I
104TH CONGRESS
1ST SESSION
H. R. 555
To amend the Securities Exchange Act of 1934 in order to reform the
conduct of private securities litigation, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 18, 1995
Mr. MARKEY (for himself, Mr. CONYERS, Mr. NADLER, Mr. KENNEDY of Mas-
sachusetts, and Mrs. SCHROEDER) introduced the following bill; which
was referred to the Committee on Commerce, and in addition to the Com-
mittee on the Judiciary, for a period to be subsequently determined by
the Speaker, in each case for consideration of such provisions as fall with-
in the jurisdiction of the committee concerned
MARCH 29, 1995
Additional sponsors: Mr. ENGEL, Mr. FILNER, Mr. MARTINEZ, Mr. FOLEY,
Mr. FOGLIETTA, and Mr. BERMAN
Deleted sponsor: Mr. DEUTSCH (added February 3, 1995; deleted February
13, 1995)
A BILL
To amend the Securities Exchange Act of 1934 in order
to reform the conduct of private securities litigation,
and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
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SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Private Securities Liti-
gation Reform Act of 1995’’.
TITLE I—PRIVATE SECURITIES
LITIGATION
SEC. 101. ELIMINATION OF CERTAIN ABUSIVE PRACTICES
AND PROCEDURAL REFORMS.
(a) RECEIPT FOR 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) RECEIPT OF REFERRAL FEES.—No broker
or dealer, or person associated with a broker or deal-
er, may solicit or accept remuneration for assisting
an attorney in obtaining the representation of any
customer in any implied private action arising under
this title.’’.
(b) PROHIBITION ON ATTORNEYS’ FEES PAID FROM
COMMISSION DISGORGEMENT FUNDS.—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 para-
graph:
‘‘(4) PROHIBITION ON ATTORNEYS’ FEES PAID
FROM COMMISSION DISGORGEMENT FUNDS.—Except
as otherwise ordered by the court, funds disgorged
solely as the result of an action brought by the Com-
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mission in Federal court, or of any Commission ad-
ministrative action, shall not be distributed as pay-
ment for attorneys’ fees or expenses incurred by pri-
vate parties seeking distribution of the disgorged
funds.’’.
(c) ADDITIONAL PROVISIONS APPLICABLE TO CLASS
ACTIONS.—Section 21 of the Securities Exchange Act of
1934 (15 U.S.C. 78u) is amended by adding at the end
the following new subsections:
‘‘(i) RECOVERY BY NAMED PLAINTIFFS IN CLASS
ACTIONS.—In an implied private action arising under this
title that is certified as a class action pursuant to the Fed-
eral Rules of Civil Procedure, the share of any final judg-
ment or of any settlement that is awarded to class plain-
tiffs serving as the representative parties shall be cal-
culated in the same manner as the shares of the final judg-
ment or settlement awarded to all other members of the
class. Nothing in this subsection shall be construed to
limit the award to any representative parties of reasonable
compensation, costs, and expenses (including lost wages)
relating to the representation of the class.
‘‘(j) CONFLICTS OF INTEREST.—In an implied pri-
vate action arising under this title that is certified as a
class action pursuant to the Federal Rules of Civil Proce-
dure, if a party is represented by an attorney who directly
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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 interest constitutes a con-
flict of interest sufficient to disqualify the attorney from
representing the party.
‘‘(k) RESTRICTIONS ON SECRECY.—
‘‘(1) RESTRICTIONS ON SETTLEMENTS UNDER
SEAL.—In an implied private action arising under
this title, the terms and provisions of any settlement
agreement between any of the parties shall not be
filed under seal, except that on motion of any of the
parties to the settlement, the court may order filing
under seal for those portions of a settlement agree-
ment as to which good cause is shown for such filing
under seal. Good cause shall only exist if publication
of a term or provision of a settlement agreement
would cause direct and substantial harm to any per-
son.
‘‘(2) RESTRICTIONS
ON
PROTECTIVE
ORDERS
AND SEALING OF CASES.—In an implied private ac-
tion arising under this title, a court may enter an
order restricting the disclosure of information ob-
tained through discovery or an order restricting ac-
cess after entry of final judgment to court records
only after making particularized findings of fact that
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such disclosure or access would cause direct, imme-
diate, and substantial harm to the competitive or
privacy interests of a person.
