Richard Bryan

Mr. BRYAN

Mr. BRYAN. Mr. President, I thank the Chair for keeping me cognizant of the time. In fact, Charles Keating attempted to have his case dismissed on Lampf grounds, and that was the genesis of our effort to keep those cases alive. The Congress responded by making sure that the Court's decision did not have a retroactive effect on those cases that were pending. According to a study released by the House Subcommittee on Telecommunications and Finance in 1991 after the Lampf decision, over $5 billion in pending fraud claims were dismissed or threatened with dismissal based on the shortened statute of limitations. This amendment tracks the exact formula that is urged upon us by the SEC, an extension that would allow cases to be filed up to 5 years after violation has occurred, provided they are brought within 2 years after discovery of the violation. As I pointed out at the outset, S. 240 in its original form contained an extension of the statute of limitations. I commend my colleague and good friend, the distinguished senior Senator from Connecticut, who has taken a lead on this case. He has long supported the longer statute of limitations. I commend his effort. I might say that in previous Congresses, subsequent to the Lampf decision, efforts to make changes in the securities litigation system have all recognized the wisdom of the longer statute of limitations of 2 to 5 years. I note it is somewhat anomalous--we have the situation in which the amendment on the floor is designed to restore what the introducer of the bill must surely have intended, because they cast it in the identical language that we are seeking to place back into the bill. In addition to the securities regulators at the national level and the State level, this amendment enjoys the support of the Consumer Federation of America, the Public Citizen, the Council of Institutional Investors, the United Shareholders Association, the Bond Investors Association, the U.S. Conference of Mayors, the Government Finance Officers Association, and the National Association of County Treasurers and Finance Officers, to list but a few. So for my colleagues who may have some motivation in saying ``Look, the lawyers are responsible for all of the ills in America and have done terrible things with respect to the securities litigation,'' they have an opportunity to support other provisions in the law. Please, in the interest of striking back at these securities lawyers, do not deprive, do not undermine the right of innocent investors to simply present their case, to simply present their case; simply give them the key to get into the courthouse door. And all these other provisions that are included with respect to lawyer sanctions, which I happen to agree with if it is a frivolous case, then they can come into place and operate to serve as a bar to the frivolous case. This is a case that deprives the innocent investor with a meritorious cause of action from ever having his or her case presented because of the cleverness of the wrongdoer, the defrauder. We ought not, it seems to me, as a matter of public policy, say, ``Look, we ought to provide the benefits in our society to those who are clever enough to conceal their wrongdoing and perpetrate frauds before the victims find out.'' I do not think any Member of the Senate can defend that kind of a public policy. I note the distinguished majority leader is on the floor and may seek recognition. I reserve the balance of my time.

