H. Rept. 105-803 - 105th Congress (1997-1998)
October 09, 1998

Report text available as:

Formatting necessary for an accurate reading of this legislative text may be shown by tags (e.g., <DELETED> or <BOLD>) or may be missing from this TXT display. For complete and accurate display of this text, see the PDF.




House Report 105-803 - SECURITIES LITIGATION UNIFORM STANDARDS ACT OF 1998




[House Report 105-803]
[From the U.S. Government Printing Office]



105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     105-803
_______________________________________________________________________


 
          SECURITIES LITIGATION UNIFORM STANDARDS ACT OF 1998

                                _______
                                

                October 9, 1998.--Ordered to be printed

_______________________________________________________________________


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

                           CONFERENCE REPORT

                         [To accompany S. 1260]

      The committee of conference on the disagreeing votes of 
the two Houses on the amendment of the House to the bill (S. 
1260), to amend the Securities Act of 1933 and the Securities 
Exchange Act of 1934 to limit the conduct of securities class 
actions under State law, 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 Senate recede from its disagreement to the 
amendment of the House and agree to the same with an amendment 
as follows:
      In lieu of the matter proposed to be inserted by the 
House amendment, insert the following:

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Securities Litigation 
Uniform Standards Act of 1998''.

SEC. 2. FINDINGS.

    The Congress finds that--
            (1) the Private Securities Litigation Reform Act of 
        1995 sought to prevent abuses in private securities 
        fraud lawsuits;
            (2) since enactment of that legislation, 
        considerable evidence has been presented to Congress 
        that a number of securities class action lawsuits have 
        shifted from Federal to State courts;
            (3) this shift has prevented that Act from fully 
        achieving its objectives;
            (4) State securities regulation is of continuing 
        importance, together with Federal regulation of 
        securities, to protect investors and promote strong 
        financial markets; and
            (5) in order to prevent certain State private 
        securities class action lawsuits alleging fraud from 
        being used to frustrate the objectives of the Private 
        Securities Litigation Reform Act of 1995, it is 
        appropriate to enact national standards for securities 
        class action lawsuits involving nationally traded 
        securities, while preserving the appropriate 
        enforcement powers of State securities regulators and 
        not changing the current treatment of individual 
        lawsuits.

            TITLE I--SECURITIES LITIGATION UNIFORM STANDARDS

SEC. 101. LIMITATION ON REMEDIES.

    (a) Amendments to the Securities Act of 1933.--
            (1) Amendment.--Section 16 of the Securities Act of 
        1933 (15 U.S.C. 77p) is amended to read as follows:

``SEC. 16. ADDITIONAL REMEDIES; LIMITATION ON REMEDIES.

