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104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                    104-369
_______________________________________________________________________


 
                      SECURITIES LITIGATION REFORM

                                _______


               November 28, 1995.--Ordered to be printed

_______________________________________________________________________


 Mr. Bliley, from the committee of conference, submitted the following

                           CONFERENCE REPORT

                        [To accompany H.R. 1058]

      The committee of conference on the disagreeing votes of 
the two Houses on the amendments of the Senate to the bill 
(H.R. 1058), to reform Federal securities litigation, and for 
other purposes, having met, after full and free conference, 
have agreed to recommend and do recommend to their respective 
Houses as follows:
      That the House recede from its disagreement to the 
amendment of the Senate to the text of the bill and agree to 
the same with an amendment as follows:
      In lieu of the matter proposed to be inserted by the 
Senate amendment, insert the following:

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

Sec. 1. Short title; table of contents.

                TITLE I--REDUCTION OF ABUSIVE LITIGATION

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

               TITLE II--REDUCTION OF COERCIVE SETTLEMENTS

Sec. 201. Proportionate liability.
Sec. 203. Applicability.
Sec. 204. Rule of construction.

            TITLE III--AUDITOR DISCLOSURE OF CORPORATE FRAUD

Sec. 301. Fraud detection and disclosure.

                TITLE I--REDUCTION OF ABUSIVE LITIGATION

SEC. 101. PRIVATE SECURITIES LITIGATION REFORM.

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

``SEC. 27. PRIVATE SECURITIES LITIGATION.

    ``(a) Private Class Actions.--
            ``(1) In general.--The provisions of this 
        subsection shall apply to each private action arising 
        under this title that is brought as a plaintiff class 
        action pursuant to the Federal Rules of Civil 
        Procedure.
            ``(2) Certification filed with complaint.--
                    ``(A) In general.--Each plaintiff seeking 
                to serve as a representative party on behalf of 
                a class shall provide a sworn certification, 
                which shall be personally signed by such 
                plaintiff and filed with the complaint, that--
                            ``(i) states that the plaintiff has 
                        reviewed the complaint and authorized 
                        its filing;
                            ``(ii) states that the plaintiff 
                        did not purchase the security that is 
                        the subject of the complaint at the 
                        direction of plaintiff's counsel or in 
                        order to participate in any private 
                        action arising under this title;
                            ``(iii) states that the plaintiff 
                        is willing to serve as a representative 
                        party on behalf of a class, including 
                        providing testimony at deposition and 
                        trial, if necessary;
                            ``(iv) sets forth all of the 
                        transactions of the plaintiff in the 
                        security that is the subject of the 
                        complaint during the class period 
                        specified in the complaint;
                            ``(v) identifies any other action 
                        under this title, filed during the 3-
                        year period preceding the date on which 
                        the certification is signed by the 
                        plaintiff, in which the plaintiff has 
                        sought to serve, or served, as a 
                        representative party on behalf of a 
                        class; and
                            ``(vi) states that the plaintiff 
                        will not accept any payment for serving 
                        as a representative party on behalf of 
                        a class beyond the plaintiff's pro rata 
                        share of any recovery, except as 
                        ordered or approved by the court in 
                        accordance with paragraph (4).
                    ``(B) Nonwaiver of attorney-client 
                privilege.--The certification filed pursuant to 
                subparagraph (A) shall not be construed to be a 
                waiver of the attorney-client privilege.
            ``(3) Appointment of lead plaintiff.--
                    ``(A) Early notice to class members.--
                            ``(i) In general.--Not later than 
                        20 days after the date on which the 
                        complaint is filed, the plaintiff or 
                        plaintiffs shall cause to be published, 
                        in a widely circulated national 
                        business-oriented publication or wire 
                        service, a notice advising members of 
                        the purported plaintiff class--
                                    ``(I) of the pendency of 
                                the action, the claims asserted 
                                therein, and the purported 
                                class period; and
                                    ``(II) that, not later than 
                                60 days after the date on which 
                                the notice is published, any 
                                member of the purported class 
                                may move the court to serve as 
                                lead plaintiff of the purported 
                                class.
                            ``(ii) Multiple actions.--If more 
                        than one action on behalf of a class 
                        asserting substantially the same claim 
                        or claims arising under this title is 
                        filed, only the plaintiff or plaintiffs 
                        in the first filed action shall be 
                        required to cause notice to be 
                        published in accordance with clause 
                        (i).
                            ``(iii) Additional notices may be 
                        required under federal rules.--Notice 
                        required under clause (i) shall be in 
                        addition to any notice required 
                        pursuant to the Federal Rules of Civil 
                        Procedure.
                    ``(B) Appointment of lead plaintiff.--
                            ``(i) In general.--Not later than 
                        90 days after the date on which a 
                        notice is published under subparagraph 
                        (A)(i), the court shall consider any 
                        motion made by a purported class member 
                        in response to the notice, including 
                        any motion by a class member who is not 
                        individually named as a plaintiff in 
                        the complaint or complaints, and shall 
                        appoint as lead plaintiff the member or 
                        members of the purported plaintiff 
                        class that the court determines to be 
                        most capable of adequately representing 
                        the interests of class members 
                        (hereafter in this paragraph referred 
                        to as the `most adequate plaintiff') in 
                        accordance with this subparagraph.
                            ``(ii) Consolidated actions.--If 
                        more than one action on behalf of a 
                        class asserting substantially the same 
                        claim or claims arising under this 
                        title has been filed, and any party has 
                        sought to consolidate those actions for 
                        pretrial purposes or for trial, the 
                        court shall not make the determination 
                        required by clause (i) until after the 
                        decision on the motion to consolidate 
                        is rendered. As soon as practicable 
                        after such decision is rendered, the 
                        court shall appoint the most adequate 
                        plaintiff as lead plaintiff for the 
                        consolidated actions in accordance with 
                        this subparagraph.
                            ``(iii) Rebuttable presumption.--
                                    ``(I) In general.--Subject 
                                to subclause (II), for purposes 
                                of clause (i), the court shall 
                                adopt a presumption that the 
                                most adequate plaintiff in any 
                                private action arising under 
                                this title is the person or 
                                group of persons that--
                                            ``(aa) has either 
                                        filed the complaint or 
                                        made a motion in 
                                        response to a notice 
                                        under subparagraph 
                                        (A)(i);
                                            ``(bb) in the 
                                        determination of the 
                                        court, has the largest 
                                        financial interest in 
                                        the relief sought by 
                                        the class; and
                                            ``(cc) otherwise 
                                        satisfies the 
                                        requirements of Rule 23 
                                        of the Federal Rules of 
                                        Civil Procedure.
                                    ``(II) Rebuttal evidence.--
                                The presumption described in 
                                subclause (I) may be rebutted 
                                only upon proof by a member of 
                                the purported plaintiff class 
                                that the presumptively most 
                                adequate plaintiff--
                                            ``(aa) will not 
                                        fairly and adequately 
                                        protect the interests 
                                        of the class; or
                                            ``(bb) is subject 
                                        to unique defenses that 
                                        render such plaintiff 
                                        incapable of adequately 
                                        representing the class.
                            ``(iv) Discovery.--For purposes of 
                        this subparagraph, discovery relating 
                        to whether a member or members of the 
                        purported plaintiff class is the most 
                        adequate plaintiff may be conducted by 
                        a plaintiff only if the plaintiff first 
                        demonstrates a reasonable basis for a 
                        finding that the presumptively most 
                        adequate plaintiff is incapable of 
                        adequately representing the class.
                            ``(v) Selection of lead counsel.--
                        The most adequate plaintiff shall, 
                        subject to the approval of the court, 
                        select and retain counsel to represent 
                        the class.
                            ``(vi) Restrictions on professional 
                        plaintiffs.--Except as the court may 
                        otherwise permit, consistent with the 
                        purposes of this section, a person may 
                        be a lead plaintiff, or an officer, 
                        director, or fiduciary of a lead 
                        plaintiff, in no more than 5 securities 
                        class actions brought as plaintiff 
                        class actions pursuant to the Federal 
                        Rules of Civil Procedure during any 3-
                        year period.
            ``(4) Recovery by plaintiffs.--The share of any 
        final judgment or of any settlement that is awarded to 
        a representative party serving on behalf of a class 
        shall be equal, on a per share basis, to the portion of 
        the final judgment or settlement awarded to all other 
        members of the class. Nothing in this paragraph shall 
        be construed to limit the award of reasonable costs and 
        expenses (including lost wages) directly relating to 
        the representation of the class to any representative 
        party serving on behalf of the class.
            ``(5) Restrictions on settlements under seal.--The 
        terms and provisions of any settlement agreement of a 
        class action shall not be filed under seal, except that 
        on motion of any party to the settlement, the court may 
        order filing under seal for those portions of a 
        settlement agreement as to which good cause is shown 
        for such filing under seal. For purposes of this 
        paragraph, good cause shall exist only if publication 
        of a term or provision of a settlement agreement would 
        cause direct and substantial harm to any party.
            ``(6) Restrictions on payment of attorneys' fees 
        and expenses.--Total attorneys' fees and expenses 
        awarded by the court to counsel for the plaintiff class 
        shall not exceed a reasonable percentage of the amount 
        of any damages and prejudgment interest actually paid 
        to the class.
            ``(7) Disclosure of settlement terms to class 
        members.--Any proposed or final settlement agreement 
        that is published or otherwise disseminated to the 
        class shall include each of the following statements, 
        along with a cover page summarizing the information 
        contained in such statements:
                    ``(A) Statement of plaintiff recovery.--The 
                amount of the settlement proposed to be 
                distributed to the parties to the action, 
                determined in the aggregate and on an average 
                per share basis.
                    ``(B) Statement of potential outcome of 
                case.--
                            ``(i) Agreement on amount of 
                        damages.--If the settling parties agree 
                        on the average amount of damages per 
                        share that would be recoverable if the 
                        plaintiff prevailed on each claim 
                        alleged under this title, a statement 
                        concerning the average amount of such 
                        potential damages per share.
                            ``(ii) Disagreement on amount of 
                        damages.--If the parties do not agree 
                        on the average amount of damages per 
                        share that would be recoverable if the 
                        plaintiff prevailed on each claim 
                        alleged under this title, a statement 
                        from each settling party concerning the 
                        issue or issues on which the parties 
                        disagree.
                            ``(iii) Inadmissibility for certain 
                        purposes.--A statement made in 
                        accordance with clause (i) or (ii) 
                        concerning the amount of damages shall 
                        not be admissible in any Federal or 
                        State judicial action or administrative 
                        proceeding, other than an action or 
                        proceeding arising out of such 
                        statement.
                    ``(C) Statement of attorneys' fees or costs 
                sought.--If any of the settling parties or 
                their counsel intend to apply to the court for 
                an award of attorneys' fees or costs from any 
                fund established as part of the settlement, a 
                statement indicating which parties or counsel 
                intend to make such an application, the amount 
                of fees and costs that will be sought 
                (including the amount of such fees and costs 
                determined on an average per share basis), and 
                a brief explanation supporting the fees and 
                costs sought.
                    ``(D) Identification of lawyers' 
                representatives.--The name, telephone number, 
                and address of one or more representatives of 
                counsel for the plaintiff class who will be 
                reasonably available to answer questions from 
                class members concerning any matter contained 
                in any notice of settlement published or 
                otherwise disseminated to the class.
                    ``(E) Reasons for settlement.--A brief 
                statement explaining the reasons why the 
                parties are proposing the settlement.
                    ``(F) Other information.--Such other 
                information as may be required by the court.
            ``(8) Attorney conflict of interest.--If a 
        plaintiff class is represented by an attorney who 
        directly owns or otherwise has a beneficial interest in 
        the securities that are the subject of the litigation, 
        the court shall make a determination of whether such 
        ownership or other interest constitutes a conflict of 
        interest sufficient to disqualify the attorney from 
        representing the plaintiff class.
    ``(b) Stay of Discovery; Preservation of Evidence.--
            ``(1) In general.--In any private action arising 
        under this title, all discovery and other proceedings 
        shall be stayed during the pendency of any motion to 
        dismiss, unless the court finds, upon the motion of any 
        party, that particularized discovery is necessary to 
        preserve evidence or to prevent undue prejudice to that 
        party.
            ``(2) Preservation of evidence.--During the 
        pendency of any stay of discovery pursuant to this 
        subsection, unless otherwise ordered by the court, any 
        party to the action with actual notice of the 
        allegations contained in the complaint shall treat all 
        documents, data compilations (including electronically 
        recorded or stored data), and tangible objects that are 
        in the custody or control of such person and that are 
        relevant to the allegations, as if they were the 
        subject of a continuing request for production of 
        documents from an opposing party under the Federal 
        Rules of Civil Procedure.
            ``(3) Sanction for willful violation.--A party 
        aggrieved by the willful failure of an opposing party 
        to comply with paragraph (2) may apply to the court for 
        an order awarding appropriate sanctions.
    ``(c) Sanctions for Abusive Litigation.--
            ``(1) Mandatory review by court.--In any private 
        action arising under this title, upon final 
        adjudication of the action, the court shall include in 
        the record specific findings regarding compliance by 
        each party and each attorney representing any party 
        with each requirement of Rule 11(b) of the Federal 
        Rules of Civil Procedure as to any complaint, 
        responsive pleading, or dispositive motion.
            ``(2) Mandatory sanctions.--If the court makes a 
        finding under paragraph (1) that a party or attorney 
        violated any requirement of Rule 11(b) of the Federal 
        Rules of Civil Procedure as to any complaint, 
        responsive pleading, or dispositive motion, the court 
        shall impose sanctions on such party or attorney in 
        accordance with Rule 11 of the Federal Rules of Civil 
        Procedure. Prior to making a finding that any party or 
        attorney has violated Rule 11 of the Federal Rules of 
        Civil Procedure, the court shall give such party or 
        attorney notice and an opportunity to respond.
            ``(3) Presumption in favor of attorneys' fees and 
        costs.--
                    ``(A) In general.--Subject to subparagraphs 
                (B) and (C), for purposes of paragraph (2), the 
                court shall adopt a presumption that the 
                appropriate sanction--
                            ``(i) for failure of any responsive 
                        pleading or dispositive motion to 
                        comply with any requirement of Rule 
                        11(b) of the Federal Rules of Civil 
                        Procedure is an award to the opposing 
                        party of the reasonable attorneys' fees 
                        and other expenses incurred as a direct 
                        result of the violation; and
                            ``(ii) for substantial failure of 
                        any complaint to comply with any 
                        requirement of Rule 11(b) of the 
                        Federal Rules of Civil Procedure is an 
                        award to the opposing party of the 
                        reasonable attorneys' fees and other 
                        expenses incurred in the action.
                    ``(B) Rebuttal evidence.--The presumption 
                described in subparagraph (A) may be rebutted 
                only upon proof by the party or attorney 
                against whom sanctions are to be imposed that--
                            ``(i) the award of attorneys' fees 
                        and other expenses will impose an 
                        unreasonable burden on that party or 
                        attorney and would be unjust, and the 
                        failure to make such an award would not 
                        impose a greater burden on the party in 
                        whose favor sanctions are to be 
                        imposed; or
                            ``(ii) the violation of Rule 11(b) 
                        of the Federal Rules of Civil Procedure 
                        was de minimis.
                    ``(C) Sanctions.--If the party or attorney 
                against whom sanctions are to be imposed meets 
                its burden under subparagraph (B), the court 
                shall award the sanctions that the court deems 
                appropriate pursuant to Rule 11 of the Federal 
                Rules of Civil Procedure.
    ``(d) Defendant's Right to Written Interrogatories.--In any 
private action arising under this title in which the plaintiff 
may recover money damages only on proof that a defendant acted 
with a particular state of mind, the court shall, when 
requested by a defendant, submit to the jury a written 
interrogatory on the issue of each such defendant's state of 
mind at the time the alleged violation occurred.''.
    (b) Securities Exchange Act of 1934.--Title I of the 
Securities Exchange Act of 1934 (78a et seq.) is amended by 
inserting after section 21C the following new section:

