Alfonse D’Amato

Mr. D'AMATO

Mr. D'AMATO. That is correct. That has been included in the earlier unanimous-consent request.

Mr. D'AMATO. For the information of all Senators, the Senate will resume consideration of the securities bill tomorrow at 9:15 a.m. under the previous order. At 9:15 a.m., the Senate will begin a total of 60 minutes of debate on the Bryan amendment, on aiding and abetting, and the Boxer amendment regarding lead plaintiff. At the hour of 10:15 a.m. on Tuesday, there will be two consecutive votes on or in relation to those amendments. It is the intent of the majority leader to complete action on the securities bill at an early hour on Tuesday. The majority leader has also announced that following the securities litigation bill, it will be his intention to begin consideration of the regulatory reform bill. Mr. President, there would be the usual time reserved in between those two votes to explain for 2 minutes, 1 minute on each side, the contents of the amendments.

Mr. D'AMATO

Mr. D'AMATO. Mr. President, I ask unanimous consent that the Committee on Armed Services and its subcommittees be authorized to meet June 26 to mark up the Department of Defense Authorization Act for fiscal year 1996.

Mr. D'AMATO

Mr. D'AMATO. Mr. President, I ask unanimous consent that the Senate immediately proceed to executive session to consider the following nominations: Executive calendar nomination numbers 101, 186 through 195, and 205, and the nominations placed on the Secretary's desk in the Foreign Service. I further ask unanimous consent that the nominations be considered en bloc, the motions to reconsider be laid upon the table en bloc, that any statements relating to the nominations appear at the appropriate place in the Record, the President be immediately notified of the Senate's action, and that the Senate then return to legislative session.

Mr. D'AMATO

Mr. D'AMATO. Mr. President, I ask unanimous consent that when the Senate completes its business today, it stand in recess until the hour of 9:15 a.m. on Tuesday, June 27, 1995; that following the prayer, the Journal of proceedings be deemed approved to date, the time for the two leaders be reserved for their use later in the day, and that the Senate then immediately resume consideration of S. 240, the securities litigation bill under the provisions of the previous agreement.

Mr. D'AMATO. Mr. President, I now ask unanimous consent that the Senate stand in recess between the hours of 12:30 p.m. and 2:15 p.m. tomorrow for the weekly policy luncheons to meet.

Mr. D'AMATO

Mr. D'AMATO. I appreciate the opportunity to engage my friend in dialog in the spirit of the Senate. As I said, I was ambivalent on this issue. I have had numerous constituents and groups who have come to me and said: Senator, we are very much concerned that leaving the door open, particularly extending the statute of limitations to 5 years, will just create added exposure to these suits. We cannot extend the statute of limitations, unfortunately, because of those individuals who do not and have not practiced law with the same spirit and enlightenment of my colleague from Nevada. I understand he has joined with us and voted with us on a number of matters, which some might consider procedural but are awfully important, aimed at reducing the abuses in this system; the race to the courthouse, the buying of people to put oneself in a position to bring these suits, and the plaintiffs for hire who let their names be used for bonuses. When my colleague says to me he wants to stop this abuse, I know that to be the case. But those in the industries, in the emerging companies say, ``You know, if you keep that door open, there is just a stronger likelihood that there will be that inventive lawsuit later on that holds them harmless.'' I feel I must be supportive of those companies and that theory. We must not abandon these firms. Let me say once again, even if there has been fraud and it is discovered only 5 years or 6 years after the statute of limitations has expired the Securities and Exchange Commission can bring suit. Nor have we placed a disproportionate burden on the SEC. They have repeatedly said that they do not want to be in the position where they have to be the eyes and ears for all, that, there is a proper place for individuals and their lawyers to bring these class action cases. I think that by limiting private rights of action to 1 and 3 years and yet having no limit, no statute of limitations for the Securities and Exchange Commission, that we strike a proper balance. It was in that spirit that I came to this decision. Second, it was also in that spirit that I could put together a majority----

