S 1260.
Securities Litigation Uniform Standards Act of 1997.
Source: This document was created by TLJ by scanning a photocopy provided by the Senate Banking Committee on April 30, 1998.

April 29, 1998

AMENDMENT NO. ____                    Calendar No. _____

Purpose: To provide for a substitute.

IN THE SENATE OF THE UNITED STATES-105th Cong., 2d Sess.

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.

Referred to the Committee on _________________ and ordered to be printed

Ordered to lie on the table and to be printed

AMENDMENT IN THE NATURE OF A SUBSTITUTE intended to be proposed by Mr. D'AMATO (for himself, Mr. GRAMM, and Mr. DODD)

Viz:

Strike all after the enacting clause and insert the following

SECTION 1. SHORT TITLE.

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

SEC. 2. FINDINGS.

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.

SEC. 3. 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 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 CLASS ACTIONS. Any 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 RESERVATION OF CERTAIN ACTIONS.

(1) IN GENERAL Nothwithstanding subsection (b), a, class action described in paragraph (2) 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 ease of any other entity) may be maintained in a, State or Federal court by a, private party.

(2) PERMISSIBLE ACTIONS. A class action is described in this paragraph if it involves

(A) 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

(B) 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.

(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) CLASS ACTION.

(A) IN GENERAL. The term class action means

(i) any single lawsuit (other than a, derivative action brought by I or more shareholders on behalf of a, corporation) 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) 1 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 (other than derivative suits brought by I or more shareholders on behalf of a, corporation) 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) COUNTING OF CERTAIN CLASS MEMBERS. For purposes of this paragraph, a corporation, investment company, pension plan, partnership, or other entity, shall be treated as 1 person or prospective class member, but only if the entity is not established for the purpose of participating in the action.

(2) COVERED SECURITY. A security is a covered security if it 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.

(3) AFFILIATE OF THE ISSUER. The term affiliate of the issuer means a person that directly or indirectly, through 1 or more intermediaries, controls or is controlled by or is under common control with, the issuer..

(2) CONFORMING AMENDMENTS. Section 22(a) of the Securities Act of 1933 (15 U.S.C.77v(a)) is amended

(A) by striking and, concurrent with State and Territorial courts, and inserting and, concurrent with State and Territorial courts, except as provided in section 16 with respect to class actions,; and

(B) by striking No case arising under this title and brought in any, State court Of competent Jurisdiction shall be removed and inserting Except as provided in section 16(c), no case arising under this title and brought in any State court of competent jurisdiction shall be removed.

(b) AMENDMENTS TO THE SECURITIES EXCHANGE ACT OF 1934.  Section 28 of the Securities Exchange Act of 1934 (15 U.S.C. 78bb) is amended

(1) in subsection (a), by, striking The rights and remedies mid inserting Except as provided in subsection (f), the rights and remedies; and

(2) by adding at the end the following new sub-section:

(f) LIMITATIONS ON REMEDIES.

(1) CLASS ACTION LIMITATIONS. No 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 CLASS ACTIONS. Any 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) RESERVATION OF CERTAIN ACTIONS.

(A) IN GENERAL. Notwithstanding paragraph (1), a, class action described in subparagraph (B) 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 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 an issuer that

(I) is made by or oil behalf of the issuer or an affiliate of the issuer to holders of equity securities of the issuer; and

(II) 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.

(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) CLASS ACTION. The term class action means

(i) any single lawsuit (other than a derivative action brought by 1 or more shareholders on behalf of a corporation) 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) 1 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 (other than derivative suits brought by I or more shareholders on behalf of a corporation) 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) COUNTING OF CERTAIN CLASS MEMBERS. For purposes of subparagraph (A), a, corporation, investment company, pension plan, partnership, or other entity, shall be treated as I person or prospective class member, but only if the entity is not established for the purpose of participating in the action.

(C) COVERED SECURITY. A security is a covered security if it 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.

(D) AFFILIATE OF THE ISSUER. For purposes of this paragraph the term affiliate of the issuer means a. person that directly or indirectly through I or more intermediaries, controls or is controlled by or is under common control with the issuer..

SEC. 4. APPLICABILITY.

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