraph (A), the
court shall adopt a presumption that the
most adequate plaintiff in any private ac-
tion arising under this title is the person or
group of persons that—
‘‘(I) has either filed the complaint
or made a motion in response to a no-
tice under paragraph (1)(A);
‘‘(II) in the determination of the
court, has the largest financial interest
in the relief sought by the class; and
‘‘(III) otherwise satisfies the re-
quirements of Rule 23 of the Federal
Rules of Civil Procedure.
‘‘(ii) REBUTTAL EVIDENCE.—The pre-
sumption described in clause (i) may be re-
butted only upon proof by a member of the
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purported plaintiff class that the presump-
tively most adequate plaintiff—
‘‘(I) will not fairly and ade-
quately protect the interests of the
class; or
‘‘(II) is subject to unique defenses
that render such plaintiff incapable of
adequately representing the class.
‘‘(iii) DISCOVERY.—For purposes of
clause (ii), discovery relating to whether a
member or members of the purported plain-
tiff class is the most adequate plaintiff—
‘‘(I) may not be conducted by any
defendant; and
‘‘(II) may be conducted by a
plaintiff only if the plaintiff first dem-
onstrates a reasonable basis for a find-
ing that the presumptively most ade-
quate plaintiff is incapable of ade-
quately representing the class.
‘‘(D) SELECTION OF LEAD COUNSEL.—The
most adequate plaintiff shall, subject to the ap-
proval of the court, select and retain counsel to
represent the class.’’.
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(2) SECURITIES EXCHANGE ACT OF 1934.—Sec-
tion 21 of the Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.) is amended by adding at the end
the following new subsection:
‘‘(k) PROCEDURES
GOVERNING
APPOINTMENT
OF
LEAD PLAINTIFF IN CLASS ACTIONS.—
‘‘(1) EARLY NOTICE TO CLASS MEMBERS.—
‘‘(A) IN GENERAL.—In any private action
arising under this title that is brought on behalf
of a class, 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.
‘‘(B) ADDITIONAL
NOTICES
MAY
BE
RE-
QUIRED
UNDER
FEDERAL
RULES.—Notice re-
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quired under subparagraph (A) shall be in addi-
tion to any notice required pursuant to the Fed-
eral Rules of Civil Procedure.
‘‘(2) APPOINTMENT OF LEAD PLAINTIFF.—
‘‘(A) IN GENERAL.—Not later than 90 days
after the date on which a notice is published
under paragraph (1)(A), the court shall consider
any motion made by a purported class member
in response to the notice, and shall appoint as
lead plaintiff the member or members of the pur-
ported plaintiff class that the court determines to
be most capable of adequately representing the
interests of class members (hereafter in this sub-
section referred to as the ‘most adequate plain-
tiff’) in accordance with this paragraph.
‘‘(B) 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 subparagraph (A)
until after the decision on the motion to consoli-
date is rendered. As soon as practicable after
such decision is rendered, the court shall appoint
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the most adequate plaintiff as lead plaintiff for
the consolidated actions in accordance with this
paragraph.
‘‘(C) REBUTTABLE PRESUMPTION.—
‘‘(i) IN
GENERAL.—Subject to clause
(ii), for purposes of subparagraph (A), the
court shall adopt a presumption that the
most adequate plaintiff in any private ac-
tion arising under this title is the person or
group of persons that—
‘‘(I) has either filed the complaint
or made a motion in response to a no-
tice under paragraph (1)(A);
‘‘(II) in the determination of the
court, has the largest financial interest
in the relief sought by the class; and
‘‘(III) otherwise satisfies the re-
quirements of Rule 23 of the Federal
Rules of Civil Procedure.
‘‘(ii) REBUTTAL EVIDENCE.—The pre-
sumption described in clause (i) may be re-
butted only upon proof by a member of the
purported plaintiff class that the presump-
tively most adequate plaintiff—
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‘‘(I) will not fairly and ade-
quately protect the interests of the
class; or
‘‘(II) is subject to unique defenses
that render such plaintiff incapable of
adequately representing the class.
‘‘(iii) DISCOVERY.—For purposes of
clause (ii), discovery relating to whether a
member or members of the purported plain-
tiff class is the most adequate plaintiff—
‘‘(I) may not be conducted by any
defendant; and
‘‘(II) may be conducted by a
plaintiff only if the plaintiff first dem-
onstrates a reasonable basis for a find-
ing that the presumptively most ade-
quate plaintiff is incapable of ade-
quately representing the class.