Mr. BRYAN. I yield myself 15 minutes at this point, Mr. President. My colleagues will recall that we began the debate on this amendment last Friday shortly before we recessed for the weekend. I want to make just a couple of points in general about this. There are a number of things that have divided us as we have debated S. 240, but there are some things in which the prime sponsor of this legislation, Senator Dodd, and I are in agreement, and I acknowledge, as he has previously indicated on the floor, Senator Dodd, as the prime sponsor of S. 240, is in support of the amendment, which I will describe in a moment. But first let me give a little bit of background. My colleagues will recall in 1991 the Supreme Court of the United States decided the Lampf case, as it was called--and the Lampf case, in effect, imposed a statute of limitations which is a bar to securities litigation 1 year from the point that the plaintiff discovers the fraud and in no event more than 3 years in the actual occurrence of the fraud. Now, that came as quite a shock and surprise to those that are in the securities business, because the accepted interpretation prior to that had been that you looked to the statute of limitations in the State in which the action originated. Immediately, as a result of that, because the Court's decision was retroactive; that is, there were a number of cases pending, as well as prospective; that is, to place a bar on any actions to be filed in the future, a number of us came to the floor, and the Senate Banking Committee at that time unanimously reported out the 2-to-5-year statute of limitations proposal--2 years from the date of discovery of the fraud, in no event beyond 5 years. That is what this amendment does. Under the current print, 1-to-3 is the statute of limitations timing. Under the Bryan amendment, it could be 2 to 5 years. This is what the Banking Committee, in 1991, had unanimously agreed should go forward. Moreover, I think it is important for my colleagues--and there are approximately 50 of them who have signed onto this legislation--S. 240, as introduced, contains the 2-year/5-year statute of limitations. So this amendment, somewhat of an anomaly, does not change the original language of S. 240 but seeks to restore to the bill the language which was originally in the bill at the time it was introduced and language, at least by implication, that 50 of our colleagues, as cosponsors of the legislation, have supported. So this is not something that comes as after the fact--2-to-5 years. Why is the 2-to-5 years important? I realize that people are not literally hanging over the edges of their seats in the galleries as we discuss what appears to be a very abstract legal issue. First, let me say that it has absolutely nothing about frivolous lawsuits--not one thing. We are talking about a lawsuit which, by definition, is meritorious but cannot be filed under the current law if indeed it is after the 1-year point in which the plaintiff discovers the fraud, or in no event beyond 3 years. So this does not have a thing to do with frivolous litigation. I understand the concern of my colleagues and I share it. We ought to act against frivolous lawsuits, and there are provisions in S. 240 that deal with rule 11 and some other provisions that I think are meritorious. So no one who is approaching this amendment ought to be misled that somehow a vote against this amendment protects the innocent from frivolous litigation. This simply gives you the right to get into the courthouse door. Without this amendment, you are saying 1 year, 3 years, and you are barred. Now, who supports the amendment? Well, first, let me indicate to my colleagues that the Chairman of the Securities and Exchange Commission has repeatedly testified in favor of extending the statute of limitations. Most recently, on April 6, 1995, Chairman Levitt testified before the subcommittee that: Extending the statute of limitations is warranted because many securities frauds are inherently complex, and the law should not reward a perpetrator of a fraud who successfully conceals its existence for more than three years. So the present Chairman of the Securities and Exchange Commission says that it is important to protect innocent investors who have been defrauded from those who are inherently clever enough to conceal it to provide for a longer statute of limitations. Then he went on by way of explanation to say that even with all of the resources that are available to the SEC, the staff that is available with the expertise that they have, with all of the kind of background information they have as to what is happening in the marketplace generally, that it takes approximately 2.25 years to complete an investigation. Now, that is beyond the period of time that the 1-to-3 year statute would provide. This is not partisan, this is not a Democratic chairman and the Republican SEC under President Bush who felt differently. The former chairman, the last Republican chairman was Richard Breeden. He had this to say about the proposed 2-to-5 year statute, and specifically about the unfairness and the limiting ability of a 2-year statute: Had a 3-year statute of limitations been in effect and had it been applied to the SEC, approximately one-half of the cases against Drexel Burnham, a large part of the case of Equity Funding, one of the largest frauds in the history of the United States, and the entire case against E.F. Hutton for check kiting would have been barred from the courthouse. Again, these were meritorious cases. The recovery would have been prevented because the statute of limitations would have constituted a bar. In that period of the 1980's where we have talked about Charles Keating and we talked about Ivan Boesky, another name has had prominence and that is Michael Milken. Here is what the sentencing judge had to say to him with respect to the complexity of securities matters and their difficulty: You may have committed only subtle crimes-- This was being addressed to Mr. Milken at the time of sentencing. . . . not because you were not disposed to any criminal behavior but because you were willing to commit only crimes that were unlikely to be detected. We see often in this court individuals who would be unwilling to rob a bank, but who readily cash Social Security checks that are not theirs when checks come to them in the mail because they are not likely to be caught in doing so . . . You also committed crimes