C. Cox

Mr. COX of California

Mr. COX of California. Mr. Chairman, I move to strike the last word. Mr. Chairman, I rise in opposition to the amendment. The effect of this amendment is to carve out a $1.5 trillion hunting preserve for strike suit lawyers. It would exempt from the protections for plaintiffs who are class members, plaintiffs who are involved in actions related to derivatives. Presumably in order to protect the citizens of Orange County, CA, the gentleman from Michigan would make sure that our legislation would not be available to provide for people in Orange County a plaintiffs' steering committee, so that the plaintiff class has a means to protect themselves against abusive practices. There would be no court-appointed guardian for members of the class if they happen to be suing in relation to Orange County. There would be no ban on professional plaintiffs. There would be no ban on bonus payments to preferred plaintiffs, so some members of the class could be discriminated against. All the protections in our bill would be unavailable. There is also an incredible non sequitur in the argument that I just heard, and that is that Barings and Orange County and Proctor & Gamble's problems with derivatives and Gibson Greetings' problems with derivatives, all of these things would never have happened if only we had the present strike suit system in place. Of course, we do have the present strike system in place, and these things happened. What we are seeking to do is prevent fraudulent abuse using the securities laws. Our existing security laws are targeted at abusive practices, devices to deceive, manipulate, and defraud. For the first time what the gentleman from Massachusetts would be doing is shifting us away from focusing on bad practices and saying that ``We are only going to focus on these bad practices if they involve certain kinds of securities, and we will discriminate from one kind of security to another.'' It would be an incredible hodge-podge, unmanageable for our Nation's capital markets. It is not as if we have to deal with this issue at the 11th hour with a floor amendment. We have actually had hearings on this subject. The Senate Committee on Banking had extensive hearings on derivatives and on their role in Orange County. Alan Greenspan, the Chairman of the Federal Reserve System, testified. Arthur Levitt, Chairman of the Securities and Exchange Commission, testified. Here is what he said, Arthur Levitt: ``It would be a grave error to demonize derivatives and blame them for the loss in Orange County. Derivatives are not inherently bad or good. They are a bit like electricity, dangerous if mishandled, but bearing the potential to do tremendous good.'' Alan Greenspan: ``It would be a serious mistake to respond to these developments by singling out derivative instruments for special regulatory treatment.'' The Chairman of the Federal Reserve said it would be a serious mistake to pass the Markey amendment because the amendment singles out derivatives for special treatment and special legal status in 10b-5 actions. It would create a separate legal status for the treatment of derivatives. Furthermore, there is no reason Congress should permit abusive litigation to continue if a derivative is involved. What we are after here with this legislation is the prevention of abusive practices. Why would we want those abusive practices to go on if derivatives were involved? It makes no sense at all. Congress would defeat its purpose if it allowed abusive lawsuits to continue in one special area of securities transactions. Congress should end abusive securities litigation, regardless of the particular type of transaction that was involved. I urge the defeat of this ill-considered amendment.

Mr. COX of California. Mr. Chairman, that is exactly right. What we will be doing by passing this amendment would be opening the door for frivolous lawsuits in a particular type of case. Ironically, there would even be new issues to litigate. Now we could litigate the question of whether a derivative product was involved or not, whether it was peripheral to the transaction, whether it was central to the transaction, whether it was really derivative or not. All of this is rather abstruse and in any case irrelevant to what we are trying to do right here.

Mr. COX of California. I would just point out, to correct the record, that underwriters, brokers and dealers who act as underwriters are absolutely and strictly liable, and I say to the gentleman, ``You don't need to prove negligence and recklessness; they are strictly----

Mr. COX of California. Mr. Chairman, will the gentleman yield?

Mr. COX of California. Mr. Chairman, will the gentleman yield?

Mr. COX of California. Reclaiming my time, the gentlewoman from California, at the close of business last night, was recognized as the opening amendment today, and it is, therefore, timely that we are discussing her amendment to this bill today, and it is because of the initiative to change the legislation that we are now engaged in describing how to do that. It is, of course, important for all of us to participate in this debate.

Mr. COX of California. I yield to the gentleman from Texas.

