Richard Bryan

Mr. BRYAN

Mr. BRYAN. I would agree with the observation made by the Senator from Maryland. I cannot comprehend the public policy of saying, look, those who are active and are involved in reckless misconduct in this case, they should have their liability limited so that the innocent plaintiff, innocent investor, should bear the loss. I do not think that is responsible public policy, I would say in response to the Senator.

Mr. BRYAN. The innocent plaintiff.

Mr. BRYAN. I would be happy to.

Mr. BRYAN. I am happy to yield.

Mr. BRYAN. I simply respond to my friend's question by saying I share that view. I know others desire to speak. I must say the view shared by the Senator from Maryland and the distinguished Senator from Alabama and I is a view that is endorsed by the Securities and Exchange Commission and the North American Association of Securities Administrators. So we are not alone in making that determination.

Mr. BRYAN. The Senator is correct.

Mr. BRYAN. Yes.

Mr. BRYAN. Before responding to a question from my colleague from California, the chairman is correct that those who are intentional in their fraud, and knowingly, are jointly and severally liable. In the Keating case, there was a whole list of people, however, who would be aiders and abettors. Under the provisions of S. 240, aiders and abettors are home scot-free; no recovery at all. There was another category of individuals. Some of them were firms and some of them were securities underwriters who would fit under the new classification of reckless conduct. And they would come under only the proportionate liability. Much of the recovery, much of the $260 million the innocent plaintiffs in the Keating case recovered, was from the reckless category. I say in all due respect to the chairman, whom I greatly respect, that recovery would be greatly and dramatically reduced because under S. 240 there is only proportionate liability.

Mr. BRYAN. Mr. President, I acknowledge this is an extraordinarily complicated area of the law. But it has profound implications for millions of Americans who have lost money as a result of investment fraud. So, as I commented last night, this is not just an argument among lawyers, accountants, bankers and securities underwriters. Everybody who has one nickel in a retirement fund, who invests in the stock market, everybody who owns a single share of stock, can be potentially affected by this. Historically, under the law, since ``the memory of man runneth not to the contrary,'' defendants were jointly and severally liable, irrespective of their degree of culpability. That is to say, in a case in which several defendants are joined and are found liable, an individual who is 5 percent liable was jointly and severally liable just as the individual who may have been 50, 60, or 70 percent liable. The theory is one of equity, balancing the scales of justice that are such an important symbol of the American judicial system. And that is, basically, who ought to bear the burden? The innocent plaintiff--in this case the investor? Or an individual whose conduct was responsible for the loss? I think it is important to understand that under the Securities Act of 1934, if a defendant is guilty of ordinary negligence--no recovery at all; no recovery at all. An individual defendant who is guilty of gross negligence--no recovery at all. In order for liability to attach to any defendant under the Securities Act, the conduct must be either intentional or knowing or reckless conduct. So when we are talking about balancing the burden we are not talking about somebody who just made a little mistake. We all make mistakes. We are not talking about somebody who did something accidental. We are talking about somebody whose conduct was intentional or knowing, or somebody whose conduct was reckless. In my judgment that is not an unreasonable standard to hold somebody liable for. What S. 240 does is to change centuries of American jurisprudence by dividing categories of defendants, some jointly and several, and some proportionate liability. Let me say, I agree in part with what our colleagues who drafted S. 240 have attempted to do. The amendment, which my distinguished colleague from Alabama offers, recognizes that distinction. What we say, and what S. 240 in its current form says, is that if the conduct is intentional or knowing, then all such defendants whose conduct rises to that level of misconduct are jointly and severally liable, which means that a plaintiff can recover against any one of those the full 100 percent of his or her or its loss. A new category is established under S. 240, and also under the amendment offered by my distinguished colleague from Alabama, that says with respect to those who are reckless---not intentional, not knowing misconduct, but reckless misconduct, they will be guilty in a proportionate liability sense. That is their legal responsibility. I am willing to recognize that in terms of trying to seek that equilibrium on the scales of justice that is not an unreasonable proposition. But here is the fundamental distinction between S. 240 in this, and the amendment of my distinguished colleague that I am happy to support. Remember the basic premise: Who ought to bear the burden, the totally innocent investor or those whose conduct rises to the level of intentional and knowing fraud or reckless misconduct? That is not a difficult proposition for me. I think, between those two categories, those who are totally innocent of any misconduct ought to have the right to recover for their economic loss. I might just say, over my years as a Member of this institution, we have debated product liability endlessly. That was one of the titanic battles of the last Congress, the Congress before that, and this Congress. And, as the distinguished occupant of the chair and my colleagues on the floor know, we passed product liability. Some of us were against it; some of us for it. But it is interesting to note that with respect to product liability and economic loss as opposed to pain and suffering, there was never a suggestion that we ought to, in effect, make some of those defendants proportionately liable and not jointly and severally liable. So for those who followed that debate closely, it was never suggested that someone who was only 5 or 10 or 15 percent liable for the economic loss in a product liability lawsuit would only be responsible for 10 or 15 percent. Each and every defendant is jointly and severally liable under the new product liability bill that passed this Congress. So whether the misconduct is 5 or 95 percent, the plaintiff has the right to recover 100 percent of his or her or its economic loss. The only thing we did--many of us disagreed with that--is we put a cap on pain and suffering but not economic damage. What we are talking about in this legislation is not pain and suffering. We are talking about economic loss for investors who have purchased securities and, as a result of securities fraud, they have lost money. So I just share with my colleague the irony that all of this great ordeal that we have gone through over the past--this will be the fourth Congress that I have been privileged to serve in--it was never suggested in product liability that we ought to, in effect, create these categories of proportionate or joint and several liability. The plaintiff was entitled to 100 percent of his or her or its recovery. This is in the abstract. My distinguished colleague from California, my distinguished colleague from Maryland, and I yesterday mentioned the Keating case. The reason why we mentioned the Keating case is, if you look at the malefactors' greed in that great decade of the eighties and you look at the icons, you see the Milkens, the Boeskys and the Charles Keatings. Those are household names in terms of frauds perpetrated upon the American people costing innocent people hundreds of millions of dollars. Somehow it has been suggested that this action 240 has nothing to do with the Keating case. Let me remind my colleagues that I will be offering in the Record that the actions brought on behalf of a class of defrauded investors against Mr. Keating were brought under the Securities Act, the very act that we are amending. We are talking about the Securities Act of 1934, the RICO provisions, and the Securities Act of 1933.

