Home > 104th Congressional Bills > H.R. 1058 (eh) To reform Federal securities litigation, and for other purposes. [Engrossed in House] ...H.R. 1058 (eh) To reform Federal securities litigation, and for other purposes. [Engrossed in House] ...
In the Senate of the United States,
June 28 (legislative day, June 19), 1995.
Resolved, That the bill from the House of Representatives (H.R.
1058) entitled ``An Act to reform Federal securities litigation, and
for other purposes'', do pass with the following
AMENDMENTS:
Strike out all after the enacting clause and insert:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``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. Elimination of certain abusive practices.
Sec. 102. Securities class action reform.
Sec. 103. Sanctions for abusive litigation.
Sec. 104. Requirements for securities fraud actions.
Sec. 105. Safe harbor for forward-looking statements.
Sec. 106. Written interrogatories.
Sec. 107. Amendment to Racketeer Influenced and Corrupt Organizations
Act.
Sec. 108. Authority of Commission to prosecute aiding and abetting.
Sec. 109. Loss causation.
Sec. 110. Study and report on protections for senior citizens and
qualified retirement plans.
Sec. 111. Amendment to Racketeer Influenced and Corrupt Organizations
Act.
Sec. 112. Applicability.
TITLE II--REDUCTION OF COERCIVE SETTLEMENTS
Sec. 201. Limitation on damages.
Sec. 202. Proportionate liability.
Sec. 203. Applicability.
TITLE III--AUDITOR DISCLOSURE OF CORPORATE FRAUD
Sec. 301. Fraud detection and disclosure.
TITLE I--REDUCTION OF ABUSIVE LITIGATION
SEC. 101. ELIMINATION OF CERTAIN ABUSIVE PRACTICES.
(a) Prohibition of Referral Fees.--Section 15(c) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o(c)) is amended by adding at the end
the following new 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) Attorney Conflict of Interest.--
(1) Securities act of 1933.--Section 20 of the Securities
Act of 1933 (15 U.S.C. 77t) is amended by adding at the end the
following new subsection:
``(f) Attorney Conflict of Interest.--In any private action arising
under this title, if a plaintiff 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 party.''.
(2) Securities exchange act of 1934.--Section 21 of the
Securities Exchange Act of 1934 (15 U.S.C. 78u) is amended by
adding at the end the following new subsection:
``(i) Attorney Conflict of Interest.--In any private action arising
under this title, in which a plaintiff 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 party.''.
(c) Prohibition of Attorneys' Fees Paid From Commission
Disgorgement Funds.--
(1) Securities act of 1933.--Section 20 of the Securities
Act of 1933 (15 U.S.C. 77t) is amended by adding at the end the
following new subsection:
``(g) Prohibition of Attorneys' Fees Paid From Commission
Disgorgement Funds.--Except as otherwise ordered by the court upon
motion by the Commission, or, in the case of an administrative action,
as otherwise ordered by the Commission, funds disgorged as the result
of an 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. 102. SECURITIES CLASS ACTION REFORM.
(a) Recovery Rules.--
(1) Securities act of 1933.--Section 20 of the Securities
Act of 1933 (15 U.S.C. 77t) is amended by adding at the end the
following new subsection:
``(h) Recovery Rules for Private Class Actions.--
``(1) In general.--The rules contained in this subsection
shall apply in each private action arising under this title
that is brought as a plaintiff class action pursuant to the
Federal Rules of Civil Procedure.
``(2) Certification filed with complaints.--
``(A) In general.--Each plaintiff seeking to serve
as a representative party on behalf of a class shall
provide a sworn certification, which shall be
personally signed by such plaintiff and filed with the
complaint, that--
``(i) states that the plaintiff has
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 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 (3).
``(B) Nonwaiver of attorney-client privilege.--The
certification filed pursuant to subparagraph (A) shall
not be construed to be a waiver of the attorney-client
privilege.
``(3) Recovery by plaintiffs.--The share of any final
judgment or of any settlement that is awarded to a
representative party serving on behalf of a class shall be
calculated in the same manner as the shares of the final
judgment or settlement awarded to all other members of the
class. Nothing in this paragraph shall be construed to limit
the award of reasonable costs and expenses (including lost
wages) directly relating to the representation of the class to
any representative party serving on behalf of the class.
``(4) Restrictions on settlements under seal.--The terms
and provisions of any settlement agreement of a class action
shall not be filed under seal, except that on motion of any
party to the 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.
``(5) 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 damages and prejudgment
interest awarded to the class.
``(6) Disclosure of settlement terms to class members.--Any
proposed or final settlement agreement that is published or
otherwise disseminated to the class shall include each of the
following 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.''.
(2) Securities exchange act of 1934.--Section 21 of the
Securities Exchange Act of 1934 (15 U.S.C. 78u) is amended by
adding at the end the following new subsection:
``(j) Recovery Rules for Private Class Actions.--
``(1) In general.--The rules contained in this subsection
shall apply in each private action arising under this title
that is brought as a plaintiff class action pursuant to the
Federal Rules of Civil Procedure.
``(2) Certification filed with complaints.--
``(A) In general.--Each plaintiff seeking to serve
as a representative party on behalf of a class shall
provide a sworn certification, which shall be
personally signed by such plaintiff and filed with the
complaint, that--
``(i) states that the plaintiff has
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 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 (3).
``(B) Nonwaiver of attorney-client privilege.--The
certification filed pursuant to subparagraph (A) shall
not be construed to be a waiver of the attorney-client
privilege.
``(3) Recovery by plaintiffs.--The share of any final
judgment or of any settlement that is awarded to a
representative party serving on behalf of a class shall be
calculated in the same manner as the shares of the final
judgment or settlement awarded to all other members of the
class. Nothing in this paragraph shall be construed to limit
the award to any representative party serving on behalf of a
class of reasonable costs and expenses (including lost wages)
directly relating to the representation of the class.
``(4) Restrictions on settlements under seal.--The terms
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