that are hard to detect, and crimes that are hard to detect warrant greater punishment in order to be effective in deterring others from committing them. These are crimes that are very hard to detect and are particularly very difficult to detect when we are talking about small plaintiffs who do not have the resources available to them that the Securities and Exchange Commission, the North American Association of Securities Dealers and others might have. In the Lampf case itself, which was a very narrowly divided case, 5- 4, one of the dissenting Justices, Justice Kennedy, had this to say: Concealment is inherent in most securities fraud cases. The most extensive and corrupt schemes may not be discovered within the time allowed for bringing an express cause of action under the 1934 act. Ponzi schemes, for example, can maintain the illusion of a profit-making enterprise for years, and sophisticated investors may not be able to discover the fraud until long after its perpetration. The practicalities of litigation, indeed the simple facts of business life, are such that the rule adopted today-- Referring to the majority of the court that adopted the more limiting 1 and 3 year statute of limitations. will ``thwart the legislative purpose of creating an effective remedy'' for victims of securities fraud. By adopting a 3-year period of repose, the Court makes a section 10(b) action all but a dead letter for injured investors who by no conceivable standard of fairness or practicality can be expected to file a suit within 3 years after the violation occurred. In its brief before the Supreme Court, the SEC pointed out the difficulty that the shorter limitation period ``would deprive many defrauded investors of a satisfactory opportunity to vindicate their rights.'' Here is what the SEC, in the brief, went on to say: Especially in complex cases, plaintiffs often ``do not discover the fraud until long after its perpetration.'' Violations involving financial fraud, for instance, often go undetected until the enterprise fails, an event that may occur years after the violation. Moreover, as the securities markets have grown in size and complexity, frauds have become increasingly difficult to discover. An example of that, Mr. President, is the municipal bond. They are particularly susceptible to concealment. In a typical municipal bond offering, 2 to 3 years of interest payable to the bondholder is placed in an escrow account, so the bondholders can have no inkling anything has gone awry until they do not receive an interest payment--oftentimes many years after the closing of the offering. The average timespan between issue date in municipal bonds and the date of default in repayment is approximately 4.5 years. Limited partnerships have the same susceptibility. Again, as the North American Securities Administrators Association--and some of my colleagues may not have had the opportunity to interface with them; these are the securities administrators of the 50 States, who are charged with enforcement of securities law at the State level--as they have testified, limited partnerships in which investors have poured more than $150 billion since 1980-- . . . often run for as many as 7 to 10 years. Customer account statements--a primary means of detecting fraud or misconduct--reflect only the original purchase price of the partnership, not the current market value. Therefore, it may only be at the expiration of the partnership that an investor uncovers misconduct or wrongdoing. Under Lampf, [the 1- to 3- year statute decided in that case] that investor would be precluded from seeking redress in the courts, for no reason other than the decision to purchase a long-term investment. Holders of zero coupon bonds will face similar difficulties in uncovering fraud in the short period of time allowed under Lampf. The point, I think, that is to be made here is that we have talked a great deal about balance. Every provision that I can see that is contained in S. 240 is designed to provide additional protection for securities underwriters. Aiders and abetters are not included. Safe harbor statements are made more generous. The wealthiest investor, in effect, becomes the chief of the last, and one can go on and on. Of all of the provisions contained in this legislation, in its original form, only the extension of the statute of limitations could be fairly said to benefit the innocent investor. For those of my colleagues who are truly seeking balance as they approach this legislation, and who support and will vote for the final version of S. 240, this is really your only opportunity at this stage to provide that kind of balance by extending the statute of limitations. Here is what Mark Griffin, who is the head of the Utah Securities Division, had to say in testimony before the Banking Committee. He said the current period for filing fraud actions is ``unduly short.'' Going on, he said: . . . [it] is the experience of State securities regulators that victims of investment fraud often have no way of knowing, nor reason to suspect for what may be many years, the truth about the mishandling or abuse of their investments. That comes from the security administrator in the State of Utah. Mr. President, in looking at what States have done, the testimony is that 60 percent of the jurisdictions have longer statutes, and ``13 States recognize the concept of equitable tolling, in which the limitations period starts running only after the fraud is discovered.'' Among those States are Alabama, Arizona, Kansas, Massachusetts, New Jersey, Washington, and Wisconsin. Many other States have longer statutes, as well, including California, Pennsylvania, my own state of Nevada, Michigan, Ohio, Florida, Texas, Illinois, and New York. It seems to me that in an era in which we believe that not all wisdom resides in the banks of the Potomac, looking at the experiences at the State level could be particularly instructive as we process this statute of limitations amendment. The effect of the shortened statute of limitations is simply devastating, and has absolutely nothing, Mr. President, to do with frivolous lawsuits. For example, had the Lampf rule been in effect, investor cases with respect to such notorious fraud as Lincoln Savings and Loan, Washington Public Power Supply System, Executive Life Insurance, Home-Stake Production Co., and Crazy Eddie would have been barred. Mr. President, I yield myself an additional 10 minutes.