``SEC. 21D. PRIVATE SECURITIES LITIGATION.

    ``(a) Private Class Actions.--
            ``(1) In general.--The provisions of this 
        subsection shall apply in each private action arising 
        under this title that is brought as a plaintiff class 
        action pursuant to the Federal Rules of Civil 
        Procedure.
            ``(2) Certification filed with complaint.--
                    ``(A) In general.--Each plaintiff seeking 
                to serve as a representative party on behalf of 
                a class shall provide a sworn certification, 
                which shall be personally signed by such 
                plaintiff and filed with the complaint, that--
                            ``(i) states that the plaintiff has 
                        reviewed the complaint and authorized 
                        its filing;
                            ``(ii) states that the plaintiff 
                        did not purchase the security that is 
                        the subject of the complaint at the 
                        direction of plaintiff's counsel or in 
                        order to participate in any private 
                        action arising under this title;
                            ``(iii) states that the plaintiff 
                        is willing to serve as a representative 
                        party on behalf of a class, including 
                        providing testimony at deposition and 
                        trial, if necessary;
                            ``(iv) sets forth all of the 
                        transactions of the plaintiff in the 
                        security that is the subject of the 
                        complaint during the class period 
                        specified in the complaint;
                            ``(v) identifies any other action 
                        under this title, filed during the 3-
                        year period preceding the date on which 
                        the certification is signed by the 
                        plaintiff, in which the plaintiff has 
                        sought to serve as a representative 
                        party on behalf of a class; and
                            ``(vi) states that the plaintiff 
                        will not accept any payment for serving 
                        as a representative party on behalf of 
                        a class beyond the plaintiff's pro rata 
                        share of any recovery, except as 
                        ordered or approved by the court in 
                        accordance with paragraph (4).
                    ``(B) Nonwaiver of attorney-client 
                privilege.--The certification filed pursuant to 
                subparagraph (A) shall not be construed to be a 
                waiver of the attorney-client privilege.
            ``(3) Appointment of lead plaintiff.--
                    ``(A) Early notice to class members.--
                            ``(i) In general.--Not later than 
                        20 days after the date on which the 
                        complaint is filed, the plaintiff or 
                        plaintiffs shall cause to be published, 
                        in a widely circulated national 
                        business-oriented publication or wire 
                        service, a notice advising members of 
                        the purported plaintiff class--
                                    ``(I) of the pendency of 
                                the action, the claims asserted 
                                therein, and the purported 
                                class period; and
                                    ``(II) that, not later than 
                                60 days after the date on which 
                                the notice is published, any 
                                member of the purported class 
                                may move the court to serve as 
                                lead plaintiff of the purported 
                                class.
                            ``(ii) Multiple actions.--If more 
                        than one action on behalf of a class 
                        asserting substantially the same claim 
                        or claims arising under this title is 
                        filed, only the plaintiff or plaintiffs 
                        in the first filed action shall be 
                        required to cause notice to be 
                        published in accordance with clause 
                        (i).
                            ``(iii) Additional notices may be 
                        required under federal rules.--Notice 
                        required under clause (i) shall be in 
                        addition to any notice required 
                        pursuant to the Federal Rules of Civil 
                        Procedure.
                    ``(B) Appointment of lead plaintiff.--
                            ``(i) In general.--Not later than 
                        90 days after the date on which a 
                        notice is published under subparagraph 
                        (A)(i), the court shall consider any 
                        motion made by a purported class member 
                        in response to the notice, including 
                        any motion by a class member who is not 
                        individually named as a plaintiff in 
                        the complaint or complaints, and shall 
                        appoint as lead plaintiff the member or 
                        members of the purported plaintiff 
                        class that the court determines to be 
                        most capable of adequately representing 
                        the interests of class members 
                        (hereafter in this paragraph referred 
                        to as the `most adequate plaintiff') in 
                        accordance with this subparagraph.
                            ``(ii) Consolidated actions.--If 
                        more than one action on behalf of a 
                        class asserting substantially the same 
                        claim or claims arising under this 
                        title has been filed, and any party has 
                        sought to consolidate those actions for 
                        pretrial purposes or for trial, the 
                        court shall not make the determination 
                        required by clause (i) until after the 
                        decision on the motion to consolidate 
                        is rendered. As soon as practicable 
                        after such decision is rendered, the 
                        court shall appoint the most adequate 
                        plaintiff as lead plaintiff for the 
                        consolidated actions in accordance with 
                        this paragraph.
                            ``(iii) Rebuttable presumption.--
                                    ``(I) In general.--Subject 
                                to subclause (II), for purposes 
                                of clause (i), the court shall 
                                adopt a presumption that the 
                                most adequate plaintiff in any 
                                private action arising under 
                                this title is the person or 
                                group of persons that--
                                            ``(aa) has either 
                                        filed the complaint or 
                                        made a motion in 
                                        response to a notice 
                                        under subparagraph 
                                        (A)(i);
                                            ``(bb) in the 
                                        determination of the 
                                        court, has the largest 
                                        financial interest in 
                                        the relief sought by 
                                        the class; and
                                            ``(cc) otherwise 
                                        satisfies the 
                                        requirements of Rule 23 
                                        of the Federal Rules of 
                                        Civil Procedure.
                                    ``(II) Rebuttal evidence.--
                                The presumption described in 
                                subclause (I) may be rebutted 
                                only upon proof by a member of 
                                the purported plaintiff class 
                                that the presumptively most 
                                adequate plaintiff--
                                            ``(aa) will not 
                                        fairly and adequately 
                                        protect the interests 
                                        of the class; or
                                            ``(bb) is subject 
                                        to unique defenses that 
                                        render such plaintiff 
                                        incapable of adequately 
                                        representing the class.
                            ``(iv) Discovery.--For purposes of 
                        this subparagraph, discovery relating 
                        to whether a member or members of the 
                        purported plaintiff class is the most 
                        adequate plaintiff may be conducted by 
                        a plaintiff only if the plaintiff first 
                        demonstrates a reasonable basis for a 
                        finding that the presumptively most 
                        adequate plaintiff is incapable of 
                        adequately representing the class.
                            ``(v) Selection of lead counsel.--
                        The most adequate plaintiff shall, 
                        subject to the approval of the court, 
                        select and retain counsel to represent 
                        the class.
                            ``(vi) Restrictions on professional 
                        plaintiffs.--Except as the court may 
                        otherwise permit, consistent with the 
                        purposes of this section, a person may 
                        be a lead plaintiff, or an officer, 
                        director, or fiduciary of a lead 
                        plaintiff, in no more than 5 securities 
                        class actions brought as plaintiff 
                        class actions pursuant to the Federal 
                        Rules of Civil Procedure during any 3-
                        year period.
            ``(4) Recovery by plaintiffs.--The share of any 
        final judgment or of any settlement that is awarded to 
        a representative party serving on behalf of a class 
        shall be equal, on a per share basis, to the portion of 
        the final judgment or settlement awarded to all other 
        members of the class. Nothing in this paragraph shall 
        be construed to limit the award of reasonable costs and 
        expenses (including lost wages) directly relating to 
        the representation of the class to any representative 
        party serving on behalf of a class.
            ``(5) Restrictions on settlements under seal.--The 
        terms and provisions of any settlement agreement of a 
        class action shall not be filed under seal, except that 
        on motion of any party to the settlement, the court may 
        order filing under seal for those portions of a 
        settlement agreement as to which good cause is shown 
        for such filing under seal. For purposes of this 
        paragraph, good cause shall exist only if publication 
        of a term or provision of a settlement agreement would 
        cause direct and substantial harm to any party.
            ``(6) Restrictions on payment of attorneys' fees 
        and expenses.--Total attorneys' fees and expenses 
        awarded by the court to counsel for the plaintiff class 
        shall not exceed a reasonable percentage of the amount 
        of any damages and prejudgment interest actually paid 
        to the class.
            ``(7) Disclosure of settlement terms to class 
        members.--Any proposed or final settlement agreement 
        that is published or otherwise disseminated to the 
        class shall include each of the following statements, 
        along with a cover page summarizing the information 
        contained in such statements:
                    ``(A) Statement of plaintiff recovery.--The 
                amount of the settlement proposed to be 
                distributed to the parties to the action, 
                determined in the aggregate and on an average 
                per share basis.
                    ``(B) Statement of potential outcome of 
                case.--
                            ``(i) Agreement on amount of 
                        damages.--If the settling parties agree 
                        on the average amount of damages per 
                        share that would be recoverable if the 
                        plaintiff prevailed on each claim 
                        alleged under this title, a statement 
                        concerning the average amount of such 
                        potential damages per share.
                            ``(ii) Disagreement on amount of 
                        damages.--If the parties do not agree 
                        on the average amount of damages per 
                        share that would be recoverable if the 
                        plaintiff prevailed on each claim 
                        alleged under this title, a statement 
                        from each settling party concerning the 
                        issue or issues on which the parties 
                        disagree.
                            ``(iii) Inadmissibility for certain 
                        purposes.--A statement made in 
                        accordance with clause (i) or (ii) 
                        concerning the amount of damages shall 
                        not be admissible in any Federal or 
                        State judicial action or administrative 
                        proceeding, other than an action or 
                        proceeding arising out of such 
                        statement.
                    ``(C) Statement of attorneys' fees or costs 
                sought.--If any of the settling parties or 
                their counsel intend to apply to the court for 
                an award of attorneys' fees or costs from any 
                fund established as part of the settlement, a 
                statement indicating which parties or counsel 
                intend to make such an application, the amount 
                of fees and costs that will be sought 
                (including the amount of such fees and costs 
                determined on an average per share basis), and 
                a brief explanation supporting the fees and 
                costs sought. Such information shall be clearly 
                summarized on the cover page of any notice to a 
                party of any proposed or final settlement 
                agreement.
                    ``(D) Identification of lawyers' 
                representatives.--The name, telephone number, 
                and address of one or more representatives of 
                counsel for the plaintiff class who will be 
                reasonably available to answer questions from 
                class members concerning any matter contained 
                in any notice of settlement published or 
                otherwise disseminated to the class.
                    ``(E) Reasons for settlement.--A brief 
                statement explaining the reasons why the 
                parties are proposing the settlement.
                    ``(F) Other information.--Such other 
                information as may be required by the court.
            ``(8) Security for payment of costs in class 
        actions.--In any private action arising under this 
        title that is certified as a class action pursuant to 
        the Federal Rules of Civil Procedure, the court may 
        require an undertaking from the attorneys for the 
        plaintiff class, the plaintiff class, or both, or from 
        the attorneys for the defendant, the defendant, or 
        both, in such proportions and at such times as the 
        court determines are just and equitable, for the 
        payment of fees and expenses that may be awarded under 
        this subsection.
            ``(9) Attorney conflict of interest.--If a 
        plaintiff class is represented by an attorney who 
        directly owns or otherwise has a beneficial interest in 
        the securities that are the subject of the litigation, 
        the court shall make a determination of whether such 
        ownership or other interest constitutes a conflict of 
        interest sufficient to disqualify the attorney from 
        representing the plaintiff class.
    ``(b) Requirements for Securities Fraud Actions.--
            ``(1) Misleading statements and omissions.--In any 
        private action arising under this title in which the 
        plaintiff alleges that the defendant--
                    ``(A) made an untrue statement of a 
                material fact; or
                    ``(B) omitted to state a material fact 
                necessary in order to make the statements made, 
                in the light of the circumstances in which they 
                were made, not misleading;

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

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

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

``SEC. 27A. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.