Mr. D'AMATO. Mr. President, let me point out that one of the finest, most skilled, and eloquent lawyers, when it comes to interpretation of the law, is my friend, the Senator from Nevada. I find myself at a distinct disadvantage when having to take any position that is contrary to one that he is expounding on. Such is the case here. I do not pretend to be his equal. However, I will attempt to explain a concern to my colleagues regarding the extension of the statute of limitations. That concern is that if we extend the statute of limitations we will open the door to more mischief. At first, I was ambivalent on this particular question, as to whether the statute of limitations should be 1 and 3 years or 2 and 5; I considered extending the time as is done in some of the State statutes. My friend and colleague explained how this came about, how we had, actually, no statutory law until the Supreme Court in its Lampf decision in 1991 said: the 1-year and 3-year statute of limitations is rooted in common law and should be the uniform limit. Some said that this statute would preclude meritorious suits. Indeed, there may be some curtailment of individual investor suits, However, having said that, this statute of limitations will not preclude suits being brought under longer State statutes, nor will it preclude the Securities and Exchange Commission from bringing suits in cases of fraud, where the SEC has no statute of limitations. There are examples of the SEC bringing suits, after the statute of limitations has expired; suits in which large settlements have been recovered. In one rather recent case, the Prudential case, there the settlement was $660 million. The SEC has recovered notable settlements in some other large cases--the Drexel-Burnham-Lambert case brought $400 million in disgorgement. Again, the statute of limitations is not a bar for the SEC. So, while the statute of limitations may be a bar to some individuals are aggrieved, if there is a serious case there is no doubt in my mind, nor, I think, in anybody's mind, that the Securities and Exchange Commission will bring a suit. My staff has reviewed some of the historical debate on the general question of how long the statute of limitations should be. Back in 1934, when this issue was first debated in the context of the need for a fraud statute, Senator Kean made a statement on what he felt was the reason we should limit the filing of suits to within 1 year from the actual time of discovery. I quote from Senator Kean: If a man buys something today and discovers tomorrow that some mistake has been made and perhaps he has grounds to sue because of fraud, under the terms of the bill he must bring the suit within 1 year. But suppose he thinks perhaps the bonds I have bought will go up. I will not bring suit until I find out about that. If the bonds go down, then I will have the option of suing these people and trying to recover. If the bonds go up, then I will not sue because I can get a profit on them. Mr. President, I suggest to you that by extending the statute of limitations, what we do is open the door for those people who wait and see if anything comes out over time. It becomes much easier to create a lawsuit and to force a settlement if we allow a longer period of time for something, anything, to be discovered. This extended statute of limitations opens the door to the kinds of litigation we see now, but these enterprising entrepreneurial lawyers will have a longer period of time in which to bring their claim. Certainly this Senator does not want to protect anyone who has been involved in fraud. Again, if there has been an egregious fraud, there is no doubt in this Senator's mind that the Securities and Exchange Commission will do the business of the people, which they have done in the past. But businesses are entitled to some certainty that they will not be sued. I think my friend, Senator Dodd, quite aptly stated his argument as it relates to the inventive, creative entrepreneurial petitioner of the law. I believe my friend called them buccaneering barristers. I think extending the statute of limitations just gives them a longer period of time to practice their craft of filing suits without merit. If there is a legitimate fraud, even if it is discovered and 10 years down the road and it has brought harm, then as far as I am concerned I want the situation to be rectified. I know that there is a body who can do that; that is, the Securities and Exchange Commission. Let me say again this is an area where I think reasonable people can have some differences. I, myself, have gone back and forth on this issue. It was only when I was convinced that there was the opportunity to close down some of the people who are not practicing law as they should, who are more interested in creating situations where they force settlement, and at the same time we would not leave that door open for defrauded people to be further victimized, that I decided on the statute of limitations in this legislation. That is why I will be forced to oppose my colleague's amendment, as thoughtfully and as articulately as he has presented it. I yield the floor.

Mr. D'AMATO. Mr. President, at a later time, I will ask the Senator from California to consider whether she really wants to vote on this amendment, because we are willing to accept it. Having said that, I want to commend my colleague, the prime sponsor of this legislation, Senator Dodd, for very eloquently and very cogently stating the incredible burden that has been placed on the fine accounting firms of America. I might refer those who are interested to the report of the committee. I quote: Accounting firms particularly have been hard hit by securities litigation. The six largest firms face $10 billion worth of 10b-5 claims. Their gross audit-related litigation costs amounted to $783 million in 1992--more than 14 percent of their audit revenues for that year. Former SEC Commissioner Sommer, who heads the Public Oversight Board, the independent body that oversees the accounting profession's self-regulatory efforts, testified that, in view of ``some recent judgments and the amounts being sought in pending cases, it is not beyond the pale to believe, and some responsible people do believe--that one or more major [accounting] firms may ultimately be bankrupted.'' But the problem goes beyond just bankruptcy. The accounting firms are being priced out of the marketplace. They cannot afford, as Senator Dodd indicated, to give their services to clients due to the great exposure they face, through no fault of their own, to being brought in to suits because they are the deep pockets, particularly where there is a small firm or small company as the primary defendant. That small firm then, or many small firms, are being deprived of having the best accounting firms; the American public are being deprived of having the audit capacity and functions of our best; and, third, the accounting profession is placed unnecessarily under a great, great strain. It is just simply intolerable and unfair. Part of this bill is crafted to eliminate that unfairness. It will eliminate the situation where people have no choice but to surrender to these lawsuits-- something that happens in 93 percent of these suits. They cannot afford to go to trial and I do not think that is what the capital system should be about. amendment no. 1472

Mr. D'AMATO. To pass out this bill. I want to be candid.

