Richard Bryan

Mr. BRYAN

Mr. BRYAN. I yield.

Mr. BRYAN. Mr. President, I yield.

Mr. BRYAN. Mr. President, I talked with the distinguished floor leaders. I need 5 minutes, if possible, to be able to speak as in morning business. I know the distinguished Senator from North Carolina has the floor. I do not want to in any way encroach upon his time. I need to do this.

Mr. BRYAN

Mr. BRYAN. Mr. President, I thank the Chair. Mr. President, at this stage of the debate I acknowledge that the die is cast and this bill will pass. I must say that I believe it is a terrible mistake. This has not been about whether you are for curtailing frivolous lawsuits or not. There is no disagreement on that. The provisions that deal with containing frivolous lawsuits I think enjoy a vast majority of our support, and certainly this Senator. I have asked myself. Why are we doing this? Why are we undergoing all of this exercise? For the last 6 decades we have enjoyed the world's safest securities markets. They are the envy of the world. Could it be because there is a litigation explosion? The facts belie that. In the past 20 years, the number of cases filed in class action lawsuits remain about between 290 and 315 a year. There are some 235,000 civil filings each year. So that cannot be the reason. There are some 14,000 companies that have filings with the SEC. Each year only about 140 out of those 14,000 are brought in as party defendants in these class action cases. Is it because there has been an inability to raise capital in our markets? In the past 20 years, the amount of capital raised has increased by 58,000 percent. So it certainly cannot be that. Mr. President, this is clearly--as I observed at the beginning--a Trojan horse that brings us to the floor of the U.S. Senate to shield a large number of people from liability for their misconduct. Under securities action no one who is simply negligent or grossly negligent is liable. So it is extremely difficult. What this has all been about, in my view, is to emasculate the private individual, the private investor, from securing relief and recover from investment fraud. I have prepared a little chart here which I think indicates the number of hurdles that have to be surmounted in order to get to the finish line. It will be more difficult to get these cases brought because of the limitations imposed. The shorter statute of limitations. The surrender of control of the wealthiest plaintiff which in effect becomes the lead plaintiff presumptively under this. The automatic discovery stage prevents the plaintiff from ascertaining what the state of mind is of the defendants who have perpetrated the fraud. The safe harbor provisions, that the distinguished Senator from Maryland has talked about; aiders and abettors--they are home free. They do not have any liability at all. The RICO liability has been wiped out. Ultimately, if you are able to perform a feat that even Edwin Moses would have difficulty performing, and you get to the finish line, the prospect of recovery is greatly reduced because we have eliminated the concept as between those who are guilty of reckless misconduct or totally innocent. We are simply saying that those who are guilty of reckless misconduct only have proportionate liability, and the plaintiff, the investor who is damaged, does not recover the full amount. That overturns hundreds and hundreds of years of legal precedent. For a social and economic policy that I just cannot comprehend as between the innocent party and the wrongdoer whose conduct is at least reckless, we are saying give the reckless actor immunity from the suit. In the case of the aider and abettor and in the other case where he may be a primary violator, we simply say he or she is only liable for the proportionate share. That makes no sense. In the 1980's, Congress enacted the infamous Garn-St Germain. Within a decade, the savings and loan industry in America imploded and the American taxpayer was asked to write a bill which constitutes hundreds of billions of dollars. I forecast that, as a consequence of the enactment of this kind of legislation, we are going to see innocent investors by the thousands deprived of their day in court. Fifty major newspapers in America who have looked at this issue have concluded that what we are about to do is a tragic mistake. Mr. President, as I said at the outset, I acknowledge that this legislation will pass this Chamber, but I believe that we will rue the day and that our markets will be less secure and what the proponents may intend to accomplish will, indeed, have a countereffective result.