    ``(a) Applicability.--This section shall apply only to a 
forward-looking statement made by--
            ``(1) an issuer that, at the time that the 
        statement is made, is subject to the reporting 
        requirements of section 13(a) or section 15(d) of the 
        Securities Exchange Act of 1934;
            ``(2) a person acting on behalf of such issuer;
            ``(3) an outside reviewer retained by such issuer 
        making a statement on behalf of such issuer; or
            ``(4) an underwriter, with respect to information 
        provided by such issuer or information derived from 
        information provided by the issuer.
    ``(b) Exclusions.--Except to the extent otherwise 
specifically provided by rule, regulation, or order of the 
Commission, this section shall not apply to a forward-looking 
statement--
            ``(1) that is made with respect to the business or 
        operations of the issuer, if the issuer--
                    ``(A) during the 3-year period preceding 
                the date on which the statement was first 
                made--
                            ``(i) was convicted of any felony 
                        or misdemeanor described in clauses (i) 
                        through (iv) of section 15(b)(4)(B) of 
                        the Securities Exchange Act of 1934; or
                            ``(ii) has been made the subject of 
                        a judicial or administrative decree or 
                        order arising out of a governmental 
                        action that--
                                    ``(I) prohibits future 
                                violations of the antifraud 
                                provisions of the securities 
                                laws;
                                    ``(II) requires that the 
                                issuer cease and desist from 
                                violating the antifraud 
                                provisions of the securities 
                                laws; or
                                    ``(III) determines that the 
                                issuer violated the antifraud 
                                provisions of the securities 
                                laws;
                    ``(B) makes the forward-looking statement 
                in connection with an offering of securities by 
                a blank check company;
                    ``(C) issues penny stock;
                    ``(D) makes the forward-looking statement 
                in connection with a rollup transaction; or
                    ``(E) makes the forward-looking statement 
                in connection with a going private transaction; 
                or
            ``(2) that is--
                    ``(A) included in a financial statement 
                prepared in accordance with generally accepted 
                accounting principles;
                    ``(B) contained in a registration statement 
                of, or otherwise issued by, an investment 
                company;
                    ``(C) made in connection with a tender 
                offer;
                    ``(D) made in connection with an initial 
                public offering;
                    ``(E) made in connection with an offering 
                by, or relating to the operations of, a 
                partnership, limited liability company, or a 
                direct participation investment program; or
                    ``(F) made in a disclosure of beneficial 
                ownership in a report required to be filed with 
                the Commission pursuant to section 13(d) of the 
                Securities Exchange Act of 1934.
    ``(c) Safe Harbor.--
            ``(1) In general.--Except as provided in subsection 
        (b), in any private action arising under this title 
        that is based on an untrue statement of a material fact 
        or omission of a material fact necessary to make the 
        statement not misleading, a person referred to in 
        subsection (a) shall not be liable with respect to any 
        forward-looking statement, whether written or oral, if 
        and to the extent that--
                    ``(A) the forward-looking statement is--
                            ``(i) identified as a forward-
                        looking statement, and is accompanied 
                        by meaningful cautionary statements 
                        identifying important factors that 
                        could cause actual results to differ 
                        materially from those in the forward-
                        looking statement; or
                            ``(ii) immaterial; or
                    ``(B) the plaintiff fails to prove that the 
                forward-looking statement--
                            ``(i) if made by a natural person, 
                        was made with actual knowledge by that 
                        person that the statement was false or 
                        misleading; or
                            ``(ii) if made by a business 
                        entity; was--
                                    ``(I) made by or with the 
                                approval of an executive 
                                officer of that entity, and
                                    ``(II) made or approved by 
                                such officer with actual 
                                knowledge by that officer that 
                                the statement was false or 
                                misleading.
            ``(2) Oral forward-looking statements.--In the case 
        of an oral forward-looking statement made by an issuer 
        that is subject to the reporting requirements of 
        section 13(a) or section 15(d) of the Securities 
        Exchange Act of 1934, or by a person acting on behalf 
        of such issuer, the requirement set forth in paragraph 
        (1)(A) shall be deemed to be satisfied--
                    ``(A) if the oral forward-looking statement 
                is accompanied by a cautionary statement--
                            ``(i) that the particular oral 
                        statement is a forward-looking 
                        statement; and
                            ``(ii) that the actual results 
                        could differ materially from those 
                        projected in the forward-looking 
                        statement; and
                    ``(B) if--
                            ``(i) the oral forward-looking 
                        statement is accompanied by an oral 
                        statement that additional information 
                        concerning factors that could cause 
                        actual results to differ materially 
                        from those in the forward-looking 
                        statement is contained in a readily 
                        available written document, or portion 
                        thereof;
                            ``(ii) the accompanying oral 
                        statement referred to in clause (i) 
                        identifies the document, or portion 
                        thereof, that contains the additional 
                        information about those factors 
                        relating to the forward-looking 
                        statement; and
                            ``(iii) the information contained 
                        in that written document is a 
                        cautionary statement that satisfies the 
                        standard established in paragraph 
                        (1)(A).
            ``(3) Availability.--Any document filed with the 
        Commission or generally disseminated shall be deemed to 
        be readily available for purposes of paragraph (2).
            ``(4) Effect on other safe harbors.--The exemption 
        provided for in paragraph (1) shall be in addition to 
        any exemption that the Commission may establish by rule 
        or regulation under subsection (g).
    ``(d) Duty To Update.--Nothing in this section shall impose 
upon any person a duty to update a forward-looking statement.
    ``(e) Dispositive Motion.--On any motion to dismiss based 
upon subsection (c)(1), the court shall consider any statement 
cited in the complaint and cautionary statement accompanying 
the forward-looking statement, which are not subject to 
material dispute, cited by the defendant.
    ``(f) Stay Pending Decision on Motion.--In any private 
action arising under this title, the court shall stay discovery 
(other than discovery that is specifically directed to the 
applicability of the exemption provided for in this section) 
during the pendency of any motion by a defendant for summary 
judgment that is based on the grounds that--
            ``(1) the statement or omission upon which the 
        complaint is based is a forward-looking statement 
        within the meaning of this section; and
            ``(2) the exemption provided for in this section 
        precludes a claim for relief.
    ``(g) Exemption Authority.--In addition to the exemptions 
provided for in this section, the Commission may, by rule or 
regulation, provide exemptions from or under any provision of 
this title, including with respect to liability that is based 
on a statement or that is based on projections or other 
forward-looking information, if and to the extent that any such 
exemption is consistent with the public interest and the 
protection of investors, as determined by the Commission.
    ``(h) Effect on Other Authority of Commission.--Nothing in 
this section limits, either expressly or by implication, the 
authority of the Commission to exercise similar authority or to 
adopt similar rules and regulations with respect to forward-
looking statements under any other statute under which the 
Commission exercises rulemaking authority.
    ``(i) Definitions.--For purposes of this section, the 
following definitions shall apply:
            ``(1) Forward-looking statement.--The term 
        `forward-looking statement' means--
                    ``(A) a statement containing a projection 
                of revenues, income (including income loss), 
                earnings (including earnings loss) per share, 
                capital expenditures, dividends, capital 
                structure, or other financial items;
                    ``(B) a statement of the plans and 
                objectives of management for future operations, 
                including plans or objectives relating to the 
                products or services of the issuer;
                    ``(C) a statement of future economic 
                performance, including any such statement 
                contained in a discussion and analysis of 
                financial condition by the management or in the 
                results of operations included pursuant to the 
                rules and regulations of the Commission;
                    ``(D) any statement of the assumptions 
                underlying or relating to any statement 
                described in subparagraph (A), (B), or (C);
                    ``(E) any report issued by an outside 
                reviewer retained by an issuer, to the extent 
                that the report assesses a forward-looking 
                statement made by the issuer; or
                    ``(F) a statement containing a projection 
                or estimate of such other items as may be 
                specified by rule or regulation of the 
                Commission.
            ``(2) Investment company.--The term `investment 
        company' has the same meaning as in section 3(a) of the 
        Investment Company Act of 1940.
            ``(3) Penny stock.--The term `penny stock' has the 
        same meaning as in section 3(a)(51) of the Securities 
        Exchange Act of 1934, and the rules and regulations, or 
        orders issued pursuant to that section.
            ``(4) Going private transaction.--The term `going 
        private transaction' has the meaning given that term 
        under the rules or regulations of the Commission issued 
        pursuant to section 13(e) of the Securities Exchange 
        Act of 1934.
            ``(5) Securities laws.--The term `securities laws' 
        has the same meaning as in section 3 of the Securities 
        Exchange Act of 1934.
            ``(6) Person acting on behalf of an issuer.--The 
        term `person acting on behalf of an issuer' means an 
        officer, director, or employee of the issuer.
            ``(7) Other terms.--The terms `blank check 
        company', `rollup transaction', `partnership', `limited 
        liability company', `executive officer of an entity' 
        and `direct participation investment program', have the 
        meanings given those terms by rule or regulation of the 
        Commission.''.
    (b) Amendment to the Securities Exchange Act of 1934.--The 
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
amended by inserting after section 21D (as added by this Act) 
the following new section:

``SEC. 21E. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.

    ``(a) Applicability.--This section shall apply only to a 
forward-looking statement made by--
            ``(1) an issuer that, at the time that the 
        statement is made, is subject to the reporting 
        requirements of section 13(a) or section 15(d);
            ``(2) a person acting on behalf of such issuer;
            ``(3) an outside reviewer retained by such issuer 
        making a statement on behalf of such issuer; or
            ``(4) an underwriter, with respect to information 
        provided by such issuer or information derived from 
        information provided by such issuer.
    ``(b) Exclusions.--Except to the extent otherwise 
specifically provided by rule, regulation, or order of the 
Commission, this section shall not apply to a forward-looking 
statement--
            ``(1) that is made with respect to the business or 
        operations of the issuer, if the issuer--
                    ``(A) during the 3-year period preceding 
                the date on which the statement was first 
                made--
                            ``(i) was convicted of any felony 
                        or misdemeanor described in clauses (i) 
                        through (iv) of section 15(b)(4)(B); or
                            ``(ii) has been made the subject of 
                        a judicial or administrative decree or 
                        order arising out of a governmental 
                        action that--
                                    ``(I) prohibits future 
                                violations of the antifraud 
                                provisions of the securities 
                                laws;
                                    ``(II) requires that the 
                                issuer cease and desist from 
                                violating the antifraud 
                                provisions of the securities 
                                laws; or
                                    ``(III) determines that the 
                                issuer violated the antifraud 
                                provisions of the securities 
                                laws;
                    ``(B) makes the forward-looking statement 
                in connection with an offering of securities by 
                a blank check company;
                    ``(C) issues penny stock;
                    ``(D) makes the forward-looking statement 
                in connection with a rollup transaction; or
                    ``(E) makes the forward-looking statement 
                in connection with a going private transaction; 
                or
            ``(2) that is--
                    ``(A) included in a financial statement 
                prepared in accordance with generally accepted 
                accounting principles;
                    ``(B) contained in a registration statement 
                of, or otherwise issued by, an investment 
                company;
                    ``(C) made in connection with a tender 
                offer;
                    ``(D) made in connection with an initial 
                public offering;
                    ``(E) made in connection with an offering 
                by, or relating to the operations of, a 
                partnership, limited liability company, or a 
                direct participation investment program; or
                    ``(F) made in a disclosure of beneficial 
                ownership in a report required to be filed with 
                the Commission pursuant to section 13(d).
    ``(c) Safe Harbor.--
            ``(1) In general.--Except as provided in subsection 
        (b), in any private action arising under this title 
        that is based on an untrue statement of a material fact 
        or omission of a material fact necessary to make the 
        statement not misleading, a person referred to in 
        subsection (a) shall not be liable with respect to any 
        forward-looking statement, whether written or oral, if 
        and to the extent that--
                    ``(A) the forward-looking statement is--
                            ``(i) identified as a forward-
                        looking statement, and is accompanied 
                        by meaningful cautionary statements 
                        identifying important factors that 
                        could cause actual results to differ 
                        materially from those in the forward-
                        looking statement; or
                            ``(ii) immaterial; or
                    ``(B) the plaintiff fails to prove that the 
                forward-looking statement--
                            ``(i) if made by a natural person, 
                        was made with actual knowledge by that 
                        person that the statement was false or 
                        misleading; or
                            ``(ii) if made by a business 
                        entity; was--
                                    ``(I) made by or with the 
                                approval of an executive 
                                officer of that entity; and
                                    ``(II) made or approved by 
                                such officer with actual 
                                knowledge by that officer that 
                                the statement was false or 
                                misleading.
            ``(2) Oral forward-looking statements.--In the case 
        of an oral forward-looking statement made by an issuer 
        that is subject to the reporting requirements of 
        section 13(a) or section 15(d), or by a person acting 
        on behalf of such issuer, the requirement set forth in 
        paragraph (1)(A) shall be deemed to be satisfied--
                    ``(A) if the oral forward-looking statement 
                is accompanied by a cautionary statement--
                            ``(i) that the particular oral 
                        statement is a forward-looking 
                        statement; and
                            ``(ii) that the actual results 
                        might differ materially from those 
                        projected in the forward-looking 
                        statement; and
                    ``(B) if--
                            ``(i) the oral forward-looking 
                        statement is accompanied by an oral 
                        statement that additional information 
                        concerning factors that could cause 
                        actual results to materially differ 
                        from those in the forward-looking 
                        statement is contained in a readily 
                        available written document, or portion 
                        thereof;
                            ``(ii) the accompanying oral 
                        statement referred to in clause (i) 
                        identifies the document, or portion 
                        thereof, that contains the additional 
                        information about those factors 
                        relating to the forward-looking 
                        statement; and
                            ``(iii) the information contained 
                        in that written document is a 
                        cautionary statement that satisfies the 
                        standard established in paragraph 
                        (1)(A).
            ``(3) Availability.--Any document filed with the 
        Commission or generally disseminated shall be deemed to 
        be readily available for purposes of paragraph (2).
            ``(4) Effect on other safe harbors.--The exemption 
        provided for in paragraph (1) shall be in addition to 
        any exemption that the Commission may establish by rule 
        or regulation under subsection (g).
    ``(d) Duty To Update.--Nothing in this section shall impose 
upon any person a duty to update a forward-looking statement.
    ``(e) Dispositive Motion.--On any motion to dismiss based 
upon subsection (c)(1), the court shall consider any statement 
cited in the complaint and any cautionary statement 
accompanying the forward-looking statement, which are not 
subject to material dispute, cited by the defendant.
    ``(f) Stay Pending Decision on Motion.--In any private 
action arising under this title, the court shall stay discovery 
(other than discovery that is specifically directed to the 
applicability of the exemption provided for in this section) 
during the pendency of any motion by a defendant for summary 
judgment that is based on the grounds that--
            ``(1) the statement or omission upon which the 
        complaint is based is a forward-looking statement 
        within the meaning of this section; and
            ``(2) the exemption provided for in this section 
        precludes a claim for relief.
    ``(g) Exemption Authority.--In addition to the exemptions 
provided for in this section, the Commission may, by rule or 
regulation, provide exemptions from or under any provision of 
this title, including with respect to liability that is based 
on a statement or that is based on projections or other 
forward-looking information, if and to the extent that any such 
exemption is consistent with the public interest and the 
protection of investors, as determined by the Commission.
    ``(h) Effect on Other Authority of Commission.--Nothing in 
this section limits, either expressly or by implication, the 
authority of the Commission to exercise similar authority or to 
adopt similar rules and regulations with respect to forward-
looking statements under any other statute under which the 
Commission exercises rulemaking authority.
    ``(i) Definitions.--For purposes of this section, the 
following definitions shall apply:
            ``(1) Forward-looking statement.--The term 
        `forward-looking statement' means--
                    ``(A) a statement containing a projection 
                of revenues, income (including income loss), 
                earnings (including earnings loss) per share, 
                capital expenditures, dividends, capital 
                structure, or other financial items;
                    ``(B) a statement of the plans and 
                objectives of management for future operations, 
                including plans or objectives relating to the 
                products or services of the issuer;
                    ``(C) a statement of future economic 
                performance, including any such statement 
                contained in a discussion and analysis of 
                financial condition by the management or in the 
                results of operations included pursuant to the 
                rules and regulations of the Commission;
                    ``(D) any statement of the assumptions 
                underlying or relating to any statement 
                described in subparagraph (A), (B), or (C);
                    ``(E) any report issued by an outside 
                reviewer retained by an issuer, to the extent 
                that the report assesses a forward-looking 
                statement made by the issuer; or
                    ``(F) a statement containing a projection 
                or estimate of such other items as may be 
                specified by rule or regulation of the 
                Commission.
            ``(2) Investment company.--The term `investment 
        company' has the same meaning as in section 3(a) of the 
        Investment Company Act of 1940.
            ``(3) Going private transaction.--The term `going 
        private transaction' has the meaning given that term 
        under the rules or regulations of the Commission issued 
        pursuant to section 13(e).
            ``(4) Person acting on behalf of an issuer.--The 
        term `person acting on behalf of an issuer' means any 
        officer, director, or employee of such issuer.
            ``(5) Other terms.--The terms `blank check 
        company', `rollup transaction', `partnership', `limited 
        liability company', `executive officer of an entity' 
        and `direct participation investment program', have the 
        meanings given those terms by rule or regulation of the 
        Commission.''.