Mr. BRYAN. Yes. I am happy to yield.

Mr. BRYAN. That is not true. In responding to my good friend and distinguished chairman, they were brought as part of a private cause of action on behalf of a class. Mr. Keating was a defendant together with a whole host of others. I will not belabor the chairman's time. But it was a whole category. The point I want to make in responding to my good friend's question is that the heart and soul and essence of the recovery, $262 million, was brought under the Securities Act. That was the underpinning, the foundation, the premise, the essence of the cause of action.

Mr. BRYAN. The answer to that would be, in some instances, yes. But there were other defendants which, under S. 240, would fit under the proportionate liability classification. And in the Keating case, as the distinguished chairman knows, Mr. Keating was bankrupt. There is no question he was a primary offender; no question he would be jointly and severally liable under the bill as drafted by the chairman. But what makes the Keating case so significant is that the amount of recovery by the plaintiffs would have been reduced dramatically because there were others who were not in the category of potential and knowing fraud whose conduct was knowingly reckless.

Mr. BRYAN. Mr. President, I yield to the Senator from California. I just assure my friend from North Carolina that I intend to be very brief because I know he wishes to speak. It is not my purpose to preempt the time of those who share a different point of view. I am delighted to respond to my friend.

Mr. BRYAN. To answer my distinguished colleague from California, it would have adversely affected the plaintiffs. It would have reduced their amount of recovery by tens of millions of dollars. The overall amount of the recovery was $262 million as a result of the class action filed under the securities laws. It would have reduced that amount by tens of millions of dollars, and I will try--I do not have the number right before me--to develop that number to give more particularity.

Mr. BRYAN. I thank the Senator from California. I am going to be very brief, as I assured my colleague----

Mr. BRYAN. I would be happy to yield. I recognize that others want to speak on this issue, and I do not want to dominate, and I do need to make a couple other points. But I would be happy to yield.

Mr. BRYAN. I would respond with all due respect--the Senator knows how greatly I respect his insight into this process--dramatically, categorically and emphatically. If S. 240 had been in effect at the time of the Keating action, the recoveries would have been tens of millions of dollars, maybe even more than $100 million, less.