Mr. COX of California. Mr. Chairman, I would like to address myself to the comments that have been made thus far by my colleagues concerning one sentence in our definition in the statute of the court- created cause of action for reckless violation of the securities laws. The 1934 act and the 1933 act do not contain any private cause of action. This has been created by the courts. Likewise, they do not contain any cause of action for recklessness. That, too, has been created by the courts in very recent years. Our legislation takes the rather dramatic step of codifying this judge-made law of recklessness in the lower courts, judge-made law that the Supreme Court has never agreed to; only in a footnote in a Supreme Court decision did they say they were not prepared to decide whether recklessness could be a cause of action at all. So for the first time our legislation would be codifying recklessness, and to do this, we borrowed, at the suggestion of Democrats on the Committee on Commerce, language from the seventh circuit Sundstrand case. The Sundstrand decision itself crafted a recklessness standard borrowed from another court in the western district of Oklahoma, and that court had its opinion quote verbatim in the Sundstrand case. Then the judge in the Sundstrand case came up with his own interpretation of what that meant, which he put in a footnote. We have both the western district of Oklahoma case that was recited in Sundstrand and the judge's own words in this proposed legislation. It is the judge's own words in Sundstrand that contain the definition of the distinction between recklessness and negligence, so that someone who honestly makes a mistake is definitionally negligent but not reckless. Therein lies the distinction. And it is that language that is giving rise to all of this debate. So my colleague from California has proposed merely to strike that sentence which would leave us with something of a vacuum in our legislative definition of recklessness, but her reason for wanting to strike it is, I think, a fair one, and that is that examples are not normally contained in statutes. Now, one of the reasons that I think we need to put as much as possible into the statute is that judges increasingly are not looking to legislative history to determine what Congress meant. I actually support that mode of judicial interpretation of statute. I think there is a way to solve the problem. I am going to agree with my colleague from California that we can strike this last sentence and still achieve the objective, and I have proposed that we substitute instead language from a court case in the southern district of New York that simply harmonizes the Hochfelder standard that we have already written into subparagraph (b) of this statute with the idea of recklessness. The sentence we would substitute says simply this: Deliberately refraining from taking steps to discover whether one's statements are false or misleading constitutes recklessness, but if the failure to investigate was not deliberate, such conduct shall not be considered to be recklessness. I think we can all agree this is exactly what this statute means. This is what the judge-made case law already on the books means. Even if we do not enact this statute, it clarifies precisely the courts, and most importantly of all, guidance to the American people who would like to know in advance the standard to which they should conform their conduct. So I congratulate my colleagues for focusing our attention on this issue. I think that this is a fair resolution.

Mr. COX of California. Mr. Chairman, I offer an amendment as a substitute for the amendment.

Mr. COX of California. I yield to the gentleman from Texas.

Mr. COX of California. Mr. Chairman, we actually have had testimony on this very subject, on the application of this bill as presently drafted to Orange County, and the testimony came in a letter addressed both to the testimony came in a letter addressed both to the chairman and to the ranking member of the Subcommittee on Telecommunications and Finance. It comes from John M.W. Moorlach, who will soon be nominated and sworn in as the new Treasurer of Orange County to pick up the pieces where Bob Citron left off. Here is what his testimony said: The taxpayers of Orange County will suffer severe financial repercussions resulting from its longtime former treasurer's investment strategy. Now lawyers may victimize our taxpayers a second time by extorting multimillion dollar settlements under rigged rules that stack the deck against the county. This will further compound our already tragic financial losses. As a certified public accountant, I'm well aware that members of my profession for years have been victimized by strike suits brought by a handful of unscrupulous lawyers. These unethical few neither know nor care whether their so- called clients have actually been victimized. They simply bring cases for their extortion value and settle them without trial on the merits. As a result, accountants and companies innocent of any wrongdoing end up paying out millions of dollars to get rid of nuisance suits, while entire classes of victims of real fraud may only get pennies on the dollar for their claims. The biggest share by far goes to the lawyers. Now, here is where we get to the point of this amendment. This game has already started in Orange County. Whatever the rights and wrongs of these cases, the only certainty is that under the current system, only the lawyers will get rich. Justice will not be done, not for the plaintiffs who will receive a percentage on the dollar as their lawyers benefit from handsome fees, and not for Orange County's taxpayers, who may have to take another multimillion dollar hit that will be as unnecessary and destructive as Citron's investment strategy itself. Mr. Moorlach's point is that the County of Orange, already suffering, and you have seen the layoffs, 11,000 people, already suffering from the consequences of the Citron strategy, may now itself be the target of strike suits. And, yes, some of these suits may be brought by unscrupulous lawyers who are lucky enough to land as a client any one of the municipalities or subdivisions that invested in this pool. Lawyers have great sway over their clients. We want to make sure that the clients always have rights against the lawyers, that they have the right to control the litigation, and that litigation device is not abused. If it were to be abused, then Orange County, read ``the taxpayers,'' would end up paying the damages. John Moorlach concludes, The Contract With America bill will stop this legalized embezzlement farce. It will strengthen the rights of real victims of fraud, while preventing frivolous cases from victimizing responsible people. It will be good for the country and for Orange County. I wish you well as you consider this important legislation.'' So the point is that when municipalities are suing municipalities, it is just as likely that lawyers can get out of control as when lawyers are representing someone else. We want to make sure that Orange County's taxpayers are protected to the extent that Orange County might be a victim of lawsuits that are brought for their settlement value, because it is the taxpayers, not Bob Citron, that will end up paying those damages. And we want to be sure that the municipalities who are plaintiffs have all of the protections against conflict of interest, protections for lawyers to drive the litigation so that the lawyer does not do it, protections against lawyer-driven litigation that are part of this bill. Stripping all of those protections out of this bill just because it is the taxpayers who are the clients and the taxpayers who would otherwise get those protections makes no sense at all. So I hope at least in the context of my home county, having heard from the people who are handling that, that we would understand just how destructive this amendment might be.