‘‘(D) SELECTION OF LEAD COUNSEL.—The
most adequate plaintiff shall, subject to the ap-
proval of the court, select and retain counsel to
represent the class.’’.
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SEC. 103. SANCTIONS FOR ABUSIVE LITIGATION.
(a) SECURITIES ACT OF 1933.—Section 20 of the Se-
curities Act of 1933 (15 U.S.C. 77t) is amended by adding
at the end the following new subsection:
‘‘(j) SANCTIONS FOR ABUSIVE LITIGATION.—
‘‘(1) MANDATORY REVIEW BY COURT.—In any
private action arising under this title, upon final ad-
judication 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.
‘‘(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, the court shall im-
pose sanctions on such party or attorney in accord-
ance with Rule 11 of the Federal Rules of Civil Proce-
dure.
‘‘(3) PRESUMPTION
IN
FAVOR
OF
ATTORNEYS’
FEES AND COSTS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graphs (B) and (C), for purposes of paragraph
(2), the court shall adopt a presumption that the
appropriate sanction for failure of the complaint
or the responsive pleading or motion to comply
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with any requirement of Rule 11(b) of the Fed-
eral Rules of Civil Procedure is an award to the
opposing party of all of the reasonable attorneys’
fees and other expenses incurred as a direct re-
sult of the violation.
‘‘(B) REBUTTAL EVIDENCE.—The presump-
tion described in subparagraph (A) may be re-
butted 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 undue burden
on that party or attorney; 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.’’.
(b) SECURITIES EXCHANGE ACT OF 1934.—Section 21
of the Securities Exchange Act of 1934 (15 U.S.C. 78u) is
amended by adding at the end the following new subsection:
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‘‘(l) SANCTIONS FOR ABUSIVE LITIGATION.—
‘‘(1) MANDATORY REVIEW BY COURT.—In any
private action arising under this title, upon final ad-
judication 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.
‘‘(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, the court shall im-
pose sanctions in accordance with Rule 11 of the Fed-
eral Rules of Civil Procedure on such party or attor-
ney.
‘‘(3) PRESUMPTION
IN
FAVOR
OF
ATTORNEYS’
FEES AND COSTS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graphs (B) and (C), for purposes of paragraph
(2), the court shall adopt a presumption that the
appropriate sanction for failure of the complaint
or the responsive pleading or motion to comply
with any requirement of Rule 11(b) of the Fed-
eral Rules of Civil Procedure is an award to the
opposing party of all of the reasonable attorneys’
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fees and other expenses incurred as a direct re-
sult of the violation.
‘‘(B) REBUTTAL EVIDENCE.—The presump-
tion described in subparagraph (A) may be re-
butted 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 undue burden
on that party or attorney; 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.’’.
SEC. 104. REQUIREMENTS FOR SECURITIES FRAUD AC-
TIONS.
(a) SECURITIES ACT OF 1933.—
(1) STAY OF DISCOVERY.—Section 20 of the Se-
curities Act of 1933 (15 U.S.C. 77t) is amended by
adding at the end the following new subsection:
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‘‘(k) STAY OF DISCOVERY.—In any private action
arising under this title, during the pendency of any motion
to dismiss, all discovery and other proceedings shall be
stayed unless the court finds, upon the motion of any party,
that particularized discovery is necessary to preserve evi-
dence or to prevent undue prejudice to that party.’’.
(2) PRESERVATION OF EVIDENCE.—Section 20 of
the Securities Act of 1933 (15 U.S.C. 77t) is amended
by adding at the end the following new subsection:
‘‘(l) PRESERVATION OF EVIDENCE.—It shall be unlaw-
ful for any person, upon receiving actual notice that a com-
plaint has been filed in a private action arising under this
title naming that person as a defendant and that describes
the allegations contained in the complaint, to willfully de-
stroy or otherwise alter any document, data compilation
(including any electronically recorded or stored data), or
tangible object that is in the custody or control of that per-
son and that is relevant to the allegations.’’.
(b) SECURITIES EXCHANGE ACT OF 1934.—Title I of
the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.)
is amended by adding at the end the following new section:
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‘‘SEC. 36. REQUIREMENTS FOR SECURITIES FRAUD AC-
TIONS.
‘‘(a) MISLEADING STATEMENTS AND OMISSIONS.—In
any private action arising under this title in which the
plaintiff alleges that the defendant—
‘‘(1) made an untrue statement of a material
fact; or
‘‘(2) 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 mislead-
ing;
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 plaintiff
shall set forth all information on which that belief is formed.