Mr. D'AMATO. I yield to my friend any time that he may need.

Mr. D'AMATO. Mr. President, I intended to yield back our time because I believe that we will accept the Senator's amendment as it relates to the study of the SEC. That will be my recommendation. Having said that, I know Senator Dodd, who is a cosponsor of this amendment, would like to speak to it so I yield such time as he will need.

Mr. D'AMATO. I would like to take a moment to state, as I indicated to the Senator from California, that we certainly would like to review her amendment. While I might have difficulty with the language used in the amendment, I do not have a problem asking the Securities and Exchange Commission to look at the impact this legislation would have, particularly as it relates to senior citizens. Certainly, I think that is reasonable. I say that in the spirit of cooperation I hope that we can iron out our differences. I would also like to point out, Mr. President, that I have a statement from the chairman of the Securities and Exchange Commission, who indicates that he, as a businessman, finds there is a need for a stronger safe harbor. I quote from Chairman Levitt: The current rules have largely been a failure and I share the disappointment of issuers that the rules have been ineffective in affording protection for forward-looking statements. He goes on to say: . . . I know all too well the punishing costs of meritless lawsuits--costs that are ultimately paid by investors. Particularly galling are the frivolous lawsuits that ignore the fact that a projection is inherently uncertain even when made reasonably and in good faith. That is the Chairman of the Securities and Exchange Commission who my colleagues like to quote so often. My colleagues would have us believe that all is well with the securities industry. All is not well. All is not well when you have a band of lawyers who literally hire the people they represent, race to the courthouse to file the suit and allege fraud, and are then selected as lead counsel. The statement that we are protecting fraud, gets the hackles up on this Senator. Not only are we not protecting fraudulent conduct, but we are making sure that people are held liable for intentionally making a misstatement. Again, I say there is no safe harbor anyplace for fraud. There were other legislative proposals that would have brought such a safe harbor, but not this bill. It is a disservice to this legislation to say it protects fraud. There is neither intent nor language in this bill nor is there any way to interpret this bill to say that fraudulent conduct is protected under S. 240. The cost of these abusive cases is incalculable. It has cost business the ability to communicate and to give the information to people to which they are entitled. This inability is particularly troublesome to the small startup business in the high-technology area. It has a chilling impact on these firms and it is wrong. The fact is that there were $1.3 billion worth of settlements, settlements in 1993-94, that is 93 percent of the cases filed. No one can afford to stand up defend themselves in these cases. Do we really believe out of all 300 cases that were brought, every one of them engaged in fraudulent conduct? That is absurd. Those cases were not tried they were settled. What we are attempting to do in S. 240 is to seek balance; to demonstrate that those who truly commit fraud will not be let off the hook, but by the same token, we will not expose an entire class of people who are associated with the securities business to meritless suits. That is what this legislation does, and it does strike a balance. Mr. President, I suggest the absence of a quorum.