Mr. COX of California. Mr. Chairman, I ask unanimous consent to proceed for 3 additional minutes.

Mr. COX of California. Mr. Chairman, I thank the gentleman from Texas for his kind words. That is, of course, precisely the purpose here. I say to the gentleman, naturally, when we put the Sundstrand language into the case, or, excuse me, into the statute, to begin with in committee, it was an accommodation in itself in response to concerns expressed on the other side of the aisle. What we now seek to do is to remove part of the Sundstrand decision even though there was request to put it in to begin with and instead to clarify, as best we can, how we are harmonizing the Supreme Court decision in Hochfelder, which all lower courts recognize is the law of the land. It states rather clearly that there must be an intent to deceive, manipulate and defraud. We have put that into the statute with the common law of recklessness that has developed in concert with that, and we are simply saying that good faith is not reckless. There are many different ways to say this. We want to say it as clearly and as often as we can so we can avoid litigation on this subject, and while there has been much reference to a handwritten amendment, the fact is the handwriting was a mere transcription of language that appears in the Second Circuit of New York District Court case from which we are quoting. It is the courts' language; it is the courts that have crafted this common law remedy. I would also just like to point out for the record that one would think from this debate that recklessness is the only standard by which we judge securities laws violations, but in fact it is the standard by which Congress, acting in the wake of the Depression, the New Deal Congress, sought to judge actions on the periphery of securities transactions, at the center of securities transactions, involving issuers, underwriters, accountants and experts. We have strict liability. I say to my colleagues, so the notion that you can't sue someone who was reckless or someone who was merely negligent is wrong. You can sue and win on the basis of strict liability against the company, the issuer, the directors, the officers, the accountants who issue the registration statement and act as its underwriters and its experts. There is strict liability.

Mr. COX of California. I thank the gentleman for yielding. Mr. Chairman, I listened carefully to the comments of the gentleman from Michigan [Mr. Dingell], and I must say it proves the law of the inverse correlation between desperate level and factual content on many occasions. What the gentleman from Michigan may have forgotten is that the bill we are discussing today simply embodies the policy choices that, for decades and decades, have been made by Democrat Congresses and confirmed by our Supreme Court. The pattern of the Federal securities laws is clear. When Congress wanted to impose absolute liability or impose liability for mere negligence, it did so explicitly. What the gentleman may have forgotten is that the securities laws already impose strict and absolute liability on the directors of a company for fraudulent misstatements and omissions. It is not just recklessness, not just negligence, but strict liability and absolute liability for the directors of company under section 11. It is the same thing for the officers of the company. By and large, what the Congress has chosen to do in securities laws is deal differently with formal documents filed with the SEC and deal differently with the enforcement powers of the SEC, on the one hand, and, on the other hand, informal documents and conversations ranging from press releases to telephone conversations and so on, where we want to make sure we facilitate the free movement of informal communications between issuers of securities and participants in the security markets. So we find that the legislative judgment made by the New Deal Congresses of the 1930's was that it was appropriate to apply a very high standard of liability and not to require liability and not to require fraudulent intent where prepared offering documents, formal prepared offering documents and SEC filings are involved. On the other hand, as is the case with private litigation that we are dealing with in this bill, Congress did not want to chill candid, free, and informal communications. affect private securities actions way outside the bounds of the formal offering documents that are provided prospectuses and so on, where we have strict liability. The ``I forget'' defense does not work for any people who are the issuers of securities. I think we need to focus on the fact that what we are doing here is not writing language for the first time in this bill, we are taking language from court decisions and putting it into statutes, and we are doing it, I think, in a very foresighted way. So that for the very first time, what the gentleman would like to see, I think, a codification of recklessness, would exist in our securities laws, and that codification will reflect the best reconciliation of our Supreme Court decisions in Hochfelder, which said every violation of section 10-B has to be intentional and which our lower courts have said sometimes that would include recklessness.