‘‘(b) REQUIRED STATE OF MIND.—
‘‘(1) IN GENERAL.—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, specifically allege facts giving rise to
a strong inference that the defendant acted with the
required state of mind.
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‘‘(2) STRONG INFERENCE OF FRAUDULENT IN-
TENT.—For purposes of paragraph (1), a strong in-
ference that the defendant acted with the required
state of mind may be established either—
‘‘(A) by alleging facts to show that the de-
fendant had both motive and opportunity to
commit fraud; or
‘‘(B) by alleging facts that constitute strong
circumstantial evidence of conscious misbehavior
or recklessness by the defendant.
‘‘(c) MOTION TO DISMISS; STAY OF DISCOVERY.—
‘‘(1) DISMISSAL FOR FAILURE TO MEET PLEAD-
ING 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 subsections (a) and (b) are not met.
‘‘(2) STAY OF DISCOVERY.—In any private ac-
tion 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.
‘‘(3) PRESERVATION OF EVIDENCE.—It shall be
unlawful for any person, upon receiving actual notice
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that a complaint has been filed in a private action
arising under this title naming that person as a de-
fendant and that describes the allegations contained
in the complaint, to willfully destroy or otherwise
alter any document, data compilation (including any
electronically recorded or stored data), or tangible ob-
ject that is in the custody or control of that person
and that is relevant to the allegations.
‘‘(d) LOSS CAUSATION.—In any private action arising
under this title, the plaintiff shall have the burden of prov-
ing that the act or omission alleged to violate this title
caused any loss incurred by the plaintiff. Damages arising
from such loss may be mitigated upon a showing by the
defendant that factors unrelated to such act or omission
contributed to the loss.’’.
SEC. 105. SAFE HARBOR FOR FORWARD-LOOKING STATE-
MENTS.
(a) SECURITIES ACT OF 1933.—Title I of the Securi-
ties Act of 1933 (15 U.S.C. 77a et seq.) is amended by in-
serting after section 13 the following new section:
‘‘SEC. 13A. APPLICATION OF SAFE HARBOR FOR FORWARD-
LOOKING STATEMENTS.
‘‘(a) SAFE HARBOR.—
‘‘(1) IN GENERAL.—In any private action aris-
ing under this title that is based on a fraudulent
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statement, an issuer that is subject to the reporting
requirements of section 13(a) or section 15(d) of the
Securities Exchange Act of 1934, a person acting on
behalf of such issuer, or an outside reviewer retained
by such issuer, shall not be liable with respect to any
forward-looking statement, whether written or oral, if
and to the extent that the statement—
‘‘(A) projects, estimates, or describes future
events; and
‘‘(B) refers clearly (and, except as otherwise
provided by rule or regulation, proximately)
to—
‘‘(i) such projections, estimates, or de-
scriptions as forward-looking statements;
and
‘‘(ii) the risk that actual results may
differ materially from such projections, esti-
mates, or descriptions.
‘‘(2) EFFECT ON OTHER SAFE HARBORS.—The
exemption from liability provided for in paragraph
(1) shall be in addition to any exemption that the
Commission may establish by rule or regulation
under subsection (e).
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‘‘(b) DEFINITION
OF
FORWARD-LOOKING
STATE-
MENT.—For purposes of this section, the term ‘forward-look-
ing statement’ means—
‘‘(1) a statement containing a projection of reve-
nues, income (including income loss), earnings (in-
cluding earnings loss) per share, capital expenditures,
dividends, capital structure, or other financial items;
‘‘(2) a statement of the plans and objectives of
management for future operations;
‘‘(3) a statement of future economic performance
contained in a discussion and analysis of financial
condition by the management or in the results of op-
erations included pursuant to the rules and regula-
tions of the Commission;
‘‘(4) any disclosed statement of the assumptions
underlying or relating to any statement described in
paragraph (1), (2), or (3); or
‘‘(5) a statement containing a projection or esti-
mate of such other items as may be specified by rule
or regulation of the Commission.