SEC. 103. ELIMINATION OF CERTAIN ABUSIVE PRACTICES.

    (a) Prohibition of Referral Fees.--Section 15(c) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o(c)) is amended 
by adding at the end the following new paragraph:
            ``(8) Prohibition of referral fees.--No broker or 
        dealer, or person associated with a broker or dealer, 
        may solicit or accept, directly or indirectly, 
        remuneration for assisting an attorney in obtaining the 
        representation of any person in any private action 
        arising under this title or under the Securities Act of 
        1933.''.
    (b) Prohibition of Attorneys' Fees Paid From Commission 
Disgorgement Funds.--
            (1) Securities act of 1933.--Section 20 of the 
        Securities Act of 1933 (15 U.S.C. 77t) is amended by 
        adding at the end the following new subsection:
    ``(f) Prohibition of Attorneys' Fees Paid From Commission 
Disgorgement Funds.--Except as otherwise ordered by the court 
upon motion by the Commission, or, in the case of an 
administrative action, as otherwise ordered by the Commission, 
funds disgorged as the result of an action brought by the 
Commission in Federal court, or as a result of any Commission 
administrative action, shall not be distributed as payment for 
attorneys' fees or expenses incurred by private parties seeking 
distribution of the disgorged funds.''.
            (2) Securities exchange act of 1934.--Section 21(d) 
        of the Securities Exchange Act of 1934 (15 U.S.C. 
        78u(d)) is amended by adding at the end the following 
        new paragraph:
            ``(4) Prohibition of attorneys' fees paid from 
        commission disgorgement funds.--Except as otherwise 
        ordered by the court upon motion by the Commission, or, 
        in the case of an administrative action, as otherwise 
        ordered by the Commission, funds disgorged as the 
        result of an action brought by the Commission in 
        Federal court, or as a result of any Commission 
        administrative action, shall not be distributed as 
        payment for attorneys' fees or expenses incurred by 
        private parties seeking distribution of the disgorged 
        funds.''.

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

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


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


        and
            (2) by adding at the end the following new 
        subsection:
    ``(f) Prosecution of Persons Who Aid and Abet Violations.--
For purposes of any action brought by the Commission under 
paragraph (1) or (3) of section 21(d), any person that 
knowingly provides substantial assistance to another person in 
violation of a provision of this title, or of any rule or 
regulation issued under this title, shall be deemed to be in 
violation of such provision to the same extent as the person to 
whom such assistance is provided.''.

SEC. 105. LOSS CAUSATION.

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

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

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

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

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

SEC. 108. APPLICABILITY.

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

              TITLE II--REDUCTION OF COERCIVE SETTLEMENTS

SEC. 201. PROPORTIONATE LIABILITY.

    (a) Amendment to Securities and Exchange Act of 1934.--
Section 21D the Securities Exchange Act of 1934 (as added by 
this Act) is amended by adding at the end the following new 
subsection:
    ``(g) Proportionate Liability.--
            ``(1) Applicability.--Nothing in this subsection 
        shall be construed to create, affect, or in any manner 
        modify, the standard for liability associated with any 
        action arising under the securities laws.
            ``(2) Liability for damages.--
                    ``(A) Joint and several liability.--Any 
                covered person against whom a final judgment is 
                entered in a private action shall be liable for 
                damages jointly and severally only if the trier 
                of fact specifically determines that such 
                covered person knowingly committed a violation 
                of the securities laws.
                    ``(B) Proportionate liability.--
                            ``(i) In general.--Except as 
                        provided in paragraph (1), a covered 
                        person against whom a final judgment is 
                        entered in a private action shall be 
                        liable solely for the portion of the 
                        judgment that corresponds to the 
                        percentage of responsibility of that 
                        covered person, as determined under 
                        paragraph (3).
                            ``(ii) Recovery by and costs of 
                        covered person.--In any case in which a 
                        contractual relationship permits, a 
                        covered person that prevails in any 
                        private action may recover the 
                        attorney's fees and costs of that 
                        covered person in connection with the 
                        action.
            ``(3) Determination of responsibility.--
                    ``(A) In general.--In any private action, 
                the court shall instruct the jury to answer 
                special interrogatories, or if there is no 
                jury, shall make findings, with respect to each 
                covered person and each of the other persons 
                claimed by any of the parties to have caused or 
                contributed to the loss incurred by the 
                plaintiff, including persons who have entered 
                into settlements with the plaintiff or 
                plaintiffs, concerning--
                            ``(i) whether such person violated 
                        the securities laws;
                            ``(ii) the percentage of 
                        responsibility of such person, measured 
                        as a percentage of the total fault of 
                        all persons who caused or contributed 
                        to the loss incurred by the plaintiff; 
                        and
                            ``(iii) whether such person 
                        knowingly committed a violation of the 
                        securities laws.
                    ``(B) Contents of special interrogatories 
                or findings.--The responses to interrogatories, 
                or findings, as appropriate, under subparagraph 
                (A) shall specify the total amount of damages 
                that the plaintiff is entitled to recover and 
                the percentage of responsibility of each 
                covered person found to have caused or 
                contributed to the loss incurred by the 
                plaintiff or plaintiffs.
                    ``(C) Factors for consideration.--In 
                determining the percentage of responsibility 
                under this paragraph, the trier of fact shall 
                consider--
                            ``(i) the nature of the conduct of 
                        each covered person found to have 
                        caused or contributed to the loss 
                        incurred by the plaintiff or 
                        plaintiffs; and
                            ``(ii) the nature and extent of the 
                        causal relationship between the conduct 
                        of each such person and the damages 
                        incurred by the plaintiff or 
                        plaintiffs.
            ``(4) Uncollectible share.--
                    ``(A) In general.--Notwithstanding 
                paragraph (2)(B), upon motion made not later 
                than 6 months after a final judgment is entered 
                in any private action, the court determines 
                that all or part of the share of the judgment 
                of the covered person is not collectible 
                against that covered person, and is also not 
                collectible against a covered person described 
                in paragraph (2)(A), each covered person 
                described in paragraph (2)(B) shall be liable 
                for the uncollectible share as follows:
                            ``(i) Percentage of net worth.--
                        Each covered person shall be jointly 
                        and severally liable for the 
                        uncollectible share if the plaintiff 
                        establishes that--
                                    ``(I) the plaintiff is an 
                                individual whose recoverable 
                                damages under the final 
                                judgment are equal to more than 
                                10 percent of the net worth of 
                                the plaintiff; and
                                    ``(II) the net worth of the 
                                plaintiff is equal to less than 
                                $200,000.
                            ``(ii) Other plaintiffs.--With 
                        respect to any plaintiff not described 
                        in subclauses (I) and (II) of clause 
                        (i), each covered person shall be 
                        liable for the uncollectible share in 
                        proportion to the percentage of 
                        responsibility of that covered person, 
                        except that the total liability of a 
                        covered person under this clause may 
                        not exceed 50 percent of the 
                        proportionate share of that covered 
                        person, as determined under paragraph 
                        (3)(B).
                            ``(iii) Net worth.--For purposes of 
                        this subparagraph, net worth shall be 
                        determined as of the date immediately 
                        preceding the date of the purchase or 
                        sale (as applicable) by the plaintiff 
                        of the security that is the subject of 
                        the action, and shall be equal to the 
                        fair market value of assets, minus 
                        liabilities, including the net value of 
                        the investments of the plaintiff in 
                        real and personal property (including 
                        personal residences).
                    ``(B) Overall limit.--In no case shall the 
                total payments required pursuant to 
                subparagraph (A) exceed the amount of the 
                uncollectible share.
                    ``(C) Covered persons subject to 
                contribution.--A covered person against whom 
                judgment is not collectible shall be subject to 
                contribution and to any continuing liability to 
                the plaintiff on the judgment.
            ``(5) Right of contribution.--To the extent that a 
        covered person is required to make an additional 
        payment pursuant to paragraph (4), that covered person 
        may recover contribution--
                    ``(A) from the covered person originally 
                liable to make the payment;
                    ``(B) from any covered person liable 
                jointly and severally pursuant to paragraph 
                (2)(A);
                    ``(C) from any covered person held 
                proportionately liable pursuant to this 
                paragraph who is liable to make the same 
                payment and has paid less than his or her 
                proportionate share of that payment; or
                    ``(D) from any other person responsible for 
                the conduct giving rise to the payment that 
                would have been liable to make the same 
                payment.
            ``(6) Nondisclosure to jury.--The standard for 
        allocation of damages under paragraphs (2) and (3) and 
        the procedure for reallocation of uncollectible shares 
        under paragraph (4) shall not be disclosed to members 
        of the jury.
            ``(7) Settlement discharge.--
                    ``(A) In general.--A covered person who 
                settles any private action at any time before 
                final verdict or judgment shall be discharged 
                from all claims for contribution brought by 
                other persons. Upon entry of the settlement by 
                the court, the court shall enter a bar order 
                constituting the final discharge of all 
                obligations to the plaintiff of the settling 
                covered person arising out of the action. The 
                order shall bar all future claims for 
                contribution arising out of the action--
                            ``(i) by any person against the 
                        settling covered person; and
                            ``(ii) by the settling covered 
                        person against any person, other than a 
                        person whose liability has been 
                        extinguished by the settlement of the 
                        settling covered person.
                    ``(B) Reduction.--If a covered person 
                enters into a settlement with the plaintiff 
                prior to final verdict or judgment, the verdict 
                or judgment shall be reduced by the greater 
                of--
                            ``(i) an amount that corresponds to 
                        the percentage of responsibility of 
                        that covered person; or
                            ``(ii) the amount paid to the 
                        plaintiff by that covered person.
            ``(8) Contribution.--A covered person who becomes 
        jointly and severally liable for damages in any private 
        action may recover contribution from any other person 
        who, if joined in the original action, would have been 
        liable for the same damages. A claim for contribution 
        shall be determined based on the percentage of 
        responsibility of the claimant and of each person 
        against whom a claim for contribution is made.
            ``(9) Statute of limitations for contribution.--In 
        any private action determining liability, an action for 
        contribution shall be brought not later than 6 months 
        after the entry of a final, nonappealable judgment in 
        the action, except that an action for contribution 
        brought by a covered person who was required to make an 
        additional payment pursuant to paragraph (4) may be 
        brought not later than 6 months after the date on which 
        such payment was made.
            ``(10) Definitions.--For purposes of this 
        subsection--
                    ``(A) a covered person `knowingly commits a 
                violation of the securities laws'--
                            ``(i) with respect to an action 
                        that is based on an untrue statement of 
                        material fact or omission of a material 
                        fact necessary to make the statement 
                        not misleading, if--
                                    ``(I) that covered person 
                                makes an untrue statement of a 
                                material fact, with actual 
                                knowledge that the 
                                representation is false, or 
                                omits to state a fact necessary 
                                in order to make the statement 
                                made not misleading, with 
                                actual knowledge that, as a 
                                result of the omission, one of 
                                the material representations of 
                                the covered person is false; 
                                and
                                    ``(II) persons are likely 
                                to reasonably rely on that 
                                misrepresentation or omission; 
                                and
                            ``(ii) with respect to an action 
                        that is based on any conduct that is 
                        not described in clause (i), if that 
                        covered person engages in that conduct 
                        with actual knowledge of the facts and 
                        circumstances that make the conduct of 
                        that covered person a violation of the 
                        securities laws;
                    ``(B) reckless conduct by a covered person 
                shall not be construed to constitute a knowing 
                commission of a violation of the securities 
                laws by that covered person;
                    ``(C) the term `covered person' means--
                            ``(i) a defendant in any private 
                        action arising under this title; or
                            ``(ii) a defendant in any private 
                        action arising under section 11 of the 
                        Securities Act of 1933, who is an 
                        outside director of the issuer of the 
                        securities that are the subject of the 
                        action; and
                    ``(D) the term `outside director' shall 
                have the meaning given such term by rule or 
                regulation of the Commission.''.
    (b) Amendments to the Securities Act of 1933.--Section 
11(f) of the Securities Act of 1933 (12 U.S.C. 77k(f)) is 
amended--
            (1) by striking ``All'' and inserting ``(1) Except 
        as provided in paragraph (2), all''; and
            (2) by adding at the end the following new 
        paragraph:
    ``(2)(A) The liability of an outside director under 
subsection (e) shall be determined in accordance with section 
38 of the Securities Exchange Act of 1934.
    ``(B) For purposes of this paragraph, the term `outside 
director' shall have the meaning given such term by rule or 
regulation of the Commission .''.