Mr. COX of California

Mr. COX of California. Mr. Chairman, if the gentleman will yield further, I think that the gentleman from Michigan earlier pointed out that the Wall Street Journal usually understands where to get their information, and there is not much question but that that is what the bill does, and in particular this amendment will help us to achieve that objective.

Mr. COX of California. Mr. Chairman, I would just point out, we just saw an exhibit on the floor and, as is so often the case when one reads the headlines, you miss the story. In the fine print the gentleman from Michigan forgot to tell us the last sentence of that happens to be a concise statement of the purpose of the bill. It says, ``The purpose of the bill,'' and this was actually on what he presented to us, but you could not read it, only the headline, ``The purpose of this bill remains to reduce litigation to cut down on fraud committed by unscrupulous lawyers and professional plaintiffs.''

Mr. COX of California. Mr. Chairman, I think my 60 seconds have expired. Mr. Chairman, I offer an amendment that would prevent plaintiffs' attorneys from bringing actions alleging securities law violations under the Racketeer Influenced and Corrupt Organizations Act [RICO]. Today we are fulfilling our Contract With America by curbing frivolous securities litigation. For many years now, shrewd plaintiffs' attorneys have been using RICO to evade the requirements we have established in the Federal securities laws. Supreme Court Justice Thurgood Marshall called our attention to this problem as far back as 1985 when he explained that the civil RICO statute ``virtually eliminates decades of legislative and judicial development of private civil remedies under the Federal securities laws.'' Sedima, S.P.R.I. v. Imrex Company, Inc., 105 S.Ct. 3292, 3294 (1985) (dissenting). Indeed, while today's amendment seeks only to reform RICO in the area of securities litigation, the House--Democrats in control--has previously passed wholesale RICO reform by an overwhelming margin. This reform measure, authored by the gentlemen from Virginia [Mr. Boucher] and Mr. McCollum, the chairman of the Judiciary Subcommittee on Crime, enjoyed overwhelming bipartisan support. My amendment, I believe is fully consistent with this effort. This provision originally in the Contract With America that addressed the problem of civil RICO actions in the securities area (H.R. 10, Title I Sec. 107) was omitted from the bills reported out of committee. If we do not reinsert this provision by adopting my amendment, we will fail to address a significant number of frivolous actions based on alleged securities law violations, but brought under the RICO statute. When we enacted RICO back in 1970, we intended that it be used as a weapon against organized criminals, not as a weapon against ordinary investors and the business community. The problem posed by the widespread use of civil RICO is one recognized by legal experts across the spectrum. In addition to Justice Marshall, Chief Justice Rehnquist has observed: Virtually everyone who has addressed the question agrees that civil RICO is now being used in ways that Congress never intended when it enacted the statute in 1970. Most of the civil suits filed under the statute have nothing to do with organized crime. (Rehnquist, Reforming Diversity Jurisdiction and Civil RICO, St. Mary's L.J. 5, 9 (1989) (originally presented at the Brookings Institution's Eleventh Seminar on the Administration of Justice, April 7, 1989). Plaintiffs' attorneys' inappropriate and abusive use of RICO has also been recognized by current White House Counsel Abner Mikva. While still a judge for the U.S. Circuit Court of Appeals for the District of Columbia, Mr. Mikva detailed his observations of RICO abuse when testifying before the House Subcommittee on Criminal Justice in 1985. While a Member of Congress in 1970, Mr. Mikva had warned his colleagues about RICO's overbreadth. In 1985, in testifying before the House Subcommittee on Criminal Justice, he noted the following about his comparison of his initial thoughts on RICO back in 1970 with the subsequent reality: I stand amazed * * * to realize that my hyperbolic horrible examples of how far the law would reach pale into insignificance when compared to what has actually happened * * * What started out as