‘‘(c) EXCLUSIONS.—The exemption from liability pro-
vided for in subsection (a) does not apply to a forward-
looking statement that is—
‘‘(1) knowingly made with the purpose and ac-
tual intent of misleading investors;
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‘‘(2) except to the extent otherwise specifically
provided by rule, regulation, or order of the Commis-
sion, 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 ju-
dicial or administrative decree or order
arising out of a governmental action that—
‘‘(I) prohibits future violations of
the anti-fraud provisions of the securi-
ties laws, as that term is defined in
section 3 of the Securities Exchange
Act of 1934;
‘‘(II) requires that the issuer cease
and desist from violating the anti-
fraud provisions of the securities laws;
or
‘‘(III) determines that the issuer
violated the anti-fraud provisions of
the securities laws;
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‘‘(B) makes the forward-looking statement
in connection with an offering of securities by a
blank check company, as that term is defined
under the rules or regulations of the Commission;
‘‘(C) issues penny stock, as that term is de-
fined in section 3(a)(51) of the Securities Ex-
change Act of 1934, and the rules, regulations, or
orders issued pursuant to that section;
‘‘(D) makes the forward-looking statement
in connection with a rollup transaction, as that
term is defined under the rules or regulations of
the Commission; or
‘‘(E) makes the forward-looking statement
in connection with a going private transaction,
as that term is defined under the rules or regula-
tions of the Commission issued pursuant to sec-
tion 13(e) of the Securities Exchange Act of
1934; or
‘‘(3) except to the extent otherwise specifically
provided by rule or regulation of the Commission—
‘‘(A) included in a financial statement pre-
pared in accordance with generally accepted ac-
counting principles;
‘‘(B) contained in a registration statement
of, or otherwise issued by, an investment com-
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pany, as that term is defined in section 3(a) of
the Investment Company Act of 1940;
‘‘(C) made in connection with a tender
offer;
‘‘(D) made in connection with an initial
public offering;
‘‘(E) made by or in connection with an of-
fering by a partnership, limited liability cor-
poration, or a direct participation investment
program, as those terms are defined by rule or
regulation of the Commission; or
‘‘(F) made in a disclosure of beneficial own-
ership in a report required to be filed with the
Commission pursuant to section 13(d) of the Se-
curities Exchange Act of 1934.
‘‘(d) STAY PENDING DECISION ON MOTION.—In any
private action arising under this title, the court shall stay
discovery during the pendency of any motion by a defend-
ant (other than discovery that is specifically directed to the
applicability of the exemption provided for in this section)
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
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‘‘(2) the exemption provided for in this section
precludes a claim for relief.
‘‘(e) AUTHORITY.—In addition to the exemption pro-
vided for in this section, the Commission may, by rule or
regulation, provide exemptions from liability under any
provision of this title, or of any rule or regulation issued
under this title, that is based on a statement that includes
or that is based on projections or other forward-looking in-
formation, if and to the extent that any such exemption
is, as determined by the Commission, consistent with the
public interest and the protection of investors.
‘‘(f) COMMISSION DISGORGEMENT ACTIONS.—
‘‘(1) IN GENERAL.—If the Commission, in any
proceeding, orders or obtains (by settlement, court
order, or otherwise) a payment of funds from a per-
son who has violated this title through means that in-
cluded the utilization of a forward-looking statement,
and if any portion of such funds is set aside or other-
wise held for or available to persons who suffered
losses in connection with such violation, no person
shall be precluded from participating in the distribu-
tion of, or otherwise receiving, a portion of such funds
by reason of the application of this section.
‘‘(2) JUDGMENT
FOR
LOSSES
SUFFERED.—In
any action by the Commission alleging a violation of
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this title in which the defendant or respondent is al-
leged to have utilized a forward-looking statement in
furtherance of such violation, the Commission may,
upon a sufficient showing, in addition to all other
remedies available to the Commission, obtain a judg-
ment for the payment of an amount equal to all losses
suffered by reason of the utilization of the forward-
looking statement that are not compensated through
final adjudication or settlement of a private action
brought under this title arising from the same viola-
tion.
‘‘(g) EFFECT
ON OTHER AUTHORITY
OF COMMIS-
SION.—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.’’.
(b) SECURITIES EXCHANGE ACT OF 1934.—Title I of
the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.)
is amended by adding at the end the following new section:
‘‘SEC. 37. APPLICATION OF SAFE HARBOR FOR FORWARD-
LOOKING STATEMENTS.
‘‘(a) SAFE HARBOR.—
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‘‘(1) IN GENERAL.—In any private action aris-
ing under this title that is based on a fraudulent
statement, an issuer that is subject to the reporting
requirements of section 13(a) or section 15(d) of the
Securities Exchange Act of 1934, a person acting on
behalf of such issuer, or an outside reviewer retained
by such issuer, shall not be liable with respect to any
forward-looking statement, whether written or oral, if
and to the extent that the statement—
‘‘(A) projects, estimates, or describes future
events; and
‘‘(B) refers clearly (and, except as otherwise
provided by rule or regulation, proximately)
to—
‘‘(i) such projections, estimates, or de-
scriptions as forward-looking statements;
and
‘‘(ii) the risk that actual results may
differ materially from such projections, esti-
mates, or descriptions.