Mr. BRYAN. Since I am the advocate of the amendment, may the Senator from Nevada presume that he controls 45 minutes of the time that is allotted to those who are in support of the amendment?

Mr. BRYAN. Mr. President, am I correctly informed? I believe we have a time agreement of 1\1/2\ hours equally divided. Am I correct, I inquire of the Chair?

Mr. BRYAN. Thank you very much, Mr. President. This has been an interesting discussion. Because the time is running out, let me be brief on several points. For my colleagues who are concerned about the abuses that lawyers visit upon the system, let me suggest that this amendment is not at issue. The able chairman and the sponsor of the bill have crafted a number of provisions--prohibition of referral fees to brokers, prohibition on attorney's fees paid from SEC disgorgement funds, and several others. Let nobody be misled that this bill or debate is about whether you favor reforms in the litigation system as it deals with attorney abuse. We have dealt with that issue. I find myself a bit confused. The distinguished Senator from Utah is arguing against my amendment and he says if the statute of limitations is extended, those lawyers who file suits will wait until the last minute. He has extensive experience in business, and I greatly respect him. The distinguished Senator from North Carolina, also experienced in business, tells us that the problem is that lawyers file instantaneously when the stock prices go down. I must say, I do not think it can be both ways. The basic problem here is one of concealment. The very nature of these frauds that are perpetrated upon the investment public involve the concealment of fraud through any artifice or device possible, and although there is much new technology out in the market, the technology changes are not a response to the basic cleverness of those who perpetrate these frauds in keeping their frauds from the victim. The North American Association of Securities Administrators and the SEC point out to a number of those cases--municipal bond frauds, limited partnership, to cite just two. Mr. President, I think it also needs to be made note of those who have looked at this over the years, as Senator D'Amato, Senator Domenici, and Senator Dodd have all at one point taken the position the statute of limitations ought to be extended from 2 to 5 years. I recognize there are those that have a vested financial interest who want to preclude suits from being filed. I understood that. That ought not to dictate policy response. Those who have the public interest and the public trust at issue as to their only responsibility, the SEC, State Securities Association, the State Financial Officers, Local Government Financial Officers, all are together. All of the regulators agreed that in the interest of fairness, the statute of limitations ought to be extended from 2 to 5 years. That represents both a national perspective, a State perspective, and a local government perspective. Unless we subscribe to a conspiracy in history, all cannot be in league with trial lawyers. They have reached the conclusion, as I have, based upon the compelling evidence before us, concealment is the problem, and 2 to 5 years is a reasonable time to provide an opportunity for plaintiffs to file.

Mr. BRYAN. Mr. President, if I might?

Mr. BRYAN. That is correct. The distinguished ranking member from Maryland is correct. They all uniformly support that position.