a small cottage industry for federal prosecutors has become a commonplace weapon in the civil litigation arsenal. As we learned yesterday, Mr. Mikva and the Administration have a number of problems with the legislation before us today. However, as observed above, my amendment is one provision upon which we all agree. Also, most significantly, those that have the responsibility of regulating our securities markets similarly support my amendment. For the past 10 years, the Chairmen of the Securities and Exchange Commission [SEC] have all supported civil RICO reform. Beginning in 1985, former SEC Chairman John Shad testified before Congress in support of legislation to amend RICO. In 1986, the SEC even submitted draft legislation to Congress that would have significantly limited civil RICO claims based on alleged securities law violations. In 1989, SEC General Counsel Dan Goelzer testified before Congress in favor of civil RICO reform. And today, the SEC continues to support civil RICO reform. In a recent letter to Commerce Committee Chairman Bliley, SEC Chairman Arthur Levitt stated that the SEC fully supports this provision I am offering today. The reason why this is one area where there is such wide-ranging consensus is because almost everyone who has studied this issue recognizes that plaintiffs' attorneys have used the civil RICO statute to distort the incentives and remedies that the federal securities laws provide. They have done this by taking advantage of a loophole in RICO that has permitted inclusion of securities law violations as a predicate act for which a defendant may be tagged as a racketeer and held liable for treble damages and attorneys' fees. Additionally, because many claims that could be asserted as securities law claims can also be characterized as mail or wire fraud, and because mail and wire fraud are also predicates for civil RICO liability, plaintiffs' attorneys have a devastating potent and readily available alternative for bringing actions under RICO rather than under our securities laws. As SEC General Counsel Goelzer stated in 1989 testimony before the House Judiciary Committee: The Commission is concerned, however, that the civil liability provisions of RICO can in many cases convert private securities law fraud claims into RICO claims. Successful plaintiffs in such cases are entitled to treble damages, despite the express limitations on recovery under the securities laws to actual damages. Private plaintiffs may be able to bypass the carefully crafted liability provisions of the securities laws, and thereby recover damages in cases in which Congress or the courts have determined that no recovery should be available under those laws. As a result, civil RICO places increased and unwarranted financial burdens on commercial defendants, including securities industry defendants. Congress initially passed securities laws in order to impose a uniform system of duties and liabilities upon the securities industry, and to protect investors. Each time that we have amended the securities laws, we have balanced the need to provide the maximum amount of consumer protection possible against the need to maintain fluid, stable, and reliable markets. Today, we are seeking to enact litigation reforms because we have identified significant problems and abuses in the current system that are hurting investors, consumers, and the nation as a whole. We are seeking to enact changes to our federal securities laws in those areas where we have identified reforms are needed. We are seeking a losers pay provision to punish plaintiffs for bringing frivolous actions. In addition, we are seeking a limitation on joint and several liability to restore fairness to the federal securities laws. The failure to adopt my amendment would undermine the reforms we are hoping to achieve today without any award, unscrupulous attorneys could do an end run around the reforms by using the RICO statute. Through the use of civil RICO, plaintiffs will be able to initiate law suits based on alleged securities law violations, and will be entitled to seek treble damages and attorneys' fees. today, enterprising plaintiffs' attorneys will have the continuing ability to extort settlements from innocent defendants based on claims that would allow them no chance of recovery under the reforms before us today. Lest we have any