    ``(a) Remedies Additional.--Except as provided in 
subsection (b), the rights and remedies provided by this title 
shall be in addition to any and all other rights and remedies 
that may exist at law or in equity.
    ``(b) Class Action Limitations.--No covered class action 
based upon the statutory or common law of any State or 
subdivision thereof may be maintained in any State or Federal 
court by any private party alleging--
            ``(1) an untrue statement or omission of a material 
        fact in connection with the purchase or sale of a 
        covered security; or
            ``(2) that the defendant used or employed any 
        manipulative or deceptive device or contrivance in 
        connection with the purchase or sale of a covered 
        security.
    ``(c) Removal of Covered Class Actions.--Any covered class 
action brought in any State court involving a covered security, 
as set forth in subsection (b), shall be removable to the 
Federal district court for the district in which the action is 
pending, and shall be subject to subsection (b).
    ``(d) Preservation of Certain Actions.--
            ``(1) Actions under state law of state of 
        incorporation.--
                    ``(A) Actions preserved.--Notwithstanding 
                subsection (b) or (c), a covered class action 
                described in subparagraph (B) of this paragraph 
                that is based upon the statutory or common law 
                of the State in which the issuer is 
                incorporated (in the case of a corporation) or 
                organized (in the case of any other entity) may 
                be maintained in a State or Federal court by a 
                private party.
                    ``(B) Permissible actions.--A covered class 
                action is described in this subparagraph if it 
                involves--
                            ``(i) the purchase or sale of 
                        securities by the issuer or an 
                        affiliate of the issuer exclusively 
                        from or to holders of equity securities 
                        of the issuer; or
                            ``(ii) any recommendation, 
                        position, or other communication with 
                        respect to the sale of securities of 
                        the issuer that--
                                    ``(I) is made by or on 
                                behalf of the issuer or an 
                                affiliate of the issuer to 
                                holders of equity securities of 
                                the issuer; and
                                    ``(II) concerns decisions 
                                of those equity holders with 
                                respect to voting their 
                                securities, acting in response 
                                to a tender or exchange offer, 
                                or exercising dissenters' or 
                                appraisal rights.
            ``(2) State actions.--
                    ``(A) In general.--Notwithstanding any 
                other provision of this section, nothing in 
                this section may be construed to preclude a 
                State or political subdivision thereof or a 
                State pension plan from bringing an action 
                involving a covered security on its own behalf, 
                or as a member of a class comprised solely of 
                other States, political subdivisions, or State 
                pension plans that are named plaintiffs, and 
                that have authorized participation, in such 
                action.
                    ``(B) State pension plan defined.--For 
                purposes of this paragraph, the term `State 
                pension plan' means a pension plan established 
                and maintained for its employees by the 
                government of the State or political 
                subdivision thereof, or by any agency or 
                instrumentality thereof.
            ``(3) Actions under contractual agreements between 
        issuers and indenture trustees.--Notwithstanding 
        subsection (b) or (c), a covered class action that 
        seeks to enforce a contractual agreement between an 
        issuer and an indenture trustee may be maintained in a 
        State or Federal court by a party to the agreement or a 
        successor to such party.
            ``(4) Remand of removed actions.--In an action that 
        has been removed from a State court pursuant to 
        subsection (c), if the Federal court determines that 
        the action may be maintained in State court pursuant to 
        this subsection, the Federal court shall remand such 
        action to such State court.
    ``(e) Preservation of State Jurisdiction.--The securities 
commission (or any agency or office performing like functions) 
of any State shall retain jurisdiction under the laws of such 
State to investigate and bring enforcement actions.
    ``(f) Definitions.--For purposes of this section, the 
following definitions shall apply:
            ``(1) Affiliate of the issuer.--The term `affiliate 
        of the issuer' means a person that directly or 
        indirectly, through one or more intermediaries, 
        controls or is controlled by or is under common control 
        with, the issuer.
            ``(2) Covered class action.--
                    ``(A) In general.--The term `covered class 
                action' means--
                            ``(i) any single lawsuit in which--
                                    ``(I) damages are sought on 
                                behalf of more than 50 persons 
                                or prospective class members, 
                                and questions of law or fact 
                                common to those persons or 
                                members of the prospective 
                                class, without reference to 
                                issues of individualized 
                                reliance on an alleged 
                                misstatement or omission, 
                                predominate over any questions 
                                affecting only individual 
                                persons or members; or
                                    ``(II) one or more named 
                                parties seek to recover damages 
                                on a representative basis on 
                                behalf of themselves and other 
                                unnamed parties similarly 
                                situated, and questions of law 
                                or fact common to those persons 
                                or members of the prospective 
                                class predominate over any 
                                questions affecting only 
                                individual persons or members; 
                                or
                            ``(ii) any group of lawsuits filed 
                        in or pending in the same court and 
                        involving common questions of law or 
                        fact, in which--
                                    ``(I) damages are sought on 
                                behalf of more than 50 persons; 
                                and
                                    ``(II) the lawsuits are 
                                joined, consolidated, or 
                                otherwise proceed as a single 
                                action for any purpose.
                    ``(B) Exception for derivative actions.--
                Notwithstanding subparagraph (A), the term 
                `covered class action' does not include an 
                exclusively derivative action brought by one or 
                more shareholders on behalf of a corporation.
                    ``(C) Counting of certain class members.--
                For purposes of this paragraph, a corporation, 
                investment company, pension plan, partnership, 
                or other entity, shall be treated as one person 
                or prospective class member, but only if the 
                entity is not established for the purpose of 
                participating in the action.
                    ``(D) Rule of construction.--Nothing in 
                this paragraph shall be construed to affect the 
                discretion of a State court in determining 
                whether actions filed in such court should be 
                joined, consolidated, or otherwise allowed to 
                proceed as a single action.
            ``(3) Covered security.--The term `covered 
        security' means a security that satisfies the standards 
        for a covered security specified in paragraph (1) or 
        (2) of section 18(b) at the time during which it is 
        alleged that the misrepresentation, omission, or 
        manipulative or deceptive conduct occurred, except that 
        such term shall not include any debt security that is 
        exempt fromregistration under this title pursuant to 
rules issued by the Commission under section 4(2).''.
            (2) Circumvention of stay of discovery.--Section 
        27(b) of the Securities Act of 1933 (15 U.S.C. 77z-
        1(b)) is amended by inserting after paragraph (3) the 
        following new paragraph:
            ``(4) Circumvention of stay of discovery.--Upon a 
        proper showing, a court may stay discovery proceedings 
        in any private action in a State court as necessary in 
        aid of its jurisdiction, or to protect or effectuate 
        its judgments, in an action subject to a stay of 
        discovery pursuant to this subsection.''.
            (3) Conforming amendments.--Section 22(a) of the 
        Securities Act of 1933 (15 U.S.C. 77v(a)) is amended--
                    (A) by inserting ``except as provided in 
                section 16 with respect to covered class 
                actions,'' after ``Territorial courts,''; and
                    (B) by striking ``No case'' and inserting 
                ``Except as provided in section 16(c), no 
                case''.
    (b) Amendments to the Securities Exchange Act of 1934.--
            (1) Amendment.--Section 28 of the Securities 
        Exchange Act of 1934 (15 U.S.C. 78bb) is amended--
                    (A) in subsection (a), by striking ``The 
                rights and remedies'' and inserting ``Except as 
                provided in subsection (f), the rights and 
                remedies''; and
                    (B) by adding at the end the following new 
                subsection:
    ``(f) Limitations on Remedies.--
            ``(1) Class action limitations.--No covered class 
        action based upon the statutory or common law of any 
        State or subdivision thereof may be maintained in any 