‘‘(2) EFFECT ON OTHER SAFE HARBORS.—The
exemption from liability provided for in paragraph
(1) shall be in addition to any exemption that the
Commission may establish by rule or regulation
under subsection (e).
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‘‘(b) DEFINITION
OF
FORWARD-LOOKING
STATE-
MENT.—For purposes of this section, the term ‘forward-look-
ing statement’ means—
‘‘(1) a statement containing a projection of reve-
nues, income (including income loss), earnings (in-
cluding earnings loss) per share, capital expenditures,
dividends, capital structure, or other financial items;
‘‘(2) a statement of the plans and objectives of
management for future operations;
‘‘(3) a statement of future economic performance
contained in a discussion and analysis of financial
condition by the management or in the results of op-
erations included pursuant to the rules and regula-
tions of the Commission;
‘‘(4) any disclosed statement of the assumptions
underlying or relating to any statement described in
paragraph (1), (2), or (3); or
‘‘(5) a statement containing a projection or esti-
mate of such other items as may be specified by rule
or regulation of the Commission.
‘‘(c) EXCLUSIONS.—The exemption from liability pro-
vided for in subsection (a) does not apply to a forward-
looking statement that is—
‘‘(1) knowingly made with the purpose and ac-
tual intent of misleading investors;
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‘‘(2) except to the extent otherwise specifically
provided by rule, regulation, or order of the Commis-
sion, 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 ju-
dicial or administrative decree or order
arising out of a governmental action that—
‘‘(I) prohibits future violations of
the anti-fraud provisions of the securi-
ties laws;
‘‘(II) requires that the issuer cease
and desist from violating the anti-
fraud provisions of the securities laws;
or
‘‘(III) determines that the issuer
violated the anti-fraud provisions of
the securities laws;
‘‘(B) makes the forward-looking statement
in connection with an offering of securities by a
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blank check company, as that term is defined
under the rules or regulations of the Commission;
‘‘(C) issues penny stock;
‘‘(D) makes the forward-looking statement
in connection with a rollup transaction, as that
term is defined under the rules or regulations of
the Commission; or
‘‘(E) makes the forward-looking statement
in connection with a going private transaction,
as that term is defined under the rules or regula-
tions of the Commission issued pursuant to sec-
tion 13(e); or
‘‘(3) except to the extent otherwise specifically
provided by rule or regulation of the Commission—
‘‘(A) included in financial statements pre-
pared in accordance with generally accepted ac-
counting principles;
‘‘(B) contained in a registration statement
of, or otherwise issued by, an investment com-
pany;
‘‘(C) made in connection with a tender
offer;
‘‘(D) made in connection with an initial
public offering;
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‘‘(E) made by or in connection with an of-
fering by a partnership, limited liability cor-
poration, or a direct participation investment
program, as those terms are defined by rule or
regulation of the Commission; or
‘‘(F) made in a disclosure of beneficial own-
ership in a report required to be filed with the
Commission pursuant to section 13(d).
‘‘(d) STAY PENDING DECISION ON MOTION.—In any
private action arising under this title, the court shall stay
discovery during the pendency of any motion by a defend-
ant (other than discovery that is specifically directed to the
applicability of the exemption provided for in this section)
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.
‘‘(e) AUTHORITY.—In addition to the exemption pro-
vided for in this section, the Commission may, by rule or
regulation, provide exemptions from liability under any
provision of this title, or of any rule or regulation issued
under this title, that is based on a statement that includes
or that is based on projections or other forward-looking in-
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formation, if and to the extent that any such exemption
is, as determined by the Commission, consistent with the
public interest and the protection of investors.
‘‘(f) COMMISSION DISGORGEMENT ACTIONS.—
‘‘(1) IN GENERAL.—If the Commission, in any
proceeding, orders or obtains (by settlement, court
order, or otherwise) a payment of funds from a per-
son who has violated this title through means that in-
cluded the utilization of a forward-looking statement,
and if any portion of such funds is set aside or other-
wise held for or available to persons who suffered
losses in connection with such violation, no person
shall be precluded from participating in the distribu-
tion of, or otherwise receiving, a portion of such funds
by reason of the application of this section.