SEC. 202. APPLICABILITY.

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

SEC. 203. RULE OF CONSTRUCTION.

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

            TITLE III--AUDITOR DISCLOSURE OF CORPORATE FRAUD

SEC. 301. FRAUD DETECTION AND DISCLOSURE.

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

``SEC. 10A. AUDIT REQUIREMENTS.

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

                    From the Committee on Commerce, for 
                consideration of the House bill, and the Senate 
                amendment, and modifications committed to 
                conference:
                                   Thomas Bliley,
                                   Billy Tauzin,
                                   Jack Fields,
                                   Chris Cox,
                                   Richard F. White,
                                   Anna G. Eshoo,
                    As additional conferees from the Committee 
                on the Judiciary, for consideration of the 
                House bill, and the Senate amendment, and 
                modifications committed to conference:
                                   Bill McCollum,
                                 Managers on the Part of the House.

                                   Alfonse D'Amato,
                                   Phil Gramm,
                                   Robert F. Bennett,
                                   Rod Grams,
                                   Pete V. Domenici,
                                   Christopher Dodd,
                                   John F. Kerry,
                                Managers on the Part of the Senate.
       JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE

      The managers on the part of the House and the Senate at 
the conference on the disagreeing votes of the two Houses on 
the amendments of the Senate to the bill (H.R. 1058) to reform 
Federal securities litigation, and for other purposes, submit 
the following joint statement to the House and the Senate in 
explanation of the effect of the action agreed upon by the 
managers and recommended in the accompanying conference report:

 Statement of Managers--The ``Private Securities Litigation Reform Act 
                               of 1995''

      The overriding purpose of our Nation's securities laws is 
to protect investors and to maintain confidence in the 
securities markets, so that our national savings, capital 
formation and investment may grow for the benefit of all 
Americans.
      The private securities litigation system is too important 
to the integrity of American capital markets to allow this 
system to be undermined by those who seek to line their own 
pockets by bringing abusive and meritless suits. Private 
securities litigation is an indispensable tool with which 
defrauded investors can recover their losses without having to 
rely upon government action. Such private lawsuits promote 
public and global confidence in our capital markets and help to 
deter wrongdoing and to guarantee that corporate officers, 
auditors, directors, lawyers and others properly perform their 
jobs. This legislation seeks to return the securities 
litigation system to that high standard.
      Congress has been prompted by significant evidence of 
abuse in private securities lawsuits to enact reforms to 
protect investors and maintain confidence in our capital 
markets. The House and Senate Committees heard evidence that 
abusive practices committed in private securities litigation 
include: (1) the routine filing of lawsuits against issuers of 
securities and others whenever there is a significant change in 
an issuer's stock price, without regard to any underlying 
culpability of the issuer, and with only faint hope that the 
discovery process might lead eventually to some plausible cause 
of action; (2) the targeting of deep pocket defendants, 
including accountants, underwriters, and individuals who may be 
covered by insurance, without regard to their actual 
culpability; (3) the abuse of the discovery process to impose 
costs so burdensome that it is often economical for the 
victimized party to settle; and (4) the manipulation by class 
action lawyers of the clients whom they purportedly represent. 
These serious injuries to innocent parties are compounded by 
the reluctance of many judges to impose sanctions under Federal 
Rule of Civil Procedure 11, except in those cases involving 
truly outrageous misconduct. At the same time, the investing 
public and the entire U.S. economy have been injured by the 
unwillingness of the best qualified persons to serve on boards 
of directors and of issuers to discuss publicly their future 
prospects, because of fear of baseless and extortionate 
securities lawsuits.
      In these and other examples of abusive and manipulative 
securities litigation, innocent parties are often forced to pay 
exorbitant ``settlements.'' When an insurer must pay lawyers' 
fees, make settlement payments, and expend management and 
employee resources in defending a meritless suit, the issuers' 
own investors suffer. Investors always are the ultimate losers 
when extortionate ``settlements'' are extracted from issuers.
      This Conference Report seeks to protect investors, 
issuers, and all who are associated with our capital markets 
from abusive securities litigation. This legislation implements 
needed procedural protections to discourage frivolous 
litigation. It protects outside directors, and others who may 
be sued for non-knowing securities law violations, from 
liability for damage actually caused by others. It reforms 
discovery rules to minimize costs incurred during the pendency 
of a motion to dismiss or a motion for summary judgment. It 
protects investors who join class actions against lawyer-driven 
lawsuits by giving control of the litigation to lead plaintiffs 
with substantial holdings of the securities of the issuer. It 
gives victims of abusive securities lawsuits the opportunity to 
recover their attorneys' fees at the conclusion of an action. 
And it establishes a safe harbor for forward looking 
statements, to encourage issuers to disseminate relevant 
information to the market without fear of open-ended liability.

                  private securities litigation reform

      Section 101 contains provisions to reform abusive 
securities class action litigation. It amends the Securities 
Act of 1933 (the ``1933 Act'') by adding a new section 27 and 
the Securities Exchange Act of 1934 (the ``1934 Act'') by 
adding a new section 21D. These provisions are intended to 
encourage the most capable representatives of the plaintiff 
class to participate in class action litigation and to exercise 
supervision and control of the lawyers for the class. These 
provisions are intended to increase the likelihood that parties 
with significant holdings in issuers, whose interests are more 
strongly aligned with the class of shareholders, will 
participate in the litigation and exercise control over the 
selection and actions of plaintiff's counsel. The legislation 
also provides that all discovery is stayed during the pendency 
of any motion to dismiss or for summary judgment. These stay of 
discovery provisions are intended to prevent unnecessary 
imposition of discovery costs on defendants.

         the professional plaintiff and lead plaintiff problems

      House and Senate Committee hearings on securities 
litigation reform demonstrated the need to reform abuses 
involving the use of ``professional plaintiffs'' and the race 
to the courthouse to file the complaint.
      Professional plaintiffs who own a nominal number of 
shares in a wide array of public companies permit lawyers 
readily to file abusive securities class action lawsuits. Floor 
debate in the Senate highlighted that many of the ``world's 
unluckiest investors'' repeatedly appear as lead plaintiffs in 
securities class action lawsuits. These lead plaintiffs often 
receive compensation in the form of bounty payments or bonuses.
      The Conference Committee believes these practices have 
encouraged the filing of abusive cases. Lead plaintiffs are not 
entitled to a bounty for their services. Individuals who are 
motivated by the payment of a bounty or bonus should not be 
permitted to serve as lead plaintiffs. These individuals do not 
adequately represent other shareholders--in many cases the 
``lead plaintiff'' has not even read the complaint.
      The Conference Committee believes that several new rules 
will effectively discourage the use of professional plaintiffs.
Plaintiff certification of the complaint
      This legislation requires, in new section 27(a)(2) of the 
1933 Act and new section 21D(a)(2) of the 1934 Act, that the 
lead plaintiff file a sworn certified statement with the 
complaint. The statement must certify that the plaintiff: (a) 
reviewed and authorized the filing of the complaint; (b) did 
not purchase the securities at the direction of counsel or in 
order to participate in a lawsuit; and (c) is willing to serve 
as the lead plaintiff on behalf of the class. To further deter 
the use of professional plaintiffs, the plaintiff must also 
identify any transactions in the securities covered by the 
class period, and any other lawsuits in which the plaintiff has 
sought to serve as lead plaintiff in the last three years.\1\
    Footnotes at end of article.
---------------------------------------------------------------------------
Method for determining the ``most adequate plaintiff''
      The Conference Committee was also troubled by the 
plaintiffs' lawyers ``race to the courthouse'' to be the first 
to file a securities class action complaint. This race has 
caused plaintiffs' attorneys to become fleet of foot and 
sleight of hand. Most often speed has replaced diligence in 
drafting complaints. The Conference Committee believes two 
incentives have driven plaintiffs' lawyers to be the first to 
file. First, courts traditionally appoint counsel in class 
action lawsuits on a ``first come, first serve'' basis. Courts 
often afford insufficient consideration to the most thoroughly 
researched, but later filed, complaint. The second incentive 
involves the court's decision as to who will become lead 
plaintiff. Generally, the first lawsuit filed also determines 
the lead plaintiff.
      The Conference Committee believes that the selection of 
the lead plaintiff and lead counsel should rest on 
considerations other than how quickly a plaintiff has filed its 
complaint. As a result, this legislation establishes new 
procedures for the appointment of the lead plaintiff and lead 
counsel in securities class actions in new section 27(a)(3) of 
the 1933 Act and new section 21D(a)(3) of the 1934 Act.
      A plaintiff filing a securities class action must, within 
20 days of filing a complaint, provide notice to members of the 
purported class in a widely circulated business publication. 
This notice must identify the claims alleged in the lawsuit and 
the purported class period and inform potential class members 
that, within 60 days, they may move to serve as the lead 
plaintiff. Members of the purported class who seek to serve as 
lead plaintiff do not have to file the certification filing as 
part of this motion. ``Publication'' includes a variety of 
media, including wire, electronic or computer services.\2\
      Within 90 days of the published notice, the court must 
consider motions made under this section and appoint the lead 
plaintiff. If a motion has been filed to consolidate multiple 
class actions brought on behalf of the same class, the court 
will not appoint a lead plaintiff until after consideration of 
the motion.
      The current system often works to prevent institutional 
investors from selecting counsel or serving as lead plaintiff 
in class actions.\3\ The Conference Committee seeks to increase 
the likelihood that institutional investors will serve as lead 
plaintiffs by requiring courts to presume that the member of 
the purported class with the largest financial stake in the 
relief sought is the ``most adequate plaintiff.''
      The Conference Committee believes that increasing the 
role of institutional investors in class actions will 
ultimately benefit shareholders and assist courts by improving 
the quality of representation in securities class actions. 
Institutional investors are America's largest shareholders, 
with about $9.5 trillion in assets, accounting for 51% of the 
equity market. According to one representative of institutional 
investors: ``As the largest shareholders in most companies, we 
are the ones who have the most to gain from meritorious 
securities litigation.'' \4\
      Several Senators expressed concern during floor 
consideration of this legislation that preference would be 
given to large investors, and that large investors might 
conspire with the defendant company's management. The 
Conference Committee believes, however, that with pension funds 
accounting for $4.5 trillion \5\ or nearly half of the 
institutional assets, in many cases the beneficiaries of 
pension funds--small investors--ultimately have the greatest 
stake in the outcome of the lawsuit. Cumulatively, these small 
investors represent a single large investor interest. 
Institutional investors and other class members with large 
amounts at stake will represent the interests of the plaintiff 
class more effectively than class members with small amounts at 
stake. The claims of both types of class members generally will 
be typical.
      The Conference Committee recognizes the potential 
conflicts that could be caused by the shareholder with the 
``largest financial stake'' serving as lead plaintiff. As a 
result, this presumption may be rebutted by evidence that the 
plaintiff would not fairly and adequately represent the 
interests of the class or is subject to unique defenses. 
Members of the purported class may seek discovery on whether 
the presumptively most adequate plaintiff would not adequately 
represent the class. The provisions of the bill relating to the 
appointment of a lead plaintiff are not intended to affect 
current law with regard to challenges to the adequacy of the 
class representative or typicality of the claims among the 
class.
      Although the most adequate plaintiff provision does not 
confer any new fiduciary duty on institutional investors--and 
the courts should not impose such a duty--the Conference 
Committee nevertheless intends that the lead plaintiff 
provision will encourage institutional investors to take a more 
active role in securities class action lawsuits. Scholars 
predict that increasing the role of institutional investors 
will benefit both injured shareholders and courts: 
``Institutions with large stakes in class actions have much the 
same interests as the plaintiff class generally; thus, courts 
could be more confident settlements negotiated under the 
supervision of institutional plaintiffs were `fair and 
reasonable' than is the case with settlements negotiated by 
unsupervised plaintiffs' attorneys.'' \6\
      Finally, this lead plaintiff provision solves the dilemma 
of who will serve as class counsel. Subject to court approval, 
the most adequate plaintiff retains class counsel. As a result, 
the Conference Committee expects that the plaintiff will choose 
counsel rather than, as is true today, counsel choosing the 
plaintiff. The Conference Committee does not intend to disturb 
the court's discretion under existing law to approve or 
disapprove the lead plaintiff's choice of counsel when 
necessary to protect the interests of the plaintiff class.
      The Conference Report seeks to restrict professional 
plaintiffs from serving as lead plaintiff by limiting a person 
from serving in that capacity more than five times in three 
years. Institutional investors seeking to serve as lead 
plaintiff may need to exceed this limitation and do not 
represent the type of professional plaintiff this legislation 
seeks to restrict. As a result, the Conference Committee grants 
courts discretion to avoid the unintended consequence of 
disqualifying institutional investors from serving more than 
five times in three years. The Conference Committee does not 
intend for this provision to operate at cross purposes with the 
``most adequate plaintiff'' provision. The Conference Committee 
does expect, however, that it will be used with vigor to limit 
the activities of professional plaintiffs.
Limitation on lead plaintiff's recovery
      This legislation also removes the financial incentive for 
becoming a lead plaintiff. New section 27(a)(4) of the 1933 Act 
and section 21D(a)(4) of the 1934 Act limits the class 
representative's recovery to his or her pro rata share of the 
settlement or final judgment. The lead plaintiff's share of the 
final judgment or settlement will be calculated in the same 
manner as the shares of the other class members. The Conference 
Committee recognizes that lead plaintiffs should be reimbursed 
for reasonable costs and expenses associated with service as 
lead plaintiff, including lost wages, and grants the courts 
discretion to award fees accordingly.