        State or Federal court by any private party alleging--
                    ``(A) a misrepresentation or omission of a 
                material fact in connection with the purchase 
                or sale of a covered security; or
                    ``(B) that the defendant used or employed 
                any manipulative or deceptive device or 
                contrivance in connection with the purchase or 
                sale of a covered security.
            ``(2) Removal of covered class actions.--Any 
        covered class action brought in any State court 
        involving a covered security, as set forth in paragraph 
        (1), shall be removable to the Federal district court 
        for the district in which the action is pending, and 
        shall be subject to paragraph (1).
            ``(3) Preservation of certain actions.--
                    ``(A) Actions under state law of state of 
                incorporation.--
                            ``(i) Actions preserved.--
                        Notwithstanding paragraph (1) or (2), a 
                        covered class action described in 
                        clause (ii) of this subparagraph that 
                        is based upon the statutory or common 
                        law of the State in which the issuer is 
                        incorporated (in the case of a 
                        corporation) or organized (in the case 
                        of any other entity) may be maintained 
                        in a State or Federal court by a 
                        private party.
                            ``(ii) Permissible actions.--A 
                        covered class action is described in 
                        this clause if it involves--
                                    ``(I) the purchase or sale 
                                of securities by the issuer or 
                                an affiliate of the issuer 
                                exclusively from or to holders 
                                of equity securities of the 
                                issuer; or
                                    ``(II) any recommendation, 
                                position, or other 
                                communication with respect to 
                                the sale of securities of an 
                                issuer that--
                                            ``(aa) is made by 
                                        or on behalf of the 
                                        issuer or an affiliate 
                                        of the issuer to 
                                        holders of equity 
                                        securities of the 
                                        issuer; and
                                            ``(bb) concerns 
                                        decisions of such 
                                        equity holders with 
                                        respect to voting their 
                                        securities, acting in 
                                        response to a tender or 
                                        exchange offer, or 
                                        exercising dissenters' 
                                        or appraisal rights.
                    ``(B) State actions.--
                            ``(i) In general.--Notwithstanding 
                        any other provision of this subsection, 
                        nothing in this subsection may be 
                        construed to preclude a State or 
                        political subdivision thereof or a 
                        State pension plan from bringing an 
                        action involving a covered security on 
                        its own behalf, or as a member of a 
                        class comprised solely of other States, 
                        political subdivisions, or State 
                        pension plans that are named 
                        plaintiffs, and that have authorized 
                        participation, in such action.
                            ``(ii) State pension plan 
                        defined.--For purposes of this 
                        subparagraph, the term `State pension 
                        plan' means a pension plan established 
                        and maintained for its employees by the 
                        government of a State or political 
                        subdivision thereof, or by any agency 
                        or instrumentality thereof.
                    ``(C) Actions under contractual agreements 
                between issuers and indenture trustees.--
                Notwithstanding paragraph (1) or (2), a covered 
                class action that seeks to enforce a 
                contractual agreement between an issuer and an 
                indenture trustee may be maintained in a State 
                or Federal court by a party to the agreement or 
                a successor to such party.
                    ``(D) Remand of removed actions.--In an 
                action that has been removed from a State court 
                pursuant to paragraph (2), if the Federal court 
                determines that the action may be maintained in 
                State court pursuant to this subsection, the 
                Federal court shall remand such action to such 
                State court.
            ``(4) Preservation of state jurisdiction.--The 
        securities commission (or any agency or office 
        performing like functions) of any State shall retain 
        jurisdiction under the laws of such State to 
        investigate and bring enforcement actions.
            ``(5) Definitions.--For purposes of this 
        subsection, the following definitions shall apply:
                    ``(A) Affiliate of the issuer.--The term 
                `affiliate of the issuer' means a person that 
                directly or indirectly, through one or more 
                intermediaries, controls or is controlled by or 
                is under common control with, the issuer.
                    ``(B) Covered class action.--The term 
                `covered class action' means--
                            ``(i) any single lawsuit in which--
                                    ``(I) damages are sought on 
                                behalf of more than 50 persons 
                                or prospective class members, 
                                and questions of law or fact 
                                common to those persons or 
                                members of the prospective 
                                class, without reference to 
                                issues of individualized 
                                reliance on an alleged 
                                misstatement or omission, 
                                predominate over any questions 
                                affecting only individual 
                                persons or members; or
                                    ``(II) one or more named 
                                parties seek to recover damages 
                                on a representative basis on 
                                behalf of themselves and other 
                                unnamed parties similarly 
                                situated, and questions of law 
                                or fact common to those persons 
                                or members of the prospective 
                                class predominate over any 
                                questions affecting only 
                                individual persons or members; 
                                or
                            ``(ii) any group of lawsuits filed 
                        in or pending in the same court and 
                        involving common questions of law or 
                        fact, in which--
                                    ``(I) damages are sought on 
                                behalf of more than 50 persons; 
                                and
                                    ``(II) the lawsuits are 
                                joined, consolidated, or 
                                otherwise proceed as a single 
                                action for any purpose.
                    ``(C) Exception for derivative actions.--
                Notwithstanding subparagraph (B), the term 
                `covered class action' does not include an 
                exclusively derivative action brought by one or 
                more shareholders on behalf of a corporation.
                    ``(D) Counting of certain class members.--
                For purposes of this paragraph, a corporation, 
                investment company, pension plan, partnership, 
                or other entity, shall be treated as one person 
                or prospective class member, but only if the 
                entity is not established for the purpose of 
                participating in the action.
                    ``(E) Covered security.--The term `covered 
                security' means a security that satisfies the 
                standards for a covered security specified in 
                paragraph (1) or (2) of section 18(b) of the 
                Securities Act of 1933, at the time during 
                which it is alleged that the misrepresentation, 
                omission, or manipulative or deceptive conduct 
                occurred, except that such term shall not 
                include any debt security that is exempt from 
                registration under the Securities Act of 1933 
                pursuant to rules issued by the Commission 
                under section 4(2) of that Act.
                    ``(F) Rule of construction.--Nothing in 
                this paragraph shall be construed to affect the 
                discretion of a State court in determining 
                whether actions filed in such court should be 
                joined, consolidated, or otherwise allowed to 
                proceed as a single action.''.
            (2) Circumvention of stay of discovery.--Section 
        21D(b)(3) of the Securities Exchange Act of 1934 (15 
        U.S.C. 78u-4(b)(3)) is amended by adding at the end the 
        following new subparagraph:
                    ``(D) Circumvention of stay of discovery.--
                Upon a proper showing, a court may stay 
                discovery proceedings in any private action in 
                a State court, as necessary in aid of its 
                jurisdiction, or to protect or effectuate its 
                judgments, in an action subject to a stay of 
                discovery pursuant to this paragraph.''.
    (c) Applicability.--The amendments made by this section 
shall not affect or apply to any action commenced before and 
pending on the date of enactment of this Act.

