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] ...


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                  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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