                 improvements to the settlement process

Restriction on sealed settlement agreements
      New section 27(a)(5) of the 1933 Act and section 
21D(a)(5) of the 1934 Act generally bar the filing of 
settlement agreements under seal. The Conference Committee 
recognizes that legitimate reasons may exist for the court to 
permit the entry of a settlement or portions of a settlement 
under seal. A party must show ``good cause,'' i.e., that the 
publication of a portion or portions of the settlement 
agreement would result in direct and substantial harm to any 
party, whether or not a party to the action. The Conference 
Committee intends ``direct and substantial harm'' to include 
proof of reputational injury to a party.
Limitation on attorney's fees
      The House and Senate heard testimony that counsel in 
securities class actions often receive a disproportionate share 
of settlement awards.
      Under current practice, courts generally award attorney's 
fees based on the so-called ``lodestar'' approach--i.e., the 
court multiplies the attorney's hours by a reasonable hourly 
fee, which may be increased by an additional amount based on 
risk or other relevant factors.\7\ Under this approach, 
attorney's fees can constitute 35% or more of the entire 
settlement awarded to the class. The Conference Committee 
limits the award of attorney's fees and costs to counsel for a 
class in new section 27(a)(6) of the 1933 Act and new section 
21D(a)(6) of the 1934 Act to a reasonable percentage of the 
amount of recovery awarded to the class. By not fixing the 
percentage of fees and costs counsel may receive, the 
Conference Committee intends to give the court flexibility in 
determining what is reasonable on a case-by-case basis. The 
Conference Committee does not intend to prohibit use of the 
lodestar approach as a means of calculating attorney's fees. 
The provision focuses on the final amount of fees awarded, not 
the means by which such fees are calculated.
Improved settlement notice to class members
      The House and Senate heard testimony that class members 
frequently lack meaningful information about the terms of the 
proposed settlement.\8\ Class members often receive 
insufficient notice of the terms of a proposed settlement and, 
thus, have no basis to evaluate the settlement. As one bar 
association advised the Senate Securities Subcommittee, 
``settlement notices provided to class members are often obtuse 
and confusing, and should be written in plain English.'' \9\ 
The Senate received similar testimony from a class member in 
two separate securities fraud lawsuits: ``Nowhere in the 
settlement notices were the stockholders told of how much they 
could expect to recover of their losses. . . . I feel that the 
settlement offer should have told the stockholders how little 
of their losses will be recovered in the settlement, and that 
this is a material fact to the shareholder's decision to 
approve or disapprove the settlement.'' \10\
      In new section 27(a)(7) of the 1933 Act and new section 
21D(a)(7) of the 1934 Act, the Conference Committee requires 
that certain information be included in any proposed or final 
settlement agreement disseminated to class members. To ensure 
that critical information is readily available to class 
members, the Conference Committee requires that such 
information appear in summary form on the cover page of the 
notice. The notice must contain a statement of the average 
amount of damages per share that would be recoverable if the 
settling parties can agree on a figure, or a statement from 
each settling party on why there is disagreement. It must also 
explain the attorney's fees and costs sought. The name, 
telephone number and address of counsel for the class must be 
provided. Most importantly, the notice must include a brief 
statement explaining the reason for the proposed settlement.

                  major securities class action abuses

Limits on abusive discovery to prevent ``fishing expedition'' lawsuits
      The cost of discovery often forces innocent parties to 
settle frivolous securities class actions. According to the 
general counsel of an investment bank, ``discovery costs 
account for roughly 80% of total litigation costs in securities 
fraud cases.'' \11\ In addition, the threat that the time of 
key employees will be spent responding to discovery requests, 
including providing deposition testimony, often forces coercive 
settlements.
      The House and Senate heard testimony that discovery in 
securities class actions often resembles a fishing expedition. 
As one witness noted, ``once the suit is filed, the plaintiff's 
law firm proceeds to search through all of the company's 
documents and take endless depositions for the slightest 
positive comment which they can claim induced the plaintiff to 
invest and any shred of evidence that the company knew a 
downturn was coming.'' \12\
      The Conference Committee provides in new section 27(b) of 
the 1933 Act and new section 21D(b)(3) of the 1934 Act that 
courts must stay all discovery pending a ruling on a motion to 
dismiss, unless exceptional circumstances exist where 
particularized discovery is necessary to preserve evidence or 
to prevent undue prejudice to a party. For example, the 
terminal illness of an important witness might require the 
deposition of the witness prior to the ruling on the motion to 
dismiss.
      To ensure that relevant evidence will not be lost, new 
section 27(b) of the 1933 Act and new section 21D(b)(3) of the 
1934 Act make it unlawful for any person, upon receiving actual 
notice that names that person as a defendant, willfully to 
destroy or otherwise alter relevant evidence. The Conference 
Committee intends this provision to prohibit only the willful 
alteration or destruction of evidence relevant to the 
litigation. The provision does not impose liability where 
parties inadvertently or unintentionally destroy what turn out 
later to be relevant documents. Although this prohibition 
expressly applies only to defendants, the Conference Committee 
believes that the willful destruction of evidence by a 
plaintiff would be equally improper, and that courts have ample 
authority to prevent such conduct or to apply sanctions as 
appropriate.
``Fair share'' rule of proportionate liability
      One of the most manifestly unfair aspects of the current 
system of securities litigation is its imposition of liability 
on one party for injury actually caused by another. Under 
current law, a single defendant who has been found to be 1% 
liable may be forced to pay 100% of the damages in the case. 
The Conference Committee remedies this injustice by providing a 
``fair share'' system of proportionate liability. As former SEC 
Chairman Richard Breeden testified, under the current regime of 
joint and several liability, ``parties who are central to 
perpetrating a fraud often pay little, if anything. At the same 
time, those whose involvement might be only peripheral and 
lacked any deliberate and knowing participation in the fraud 
often pay the most in damages.'' \13\
      The current system of joint and several liability creates 
coercive pressure for entirely innocent parties to settle 
meritless claims rather than risk exposing themselves to 
liability for a grossly disproportionate share of the damages 
in the case.
      In many cases, exposure to this kind of unlimited and 
unfair risk has made it impossible for firms to attract 
qualified persons to serve as outside directors. Both the House 
and Senate Committees repeatedly heard testimony concerning the 
chilling effect of unlimited exposure to meritless securities 
litigation on the willingness of capable people to serve on 
company boards. SEC Chairman Levitt himself testified that 
``there [were] the dozen or so entrepreneurial firms whose 
invitations [to be an outside director] I turned down because 
they could not adequately insure their directors . . . . 
[C]ountless colleagues in business have had the same 
experience, and the fact that so many qualified people have 
been unable to serve is, to me, one of the most lamentable 
problems of all.'' \14\ This result has injured the entire U.S. 
economy.
      Accordingly, the Conference Committee has reformed the 
traditional rule of joint and several liability. The Conference 
Report specifically applies this reform to the liability of 
outside directors under Section 11 of the 1933 Act,\15\ because 
the current imposition of joint and several liability for non-
knowing Section 11 violations by outside directors presents a 
particularly glaring example of unfairness. By relieving 
outside directors of the specter of joint and several liability 
under Section 11 for non-knowing conduct, Section 201 of the 
Conference Report will reduce the pressure placed by meritless 
litigation on the willingness of capable outsiders to serve on 
corporate boards.
      In addition, Section 201 will provide the same ``fair 
share'' rule of liability, rather than joint and several 
liability, for all 1934 Act cases in which liability can be 
predicated on non-knowing conduct.\16\
      In applying the ``fair share'' rule of proportionate 
liability to cases involving non-knowing securities violations, 
the Conference Committee explicitly determined that the 
legislation should make no change to the state of mind 
requirements of existing law. Accordingly, the definition of 
``knowing'' conduct in the Conference Report is written to 
conform to existing statutory standards, and Section 201 of the 
Conference Report makes clear that the ``fair share'' rule of 
proportionate liability does not create any new cause of action 
or expand, diminish, or otherwise affect the substantive 
standard for liability in any action under the 1933 Act or the 
1934 Act. This section of the Conference Report further 
provides that the standard of liability in any such action 
should be determined by the pre-existing, unamended statutory 
provision that creates the cause of action, without regard to 
this provision, which applies solely to the allocation of 
damages.
      The Conference Report imposes full joint and several 
liability, as under current law, on defendants who engage in 
knowing violations of the securities laws. Defendants who are 
found liable but have not engaged in knowing violations are 
responsible only for their share of the judgment (based upon 
the fact finder's apportionment of responsibility), with two 
key exceptions. First, all defendants are jointly and severally 
liable with respect to the claims of certain plaintiffs. Such 
plaintiffs are defined in the Conference Report as those who 
establish that (i) they are entitled to damages exceeding 10% 
of their net worth, and (ii) their net worth is less than 
$200,000. The $200,000 net worth test does not reflect a 
judgment by the Conference Committee that investors who fall 
below this standard are ``small,'' unsophisticated, or in need 
of or entitled to any special protection under the securities 
laws. Second, if a defendant cannot pay their allocable share 
of the damages due to insolvency, each of the other defendants 
must make an additional payment--up to 50% of their own 
liability--to make up the shortfall in the plaintiff's 
recovery.
      The Conference Committee recognizes that private parties 
may wish to allocate attorney's fees and costs according to a 
formula negotiated previously by contract. Accordingly, the 
Conference Report provides that where authorized by contract a 
prevailing defendant may recover attorney's fees and costs. The 
Conference Report does not change the enforceability of 
indemnification contracts in the event of settlement.
Attorneys' fees awarded to prevailing parties in abusive litigation
      The Conference Committee recognizes the need to reduce 
significantly the filing of meritless securities lawsuits 
without hindering the ability of victims of fraud to pursue 
legitimate claims. The Conference Committee seeks to solve this 
problem by strengthening the application of Rule 11 of the 
Federal Rules of Civil Procedure in private securities actions.
      Existing Rule 11 has not deterred abusive securities 
litigation.\17\ Courts often fail to impose Rule 11 sanctions 
even where such sanctions are warranted. When sanctions are 
awarded, they are generally insufficient to make whole the 
victim of a Rule 11 violation: the amount of the sanction is 
limited to an amount that the court deems sufficient to deter 
repetition of the sanctioned conduct, rather than imposing a 
sanction that equals the costs imposed on the victim by the 
violation. Finally, courts have been unable to apply Rule 11 to 
the complaint in such a way that the victim of the ensuing 
lawsuit is compensated for all attorneys' fees and costs 
incurred in the entire action.
      The legislation gives teeth to Rule 11 in new section 
27(c) of the 1933 Act and new section 21D(c) of the 1934 Act by 
requiring the court to include in the record specific findings, 
at the conclusion of the action, as to whether all parties and 
all attorneys have complied with each requirement of Rule 11(b) 
of the Federal Rules of Civil Procedure.
      These provisions also establish the presumption that the 
appropriate sanction for filing a complaint that violates Rule 
11(b) is an award to the prevailing party of all attorney's 
fees and costs incurred in the entire action. The Conference 
Report provides that, if the action is brought for an improper 
purpose, is unwarranted by existing law or legally frivolous, 
is not supported by facts, or otherwise fails to satisfy the 
requirements set forth in Rule 11(b), the prevailing party 
presumptively will be awarded its attorneys' fees and costs for 
the entire action. This provision does not mean that a party 
who is sanctioned for only a partial failure of the complaint 
under Rule 11, such as one count out of a 20-count complaint, 
must pay for all of the attorney's fees and costs associated 
with the action. The Conference Committee expects that courts 
will grant relief from the presumption where a de minimis 
violation of the Rule has occurred. Accordingly, the Conference 
Committee specifies that the failure of the complaint must be 
``substantial'' and makes the presumption rebuttable.
      For Rule 11(b) violations involving responsive pleadings 
or dispositive motions, the rebuttable presumption is an award 
of attorneys' fees and costs incurred by the victim of the 
violation as a result of that particular pleading or motion.
      A party may rebut the presumption of sanctions by 
providing that: (i) the violation was de minimis; or (ii) the 
imposition of fees and costs would impose an undue burden and 
be unjust, and it would not impose a greater burden for the 
prevailing party to have to pay those same fees and costs. The 
premise of this test is that, when an abusive or frivolous 
action is maintained, it is manifestly unjust for the victim of 
the violation to bear substantial attorneys' fees. The 
Conference Committee recognizes that little in the way of 
justice can be achieved by attempting to compensate the 
prevailing party for lost time and such other measures of 
damages as injury to reputation; hence it has written into law 
the presumption that a prevailing party should not have the 
cost of attorney's fees added as insult to the underlying 
injury. If a party successfully rebuts the presumption, the 
court then impose sanctions consistent with Rule 11(c)(2).\18\ 
The Conference Committee intends this provision to impose upon 
courts the affirmative duty to scrutinize filings closely and 
to sanction attorneys or parties whenever their conduct 
violates Rule 11(b).
Limitation on attorney's conflict of interest
      The Conference Committee believes that, in the context of 
class action lawsuits, it is a conflict of interest for a class 
action lawyer to benefit from the outcome of the case where the 
lawyer owns stock in the company being sued. Accordingly, new 
section 27(a)(8) of the 1933 Act and new section 21D(a)(9) 
requires the court to determine whether a lawyer who owns 
securities in the defendant company and who seeks to represent 
the plaintiff class in a securities class action should be 
disqualified from representing the class.
Bonding for payment of fees and expenses
      The house hearings on securities litigation reform 
revealed the need for explicit authority for courts to require 
undertakings for attorney's fees and costs from parties, or 
their counsel, or both, in order to ensure the viability of 
potential sanctions as a deterrent to meritless litigation.\19\ 
Congress long ago authorized similar undertakings in the 
express private right of action in Section 11 of the 1933 Act 
and in Sections 9 and 18 of the 1934 Act. The availability of 
such undertakings in private securities actions will be an 
important means of ensuring that the provision of the 
Conference Report authorizing the award of attorneys' fees and 
costs under Rule 11 will not become, in practice, a one-way 
mechanism only usable to sanction parties with deep 
pockets.\20\
      The legislation expressly provides that such undertakings 
may be required of parties' attorneys in lieu of, or in 
addition to, the parties themselves. In this regard, the 
Conference Committee intends to preempt any contrary state bar 
restrictions that much inhibit attorneys' provision of such 
undertakings in behalf of their clients. The Conference 
Committee anticipates, for example, that where a judge 
determines to require an undertaking in a class action, such an 
undertaking would ordinarily be imposed on plaintiffs' counsel 
rather than upon the plaintiff class, both because the 
financial resources of counsel would ordinarily be more 
extensive than those of an individual class member and because 
counsel are better situated than class members to evaluate the 
merits of cases and individual motions. This provision is 
intended to effectuate the remedial purposes of the bill's Rule 
11 provision.