‘‘(2) JUDGMENT
FOR
LOSSES
SUFFERED.—In
any action by the Commission alleging a violation of
this title in which the defendant or respondent is al-
leged to have utilized a forward-looking statement in
furtherance of such violation, the Commission may,
upon a sufficient showing, in addition to all other
remedies available to the Commission, obtain a judg-
ment for the payment of an amount equal to all losses
suffered by reason of the utilization of the forward-
looking statement that are not compensated through
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final adjudication or settlement of a private action
brought under this title arising from the same viola-
tion.
‘‘(g) EFFECT
ON OTHER AUTHORITY
OF COMMIS-
SION.—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.’’.
(c) INVESTMENT COMPANY ACT OF 1940.—Section 24
of the Investment Company Act of 1940 (15 U.S.C. 80a–
24) is amended by adding at the end the following new sub-
section:
‘‘(g) REGULATORY AUTHORITY FOR FORWARD-LOOK-
ING STATEMENTS.—
‘‘(1) IN GENERAL.—The Commission shall review
and, if necessary to carry out the purposes of this
title, promulgate such rules and regulations as may
be necessary to describe conduct with respect to the
making of forward-looking statements that the Com-
mission deems does not provide a basis for liability
in any private action arising under this title.
‘‘(2) REQUIREMENTS.—A rule or regulation pro-
mulgated under paragraph (1) shall—
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‘‘(A) include clear and objective guidance
that the Commission finds sufficient for the pro-
tection of investors;
‘‘(B) prescribe such guidance with sufficient
particularity that compliance shall be readily
ascertainable by issuers prior to issuance of secu-
rities; and
‘‘(C) provide that forward-looking state-
ments that are in compliance with such guidance
and that concern the future economic perform-
ance of an issuer of securities registered under
section 12 shall be deemed not to be in violation
of this title.
‘‘(3) EFFECT ON OTHER AUTHORITY OF COMMIS-
SION.—Nothing in this subsection limits, either ex-
pressly or by implication, the authority of the Com-
mission 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 author-
ity.’’.
SEC. 106. WRITTEN INTERROGATORIES.
(a) SECURITIES ACT OF 1933.—Section 20 of the Se-
curities Act of 1933 (15 U.S.C. 77t) is amended by adding
at the end the following new subsection:
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‘‘(m) DEFENDANT’S RIGHT TO WRITTEN INTERROG-
ATORIES.—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, sub-
mit to the jury a written interrogatory on the issue of each
such defendant’s state of mind at the time the alleged viola-
tion occurred.’’.
(b) SECURITIES EXCHANGE ACT OF 1934.—Section 21
of the Securities Exchange Act of 1934 (15 U.S.C. 78u) is
amended by adding at the end the following new subsection:
‘‘(m) DEFENDANT’S RIGHT TO WRITTEN INTERROG-
ATORIES.—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 de-
fendant’s state of mind at the time the alleged violation oc-
curred.’’.
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 conduct that would have been action-
able as fraud in the purchase or sale of securities to estab-
lish a violation of section 1962’’.
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SEC. 108. AUTHORITY OF COMMISSION TO PROSECUTE AID-
ING 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 sub-
section:
‘‘(e) 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 the violation of a provision of this
title, or of any rule or regulation issued under this title,
shall be—
‘‘(1) deemed to be in violation of such provision;
and
‘‘(2) liable to the same extent as the person to
whom such assistance is provided.’’.
SEC. 109. 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’’;
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(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 sub-
section (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 deprecia-
tion 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. 110. STUDY AND REPORT ON PROTECTIONS FOR SEN-
IOR CITIZENS AND QUALIFIED RETIREMENT
PLANS.
(a) FINDINGS.—The Congress finds that—
(1) senior citizens and qualified retirement plans
are too often the target of securities fraud of the kind
evidenced in the Charles Keating, Lincoln Savings &
Loan Association, and American Continental Cor-
poration situations;
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(2) this Act, in an effort to curb unfounded law-
suits, changes the standards and procedures for secu-
rities fraud actions; and
(3) the Securities and Exchange Commission has
indicated concern with some provisions of this Act.
(b) 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;
and
(2) if so, submit to the Congress a report con-
taining recommendations on protections that the
Commission determines to be appropriate to thor-
oughly protect such investors.
(c) 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 individ-
ual who is 62 years of age or older as of the date of
the securities transaction at issue.
