|
S 1260, Securities Litigation Uniform Standards Act of
1998.
Conference Report (No. 105-803).
Date: October 9, 1998.
Conference Report passed Senate and House on October 13, 1998.
Source: Library of Congress. This document has been edited for HTML, but not for
content.
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 from registration 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.
| 1 Public law 104 290 (October 11, 1996). |
Additionally, consistent with the determination that Congress made in the National
Securities Markets Improvement Act1 (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).
``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.
| 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. |
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 in which 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.
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.
| 3 Public Law 104 67 (December 22, 1995). |
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 19953 (the ``Reform Act'') and NSMIA.
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:
| 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). |
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
Prior to the passage of the Reform Act, there was essentially no significant securities
class action litigation brought in State court.5
| 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. |
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
| 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). |
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:
| 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). |
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
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.
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.
| 