               requirements for securities fraud actions

Heightened pleading standard
      Naming a party in a civil suit for fraud is a serious 
matter. Unwarranted fraud claims can lead to serious injury to 
reputation for which our legal system effectively offers no 
redress. For this reason, among others, Rule 9(b) of the 
Federal Rules of Civil Procedure requires that plaintiffs plead 
allegations of fraud with ``particularity.'' The Rule has not 
prevented abuse of the securities laws by private 
litigants.\21\ Moreover, the courts of appeals have interpreted 
Rule 9(b)'s requirement in conflicting ways, creating 
distinctly different standards among the circuits.\22\ The 
House and Senate hearings on securities litigation reform 
included testimony on the need to establish uniform and more 
stringent pleading requirements to curtail the filing of 
meritless lawsuits.
      The Conference Committee language is based in part on the 
pleading standard of the Second Circuit. The standard also is 
specifically written to conform the language to Rule 9(b)'s 
notion of pleading with ``particularity.''
      Regarded as the most stringent pleading standard, the 
Second Circuit requirement is that the plaintiff state facts 
with particularity, and that these facts, in turn, must give 
rise to a ``strong inference'' of the defendant's fraudulent 
intent. Because the Conference Committee intends to strengthen 
existing pleading requirements, it does not intend to codify 
the Second Circuit's case law interpreting this pleading 
standard.\23\ The plaintiff must also specifically plead with 
particularity each statement alleged to have been misleading. 
The reason or reasons why the statement is misleading must also 
be set forth in the compliant in detail. If an allegation is 
made on information and belief, the plaintiff must state with 
particularity all facts in the plaintiff's possession on which 
the belief is formed.
Loss causation
      The Conference Committee also requires the plaintiff to 
plead and then to prove that the misstatement or omission 
alleged in the complaint actually caused the loss incurred by 
the plaintiff in new Section 21D(b)(4) of the 1934 Act. For 
example, the plaintiff would have to prove that the price at 
which the plaintiff bought the stock was artificially inflated 
as the result of the misstatement or omission.

                                damages

Written interrogatories
      In an action to recover money damages, the Conference 
Committee requires the court to submit written interrogatories 
to the jury on the issue of defendant's state of mind at the 
time of the violation. In expressly providing for certain 
interrogatories, the Committee does not intend to otherwise 
prohibit or discourage the submission of interrogatories 
concerning the mental state or relative fault of the plaintiff 
and of persons who could have been joined as defendants. For 
example, interrogatories may be appropriate in contribution 
proceedings among defendants or in computing liability when 
some of the defendants have entered into settlement with the 
plaintiff prior to verdict or judgment.
Limitation on ``windfall'' damages
      The current method of calculating damages in 1934 Act 
securities fraud cases is complex and uncertain. As a result, 
there are often substantial variations in the damages 
calculated by the defendants and the plaintiffs. Typically, in 
an action involving a fraudulent misstatement or omission, the 
investor's damages are presumed to be the difference between 
the price the investor paid for the security and the price of 
the security on the day the corrective information gets 
disseminated to the market.
      Between the time a misrepresentation is made and the time 
the market receives corrected information, however, the price 
of the security may rise or fall for reasons unrelated to the 
alleged fraud. According to an analysis provided to the Senate 
Securities Subcommittee, on average, damages in securities 
litigation comprise approximately 27.7% \24\ of market loss. 
Calculating damages based on the date corrective information is 
disclosed may end up substantially overestimating plaintiff's 
damages.\25\ The Conference Committee intends to rectify the 
uncertainty in calculating damages in new section 21D(e) of the 
1934 Act by providing a ``look back'' period, thereby limiting 
damages to those losses caused by the fraud and not by other 
market conditions.
      This provision requires that plaintiff's damages be 
calculated based on the ``mean trading price'' of the security. 
This calculation takes into account the value of the security 
on the date plaintiff originally bought or sold the security 
and the value of the security during the 90-day period after 
dissemination of any information correcting the misleading 
statement or omission. If the plaintiff sells those securities 
or repurchases the subject securities during the 90-day period, 
damages will be calculated based on the price of that 
transaction and the value of the security immediately after the 
dissemination of corrective information.

               safe harbor for forward-looking statements

The muzzling effect of abusive securities litigation
      Abusive litigation severely affects the willingness of 
corporate managers to disclose information to the marketplace. 
Former SEC Chairman Richard Breeden testified in a Senate 
Securities Subcommittee hearing on this subject: ``Shareholders 
are also damaged due to the chilling effect of the current 
system on the robustness and candor of disclosure. . . . 
Understanding a company's own assessment of its future 
potential would be among the most valuable information 
shareholders and potential investors could have about a firm.'' 
\26\
      Fear that inaccurate projections will trigger the filing 
of securities class action lawsuit has muzzled corporate 
management. One study found that over two-thirds of venture 
capital firms were reluctant to discuss their performance with 
analysts or the public because of the threat of litigation.\27\ 
Anecdotal evidence similarly indicates corporate counsel advise 
clients to say as little as possible, because ``legions of 
lawyers scrub required filings to ensure that disclosures are 
as milquetoast as possible, so as to provide no grist for the 
litigation mill.'' \28\
      Technology companies--because of the volatility of their 
stock prices--are particularly vulnerable to securities fraud 
lawsuits when projections do not materialize. If a company 
fails to satisfy its announced earnings projections--perhaps 
because of changes in the economy or the timing of an order or 
new product--the company is likely to face a lawsuit.
A statutory safe harbor for forward-looking statements
      The Conference Committee has adopted a statutory ``safe 
harbor'' to enhance market efficiency by encouraging companies 
to disclose forward-looking information. This provision adds a 
new section 27A to the 1933 Act and a new section 21E of the 
1934 Act which protects from liability in private lawsuits 
certain ``forward-looking'' statements made by persons 
specified in the legislation.\29\
      The Conference Committee has crafted a safe harbor that 
differs from the safe harbor provisions in the House and Senate 
passed bills. The Conference Committee safe harbor, like the 
Senate safe harbor, is based on aspects of SEC Rule 175 and the 
judicial created ``bespeaks caution'' doctrine. It is a 
bifurcated safe harbor that permits greater flexibility to 
those who may avail themselves of safe harbor protection. There 
is also a special safe harbor for issuers who make oral 
forward-looking statements.
      The first prong of the safe harbor protects a written or 
oral forward-looking statement that is: (i) identified as 
forward-looking, and (ii) accompanied by meaningful cautionary 
statements identifying important factors that could cause 
actual results to differ materially from those projected in the 
statement.
      Under this first prong of the safe harbor, boilerplate 
warnings will not suffice as meaningful cautionary statements 
identifying important factors that could cause actual results 
to differ materially from those projected in the statement. The 
cautionary statements must convey substantive information about 
factors that realistically could cause results to differ 
materially from those projected in the forward-looking 
statement, such as, for example, information about the issuer's 
business.
      As part of the analysis of what constitutes a meaningful 
cautionary statement, courts should consider the factors 
identified in the statements. ``Important'' factors means the 
stated factors identified in the cautionary statement must be 
relevant to the projection and must be of a nature that the 
factor or factors could actually affect whether the forward-
looking statement is realized.
      The Conference Committee expects that the cautionary 
statements identify important factors that could cause results 
to differ materially--but not all factors. Failure to include 
the particular factor that ultimately causes the forward-
looking statement not to come true will not mean that the 
statement is not protected by the safe harbor. The Conference 
Committee specifies that the cautionary statements identify 
``important'' factors to provide guidance to issuers and not to 
provide an opportunity for plaintiff counsel to conduct 
discovery on what factors were known to the issuer at the time 
the forward-looking statement was made.
      The use of the words ``meaningful'' and ``important 
factors'' are intended to provide a standard for the types of 
cautionary statements upon which a court may, where 
appropriate, decide a motion to dismiss, without examining the 
state of mind of the defendant. The first prong of the safe 
harbor requires courts to examine only the cautionary statement 
accompanying the forward-looking statement. Courts should not 
examine the state of mind of the person making the statement.
      Courts may continue to find a forward-looking statement 
immaterial--and thus not actionable under the 1933 Act and the 
1934 Act--on other grounds. To clarify this point, the 
Conference Committee includes language in the safe harbor 
provision that no liability attaches to forward-looking 
statements that are ``immaterial.''
      The safe harbor seeks to provide certainty that forward-
looking statements will not be actionable by private parties 
under certain circumstances. Forward-looking statements will 
have safe harbor protection if they are accompanied by a 
meaningful cautionary statement. A cautionary statement that 
misstates historical facts is not covered by the Safe harbor, 
it is not sufficient, however, in a civil action to allege 
merely that a cautionary statement misstates historical facts. 
The plaintiff must plead with particularity all facts giving 
rise to a strong inference of a material misstatement in the 
cautionary statement to survive a motion to dismiss.
      The second prong of the safe harbor provides an 
alternative analysis. This safe harbor also applies to both 
written and oral forward-looking statements. Instead of 
examining the forward-looking and cautionary statements, this 
prong of the safe harbor focuses on the state of mind of the 
person making the forward-looking statement. A person or 
business entity will not be liable in a private lawsuit for a 
forward-looking statement unless a plaintiff proves that person 
or business entity made a false or misleading forward-looking 
statement with actual knowledge that it was false or 
misleading. The Conference Committee intends for this 
alternative prong of the safe harbor to apply if the plaintiff 
fails to prove the forward-looking statement (1) if made by a 
natural person, was made with the actual knowledge by that 
person that the statement was false or misleading; or (2) if 
made by a business entity, was made by or with the approval of 
an executive officer of the entity with actual knowledge by 
that officer that the statement was false or misleading.
      The Conference Committee recognizes that, under certain 
circumstances, it may be unwieldy to make oral forward-looking 
statements relying on the first prong of the safe harbor. 
Companies who want to make a brief announcement of earnings or 
a new product would first have to identify the statement as 
forward-looking and then provide cautionary statements 
identifying important factors that could cause results to 
differ materially from those projected in the statement. As a 
result, the Conference Committee has provided for an optional, 
more flexible rule for oral forward-looking statements that 
will facilitate these types of oral communications by an issuer 
while still providing to the public information it would have 
received if the forward-looking statement was written. The 
Conference Committee intends to limit this oral safe harbor to 
issuers or the officers, directors, or employees of the issuer 
acting on the issuer's behalf.
      This legislation permits covered issuers, or persons 
acting on the issuer's behalf, to make oral forward-looking 
statements within the safe harbor. The person making the 
forward-looking statement must identify the statement as a 
forward-looking statement and state that results may differ 
materially from those projected in the statement. The person 
must also identify a ``readily available'' written document 
that contains factors that could cause results to differ 
materially. The written information identified by the person 
making the forward-looking statement must qualify as a 
``cautionary statement'' under the first prong of the safe 
harbor (i.e., it must be a meaningful cautionary statement or 
statements that identify important factors that could cause 
actual results to differ materially from those projected in the 
forward-looking statement.) For purposes of this provision, 
``readily available'' information refers to SEC filed 
documents, annual reports and other widely disseminated 
materials, such as press releases.
Who and what receives safe harbor protection
      The safe harbor provision protects written and oral 
forward-looking statements made by issuers and certain persons 
retained or acting on behalf of the issuer. The Conference 
Committee intends the statutory safe harbor protection to make 
more information about a company's future plans available to 
investors and the public. The safe harbor covers underwriters, 
but only insofar as the underwriters provide forward looking 
information that is based on or ``derived from'' information 
provided by the issuer. Because underwriters have what is 
effectively an adversarial relationship with issuers in 
performing due diligence, the use of the term ``derived from'' 
affords underwriters some latitude so that they may disclose 
adverse information that the issuer did not necessarily 
``provide.'' The Conference Committee does not intend the safe 
harbor to cover forward-looking information made in connection 
with a broker's sales practices.
      The Conference Committee adopts the SEC's present 
definition, as set forth in Rule 175, of forward-looking 
information, with certain additions and clarifying changes. The 
definition covers: (i) certain financial items, including 
projections of revenues, income and earnings, capital 
expenditures, dividends, and capital structure; (ii) 
management's statement of future business plans and objectives, 
including with respect to its products or services; and (iii) 
certain statements made in SEC required disclosures, including 
management's discussion and analysis and results of operations; 
and (iv) any statement disclosing the assumptions underlying 
the forward-looking statement.
      The Conference Committee has determined that the 
statutory safe harbor should not apply to certain forward-
looking statements. Thus, the statutory safe harbor does not 
protect forward-looking statements: (1) included in financial 
statements prepared in accordance with generally accepted 
accounting principles; (2) contained in an initial public 
offering registration statement; (3) made in connection with a 
tender offer; (4) made in connection with a partnership, 
limited liability company or direct participation program 
offering; or (5) made in beneficial ownership disclosure 
statements filed with the SEC under Section 13(d) of the 1934 
Act.
      At this time, the Conference Committee recognizes that 
certain types of transactions and issuers may not be suitable 
for inclusion in a statutory safe harbor absent some experience 
with the statute. Although this legislation restricts 
partnerships, limited liability companies and direct 
participation programs from safe harbor protection, the 
Conference Committee expects the SEC to consider expanding the 
safe harbor to cover these entities where appropriate. The 
legislation authorizes the SEC to adopt exemptive rules or 
grant exemptive orders to those entities for whom a safe harbor 
should be available. The SEC should consider granting exemptive 
orders for established and reputable entities who are excluded 
from the safe harbor.
      Moreover, the Committee has determined to extend the 
statutory safe harbor only to forward-looking information of 
certain established issuers subject to the reporting 
requirements of section 13(a) or section 15(d) of the 1934 Act. 
Except as provided by SEC rule or regulation, the safe harbor 
does not extend to an issuer who: (a) during the three year 
period preceding the date on which the statement was first 
made, has been convicted of a felony or misdemeanor described 
in clauses (i) through (iv) of Section 15(b)(4) or is the 
subject of a decree or order involving a violation of the 
securities laws; (b) makes the statement in connection with a 
``blank check'' securities offering, ``rollup transaction,'' or 
``going private'' transaction; or (c) issues penny stock.
      The Committee intends for its statutory safe harbor 
provisions to serve as a starting point and fully expects the 
SEC to continue its rulemaking proceedings in this area. The 
SEC should, as appropriate, promulgate rules or regulations to 
expand the statutory safe harbor by providing additional 
exemptions from liability or extending its coverage to 
additional types of information.
      This legislation also makes clear that nothing in the 
safe harbor provision imposes any duty to update forward-
looking statements.
      The Conference Committee does not intend for the safe 
harbor provisions to replace the judicial ``bespeaks caution'' 
doctrine or to foreclose further development of that doctrine 
by the courts.
The safe harbor and stay of discovery
      The legislation provides that, on any motion to dismiss 
the compliant based on the application of the safe harbor, the 
court shall consider the statements cited in the complaint and 
statements identified by the defendant in its moving papers, 
including any cautionary statements accompanying the forward-
looking statement that are not subject to material dispute. The 
applicability of the safe harbor provisions under subsection 
(c)(1)(B) shall be based on the ``actual knowledge'' of the 
defendant and does not depend on the use of cautionary 
language. The applicability of the safe harbor provisions under 
subsections (c)(1)(A)(I) and (c)(2) shall be based upon the 
sufficiency of the cautionary language under those provisions 
and does not depend on the state of mind of the defendant. In 
the case of a compliant based on an oral forward-looking 
statement in which information concerning factors that could 
cause actual results to differ materially is contained in a 
``readily available'' written document, the court shall 
consider statements in the readily available written documents.