Mr. D'AMATO. Mr. President, I was listening to the concern my colleague from California raised that senior citizens might be particularly vulnerable to unscrupulous predators who prey on them because of their lack of sophistication and, in many cases, take advantage of an established fiduciary relationship to defraud senior citizens of their savings. I agree with my colleague that, in the case of Charles Keating and his bank, it is hard to imagine that a large and reputable institution, insured by the Federal Deposit Insurance Corporation, would engage in the kind of reprehensible activities which defraud depositors and investors of hundreds of millions of dollars. People often think that banks have the Federal Government's stamp of approval and that they are therefore protected from these kinds of fraudulent practices, because of the various supervisory agencies--the Federal Reserve, the Office of the Comptroller--which review these banks. However, I reject the Senator's contention that S. 240 would open the door to this kind of activity. Fraud is not countenanced by this bill. Indeed, deliberate or intentional misstatements do not receive the safe harbor or any other protections. In fact, those who make intentional misstatements can be held liable, potentially, for all of the damages, even damages beyond those which they are found to be directly responsible. Further, the Securities and Exchange Commission is empowered under this legislation to bring suits that before now they did not have the authority to bring. This legislation's purpose is to control the race to the courthouse by greedy, avaricious lawyers, who look not to the benefit of innocent investors or the elderly who have been defrauded, but look only to enrich themselves. They have become legal holdup artists. Ninety-three percent of these cases are settled because it costs less for defendants to settle them than the millions of dollars they cost to try. The lawyers win their settlements by alleging fraud; they do not prove fraud. It is about time that we say we are not going to allow the American judicial system to be used in this manner; to allow lawyers to pirate profits from companies who have done nothing wrong, whose only mistake is that they are in business and that they are subject to the marketplace fluctuations. It is about time that we stood up to the lawyers who have made filing these cases a business. These lawyers are not concerned with the interests of the investors who have been abused. I do not want to see people's rights to seek redress limited. However, this bill does not do that. Later, I intend to refer to a statement by Mr. Levitt, in which he is highly complimentary of many of the provisions of S. 240. Also I intend to point to a comparison between our bill and the bill that was passed in the House of Representatives. I have not heard anybody point out that this bill does stop these attorneys from racing to the courthouse, and prohibits them from hiring plaintiffs so that the people with real financial interests are represented. These attorneys would rather file suit on behalf of a person who owns 10 shares of stock and who the lawyer selects than have to consider the interests of the defrauded investor. S. 240 stops this abusive behavior and it should be complimented for that. S. 240 would also legislate that if you are an accountant, and you discover fraud, you have an obligation to bring that up to the board of directors. However, S. 240 goes further than that; it requires that your obligation does not end with the board of directors. If the board of directors does not act, you have to go one step further, and report the fraud to the SEC. These provisions protect the senior citizens. I am tired of hearing this nonsense that this legislation will just open up the doors to take advantage of people. People are being taken advantage of, this legislation tries to put a stop to that. Where do you think those senior citizens invest their money? They invest in pension funds that account for 25 percent of all the moneys invested. However, I did not hear my colleagues say, you have done a good thing by giving to these pension funds the authority to pick their lawyers and control their litigation. While I share my colleagues' concern that senior citizens not be hurt, I think it is unfair, that it is beyond the pale, to say that this bill protects fraud. I have heard that statement a half dozen times from my colleagues. But this bill does not protect fraud. I ask my colleagues to show me where in this legislation we protect fraud. Any intentional misstatement and you can be held liable. There is no safe harbor for fraud. It is neither right nor accurate to say that we protect fraud in this bill, and I resent the fact that my colleagues continue to make these statements. For several weeks, my colleague has been talking about offering amendments to help protect senior citizens. I have yet to see those amendments. This is the first amendment that has been introduced. It calls for a study. I believe that it is reasonable, and I am prepared, under certain circumstances, to accept this amendment. But I do not think it is unreasonable for me to ask what other amendments are going to be offered so that they are not just sprung on us. I hope that my colleagues are willing to share their amendments so that we can see if we might be able to accept them. I would like to be able to do that, but I certainly cannot accept amendments blindly. I yield the floor.

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

Mr. D'AMATO. Oh, yes. I ask unanimous consent that the last 5 minutes be charged to myself.

Mr. D'AMATO. I finished my statement, and I will be glad to yield to my friend any additional time. How much time remains, might I inquire of the Chair?

Mr. D'AMATO. I had completed my observations how we find ourselves in this position. And there is that necessity, in any attempt to craft legislation--I have to say that my colleague is offering amendments because he is not happy with all the provisions of this bill and wants to make it better, to enhance the bill--to put together a package that can build a coalition, and this was a major concern to quite a few Senators on my side, a very, very big concern. I can see their point. If I had my druthers, I might say what is wrong with 2 and 5, but I heard from many groups, and numerous associations, who were quite persuasive as to why this would be a retreat. One last observation. In this legislation we are attempting to reduce the exposure to unfair suits; it sends a very different message if we extend the statute of limitations. How can we say this cuts down on frivolous suits when people think ``My gosh, you are broadening the time to bring them.'' The Supreme Court has said 1 year and 3 years is sufficient, and now we have amendments to extend it to 2 and 5. We cannot support that. I must tell you there are a number of my colleagues who felt very, very strongly, that 1 year and 3 years was the right statute of limitations and that is why, given the fact I knew we had the support of the SEC, I supported this position. I share that with my friend and colleague.