Mr. BRYAN

Mr. BRYAN. Mr. President, I yield myself 8 minutes out of my allocated time. Mr. President, for the benefit of my colleagues, for six decades, the foundation upon which public confidence in the American securities market has been built rests upon two fundamental premises: First, effective regulation by the Securities and Exchange Commission; second, the right of individual investors who have been defrauded to pursue a private cause of action against those wrongdoers. Mr. President, I greatly fear that S. 240, as it is being processed through this Chamber, will, for all intents and purposes, emasculate that private cause of action, which has been so important in keeping the American securities market safe and sound and investor confidence high. Those are not just statements made by the Senator from Nevada. The former Chairman of the SEC, Mr. Breeden, the last Republican Chairman, made similar statements in [[Page S 9110]] testimony before the Banking Committee during his tenure. The current Chairman, Mr. Levitt, has also made that proposition. The amendment before us seeks to correct a decision by the Supreme Court decided last year by a narrow 5-to-4 margin that wipes out liability for aiders and abettors. Now, there has been much debate on the floor of the Senate about proportionate liability, joint and several liability, intentional misconduct, knowing misconduct, and reckless misconduct. None of those distinctions makes a whit of difference if this amendment is not granted, because under the current State of the law, no aider and abettor is liable under that theory, irrespective of his or her misconduct. Everyone is home free. I cannot conceive of a public policy that would support that conclusion. And, indeed, the prime sponsors of this legislation have previously written--I refer to the distinguished Senator from Connecticut and the senior Senator from New Mexico--expressing their support for restoration of aider and abettor liability. Interspersed throughout all of this debate has been a great antipathy to plaintiff's lawyers. I understand that antipathy and I do not, for a moment, doubt that there has been some misconduct, and some provisions in S. 240 deal with that misconduct. But let me point out that aiders and abettors are also lawyers, and if misconduct on the part of the plaintiff's bar ought to be addressed--as it ought to--under what theory of social or economic justice, can we assert that those who are part of the conspiracy itself--lawyers and accountants, primarily, and to some extent bankers--in effect, be given a blank check? If they did not sign their names to any of the statements, in effect, they have no liability. Now, is this theoretical? Is it esoteric? No. If the state of law at the time of the Keating actions--one of the most notorious securities frauds of this century--were in the form that it is today, here is what would occur. My colleagues will recall that Mr. Keating, the primary wrongdoer, was bankrupt. No recovery from him. Some $262 million were recovered as a result of the Keating fraud by private investors. Jeri Mellon, a retired woman who lives in Henderson, NV, a suburb of Las Vegas, who came back, most of her savings were lost as a result of the fraud. She joined with others similarly situated in a class action to recover money. They recovered $262 million. If that action were brought today, because aiding and abetting is no longer a part of the law as a result of the Central Bank of Denver case--I might add, the Court, in deciding that case, said, look, we do not believe that the statute can be construed to apply to aider and abettor liability, but we sure as the devil believe that there ought to be liability. So this was not a value judgment made by the Court that aiders and abettors ought not to be available. Here are some of the aiders and abettors: Parker Milliken, Kay Sholer, Sidley & Austin, Michael Milken; $121 million of the overall value of $262 million would be wiped out if that action was filed today. So we are down now to $141 million. Previously, I offered for the consideration of the Senate a recommendation shared by the SEC, by the State Securities Association, by every regulator, by consumer groups, by those charged with public finance responsibilities at the State and local government level, to extend the statute of limitations, which is currently limited to 1 to 3, to make it a 2-year to 5-year statute of limitations. Had the action against Charles Keating been brought today, 20 percent of the class claims would have been barred because of this restricted statute of limitations. Another $28 million in recovery, wiped out. These are people like the Jeri Mellons. I suspect that virtually every Member of this Senate has had individuals who lost money as a result of the Keating fraud. The recovery is down $262 million, to $113 million. Joint and several liability: Under the provisions of S. 240, in order to be jointly and severally liable, you have to either have knowing misconduct or intentional misconduct. Reckless misconduct no longer does it. Although I recognize a distinction can be made between the two of those, the amendment that Senator Sarbanes and I sought to offer in one form or another, sought to make sure that if the primary violator is insolvent, that those who are guilty of reckless misconduct--it is not ordinary negligence, not simple negligence--if a Member of this Chamber goes out this evening, gets in his or her automobile, is involved in an accident and is negligent, that Member is responsible to the party to whom he or she has inflicted the injury. Not so with securities law. Only if they are guilty of reckless misconduct. In effect, as a result of the changes we make in the joint and several liability, those who are proportionally liable pay only their share. It is estimated that another $67 million would be wiped out in terms of investor recovery if the Keating case were brought today. S. 240 also wipes out the Rico treble damages provision, and another $30 million. So if the Keating case were brought today, with the state of the law as it exists on this morning as this debate continues, rather than $262 million recovered by innocent investors, many of whom lost their life savings--and a disproportionately large number, small, elderly, retired investors who had little likelihood of ever regaining their loss--$262 million of recovery would be reduced to $16 million. Mr. President, I ask my colleagues, under what theory of social or economic justice do we want to do this? Sure, we want to get at the plaintiff's lawyers that file frivolous actions, and the enhanced provisions of rule 11 under the Federal Rules of Civil Procedure address that issue. The amendment before the Senate would simply restore aiding and abetting liability. Zippo, no recovery at all. Intentional misconduct, knowing misconduct, reckless misconduct--not 1 cent could be recovered under a theory of aider and abettor liability under the state of the law today, unless the Bryan amendment is enacted. May I inquire, I have used my time; how is the time being charged at this point?