SEC. 102. PROMOTION OF RECIPROCAL SUBPOENA ENFORCEMENT.

    (a) Commission Action.--The Securities and Exchange 
Commission, in consultation with State securities commissions 
(or any agencies or offices performing like functions), shall 
seek to encourage the adoption of State laws providing for 
reciprocal enforcement by State securities commissions of 
subpoenas issued by another State securities commission seeking 
to compel persons to attend, testify in, or produce documents 
or records in connection with an action or investigation by a 
State securities commission of an alleged violation of State 
securities laws.
    (b) Report.--Not later than 24 months after the date of 
enactment of this Act, the Securities and Exchange Commission 
(hereafter in this section referred to as the ``Commission'') 
shall submit a report to the Congress--
            (1) identifying the States that have adopted laws 
        described in subsection (a);
            (2) describing the actions undertaken by the 
        Commission and State securities commissions to promote 
        the adoption of such laws; and
            (3) identifying any further actions that the 
        Commission recommends for such purposes.

  TITLE II--REAUTHORIZATION OF THE SECURITIES AND EXCHANGE COMMISSION

SEC. 201. AUTHORIZATION OF APPROPRIATIONS.

    Section 35 of the Securities Exchange Act of 1934 (15 
U.S.C. 78kk) is amended to read as follows:

``SEC. 35. AUTHORIZATION OF APPROPRIATIONS.

    ``(a) In General.--In addition to any other funds 
authorized to be appropriated to the Commission, there are 
authorized to be appropriated to carry out the functions, 
powers, and duties of the Commission, $351,280,000 for fiscal 
year 1999.
    ``(b) Miscellaneous Expenses.--Funds appropriated pursuant 
to this section are authorized to be expended--
            ``(1) not to exceed $3,000 per fiscal year, for 
        official reception and representation expenses;
            ``(2) not to exceed $10,000 per fiscal year, for 
        funding a permanent secretariat for the International 
        Organization of Securities Commissions; and
            ``(3) not to exceed $100,000 per fiscal year, for 
        expenses for consultations and meetings hosted by the 
        Commission with foreign governmental and other 
        regulatory officials, members of their delegations, 
        appropriate representatives, and staff to exchange 
        views concerning developments relating to securities 
        matters, for development and implementation of 
        cooperation agreements concerning securities matters, 
        and provision of technical assistance for the 
        development of foreign securities markets, such 
        expenses to include necessary logistic and 
        administrative expenses and the expenses of Commission 
        staff and foreign invitees in attendance at such 
        consultations and meetings, including--
                    ``(A) such incidental expenses as meals 
                taken in the course of such attendance;
                    ``(B) any travel or transportation to or 
                from such meetings; and
                    ``(C) any other related lodging or 
                subsistence.''.

SEC. 202. REQUIREMENTS FOR THE EDGAR SYSTEM.

    Section 35A of the Securities Exchange Act of 1934 (15 
U.S.C. 78ll) is amended--
            (1) by striking subsections (a), (b), (c), and (e); 
        and
            (2) in subsection (d)--
                    (A) by striking ``(d)'';
                    (B) in paragraph (2), by striking ``; and'' 
                at the end and inserting a period; and
                    (C) by striking paragraph (3).

SEC. 203. COMMISSION PROFESSIONAL ECONOMISTS.

