H.R.1058 - Private Securities Litigation Reform Act of 1995104th Congress (1995-1996)
Summary: H.R.1058 — 104th Congress (1995-1996)
Conference report filed in House (11/28/1995)
TABLE OF CONTENTS:
Title I: Reduction of Abusive Litigation
Title II: Reduction of Coercive Settlements
Title III: Auditor Disclosure of Corporate Fraud
Private Securities Litigation Reform Act of 1995 - Title I: Reduction of Abusive Litigation - Amends the Securities Act of 1933 (SA) and the Securities Exchange Act of 1934 (SEA) (together, the Acts) with respect to private class action suits to mandate that each plaintiff seeking to serve as a representative party file a sworn certification: (1) that the plaintiff did not purchase the subject matter securities at the direction of counsel or in order to participate in a private action; (2) that identifies any other action filed during the preceding three-year period in which the plaintiff sought to serve as a representative party on behalf of a class; and (3) that the plaintiff will not accept payment for serving as a representative party on behalf of a class beyond the plaintiff's pro rata share of any recovery, except as approved by the court.
(Sec. 101) Prescribes guidelines for early notice to class members of the appointment of the lead plaintiff. Provides for a court-appointed lead plaintiff.
Requires the court to adopt a rebuttable presumption that the most adequate plaintiff is the person with the largest financial interest in the relief sought by the class. Declares that a person may be a lead plaintiff (or an officer, director, or fiduciary of a lead plaintiff) in no more than five securities class actions brought as plaintiff class actions during any three-year period.
Prohibits settlements under seal except in limited circumstances. Mandates disclosure of settlement terms to class members. Requires the court to determine whether an interest on the part of plaintiff's counsel in the securities that are the subject of the litigation constitutes a conflict of interest sufficient to disqualify the attorney from representing the party. Provides for: (1) a stay of discovery during the pendency of any motion to dismiss; and (2) preservation of the evidence during the pendency of any stay of discovery. Mandates court review, upon final adjudication of an action, of the parties' compliance with certain Rules of Civil Procedure. Sets forth a rebuttable presumption in favor of award of attorney's fees and costs to opposing counsel by the party in violation of such Rules.
Establishes each defendant's right to written interrogatories to the jury on the issue of the defendant's particular state of mind with respect to specified alleged violations.
Amends the SEA to authorize the court to require security for payment of class action costs.
Sets forth as prerequisites for securities fraud actions: (1) particularity in securities fraud actions alleging misleading statements and omissions; (2) specific allegations of facts giving rise to a strong inference that the defendant acted with the required state of mind in a private action in which the plaintiff may recover money damages; and (3) the burden on the plaintiff of proving loss causation. Requires the court to dismiss the complaint upon defendant's motion if the first two such requirements are not met.
Limits damages, where the plaintiff seeks to establish them by reference to the market price of a security, to the difference between the purchase or sale price paid or received by the plaintiff, as appropriate, and the mean trading price of the security during the 90-day period beginning on the date on which the information correcting the misstatement or omission that is the basis for the action is disseminated to the market. Specifies an exception to this rule if the plaintiff sells or repurchases the subject security during such 90-day period.
(Sec. 102) Amends the Acts to provide certain issuers of securities a safe harbor from liability for forward-looking statements regarding a security's projected performance or operations, if: (1) the statement is immaterial or is identified as a forward-looking statement and accompanied by certain cautionary statements; or (2) the plaintiff fails to prove that the statement was made with either actual knowledge of its false or misleading nature by a natural person, or actual approval by an executive officer. Prescribes conditions for satisfaction of such requirements by oral forward-looking statements.
States that there is no duty upon any person to update a forward-looking statement.
Requires the court to stay discovery during the pendency of defendant's motion for summary judgment upon grounds that the complaint is based upon a forward-looking statement for which this Act precludes a claim for relief.
(Sec. 103) Amends the SEA to prohibit brokers, dealers, or associated persons from soliciting or accepting referral fees for assisting an attorney in obtaining the representation of any person in a private securities action.
Amends the Acts to prohibit the use of disgorgement funds resulting from actions brought by the Securities Exchange Commission (SEC) in Federal court to pay legal expenses incurred by private parties seeking distribution of such funds.
(Sec. 104) Amends the SEA to authorize the SEC to seek injunctive relief or money penalties against aiders and abettors of securities laws violations.
(Sec. 105) Amends the SA to allow a defendant to avoid rescissionary damages in an action based upon misstatements or omissions contained in a prospectus if the defendant proves that the depreciation in the value of a security resulted from factors unrelated to the alleged misstatement or omission.
(Sec. 106) Directs the SEC to recommend to the Congress protections from securities fraud and abusive or unnecessary securities fraud litigation for senior citizens and qualified retirement plans if it finds that they have been adversely impacted by abusive or unnecessary securities fraud litigation, or require greater protection against such fraud than is provided in this Act.
(Sec. 107) Amends the Racketeer Influenced and Corrupt Organizations (RICO) statute to remove securities fraud from its purview with respect to treble damages in a civil action, except with regard to any participant in the fraud that is criminally convicted in connection with the fraud, in which case the statute of limitations shall start to run on the date the conviction becomes final.
Title II: Reduction of Coercive Settlements - Amends the SEA to assign joint and several liability for damages only if the trier of fact specifically determines that the defendant knowingly violated securities laws. Restricts liability for damages solely to that portion of the judgment that corresponds to the percentage of each individual defendant's responsibility for plaintiff's losses. Prescribes determination of responsibility guidelines for the trier of fact. Requires proportionate contributions from individually liable covered persons for the uncollectible shares of other covered persons in specified circumstances. Provides that the standard for allocation of damages and the procedure for reallocation of uncollectible shares among defendants shall not be disclosed to the jury.
Discharges from all claims of contribution brought by other persons any covered person who settles any private action at any time before final verdict or judgment. Bars all future claims against such settling covered persons.
Establishes a statute of limitations for an action for contribution among defendants.
Title III: Auditor Disclosure of Corporate Fraud - Modifies requirements for audits conducted by an independent public accountant of an issuer's financial statements to include procedures to: (1) detect illegal acts that would have a direct and material effect on the determination of financial statement amounts; (2) identify related party transactions material to financial statements; and (3) evaluate an issuer's ability to continue as a going concern.
Sets forth notification and reporting guidelines for a public accountant who becomes aware of information indicating possible illegal activities during the course of an audit. Declares that an auditor shall not be liable in a private action for complying with such guidelines. Imposes civil penalties for an auditor's noncompliance with this Act.