Mr. BRYAN. Mr. President, if I might inquire of the Chair, it is my understanding that on the Bryan amendment, there is a time agreement in which the distinguished chairman of the Banking Committee has 15 minutes allotted to him and the proponents of the Bryan amendment have 15 minutes; is that correct?

Mr. BRYAN. Mr. President, in responding to the question of the Senator from Maryland, I am at a total loss. It [[Page S 9112]] is beyond my comprehension, whether one positions himself or herself in the political spectrum to the left of Fidel Castro or to the right of the Sheriff of Nottingham, under what theory you could say this kind of conduct ought to be encouraged and to simply say to these folks, by and large: Hey, as long as you are looking the other way and not signing any documents, you can, with total impunity under the private cause of action, counsel, aid, and provide tangible help to perpetrators of investor fraud. It is simply incomprehensible, I respond to my good friend.

Mr. BRYAN. Mr. President, I want to make this very clear. I have said it ad nauseam. The Bryan amendment has nothing to do with frivolous lawsuits. The question is whether or not the Senate wants to go on record as tolerating, allowing, and permitting the conduct of aiders and abettors, whether intentional, knowingly, or reckless, to go unpunished. That is the state of the law. This amendment would say that lawyers, accountants, bankers, and others that aid and abet securities fraud will be held liable. That was the law until the Central Bank case was decided, and the Supreme Court in deciding that case made it clear that they were not saying that aiders and abettors ought not to be liable. They just very narrowly interpreted the statute. We have hit the plaintiffs' lawyers for their frivolous actions, but how can we ignore the conduct of lawyers who counsel [[Page S 9116]] those perpetrating securities fraud? If we fail to adopt the Bryan amendment, we are simply saying to that group of lawyers that you can continue and be free to continue your activities, and that may cost literally hundreds of millions of dollars to innocent investors.

Mr. BRYAN. Might I inquire if the acting floor manager will yield me 1 minute to respond to the question of the Senator from Maryland?

Mr. BRYAN. If I might respond to the Senator, out of $262 million recovered in a private cause of action--because Mr. Keating himself was bankrupt--$121 million of the $262 million was recovered from aiders and abettors. Under the state of law currently, that $121 million is wiped out.

Mr. BRYAN. The Senator is correct, no liability.

Mr. BRYAN. I will be pleased to yield to the Senator.

