Alfonse D’Amato

Mr. D'AMATO

Mr. D'AMATO. May I ask if my colleague might like an additional 15 minutes or half-hour equally divided?

Mr. D'AMATO. Mr. President, I ask unanimous consent we be given an additional 30 minutes to debate, 15 minutes on each side.

Mr. D'AMATO. I am asking an additional 15 minutes and extend the time for voting an additional half-hour.

Mr. D'AMATO. Mr. President, I think we just have a fundamental difference of opinion. There are those people who advocate extending the period of time to 5 years to detect fraud. To them I say, look at the sophistication to study markets and to review documents that we have today. Given the ability to learn more about a company, more about its activities, given all of the information that is available, I think that extending the statute of limitations gives this group of hawks-- that is a kind word; more descriptive would be ``vultures''--who look at every turn to seize an opportunity to bring suit, not on behalf of the poor or the downtrodden but on behalf of themselves, too much time and opportunity to find something with which to bring a frivolous suit. There is a page in the Committee report on S. 240 which quotes a lawyer who talks about his clientele. He is one of those lawyers who brings these meritless suits, and he describes it. I do not pretend, nor do I suggest at all, all lawyers operate in this manner, because they do not. That would be wrong. That would be a disservice. But a sufficient number operate in this way in this particular area. I have asked if we could get some figures on this. It would be very interesting to ascertain, for example, in the second circuit, where one law firm in particular brings all these suits, how many of the plaintiffs are the same. I mean, they are the same people and they own almost no stock whatsoever--sometimes as little as 10 shares each. They just get shares in every company. And if stock in that company goes up or down--even if it goes up--then they sue. They say: You did not tell us; you withheld information from us; and we should have known; and I am injured. They sue, and they get paid. They get paid for loaning their names. These lawyers, these same lawyers pay these individuals. This one lawyer said--I do not want to give the wrong name: ``I have the greatest practice of law in the world,'' this one lawyer said. He acknowledges once telling a meeting of corporate directors-- imagine telling this to a group of corporate directors--``I have the greatest law practice in the world.'' And why? Why? Senator Boxer talks about the aged, the sick, the infirm, the poor investors, here is what he thinks about them. Here is what he thinks about them; he said, ``I have no clients.'' He is operating for himself. He is just looking to make money, pile it up. Here it is on page 6 of the committee report, which has been submitted, ``Report of the Committee of Banking, Housing and Urban Affairs,'' I knew it was here because I did read it. The comment by one plaintiff's lawyer: I have the greatest practice in the world. I have no clients. ``William T. Barrett, `I have no clients,' Forbes, October 11, 1993.'' The fellow's name was Bill Barrett. Mr. Barrett was a partner in the law firm that brings most of these suits perhaps even more than anybody else. And he is proud of that. He is proud of that. I do not think that is something to be proud about. If you want to say I recover on behalf of the little guy, and I take on those who have inveigled them and swindled them, I understand that. But when you brag: I have the greatest practice of law in the world--``I have no clients''--that is a heck of an admission. I do not want to give Mr. Barrett and those who practice with that kind of attitude an additional period of time to chum up the waters, to try to create situations, to try to look for that which does not exist. I will support them if they are bring cases that involve fraud absolutely, that involve deliberately giving misinformation, absolutely, but I will not support the creation of specious lawsuits, lawsuits that are not well grounded and only designed to shake down-- shake down--businesses, shake down insurers, shake down people, to make them pay. That is wrong, and we have got to stop it. The fact is we are paying billions of dollars out and consumers are paying because we have allowed this practice to continue, and it has become a very sophisticated art form. Look at the record. Just look at the record. Ninety-three percent of those cases are settled, and they are not settled because anybody was going to prove fraud. They are settled because a small company or even a large successful company cannot afford to carry that litigation on for many years; litigation that costs them millions of dollars. Even if they win, they lose. You heard my friend, Senator Dodd, bring up the case where the accounting firm was sued and won, they won the lawsuit. It cost them $6 million to win. They were only paid on the initial contract $15,000. That probably epitomizes the worst of what takes place, but it takes place too often. Open the door longer? No, I do not see what benefit that would hold. And I really have a difficult time understanding, and I do not refer to my colleagues, those in the media who say we are trying to give a license to people to commit fraud. Why do they not wake up? They could not operate under the same standards that business does. They are given a shield. We are simply saying, in this legislation, that you ought to be able, if you discover the fraud within a year, to bring the suit. Why would you need 2 years? Now, it is true that at the Securities and Exchange Commission, once they have completed all their depositions; they go through very thoroughly; takes 2-plus years to bring suit. But in 2.2 years their suit is absolutely totally ready, they have laid the cupboard bare and have made all their discoveries, they use the power of their office to bring suit where there is fraud and they can recover for the investors. So, indeed, it may take them 2 years to completion. We are not saying somebody has to complete their lawsuit in 2 years, but certainly, they should be able to start it within 1 year if they believe a fraud has really taken place. Extending it to 2 years just goes beyond the realm of reason. I yield the floor.