‘‘(3) BURDEN OF PROOF.—The party who is
the proponent for the entry of an order, as provided
under this subsection, shall have the burden of proof
in obtaining such an order.
‘‘(4) DISCLOSURE TO CONGRESS OR GOVERN-
MENT AGENCIES.—
(A) No agreement between or among par-
ties in an implied private action arising under
this title may contain a provision that prohibits
or otherwise restricts a party from disclosing
any information relevant to such action to Con-
gress or to any Federal or State agency with
authority to enforce laws regulating an activity
relating to such information.
‘‘(B) Any disclosure of information to Con-
gress or to a Federal or State agency as de-
scribed under subparagraph (A) shall be con-
fidential to the extent provided by law.
‘‘(l) PRESERVATION OF EVIDENCE.—Upon receiving
actual notice of the filing of a complaint in an implied
private action arising under this title that names a person
as a defendant in such action and that contains allegations
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concerning the conduct of such person, such person shall
not willfully destroy any documents, data compilations (in-
cluding any electronically recorded or stored data), or tan-
gible objects that are in the custody or control of such
person and that a reasonable person would consider rel-
evant to the allegations in the complaint. Any defendant
that does not comply with this subsection shall be sanc-
tioned, which sanction may include having judgment en-
tered against it.
‘‘(m) PAYMENT OF ATTORNEYS’ FEES FROM SET-
TLEMENT FUNDS.—In an implied private action arising
under this title that is certified as a class action pursuant
to the Federal Rules of Civil Procedure, attorneys’ fees
awarded by the court from a common fund for the class
to counsel for the class shall be determined based on (1)
a reasonable percentage of amount actually paid to class
members from the common fund, and (ii) any other bene-
fits available to the class, plus reasonable expenses in-
curred in the prosecution of the action.
‘‘(n) DISCLOSURE
OF
SETTLEMENT
TERMS
TO
CLASS MEMBERS.—In an implied private action arising
under this title that is certified as a class action pursuant
to the Federal Rules of Civil Procedure, a proposed settle-
ment agreement that is published or otherwise dissemi-
nated to the class shall include the following statements,
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which shall not be admissible for purposes of any Federal
or State judicial or administrative proceeding:
‘‘(1) STATEMENT OF THE BENEFITS OF SET-
TLEMENT.—A statement of the total amount of the
settlement, fully describing all proposed payments
and non-monetary benefits to the class, and a sched-
ule setting forth the reasonably anticipated per
share payments to class members.
‘‘(2) STATEMENT OF POTENTIAL OUTCOME OF
CASE.—
‘‘(A) AGREEMENT ON AMOUNT OF DAM-
AGES AND LIKELIHOOD OF PREVAILING.—If the
settling parties agree on the amount of dam-
ages per share that would be recoverable if the
plaintiff prevailed on each claim alleged under
this title and the likelihood that the plaintiff
would prevail—
‘‘(i) 
a 
statement 
concerning 
the
amount of such potential damages; and
‘‘(ii) a statement concerning the likeli-
hood that the plaintiff would prevail on the
claims alleged under this title and a brief
explanation of the reasons for that conclu-
sion.
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‘‘(B) DISAGREEMENT
ON
AMOUNT
OF
DAMAGES OR LIKELIHOOD OF PREVAILING.—If
the parties do not agree on the amount of dam-
ages per share that would be recoverable if the
plaintiff prevailed on each claim alleged under
this title or on the likelihood that the plaintiff
would prevail on those claims, or both, a state-
ment from each settling party concerning the
issue or issues on which the parties disagree.
‘‘(3) 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 es-
tablished as part of the settlement, a statement indi-
cating which parties or counsel intend to make such
an application, the amount of fees and costs that
will be sought, and a brief explanation of the basis
for the application.
‘‘(4) IDENTIFICATION OF 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 con-
tained in any notice of settlement published or oth-
erwise disseminated to class members.