Mr. BRYAN. Mr. President, let me, in 2\1/2\ minutes, tell my colleagues this amendment has nothing to do with frivolous lawsuits, absolutely nothing. This amendment simply indicates whether or not the Senate of the United States believes that those who counsel, who aid, who provide assistance to those who perpetrate investor fraud, ought to be held responsible. Under the current law, aiders and abettors are not liable. Among that group are the lawyers who have been the focus of much criticism during the course of the debate. Sidley & Austin, Jones Day. These are law firms. A vote against the Bryan amendment places the individual Senator and this Congress on record as saying this kind of conduct--misconduct in my view--ought to be tolerated, approved, and tacitly accepted. I cannot conceive of such a result. A decade ago the Congress of the United States enacted a piece of legislation, Garn-St Germain, that led, within a decade, to a savings and loan industry which cost the American taxpayers tens and tens of billions of dollars. It is my view that S. 240, in its present form, without the kinds of amendments the distinguished Senator from Maryland and I have tried to add, will cause investor losses of those magnitudes over the ensuing years, and essentially private causes of action will be destroyed.

Mr. BRYAN. Mr. President, may I inquire what the state of time is?

Mr. BRYAN

Mr. BRYAN. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. BRYAN

Mr. BRYAN. Mr. President, first let me commend my colleague from New Mexico. I think his amendment is well-constructed. We have used the word often in the course of the debate--balanced. This is balanced. What is sauce for the goose is sauce for the gander. Those lawyers, whether they be plaintiff's lawyers or defendant's lawyers who are involved in frivolous conduct, now feel the full effect of sanctioned rule 11 under the Federal Rules of Civil Procedure. Much has been said about the frivolous nature of this lawsuit correction act. I must say this is one of the few amendments that actually deals with this issue. I am pleased to support my colleague and friend from New Mexico, and I am pleased that the managers have agreed to accept the amendment. I urge its adoption.

Mr. BRYAN

Mr. BRYAN. That is my understanding.

Mr. BRYAN. I notice a number of colleagues are about ready to join the floor with other amendments. I will simply share one additional statistic in closing and yielding the remainder of my time. Chairman Levitt has stated, of 400 pending SEC cases, 80 to 85 rely on aiding and abetting theories of liability. We are talking about a substantial number. I yield the floor and yield back the remainder of my time.

Mr. BRYAN. That is my understanding. Tomorrow, as we complete the debate, I will have additional data to share with my colleagues. I have never been involved in this area as an attorney representing a class action or defending this, but the issue is quite substantial, and the impact, I think, will astonish some of our colleagues. It is not just an academic discussion among Senators in good faith trying to craft a piece of legislation. The impact is profound. There must be reasons, when these actions are brought, they are brought under a theory of aiding and abetting. It must be the only way to get into court against some of this misconduct with lawyers, accountants, bankers, and others. We simply wipe them out. ``You folks can do whatever you want. You are home free.'' That is a public policy that, in my view, is indefensible.

Mr. BRYAN

Mr. BRYAN. Will the Senator yield for one more question? I know the hour is late.

Mr. BRYAN. Let me say it is my understanding--the Senator can correct me if she has a different view--that the very essence of a class action is to allow individuals who are very small with relatively modest investments to band together, that there is a unity of interest, a commonalty of purpose; can band together, and that same commonalty of interest may or may not exist with respect to a large security underwriting house which may have other dealings with the defendants who may indeed have a little self-dealing. ``We will wash your back on this one if you will wash our back on the next one.'' Is that the essence of the Senator's concern?

Mr. BRYAN. But it simply indicates that where there is not a unanimous agreement it is simply a factor. Am I correct?

Mr. BRYAN. I want to compliment the Senator. We have heard many times during the course of this debate the word ``balance.'' I think what the Senator has done in revisiting this particular section of the bill represents the essence of balance. As the Senator has pointed out, the Senator's amendment does not preclude the consideration of wealth, if I am reading the Senator's amendment correctly.

Mr. BRYAN. Will the Senator yield?

Mr. BRYAN. I compliment the Senator for her fine work. As I am reading the print before us, I am almost offended with the language ``the most adequate plaintiff.'' Somehow if you have $10,000 in this investment and that is all you have, somehow you are less adequate to be the lead plaintiff in the action. My question really deals with the origin of this. I sat in on as many of the hearings as I could. The chairman was extremely fair in posting notice and giving us opportunity to present our arguments and to make the point, but I do not recall this being in the original bill. I do not recall any testimony offered in behalf of this measure. I do not recall any discussion or debate about this at all. Perhaps the distinguished Senator from California can enlighten me further on that.