Securities Litigation Reform
(HR 1689 & S 1260)
Title. Securities Litigation Uniform Standards Act of 1997.
Sponsors.
Summary. The bills would preempt state laws by establishing uniform national standards for class action lawsuits involving nationally traded securities. It is designed to decrease the number of harassment suits brought in state courts that threaten the ability of companies -- particularly high-tech Silicon Valley companies -- to raise capital and disseminate information. They would amend the Securities Act of 1933 and the Securities Exchange Act of 1934. It remedies what many see as an oversight or deficiency of the recently enacted Private Securities Litigation Reform Act of 1995. The PSLRA sought to reduce the number of frivolous class action 10(b) suits in federal courts. One of its key provisions was to create a "safe harbor" for forward looking statements made by public companies, in order to promote dissemination of financial information to analysts and investors, and improve market efficiency. It also limited plaintiffs' lawyers' ability to use pre-trial discovery for harassment purposes. Since passage of the PSLRA, many companies, and several studies, have asserted that plaintiffs' securities lawyers have responded by shifting their securities fraud suits into state courts -- particularly in California, and particularly in suits against high-tech companies. These suits avoid the "safe harbor clause" of the PSLRA. Some suits are brought in both state and federal courts, with the state action used to evade the discovery restraints in the PSLRA.
The Senate version includes an amendment from Sen. Sarbanes which provides that "... 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 similarly situated." The version of the bill that passed the House Subcommittee added the Sarbanes amendment, but qualified it with the additional requirement that all such State entities "are are named plaintiffs, and that have authorized participation, in such action."
Status. S 1620 ES was approved by the Senate on May 13, 1998 by a vote of 79-21. The House passed its version, HR 1689 RH, on July 22. Clinton vetoed the underlying Private Securities Litigation Reform Act of 1995 (and was overriden). Presidential aide Bruce Lindsey wrote a letter in April announcing administration support for the bill. The conference committee reported on October 8, and both the House and Senate adopted it on October 13, 1998.
Legislative History with Links to Documents, Stories, and other Materials.
Other Resources.