doubt about the ability of plaintiffs' attorneys to leverage settlements from defendants under civil RICO, we need only listen again to Justice Marshall, who explained that ``[m]any a prudent defendant, facing ruinous exposure, will decide to settle even a case with no merit. It is thus not surprising that civil RICO has been used for extortive purposes, giving rise to the very evils it was designed to combat.'' Sedima, 105 S.Ct. at 3295. Unless we adopt my amendment, a plaintiff's attorney, alleging a single violation of the securities laws, will be able to bring an action under civil RICO and leverage a hefty settlement from an innocent victim. Because an element of a RICO action is a ``pattern,'' plaintiffs have the latitude to conduct discovery of records dating back 10 years or more. Such discovery costs defendants millions of dollars. Often, faced with the cost of these multi-million dollar discovery fees, and the prospect of being labeled a racketeer, and being held liable for treble damages and attorneys' fees, defendants are forced to settle meritless cases. Our economy's health depends on the efficient operation of its country's capital markets. We must continue to balance the provision of adequate remedies for injured investors and the imposition of excessive penalties on all participants in our capital markets. The treble damage blunderbuss of RICO undermines this balance and imposes exorbitant litigation costs, impedes the raising of capital and ultimately puts these costs on the shoulders of consumers and emerging innovative companies. Mr. Chairman, at this point I would like to read several comments from judges across the country who have commented on the abuses prevalent in civil RICO litigation. If there is one message we should extract from these opinions, it is that we must reform RICO to prevent plaintiffs' attorneys from bringing actions more appropriately brought under our securities laws. ``It is true that private civil actions under the statute are being brought almost solely against such defendants [respected and legitimate businesses], rather than against the archetypal, intimidating mobster. Yet this defect--if defect it is--is inherent in the statute as written, and its correction must lie with Congress.'' The Supreme Court, Sedima, 105 S. Ct. at 3286-87. ``I have a feeling about RICO in the civil world * * * as being the most conspicuous case I know of legislation requiring Congressional attention to revision.''--Former U.S. District Court Judge Simon Rifkind of the Southern District of New York. ``An imaginative plaintiff could take virtually any illegal occurrence and point to acts preparatory to the occurrence, usually the use of the telephone or mails, as meeting the requirement of pattern.''--U.S. Circuit Court of Appeals for the 5th Circuit Judges Higginbotham, Politz, and Jolly (Montesano v. Seafirst Commercial Corp., 818 F.2d 423, 424 (5th Cir. 1987)). ``Congress * * * may well have created a runaway treble damage bonanza for the already excessively litigious.''-- Federal Circuit Court of Appeals for the 7th Circuit Judges Wood, Cummings, and Hoffman (Schacht v. Brown, 711 F2d, 1343, 1361 (7th Cir. 1983)). ``[O]ne of the proliferating developments in civil litigation has been the use of RICO * * * in civil claims, in routine commercial disputes, including those arising under the federal securities laws. I think that the proliferation of these claims and the use of a law that was designed to eliminate organized crime is a very bad influence on the commercial community.''--U.S. District Court Judge Milton Pollack of the Southern District of New York. ``McCarthy, though armed with substantial damage claims, with a requested ad damnum of $312,220 in compensatory and $1 million in punitive damages, obviously cannot resist the treble damages and attorneys' fees lure of RICO.''--Judge Shadur, U.S. District Court for the Northern District of Illinois (McCarthy Cattle Co. v. Paine Webber, Inc., 1985 WL 631 (N.D. Ill., April 11, 1985). ``[The plaintiff's complaint] demonstrates at least two facts of life in an urban district court in a litigation- prone society: * * * RICO's lure of treble damages and attorneys' fees draws litigants and lawyers * * * like lemmings to the sea.''--Judge Shadur (Wolin v. Hanley Dawson Cadillac, Inc., 636 F. Supp. 890, 891 (N.D. Ill. 1986).