    Section 4(b) of the Securities Exchange Act of 1934 (15 
U.S.C. 78d(b)) is amended--
            (1) by redesignating paragraph (2) as paragraph 
        (3); and
            (2) by inserting after paragraph (1) the following:
            ``(2) Economists.--
                    ``(A) Commission authority.--
                Notwithstanding the provisions of chapter 51 of 
                title 5, United States Code, the Commission is 
                authorized--
                            ``(i) to establish its own criteria 
                        for the selection of such professional 
                        economists as the Commission deems 
                        necessary to carry out the work of the 
                        Commission;
                            ``(ii) to appoint directly such 
                        professional economists as the 
                        Commission deems qualified; and
                            ``(iii) to fix and adjust the 
                        compensation of any professional 
                        economist appointed under this 
                        paragraph, without regard to the 
                        provisions of chapter 54 of title 5, 
                        United States Code, or subchapters II, 
                        III, or VIII of chapter 53, of title 5, 
                        United States Code.
                    ``(B) Limitation on compensation.--No base 
                compensation fixed for an economist under this 
                paragraph may exceed the pay for Level IV of 
                the Executive Schedule, and no payments to an 
                economist appointed under this paragraph shall 
                exceed the limitation on certain payments in 
                section 5307 of title 5, United States Code.
                    ``(C) Other benefits.--All professional 
                economists appointed under this paragraph shall 
                remain within the existing civil service system 
                with respect to employee benefits.''.

              TITLE III--CLERICAL AND TECHNICAL AMENDMENTS

SEC. 301. CLERICAL AND TECHNICAL AMENDMENTS.