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SEC. 111. 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 conduct that would have been action-
able as fraud in the purchase of sale of securities to establish
a violation of section 1962’’: Provided however, That this
exception shall not apply if any participant in the fraud
is criminally convicted in connection therewith, in which
case the statute of limitations shall start to run on the date
that the conviction becomes final.
SEC. 112. APPLICABILITY.
The amendments made by this title shall not affect or
apply to any private action arising under title I of the Se-
curities Exchange Act of 1934 or title I of the Securities
Act of 1933 commenced before the date of enactment of this
Act.
TITLE II—REDUCTION OF
COERCIVE SETTLEMENTS
SEC. 201. LIMITATION ON DAMAGES.
Section 36 of the Securities Exchange Act of 1934, as
added by section 104 of this Act, is amended by adding
at the end the following new subsection:
‘‘(e) LIMITATION ON DAMAGES.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), in any private action arising under this
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title, the plaintiff’s damages shall not exceed the dif-
ference between the purchase or sale price paid or re-
ceived, as appropriate, by the plaintiff for the subject
security and the value of that security, as measured
by the median trading price of that security, during
the 90-day period beginning on the date on which the
information correcting the misstatement or omission
is disseminated to the market.
‘‘(2) EXCEPTION.—In any private action arising
under this title in which damages are sought, 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 ex-
ceed the difference between the purchase or sale price
paid or received, as appropriate, by the plaintiff for
the security and the median market value of the secu-
rity 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.’’.
SEC. 202. PROPORTIONATE LIABILITY.
Title I of the Securities and Exchange Act of 1934 (15
U.S.C. 78a et seq.) is amended by adding at the end the
following new section:
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‘‘SEC. 38. PROPORTIONATE LIABILITY.
‘‘(a) APPLICABILITY.—This section shall apply only to
the allocation of damages among persons who are, or who
may become, liable for damages in any private action aris-
ing under this title. Nothing in this section shall affect the
standards for liability associated with any private action
arising under this title.
‘‘(b) LIABILITY FOR DAMAGES.—
‘‘(1) JOINT AND SEVERAL LIABILITY.—A person
against whom a judgment is entered in any private
action arising under this title shall be liable for dam-
ages jointly and severally only if the trier of fact spe-
cifically determines that such person committed know-
ing securities fraud.
‘‘(2) PROPORTIONATE
LIABILITY.—Except as
provided in paragraph (1), a person against whom a
judgment is entered in any private action arising
under this title shall be liable solely for the portion
of the judgment that corresponds to the percentage of
responsibility of that person, as determined under
subsection (c).
‘‘(3) KNOWING
SECURITIES
FRAUD.—For pur-
poses of this section—
‘‘(A) a defendant engages in ‘knowing secu-
rities fraud’ if that defendant—
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‘‘(i) makes a material representation
with actual knowledge that the representa-
tion is false, or omits to make a statement
with actual knowledge that, as a result of
the omission, one of the material representa-
tions of the defendant is false; and
‘‘(ii) actually knows that persons are
likely to rely on that misrepresentation or
omission; and
‘‘(B) reckless conduct by the defendant shall
not be construed to constitute knowing securities
fraud.
‘‘(c) DETERMINATION OF RESPONSIBILITY.—
‘‘(1) IN GENERAL.—In any private action aris-
ing under this title in which more than 1 person is
alleged to have violated a provision of this title, the
court shall instruct the jury to answer special inter-
rogatories, or if there is no jury, shall make findings,
concerning—
‘‘(A) the percentage of responsibility of each
of the defendants and of each of the other persons
alleged by any of the parties to have caused or
contributed to the violation, including persons
who have entered into settlements with the plain-
tiff or plaintiffs, measured as a percentage of the
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total fault of all persons who caused or contrib-
uted to the violation; and
‘‘(B) whether such defendant committed
knowing securities fraud.
‘‘(2) CONTENTS OF SPECIAL INTERROGATORIES
OR FINDINGS.—The responses to interrogatories, or
findings, as appropriate, under paragraph (1) shall
specify the total amount of damages that the plaintiff
is entitled to recover and the percentage of respon-
sibility of each person found to have caused or con-
tributed to the damages sustained by the plaintiff or
plaintiffs.
‘‘(3) FACTORS FOR CONSIDERATION.—In deter-
mining the percentage of responsibility under this
subsection, the trier of fact shall consider—
‘‘(A) the nature of the conduct of each per-
son; and
‘‘(B) the nature and extent of the causal re-
lationship between that conduct and the damages
incurred by the plaintiff or plaintiffs.