Mr. BRYAN. I thank the Chair. I yield myself 7 minutes. The able distinguished chairman of the Banking Committee, who is my friend, raised two objections as I understand the thrust of his argument. I must just say as an aside, it makes me very, very nervous when the able chairman lavishes great praise upon a more junior member of the committee because no one is more sophisticated than the distinguished chairman in making his point. He speaks in the idiomatic language of the street and people understand where he is coming from, and he speaks with clarity that every lawyer in America can only hope to equal. So I am quite concerned when I receive this praise. He made two points. One, he said that by extending the statute of limitations as we propose to do in this amendment we would thereby increase the amount of litigation. Let me just suggest that the experience shows quite to the contrary. My colleagues will note that I have had a chart prepared tracing the experience of the past 20 years, from 1974 to 1993. As my colleagues will note, that represents a fairly level activity. In fact, the most number of cases filed in any one year was 315. Last year was 290. And as you will note, the statute of limitations case was not cited until 1991. Prior to that, the longer statute of limitations existed. There were actually in many years fewer cases than had been filed since the statute of limitations result. So may I say, with all due respect, I think the experience is contrary to his assertion that more cases would be filed. In point of fact, I think an argument can be made that the shorter statute of limitations may encourage haste in filing such actions which is clearly contrary to the purpose that he and I and I think all of our colleagues have in terms of trying to discourage such litigation. Second, he makes the point that the SEC is available, and he is quite correct, but I think it is important to point out that when the SEC brings an action, it brings an action to impose a fine, penalty or sanction, but it does not--I think this is a very important distinction--seek to recover money that investors have lost. So it is a philosophically different role. One is akin to a prosecutorial agency in which sanctions, fine and imprisonment may result. The purpose of the individual filing is to recover his or her loss. Even if one thought the SEC might do an adequate job, the testimony by Mr. Breeden, the former chairman, was that it would require another 800 to 900 people serving in that office to offset the inability of private causes of action to be brought under S. 240 as constituted, and in the committee report on this particular bill it indicates that the cost of providing those additional resources to the SEC would be another $250 million over the previous 5 years. Let me say that I think, like most of us, we gain considerable insight over the years as we have served, and I was pleased to have my friend's support and his leadership in 1991 when we sought to do the very thing we are seeking to do in the Chamber this afternoon, and that is to extend the statute of limitations from 1 to 3 to 2 to 5. And I wish to give my friend an opportunity to engage me in a colloquy if he chooses to do so. But may I respectfully say I think the Senator from New York was absolutely right in 1991, as we sought to process the corrective legislation in the aftermath of the Lampf case by supporting then a 2- to 5-year statute of limitations, and I hesitate to say he has not grown in wisdom over the intervening years but I think that he clearly was more correct then than he is now. I would be happy to engage my colleague in any conversation he might care to in terms of this debate. I just do not see that there is any reason today, of course, not to go for the 2- to 5-year statute of limitations. The same circumstances exist, it seems to me, and I want to give my good friend a chance to share with me the benefit of his additional wisdom.

Mr. BRYAN. Mr. President, may I inquire how much time do I have under my control?

Mr. BRYAN. I do.

Mr. BRYAN. Mr. President, I yield time to the distinguished senior Senator from Connecticut, after which I hope to be able to respond to the debate of my good friend, the distinguished chairman.

Mr. BRYAN. I think we are going to be fine. Let me say, I appreciate his fairness. He did not have to do that, and I think that speaks well for him. I did not want to cut him off. I did not want to be precluded from making final comments. If the Senator has concluded, I would like to make a response and yield the floor back to him.

Mr. BRYAN. I will be pleased to yield to the distinguished ranking member such time as he needs.

Mr. BRYAN. I am enjoying this colloquy. If the Senator requires more time, I yield three more minutes.

Mr. BRYAN. I yield five more minutes to the Senator.

Mr. BRYAN. Mr. President, I would be happy to yield more time. How much time remains?

Mr. BRYAN. Mr. President, I ask unanimous consent that reading of the amendment be dispensed with.

Mr. BRYAN. Mr. President, I send an amendment to the desk and ask for its immediate consideration.

Mr. BRYAN. I think this perhaps has been discussed fully. I want to acknowledge the leadership the ranking member, Senator Sarbanes, provided in viewing this legislation. I thank him very much for his leadership; and the courtesy of the chairman of the committee. Although we find ourselves in disagreement, his courtesy is much appreciated.

Mr. BRYAN. The Senator would be happy to yield.