    (a) Securities Act of 1933.--The Securities Act of 1933 (15 
U.S.C. 77 et seq.) is amended as follows:
            (1) Section 2(a)(15)(i) (15 U.S.C. 77b(a)(15)(i)) 
        is amended--
                    (A) by striking ``3(a)(2) of the Act'' and 
                inserting ``3(a)(2)''; and
                    (B) by striking ``section 2(13) of the 
                Act'' and inserting ``paragraph (13) of this 
                subsection''.
            (2) Section 11(f)(2)(A) (15 U.S.C. 77k(f)(2)(A)) is 
        amended by striking ``section 38'' and inserting 
        ``section 21D(f)''.
            (3) Section 13 (15 U.S.C. 77m) is amended--
                    (A) by striking ``section 12(2)'' each 
                place it appears and inserting ``section 
                12(a)(2)''; and
                    (B) by striking ``section 12(1)'' each 
                place it appears and inserting ``section 
                12(a)(1)''.
            (4) Section 18 (15 U.S.C. 77r) is amended--
                    (A) in subsection (b)(1)(A), by inserting 
                ``, or authorized for listing,'' after 
                ``Exchange, or listed'';
                    (B) in subsection (c)(2)(B)(i), by striking 
                ``Capital Markets Efficiency Act of 1996'' and 
                inserting ``National Securities Markets 
                Improvement Act of 1996'';
                    (C) in subsection (c)(2)(C)(i), by striking 
                ``Market'' and inserting ``Markets'';
                    (D) in subsection (d)(1)(A)--
                            (i) by striking ``section 2(10)'' 
                        and inserting ``section 2(a)(10)''; and
                            (ii) by striking ``subparagraphs 
                        (A) and (B)'' and inserting 
                        ``subparagraphs (a) and (b)'';
                    (E) in subsection (d)(2), by striking 
                ``Securities Amendments Act of 1996'' and 
                inserting ``National Securities Markets 
                Improvement Act of 1996''; and
                    (F) in subsection (d)(4), by striking ``For 
                purposes of this paragraph, the'' and inserting 
                ``The''.
            (5) Sections 27, 27A, and 28 (15 U.S.C. 77z-1, 77z-
        2, 77z-3) are transferred to appear after section 26, 
        in that order.
            (6) Paragraph (28) of schedule A of such Act (15 
        U.S.C. 77aa(28)) is amended by striking ``identic'' and 
        inserting ``identical''.
    (b) Securities Exchange Act of 1934.--The Securities 
Exchange Act of 1934 (15 U.S.C. 78 et seq.) is amended as 
follows:
            (1) Section 3(a)(10) (15 U.S.C. 78c(a)(10)) is 
        amended by striking ``deposit, for'' and inserting 
        ``deposit for''.
            (2) Section 3(a)(12)(A)(vi) (15 U.S.C. 
        78c(a)(12)(A)(vi)) is amended by moving the margin 2 em 
        spaces to the left.
            (3) Section 3(a)(22)(A) (15 U.S.C. 78c(a)(22)(A)) 
        is amended--
                    (A) by striking ``section 3(h)'' and 
                inserting ``section 3''; and
                    (B) by striking ``section 3(t)'' and 
                inserting ``section 3''.
            (4) Section 3(a)(39)(B)(i) (15 U.S.C. 
        78c(a)(39)(B)(i)) is amended by striking ``an order to 
        the Commission'' and inserting ``an order of the 
        Commission''.
            (5) The following sections are each amended by 
        striking ``Federal Reserve Board'' and inserting 
        ``Board of Governors of the Federal Reserve System'': 
        subsections (a) and (b) of section 7 (15 U.S.C. 78g(a), 
        (b)); section 17(g) (15 U.S.C. 78q(g)); and section 26 
        (15 U.S.C. 78z).
            (6) The heading of subsection (d) of section 7 (15 
        U.S.C. 78g(d)) is amended by striking ``Exception'' and 
        inserting ``Exceptions''.
            (7) Section 14(g)(4) (15 U.S.C. 78n(g)(4)) is 
        amended by striking ``consolidation sale,'' and 
        inserting ``consolidation, sale,''.
            (8) Section 15 (15 U.S.C. 78o) is amended--
                    (A) in subsection (c)(8), by moving the 
                margin 2 em spaces to the left;
                    (B) in subsection (h)(2), by striking 
                ``affecting'' and inserting ``effecting'';
                    (C) in subsection (h)(3)(A)(i)(II)(bb), by 
                inserting ``or'' after the semicolon;
                    (D) in subsection (h)(3)(A)(ii)(I), by 
                striking ``maintains'' and inserting 
                ``maintained'';
                    (E) in subsection (h)(3)(B)(ii), by 
                striking ``association'' and inserting 
                ``associated''.
            (9) Section 15B(c)(4) (15 U.S.C. 78o-4(c)(4)) is 
        amended by striking ``convicted by any offense'' and 
        inserting ``convicted of any offense''.
            (10) Section 15C(f)(5) (15 U.S.C. 78o-5(f)(5)) is 
        amended by striking ``any person or class or persons'' 
        and inserting ``any person or class of persons''.
            (11) Section 19(c)(5) (15 U.S.C. 78s(c)(5)) is 
        amended by moving the margin 2 em spaces to the right.
            (12) Section 20 (15 U.S.C. 78t) is amended by 
        redesignating subsection (f) as subsection (e).
            (13) Section 21D (15 U.S.C. 78u-4) is amended--
                    (A) in subsection (g)(2)(B)(i), by striking 
                ``paragraph (1)'' and inserting ``subparagraph 
                (A)''.
                    (B) by redesignating subsection (g) as 
                subsection (f); and
            (14) Section 31(a) (15 U.S.C. 78ee(a)) is amended 
        by striking ``this subsection'' and inserting ``this 
        section''.
    (c) Investment Company Act of 1940.--The Investment Company 
Act of 1940 (15 U.S.C. 80a-1 et seq.) is amended as follows:
            (1) Section 2(a)(8) (15 U.S.C. 80a-2(a)(8)) is 
        amended by striking ``Unitde'' and inserting 
        ``United''.
            (2) Section 3(b) (15 U.S.C. 80a-3(b)) is amended by 
        striking ``paragraph (3) of subsection (a)'' and 
        inserting ``paragraph (1)(C) of subsection (a)''.
            (3) Section 12(d)(1)(G)(i)(III)(bb) (15 U.S.C. 80a-
        12(d)(1)(G)(i)(III)(bb)) is amended by striking ``the 
        acquired fund'' and inserting ``the acquired company''.
            (4) Section 18(e)(2) (15 U.S.C. 80a-18(e)(2)) is 
        amended by striking ``subsection (e)(2)'' and inserting 
        ``paragraph (1) of this subsection''.
            (5) Section 30 (15 U.S.C. 80a-29) is amended--
                    (A) by inserting ``and'' after the 
                semicolon at the end of subsection (b)(1);
                    (B) in subsection (e), by striking ``semi-
                annually'' and inserting ``semiannually''; and
                    (C) by redesignating subsections (g) and 
                (h), as added by section 508(g) of the National 
                Securities Markets Improvement Act of 1996, as 
                subsections (i) and (j), respectively.
            (6) Section 31(f) (15 U.S.C. 80a-30(f)) is amended 
        by striking ``subsection (c)'' and inserting 
        ``subsection (e)''.
    (d) Investment Advisers Act of 1940.--The Investment 
Advisers Act of 1940 (15 U.S.C. 80b et seq.) is amended as 
follows:
            (1) Section 203(e)(8)(B) (15 U.S.C. 80b-3(e)(8)(B)) 
        is amended by inserting ``or'' after the semicolon.
            (2) Section 222(b)(2) (15 U.S.C. 80b-18a(b)(2)) is 
        amended by striking ``principle'' and inserting 
        ``principal''.
    (e) Trust Indenture Act of 1939.--The Trust Indenture Act 
of 1939 (15 U.S.C. 77aaa et seq.) is amended as follows:
            (1) Section 303 (15 U.S.C. 77ccc) is amended by 
        striking ``section 2'' each place it appears in 
        paragraphs (2) and (3) and inserting ``section 2(a)''.
            (2) Section 304(a)(4)(A) (15 U.S.C. 77ddd(a)(4)(A)) 
        is amended by striking ``(14) of subsection'' and 
        inserting ``(13) of section''.
            (3) Section 313(a) (15 U.S.C. 77mmm(a)) is 
        amended--
                    (A) by inserting ``any change to'' after 
                the paragraph designation at the beginning of 
                paragraph (4); and
                    (B) by striking ``any change to'' in 
                paragraph (6).
            (4) Section 319(b) (15 U.S.C. 77sss(b)) is amended 
        by striking ``the Federal Register Act'' and inserting 
        ``chapter 15 of title 44, United States Code,''.