Mr. BRYAN. I thank the Senator. I am just going to make one point. The fundamental difference between the Bryan-Shelby amendment and S. 240 is that it recognizes, as does the chairman and the distinguished Senator from Connecticut, that we create two classes of liability. One is joint and several, and the other is proportionate. But the fundamental distinction is that in the Shelby-Bryan amendment, if those who are jointly and severally liable are judgment proof, that is, they are insolvent, they are in prison, they have taken flight, they are unable to respond to the full amount of damages, our legislation in the amendment would require you to look first to the joint and several liability. But if the innocent investor was unable to recover the full amount of his or her losses, then you could look to the proportionate liability, those people whose conduct was reckless, and the plaintiff can fully recover. Under the print before us, that would not be possible; there is a limitation, and you can only recover against the proportionate liability the amount that is determined to be the proportionate liability plus another 50 percent. So let us say, for example, that the loss was $1 million, that there was a 10-percent responsibility on the part of a reckless defendant. With proportionate liability, the full amount that you could recover would be $100,000. Under the bill that is currently before us, the full amount that you could recover would be $150,000, even though the loss might be $1 million.

Mr. BRYAN. The Senator is correct, and I think his observation is particularly insightful. If you look at S. 240 in its original form, there is only one provision that could reasonably, arguably be supported in providing a consumer, investor, a victim of fraud, with an additional benefit, and that is the statute of limitations provision. That was in the original bill, as the distinguished Senator from Maryland knows. During the course of processing that legislation, for reasons which I do not understand, the provision was deleted. But even those who are the most fervent advocates of the bill--I know our distinguished colleague, Senator Dodd, has spoken eloquently on behalf of the statute of limitations--we may have differences with respect to proportionate liability and some other issues. But I point out, in response to the Senator's question, that the introducers of the bill, Senator Dodd, Senator Domenici, and many others on both sides of the aisle, felt that it was inherently fair for the reasons which the Senator from Maryland so aptly pointed out, and that the statute of limitations needs to be extended to 2 to 5 years so those who perpetrate fraud do not benefit by the cleverness of their ability to conceal. I yield the floor.

Mr. BRYAN. The Senator is correct. I cited Chairman Breeden, I believe, who indicated it was 2.25 years for the average case to fully investigate. I might just say in response to the distinguished Senator's point about the inherent complexity, Chairman Levitt testified earlier this year on April 6, and I will read a very short quote, in support of the proposition before us: Extending the statute of limitations is warranted because many securities frauds are inherently complex and the law should not reward a perpetrator of fraud who successfully conceals its existence for more than 3 years. I think that is a compelling policy argument, I say to my good friend from Maryland.

Mr. BRYAN. The Senator from Maryland is correct. This has had bipartisan support with the Commission. Chairman Breeden, as the Senator points out, strongly urged upon the committee a 2- to 5-year statute of limitations. That same position has been taken by Chairman Levitt under the current administration. The North American Association of Securities Administrators then and now have urged this course of action. I simply point out to my friend and colleague that S. 240, in the last session of the Congress its counterpart, had a 2- to 5-year statute of limitations, and in this Congress, the very bill we are debating in its original form, as introduced by Senators Dodd, Domenici, and others, had a 2- to 5-year statute of limitations. So what this amendment would do is simply restore S. 240, with respect to the statute of limitations, to its original form as introduced by a number of colleagues.

Mr. BRYAN. The investor, who was not at fault at all.

Mr. BRYAN. That is essentially correct. This operates prospectively. What we did, as the Senator from Maryland will recall, is to try to protect all of those actions that were pending in 1991 which had been wiped out by the Supreme Court decision and we, in effect, provided at that time that the operable State law would apply, which had been, in effect, the interpretation of the courts over the years. In essence, we kept those cases active so that they could be decided on their merits, not having been precluded by a decision, which surprised many, that the Court gave and particularly the retroactive portion of that.

Mr. BRYAN. Responding to the distinguished ranking member, that was, in fact, what the Banking Committee did, and on the floor of the Senate, the Senate followed the lead of the Banking Committee and ultimately, as the Senator from Maryland will recall, we protected those cases that were pending in the 1991 action we took.

Mr. BRYAN. I will be pleased to do so.