Mr. COX of California. The SEC.

Mr. COX of California. Reclaiming my time, we did, of course, have hearings on this testimony that was given at that hearing----

Mr. COX of California. This is according to the Clinton appointment to head up the Securities and Exchange Commission.

Mr. COX of California. The SEC chairman came and testified before our Committee on Commerce, and here is what he said. It is very brief, and I will just share it with the gentleman: For many years the Commission has supported legislation to eliminate the overlap between the private remedies under RICO and under the Federal securities laws. The securities laws generally provide adequate remedies for those injured by security fraud. It is both unnecessary and unfair to expose defendants in securities cases to the threat of treble damages and other extraordinary remedies provided by RICO.

Mr. COX of California. Mr. Chairman, I offer an amendment that would prevent plaintiffs' attorneys from bringing actions alleging securities law violations under the Racketeer Influence and Corrupt Organizations Act which we know as RICO. Today we are fulfilling our Contract With America by curbing frivolous securities litigation. For many years now shrewd plaintiffs' attorneys have been using RICO to evade the requirements that Congress has established in the Federal securities laws. Supreme Court Justice Thurgood Marshall called our attention to this problem as far back as 1985 when he explained that the civil RICO statute, quote, ``virtually eliminates decades of legislative and judicial development of private civil remedies under the Federal securities laws.'' Today's amendment seeks only to reform RICO in the area of securities legislation, but I should point out that this House under its previous control by today's minority, the Democrats, have previously passed wholesale RICO reform by an overwhelming margin. This reform measure, authored by the gentleman from Virginia [Mr. Boucher] and the gentleman from Florida [Mr. McCollum], now the chairman of the Judiciary Subcommittee on Crime, enjoyed overwhelming bipartisan support. My amendment is fully consistent with this effort, if more limited. The provision originally in the Contract With America that addressed the problem of civil RICO actions in the securities area, as I explained in my colloquy a moment ago with the gentleman from Michigan, was omitted from the bill as reported out of committee inadvertently. It was not opposed in committee. If we do not reinsert this provision by adopting my of frivolous actions based on alleged securities law violations, but brought under the RICO statute. When Congress enacted RICO back in 1970, we intended that it be used as a weapon against organized criminals, not as a weapon against ordinary investors and the business community. The problem posed by the widespread use of civil RICO is one recognized by legal experts across the spectrum. In the Supreme Court case from which I just quoted, in 1985 Justice Marshall, along with Justice Powell, was in the dissent but the majority who said that the law needs to be changed still agreed that the abuse of RICO is very real. Let me quote from the majority opinion: In its private civil version RICO is evolving into something quite different from the original conception of its enactors; in other words, Congress. The extraordinary uses to which civil RICO has been put appear to be primarily the result of the failure of Congress. That from the majority of the Supreme Court, so the majority and the minority of the Supreme Court agreed that RICO is being abused by its application in the securities area. Plaintiffs' attorneys' inappropriate and abusive use of RICO has also been recognized by the current White House counsel, Abner Mikva. While still a judge for the U.S. Circuit Court of Appeals for the District of Columbia, Mr. Mikva detailed his observations of RICO abuse when testifying before the House Committee on Criminal Justice in 1985. Mr. Mikva, of course, has been a Member of Congress in 1970, and he had warned back then that RICO might be stretched and abused in a way. Here is his testimony in 1985 before the House Subcommittee on Criminal Justice: I stand amazed to realize that my hyperbolic horrible examples of how far the law would reach pale into insignificance when compared to what actually has happened. What started out as a small cottage industry for Federal prosecutors has become a commonplace weapon in the civil litigation arsenal. Most significantly, those that have the responsibility of regulating our securities markets support my amendment. For the past 10 years the chairman of the Securities and Exchange Commission, the SEC, have all supported civil RICO reform. Beginning in 1985, former SEC Chairman John Shad testified before Congress in support of legislation to amend RICO in this way. In 1986, Mr. Chairman, the SEC even submitted draft legislation for civil RICO reform. In 1989, the SEC General Counsel, Dan Goelzer, testified before Congress in favor of this civil RICO reform, and today the SEC continues to support civil RICO reform. In testimony before our committee, Mr. Chairman, the chairman of the SEC, Arthur Levitt, stated that H.R. 10, as originally drafted, contained the kind of civil RICO reform that is necessary. He recently wrote a letter to our Committee on Commerce chairman, the gentleman from Virginia [Mr. Bliley], stating that the SEC fully supports this provision that I am offering today. The reason this area is one of such wide-ranging consensus is because almost everyone who studied the issue recognizes that the civil RICO statute has been abused in securities fraud legislation to distort the incentives and remedies that the Federal securities laws are supposed to provide. They have done this by taking advantage of a loophole in RICO that has permitted inclusion of securities laws violations as a predicate act for which the defendant may be tagged as a racketeer and held liable for treble damages and attorney fees. Additionally, because many claims that could be asserted as securities laws claims can also be characterized as mail or wire fraud----

Mr. COX of California. Mr. Chairman, I offer an amendment.

Mr. COX of California. Mr. Chairman, will the gentleman yield?

Mr. COX of California. Mr. Chairman, I point out that the RICO amendment, which the gentleman is accurate in stating that I will soon offer, was in fact inadvertently left out of the bill when we combined the Commerce and Judiciary portions. It was in the original bill introduced on January 4, also in the original bill of last year and introduced and made public as part of the Contract With America in October. It has always been in the bill.