‘‘(d) UNCOLLECTIBLE SHARE.—
‘‘(1) IN GENERAL.—Notwithstanding subsection
(b)(2), in any private action arising under this title,
if, upon motion made not later than 6 months after
a final judgment is entered, the court determines that
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all or part of a defendant’s share of the judgment is
not collectible against that defendant or against a de-
fendant described in subsection (b)(1), each defendant
described in subsection (b)(2) shall be liable for the
uncollectible share as follows:
‘‘(A) PERCENTAGE OF NET WORTH.—Each
defendant shall be jointly and severally liable for
the uncollectible share if the plaintiff establishes
that—
‘‘(i) the plaintiff is an individual
whose recoverable damages under the final
judgment are equal to more than 10 percent
of the net financial worth of the plaintiff;
and
‘‘(ii) the net financial worth of the
plaintiff is equal to less than $200,000.
‘‘(B) OTHER PLAINTIFFS.—With respect to
any plaintiff not described in subparagraph (A),
each defendant shall be liable for the uncollectible
share in proportion to the percentage of respon-
sibility of that defendant, except that the total li-
ability under this subparagraph may not exceed
50 percent of the proportionate share of that de-
fendant, as determined under subsection (c)(2).
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‘‘(B) the amount paid to the plaintiff by
that person.
‘‘(h) CONTRIBUTION.—A person who becomes liable for
damages in any private action arising under this title 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.
‘‘(i) STATUTE OF LIMITATIONS FOR CONTRIBUTION.—
Once judgment has been entered in any private action aris-
ing under this title determining liability, an action for con-
tribution shall be brought not later than 6 months after the
entry of a final, nonappealable judgment in the action, ex-
cept that an action for contribution brought by a defendant
who was required to make an additional payment pursuant
to subsection (d) may be brought not later than 6 months
after the date on which such payment was made.’’.
SEC. 203. APPLICABILITY.
The amendments made by this title shall not affect or
apply to any private action arising under title I of the Se-
curities Exchange Act of 1934 commenced before the date
of enactment of this Act.
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TITLE 
III—AUDITOR 
DISCLO-
SURE 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 imme-
diately 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 inde-
pendent 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 fi-
nancial 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 substan-
tial doubt about the ability of the issuer to continue
as a going concern during the ensuing fiscal year.
‘‘(b) REQUIRED RESPONSE TO AUDIT DISCOVERIES.—
‘‘(1) INVESTIGATION AND REPORT TO MANAGE-
MENT.—If, in the course of conducting an audit pur-
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suant to this title to which subsection (a) applies, the
independent public accountant detects or otherwise be-
comes 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 pos-
sible effect of the illegal act on the financial
statements of the issuer, including any contin-
gent monetary effects, such as fines, penalties,
and damages; and
‘‘(B) as soon as practicable, inform the ap-
propriate level of the management of the issuer
and assure that the audit committee of the is-
suer, or the board of directors of the issuer in the
absence of such a committee, is adequately in-
formed 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, un-
less the illegal act is clearly inconsequential.
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‘‘(2) RESPONSE TO FAILURE TO TAKE REMEDIAL
ACTION.—If, after determining that the audit commit-
tee 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 ille-
gal 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 pub-
lic 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 re-
medial 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 direc-
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tors receives a report under paragraph (2) shall in-
form the Commission by notice not later than 1 busi-
ness day after the receipt of such report and shall fur-
nish the independent public accountant making such
report with a copy of the notice furnished to the Com-
mission. 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 pub-
lic accountant shall—
‘‘(A) resign from the engagement; or
‘‘(B) furnish to the Commission a copy of
its report (or the documentation of any oral re-
port given) not later than 1 business day follow-
ing such failure to receive notice.
‘‘(4) REPORT AFTER RESIGNATION.—If an inde-
pendent public accountant resigns from an engage-
ment 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 account-
ant’s report (or the documentation of any oral report
given).
‘‘(c) AUDITOR LIABILITY LIMITATION.—No independ-
ent public accountant shall be liable in a private action
for any finding, conclusion, or statement expressed in a re-
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port made pursuant to paragraph (3) or (4) of subsection
(b), including any rule promulgated pursuant thereto.
‘‘(d) CIVIL PENALTIES IN CEASE-AND-DESIST PRO-
CEEDINGS.—If the Commission finds, after notice and op-
portunity 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 Commis-
sion 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.—Ex-
cept 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 ‘il-
legal 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 Janu-
ary 1, 1996, with respect to any registrant that is re-
quired to file selected quarterly financial data pursu-