Mr. D'AMATO. Mr. President, the question before us, on the statute of limitations, is an interesting one. I think we really have to ask whether or not you really cannot discover a fraud in the 3 years? Now, there have been some Ponzi schemes and other schemes that have gone on and worked for a long time. There have been some fraudulent investment practices at large, very well respected, institutions, where it has taken a period of time for people to bring them to the bar. In those cases, I suggest that it has been the SEC who has brought these cases. They have done it because people have broken the law, people have committed fraud. They have not filed specious, frivolous suits. That does not mean every time they bring a suit, the are right; but more often than not, they are. Indeed, where people have defrauded investors and have made profits unfairly, the SEC has been quite successful in gaining penalties and fines, and in some cases disgorgement of those ill-gotten gains. Again I state that the SEC is not precluded by the statute of limitations. In the Prudential case the SEC got $660 million in disgorgement. The wonderful thing is that when the SEC recovers in a case those moneys go to the people who have been victimized. It is not a case where they recover pennies on the dollar. If we look at most of the successful cases that have not been brought by the SEC, the cases brought by the private sector bar, they literally recover pennies, pennies on the dollar of lost investment. As a matter of fact, there have been a series of articles that after these cases have been settled--most of these cases end in settlements being made-- the people who the lawyers settle on behalf of get literally nothing, in some cases box tops, or the ability to receive even more products that they do not want. They say, ``What was this? What did I gain from this suit?'' But, the lawyers got millions and millions of dollars. We are really here making a statement, saying, we will put into law what the Supreme Court, in its wisdom, feels is right. Of course we have a right to disagree, but they said 3 years is plenty of time in which to discover that fraud; 1 year after the time of discovery and I agree. Let me raise a question. Why should it take 2 years to bring a lawsuit after the time of discovery?

Mr. D'AMATO. Why, after 1 year upon discovery, can you not bring a suit?

Mr. D'AMATO. I am happy to yield. But on my colleague's time, because we are pretty much even now. I have done that deliberately, evened it up.

Mr. D'AMATO. If I might, the point is, if after the discovery of a fraud it takes more than a year to bring that case I think we are just really holding captive and in bondage, so to speak, a small business entrepreneur who is the possible plaintiff of a suit. Also, I think that the SEC does not take 2.2 years to bring that case; but I believe to finish that case; not to just investigate that case. Let me suggest that, extending the statute of limitations makes it possible to hold this sword of alleged fraud over someone; I have found it or someone will find it. Instead of bringing a case within a year they dangle it over the company for 18 months, 2 years, attempting to get a settlement, then maybe file the papers just before that 2 years is up--I do not think we want to do that. How is that advancing the cause of justice? If there is wrongdoing this Senator wants to see the people who have undertaken that wrongdoing punished. I want to see their illegal profits given back. And again, there is a procedure whereby those who have gotten ill-gotten gains who have profited by defrauding others can be brought to justice by the Securities and Exchange Commission. And the SEC has used that authority. They have done it in the case of Prudential, and, I daresay, that in other cases where outrageous practices have taken place they will continue to bring suit. Mr. President, what we are seeking here is a balance. I think to basically double the statute of limitations will not bring about the kind of balance we are looking for. I think it would be a mistake. Again, this Senator has been willing to look at this question carefully but I think the overwhelming body of opinion in the business community, in the legal community, and in the Congress, is that 3 years is a sufficient period of time given the fact that the SEC has authority to bring suit. By the way, there may be cases that the SEC should not undertake, which it does, but there is the difference. I have some trust in them. I do not have any trust in the entrepreneurial spirit of a handful of lawyers who have managed to hold captive, to a certain extent, legitimate business activities in this country. When the accountants of this country are placed in the position that some of them may go out of business because of the incredible liability that they face in practicing their profession as a result of these type lawsuits, then it is time to say, ``Enough is enough. We have to change this.'' That is what we are attempting to do with this legislation, and that is why the 1 and 3 years statute of limitations is the provision we used. I recognize reasonable people may disagree, but I hope I have been able to lay out the methodology and the motive, for why we have chosen what we think is a fair balance. One year from the time the fraud is discovered, 3 years from the time the fraud has been committed; I think that is very, very reasonable. I yield the floor.

Mr. D'AMATO

Mr. D'AMATO. I have to tell you that is one of the most novel, interesting, intriguing arguments I have ever heard.

Mr. D'AMATO. Mr. President, might I inquire of time remaining to both parties?

Mr. D'AMATO

Mr. D'AMATO. Mr. President, if there is no further business to come before the Senate, I now ask unanimous consent that the Senate stand in recess under the previous order.