 inapplicability of racketeer influenced and corrupt organizations act 
                 (rico) to private securities actions.

      The SEC has supported removing securities fraud as a 
predicate offense in a civil action under the Racketeer 
Influenced and Corrupt Organizations Act (``RICO''). SEC 
Chairman Arthur Levitt testified: ``Because the securities laws 
generally provide adequate remedies for those injured by 
securities fraud, it is both necessary and unfair to expose 
defendants in securities cases to the threat of treble damages 
and other extraordinary remedies provided by RICO.'' \30\
      The Conference Committee amends section 1964(c) of title 
18 of the U.S. Code to remove any conduct that would have been 
actionable as fraud in the purchase or sale of securities as 
racketeering activity under civil RICO. The Committee intends 
this amendment to eliminate securities fraud as a predicate 
offense in a civil RICO action. In addition, the Conference 
Committee intends that a plaintiff may not plead other 
specified offenses, such as mail or wire fraud, as predicate 
acts under civil RICO if such offenses are based on conduct 
that would have been actionable as securities fraud.

                 auditor disclosure of corporate fraud

      The Conference Report requires independent public 
accountants to adopt certain procedures in connection with 
their audits and to inform the SEC of illegal acts. These 
requirements would be carried out in accordance with generally 
accepted auditing standards for audits of SEC registrants--as 
modified from time to time by the Commission--on the detection 
of illegal acts, related party transactions and relationships, 
and evaluation of an issuer's ability to continue as a going 
concern.
      The Conference Committee does not intend to affect the 
Commission's authority in areas not specifically addressed by 
this provision. The Conference Committee expects that the SEC 
will continue its longstanding practice of looking to the 
private sector to set and to improve auditing standards. The 
SEC should not act to ``modify'' or ``supplement'' generally 
accepted auditing standards for SEC registrants until after it 
has determined that the private sector is unable or unwilling 
to do so on a timely basis. The Conference Committee intends 
for the SEC to have discretion, however, to determine the 
appropriateness and timeliness of the private sector response. 
The SEC should act promptly if required by the public interest 
or for the protection of investors.

                               footnotes

    \1\ This certification should not be construed to waive the 
attorney-client privilege.
    \2\ The notice provisions in this subsection do not replace or 
supersede other notice provisions provided in the Federal Rules of 
Civil Procedure.
    \3\ See Elliott J. Weiss and John S. Beckerman, ``Let the Money Do 
the Monitoring: How Institutional Investors Can Reduce Agency Costs in 
Securities Class Actions,'' 104 Yale L.J. 2053 (1995).
    \4\ See testimony of Maryellen Anderson, Investor and Corporate 
Relations Director of the Connecticut Retirement & Trust Funds and 
Treasurer of the Council of Institutional Investors before the 
Securities Subcommittee of the Senate Committee on Banking, Housing, 
and Urban Affairs, July 21, 1993.
    \5\ See The Brancato Report on Institutional Investment, ``Total 
Assets and Equity Holdings,'' Vol. 2, Ed. 1.
    \6\ See ``Let the Money do the Monitoring,'' note 3, supra.
    \7\ See generally Majority Staff Report, May 17, 1994 at page 81 et 
seq.
    \8\ See testimony of Patricia Reilly before the Securities 
Subcommittee of the Senate Committee on Banking, Housing, and Urban 
Affairs, June 17, 1993.
    \9\ See NASCAT Analysis of Pending Legislation on Securities Fraud 
Litigation, Hearing on Securities Litigation Reform Proposals: 
Subcommittee on Securities, Senate Committee on Banking, Housing, and 
Urban Affairs, March 2, 1995.
    \10\ See testimony of Patricia Reilly, note 8 supra.
    \11\ See testimony of former SEC Commissioner J. Carter Beese, Jr., 
Chairman of the Capital Markets Regulatory Reform Project Center for 
Strategic and International Studies, before the Securities Subcommittee 
of the Senate Committee on Banking, Housing, and Urban Affairs, March 
2, 1995 (citing testimony of Philip A. Lacavara before the 
Telecommunications and Finance Subcommittee of the House Committee on 
Energy and Commerce, hearing on H.R. 3185.)
    \12\ See testimony of Richard J. Egan, Chairman of the Board of EMC 
Corporation before the Securities Subcommittee of the Senate Committee 
on Banking, Housing, and Urban Affairs, June 17, 1993. See also 
testimony of Dennis Bakke, President and CEO, AES Corporation, before 
the Telecommunications and Finance Subcommittee of the House Committee 
on Commerce, January 19, 1995.
    \13\ See testimony of Hon. Richard Breeden, former Chairman, 
Securities and Exchange Commission, before the Subcommittee on 
Telecommunications and Finance, House Commerce Committee, February 10, 
1995. See also testimony of Daniel Gelzer, id. at 274.
    \14\ See testimony of Hon. Arthur Levitt, Chairman, Securities and 
Exchange Commission, before the Subcommittee on Telecommunications and 
Finance of the House Commerce Committee, February 10, 1995, at 192. See 
also id. at 116, 126 (testimony of Dennis W. Bakke, Chairman and CEO, 
AES Corporation); id. at 137-8 (testimony of James Kimsey, Chairman, 
America Online).
    \15\ The Conference Report makes no change in the law with respect 
to Section 11 claims against other types of defendants. Section 11 
expressly provides for a right of contribution, see Section 11(f), and 
this right has been construed to establish contribution and settlement 
standards like those set forth in the Conference Report. This section 
has no effect on the interpretation of Section 11(f) with respect to 
defendants other than outside directors.
    \16\ See Section 16(b) (short-swing transactions) and Section 18 
(liability for misleading statements).
    \17\ See, e.g., testimony of Saul S. Cohen, Rosenman & Colin, 
before the Telecommunications and Finance Subcommittee of the House 
Committee on Commerce, February 10, 1995. (``In our experience, Rule 11 
has been largely ineffective in deterring strike suits. As a general 
matter, courts rarely grant Rule 11 sanctions in all but the most 
egregious circumstances''.)
    \18\ Rule 11(c)(2) limits sanctions to ``what is sufficient to 
deter the repetition of such conduct or comparable conduct by others 
similarly situated''.
    \19\ See testimony of John Olson, Chairman, American Bar 
Association Business Law Section, before the Subcommittee on 
Telecommunications and Finance, House Commerce Committee, February 10, 
1995.
    \20\ See id.
    \21\ See, e.g., testimony of Saul S. Cohen, Rosenman & Colin, 
before the Telecommunications and Finance Subcommittee of the House 
Committee on Commerce at 234-35 (February 10, 1995).
    \22\ See id.
    \23\ For this reason, the Conference Report chose not to include in 
the pleading standard certain language relating to motive, opportunity, 
or recklessness.
    \24\ The percentages of damages as market losses in the analysis 
ranged from 7.9% to 100% See Princeton Venture Research, Inc., ``PVR 
Analysis, Securities Law Class Actions, Damages as a Percent of Market 
Losses,'' June 15, 1993.
    \25\ See Lev and de Villiers, ``Stock Price Crashes and 10b-5 
Damages: A Legal, Economic and Policy Analysis,'' Standford Law Review, 
7, 9-11 (1994).
    \26\ See testimony of Hon. Richard C. Breeden, former Chairman, 
SEC, before the Securities Subcommittee of the Senate Committee on 
Banking, Housing, and Urban Affairs, April 6, 1995.
    \27\ See testimony of the National Venture Capital Association 
before the Securities Subcommittee on the Senate Committee on Banking, 
Housing, and Urban Affairs, March 2, 1995.
    \28\ See testimony of Hon. J. Carter Beese, former SEC 
Commissioner, at id.
    \29\ The concept of a safe harbor for forward-looking statements 
made under certain conditions is not new. In 1979, the SEC promulgated 
Rule 175 to provide a safe harbor for certain forward looking 
statements made with a ``reasonable basis'' and in ``good faith.'' This 
safe harbor has not provided companies meaningful protection from 
litigation. In a February 1995 letter to the SEC, a major pension fund 
stated: ``A major failing of the existing safe harbor is that while it 
may provide theoretical protection to issuers from liability when 
disclosing projections, it fails to prevent the threat of frivolous 
lawsuits that arises every time a legitimate projection is not 
realized.'' See February 14, 1995 letter from the California Public 
Employees' Retirement System to the SEC. Courts have also crafted a 
safe harbor for forward-looking statements or projections accompanied 
by sufficient cautionary language. The First, Second, Third, Sixth and 
Ninth Circuits have adopted a version of the ``bespeaks caution'' 
doctrine. See, e.g., In re Worlds of Wonder Securities Litigation, 35 
F. 3d 1407 (9th Cir. 1994); Rubinstein v. Collins, 20 F.3d 169 (5th 
Cir. 1994): Kline v. First Western Government Securities, Inc., 24 F. 
3d 480 (3d Cir. 1994); Sinay v. Lamson & Sessions Company, 948 F.2d 
1037 (6th Cir. 1991); I. Meyer Pincus & Associates v. Oppenheimer & 
Co., Inc., 936 F.2d 759 (2d Cir. 1991); Romani v. Shearson Lehman 
Hutton, 929 F.2d 875 (1st Cir. 1991); Luce v. Edelstein, 802 F.2d 49 
(2d Cir. 1986); In re Donald J. Trump Casino, 7 F.3d 357 (3d Cir. 
1993).
    \30\ See testimony of Hon. Arthur Levitt, Chairman, SEC, before the 
Telecommunications and Finance Subcommittee of the House Commerce 
Committee, February 10, 1995.
                    From the Committee on Commerce, for 
                consideration of the House bill, and the Senate 
                amendment, and modifications committed to 
                conference:
                                   Thomas Bliley,
                                   Billy Tauzin,
                                   Jack Fields,
                                   Chris Cox,
                                   Richard F. White,
                                   Anna G. Eshoo,
                    As additional conferees from the Committee 
                on the Judiciary, for consideration of the 
                House bill, and the Senate amendment, and 
                modifications committed to conference:
                                   Bill McCollum,
                                 Managers on the Part of the House.

                                   Alfonse D'Amato,
                                   Phil Gramm,
                                   Robert F. Bennett,
                                   Rod Grams,
                                   Pete V. Domenici,
                                   Christopher Dodd,
                                   John F. Kerry,
                                Managers on the Part of the Senate.