SEC. 302. EXEMPTION OF SECURITIES ISSUED IN CONNECTION WITH CERTAIN 
                    STATE HEARINGS.

    Section 18(b)(4)(C) of the Securities Act of 1933 (15 
U.S.C. 77r(b)(4)(C)) is amended by striking ``paragraph (4) or 
(11)'' and inserting ``paragraph (4), (10), or (11)''.
      And the House agree to the same.
                                   Tom Bliley,
                                   M.G. Oxley,
                                   Billy Tauzin,
                                   Chris Cox,
                                   Rick White,
                                   Anna G. Eshoo,
                                 Managers on the Part of the House.

                                   Alfonse D'Amato,
                                   Phil Gramm,
                                   Chris Dodd,
                                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 amendment of the House to the bill (S. 1260) to amend the 
Securities Act of 1933 and the Securities Exchange Act of 1934 
to limit the conduct of securities class actions under State 
law, 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:

        The Securities Litigation Uniform Standards Act of 1998

                           Uniform Standards

      Title 1 of S. 1260, the Securities Litigation Uniform 
Standards Act of 1998, makes Federal court the exclusive venue 
for most securities class action lawsuits. The purpose of this 
title is to prevent plaintiffs from seeking to evade the 
protections that Federal law provides against abusive 
litigation by filing suit in State, rather than in Federal, 
court. The legislation is designed to protect the interests of 
shareholders and employees of public companies that are the 
target of meritless ``strike'' suits. The purpose of these 
strike suits is to extract a sizeable settlement from companies 
that are forced to settle, regardless of the lack of merits of 
the suit, simply to avoid the potentially bankrupting expense 
of litigating.
      Additionally, consistent with the determination that 
Congress made in the National Securities Markets Improvement 
Act \1\ (NSMIA), this legislation establishes uniform national 
rules for securities class action litigation involving our 
national capital markets. Under the legislation, class actions 
relating to a ``covered security'' (as defined by section 18(b) 
of the Securities Act of 1933, which was added to that Act by 
NSMIA) alleging fraud or manipulation must be maintained 
pursuant to the provisions of Federal securities law, in 
Federal court (subject to certain exceptions).
---------------------------------------------------------------------------
     \1\ Public law 104-290 (October 11, 1996).
---------------------------------------------------------------------------
      ``Class actions'' that the legislation bars from State 
court include actions brought on behalf of more than 50 
persons, actions brought on behalf of one or more unnamed 
parties, and so-called ``mass actions,'' in which a group of 
lawsuits filed in the same court are joined or otherwise 
proceed as a single action.
      The legislation provides for certain exceptions for 
specific types of actions. The legislation preserves State 
jurisdiction over: (1) certain actions that are based upon the 
law of the State inwhich the issuer of the security in question 
is incorporated,\2\ (2) actions brought by States and political 
subdivisions, and State pension plans, so long as the plaintiffs are 
named and have authorized participation in the action; and (3) actions 
by a party to a contractual agreement (such as an indenture trustee) 
seeking to enforce provisions of the indenture.
---------------------------------------------------------------------------
    \2\ It is the intention of the managers that the suits under this 
exception be limited to the state in which issuer of the security is 
incorporated, in the case of a corporation, or state of organization, 
in the case of any other entity.
---------------------------------------------------------------------------
      Additionally, the legislation provides for an exception 
from the definition of ``class action'' for certain shareholder 
derivative actions.
      Title II of the legislation reauthorizes the Securities 
and Exchange Commission (SEC or Commission) for Fiscal Year 
1999. This title also includes authority for the SEC to pay 
economists above the general services scale.
      Title III of the legislation provides for corrections to 
certain clerical and technical errors in the Federal securities 
laws arising from changes made by the Private Securities 
Litigation Reform Act of 1995 \3\ (the ``Reform Act'') and 
NSMIA.
---------------------------------------------------------------------------
    \3\ Public Law 104-67 (December 22, 1995).
---------------------------------------------------------------------------
      The managers note that a report and statistical analysis 
of securities class actions lawsuits authored by Joseph A. 
Grundfest and Michael A. Perino reached the following 
conclusion:

            The evidence presented in this report suggests that 
        the level of class action securities fraud litigation 
        has declined by about a third in federal courts, but 
        that there has been an almost equal increase in the 
        level of state court activity, largely as a result of a 
        ``substitution effect'' whereby plaintiffs resort to 
        state court to avoid the new, more stringent 
        requirements of federal cases. There has also been an 
        increase in parallel litigation between state and 
        federal courts in an apparent effort to avoid the 
        federal discovery stay or other provisions of the Act. 
        This increase in state activity has the potential not 
        only to undermine the intent of the Act, but to 
        increase the overall cost of litigation to the extent 
        that the Act encourages the filing of parallel 
        claims.\4\
---------------------------------------------------------------------------
    \4\ Grundfest, Joseph A. & Perino, Michael A., Securities 
Litigation Reform: The First Year's Experience: A Statistical and Legal 
Analysis of Class Action Securities Fraud Litigation under the Private 
Securities Litigation Reform Act of 1995, Stanford Law School (February 
27, 1997).