Mr. BRYAN. Mr. President, I think this has been an interesting and a constructive debate. Let me just say that this is an issue that I know is dry as dust, but I think it is important to point out that across the country there is some understanding that we are not just talking about legalisms, and what we are about to do will have a serious impact on millions and millions of Americans. I invite my colleagues' attention to a number of editorial responses from across the United States, from a broad number of newspapers, not regionally focused, not philosophically on one side, but I think a broad spectrum. They raise very, very legitimate concerns about S. 240 in its present print. The Miami Herald, ``License to Steal''; the Bergen County Record, ``Protection for Con Artists''; the News & Observer, ``Safe Harbor for Fraud''; the New York Times, ``Protection for Corporate Fraud''; Jonesboro Sun, ``Bad Measure''; the Denver Post, ``Senate Bill Would Give Free Ride to Securities Fraud''; the Seattle Post-Intelligencer, ``Securities Bill Hurts Investors''; the Napa Valley Register, ``Securities Fraud Bill is a Fraud''; the Palm Beach Post, ``One Big Stock Swindle''; North Sioux City Times, ``Your Money At Risk''; the Seattle Times, ``Congress is Wrong to Limit Investor Suits''; Dayton Daily News, ``Securities `Reform' Bill Backwards''; St. Louis Post-Dispatch, ``Don't Protect Securities Fraud''; Contra Costa Times, ``Shielding Securities Fraud''; Los Angeles Times, ``This Isn't Reform--It's a Steamroller''; and, again, the Palm Beach Post, ``Making the Nation Safe for Fraud.'' So the notion that somehow this is an argument that only involves those who are involved as securities lawyers I think can misstate the scope and the concern of this provision. Let me say that if you look at the history of what has occurred since the last case in 1991, that issue was brought before the Congress. At that time, my good friend, the distinguished chairman of the Banking Committee, was a cosponsor with me in trying to extend the statute of limitations from 1 to 3 years, as that court decided the case, to 2 to 5. The distinguished Senator from Connecticut was a supporter of that change, as well. He continues to support the 2-to-5-year statute of limitations. His very able cosponsor, the distinguished senior Senator from New Mexico, Senator Domenici, also expressed his support in 1991. The only concern the Senator had was that he felt that the statute of limitations issue ought not to be considered in an isolated sense. This is what he had to say on the floor of the U.S. Senate on November 19, 1991. First, I am not opposed to the extension or retroactivity if we are able to attach some amendments that address the issues of attorney fees, who pays the cost for these various lawsuits which are going to be extended, all of which is done in S. 240. So we have those people who have been over the years most actively involved at one time or another, all of whom supported S. 240 with a 2- to-5-year statute of limitations. Those who know the circumstances best, those who investigate fraud at the State level and at the Federal level, the North American Securities Administrators Association and the Securities and Exchange Commission, all say that one fact that is central to securities fraud is the cleverness of the defrauders in concealing their fraud. They have from time to time pointed out the Ponzi scheme, in which you do not know until at the very end that you have been a victim of a fraud; or municipal bond fraud, which has front loaded an escrow account in which payments are made for several years so the unwary investor is totally unaware that he or she has been defrauded. You have limited partnerships, in which those frauds are not detected for years, and the SEC itself saying that to conduct an investigation takes an average of 2.25 years. That strikes me as a very persuasive argument for a 2-to-5-year statute of limitations. In addition, you have the State financial officers and local government financial officers. Now, I am not unmindful of the fact that accountants and securities underwriters and others do not like the longer statute of limitations, and they are obviously entitled to make their point. But I do not think it would shock anybody on the floor to suggest that their positions are tinged with self-interest. Who speaks for the public? The Congress of the United States ought to speak for the public. And those who represent the public interest in both Republican and Democratic administrations, the Chairmen of the SEC, each have expressed their support for a 2- to 5-year statute of limitations. State securities administrators, many of whom, I suspect, probably most, are appointed by Governors directly representing the people of their respective States, have also spoken in behalf of the 2- to 5-year statute of limitations. State financial officers, many of whom are directly elected by the people, others of whom may be appointed by the Chief Executive of the respective States, again representing the public interest, have expressed their support. And the same thing is true with local government financial officers.

Mr. BRYAN. Mr. President, again, I think I created some confusion. I apologize. It was my intent to get additional time but to begin our voting at 5:30. The reason I say that to my friend from New York is to try to accommodate him. I intend to offer several amendments this evening. I think the sooner that we get to those probably the better off we are. So somehow the state of the Record might reflect that whatever time the Senator needs, I would like a little bit more time, and start voting at 5:30. It is not my intent by some parliamentary artifice to reduce or limit his time. But I need a little bit more time. That is why I was requesting that be done in that fashion.

Mr. BRYAN. If the Senator might answer one other question about frivolous litigation----

Mr. BRYAN. That is the point.

Mr. BRYAN. If I might inquire of my good friend. The Senator from Minnesota made the point that a 2-year statute of limitations will help investors and disadvantage lawyers. If that were the case, I would argue on behalf of his position. But if in his State of Minnesota, or in my State of Nevada, an innocent victim of fraud, because of the cleverness of the perpetrator of the fraud, does not discover that fraud until after 3 years from the date of its occurrence, would not the Senator agree that, in that situation, the investor recovers not at all? The SEC can bring an action, but it is not brought to recover on behalf of the investor. The investor may be penalized civilly or criminally, but the recovery is not on behalf of the investor. I would be interested in the Senator's response.