      Prior to the passage of the Reform Act, there was 
essentially no significant securities class action litigation 
brought in State court.\5\ In its Report to the President and 
the Congress on the First Year of Practice Under the Private 
Securities Litigation Reform Act of 1995, the SEC called the 
shift of securities fraud cases from Federal to State court 
``potentially the most significant development in securities 
litigation'' since passage of the Reform Act.\6\
---------------------------------------------------------------------------
    \5\ Id. n. 18.
    \6\ Report to the President and the Congress on the First Year of 
Practice Under the Private Securities Litigation Reform Act of 1995, 
U.S. Securities and Exchange Commission, Office of the General Counsel, 
April 1997 at 61.
---------------------------------------------------------------------------
      The managers also determined that, since passage of the 
Reform Act, plaintiffs' lawyers have sought to circumvent the 
Act's provisions by exploiting differences between Federal and 
State laws by filing frivolous and speculative lawsuits in 
State court, where essentially none of the Reform Act's 
procedural or substantive protections against abusive suits are 
available.\7\ In California, State securities class action 
filings in the first six months of 1996 went up roughly five-
fold compared to the first six months of 1995, prior to passage 
of the Reform Act.\8\ Furthermore, as a state securities 
commissioner has observed:
---------------------------------------------------------------------------
    \7\ Testimony of Mr. Jack G. Levin before the Subcommittee on 
Finance and Hazardous Materials of the Committee on Commerce, House of 
Representatives, Serial No. 105-85, at 41-45 (May 19, 1998).
    \8\ Id. at 4.

            It is important to note that companies can not 
        control where their securities are traded after an 
        initial public offering. * * * As a result, companies 
        with publicly-traded securities can not choose to avoid 
        jurisdictions which present unreasonable litigation 
        costs. Thus, a single state can impose the risks and 
        costs of its pecular litigation system on all national 
        issuers.\9\
---------------------------------------------------------------------------
    \9\ Written statement of Hon. Keith Paul Bishop, Commissioner, 
California Department of Corporations, submitted to the Senate 
Committee on Banking, Housing and Urban Affairs' Subcommittee on 
Securities'' ``Oversight Hearing on the Private Securities Litigation 
Reform Act of 1995,'' Serial No. 105-182, at 3 (July 27, 1998).

      The solution to this problem is to make Federal court the 
exclusive venue for most securities fraud class action 
litigation involving nationally traded securities.

                                Scienter

      It is the clear understanding of the managers that 
Congress did not, in adopting the Reform Act, intend to alter 
the standards of liability under the Exchange Act.
      The managers understand, however, that certain Federal 
district courts have interpreted the Reform Act as having 
altered the scienter requirement. In that regard, the managers 
again emphasize that the clear intent in 1995 and our 
continuing intent in this legislation is that neither the 
Reform Act nor S. 1260 in any way alters the scienter standard 
in Federal securities fraud suits.
      Additionally, it was the intent of Congress, as was 
expressly stated during the legislative debate on the Reform 
Act, and particularly during the debate on overriding the 
President's veto, that the Reform Act establish a heightened 
uniform Federal standard on pleading requirements based upon 
the pleading standard applied by the Second Circuit Court of 
Appeals. Indeed, the express language of the Reform Act itself 
carefully provides that plaintiffs must ``state with 
particularity facts giving rise to a strong inference that the 
defendant acted with the required state of mind.'' The Managers 
emphasize that neither the Reform Act nor S. 1260 makes any 
attempt to define that state of mind.
      The managers note that in Ernst and Ernst v. Hochfelder 
\10\, the Supreme Court left open the question of whether 
conduct that was not intentional was sufficient for liability 
under the Federal securities laws. The Supreme Court has never 
answered that question. The Court expressly reserved the 
question of whether reckless behavior is sufficient for civil 
liability under section 10(b) and Rule 10b-5 in a subsequent 
case, Herman & Maclean v. Huddleston\11\, where it stated, ``We 
have explicitly left open the question of whether recklessness 
satisfies the scienter requirement.''
---------------------------------------------------------------------------
    \10\ 425 U.S. 185 (1976).
    \11\ 459 U.S. 375 (1983).
---------------------------------------------------------------------------
      The managers note that since the passage of the Reform 
Act, a data base containing many of the complaints, responses 
and judicial decisions on securities class actions since 
enactment of the Reform Act has been established on the 
Internet. This data base, the Securities Class Action 
Clearinghouse, is an extremely useful source of information on 
securities class actions. It can be accessed on the world wide 
web at http://securities.stanford.edu. The managers urge other 
Federal courts to adopt rules, similar to those in effect in 
the Northern District of California, to facilitate maintenance 
of this and similar data bases.
                                   Tom Bliley,
                                   M.G. Oxley,
                                   Billy Tauzin,
                                   Chris Cox,
                                   Rick White,
                                   Anna G. Eshoo,
                                 Managers on the Part of the House.

                                   Alfonse D'Amato,
                                   Phil Gramm,
                                   Chris Dodd,
                                Managers on the Part of the Senate.