Mr. D'AMATO. I yield the Senator 5 minutes.

Mr. D'AMATO. How much time remains?

Mr. D'AMATO. The Senator from North Carolina would like 3 minutes. I yield to the Senator from North Carolina.

Mr. D'AMATO. Mr. President, I further ask that following the debate on the Bryan amendment, the amendment be laid aside, and Senator Boxer be recognized to offer an amendment relative to lead plaintiffs, on which there will be 90 minutes for debate equally divided in the usual form, and any second-degree amendment be limited to half the debate time and must be relevant to the first-degree amendment they propose to amend.

Mr. D'AMATO

Mr. D'AMATO. Mr. President, Senator Shelby has an amendment dealing with proportionate liability. It is an amendment really that goes to the heart of the legislation. He is going to offer it and take it up at this time. I believe we have agreed that at 10:55 we will have a vote on it. At this time, I yield the floor.

Mr. D'AMATO. Mr. President, under the agreement, we indicated we would vote at 10:55. Let me suggest at 10:55 we vote. I yield the floor to Senator Domenici.

Mr. D'AMATO. Might I ask my colleague--because he has a time problem, we have provided that we would go to this--that Senator Bryan be at least permitted to proceed and then I would have no objection to moving forward.

Mr. D'AMATO. May I say to the Senator, because others have asked to proceed in morning business, we are ready to take the amendment which our colleague wants to put up, and if it is going to be protracted, I do not want to open the door.

Mr. D'AMATO. Mr. President, as we return to the bill, Senator Bryan has an amendment to offer. Mr. FEINGOLD addressed the Chair.

Mr. D'AMATO. Mr. President, I ask for the yeas and nays.

Mr. D'AMATO. Is it not true, though, that there was knowing fraud being committed?

Mr. D'AMATO. I am not certain, but I believe--and I know that we all watch legal proceedings today--that the securities actions that were brought against Charles Keating were brought by the Government. Is not that true?

Mr. D'AMATO. Mr. President, I feel this amendment addresses one of the areas that is in the most significant need of reform. Imagine yourself being named as a defendant in a class action suit where the damage claims are $100 million. Further imagine that a jury finds you reckless or negligent, because you are an insurance company, or because you are a securities firm, or because you are a bank, or because you are a large accounting firm associated with the people who committed the fraud. Your liability could be 2 percent, because you failed to see the violation and take action against it; you, therefore, were negligent and should be held accountable. Well, you could settle and pay that 2 or 3 or 5 percent, or you might want to fight and say that given your tangential relation to the fraud, the duty was not yours to uncover it, but if you are found liable you could be held accountable for the full $100 million. For example, an accounting firm who cannot go beyond the numbers that were put forth in the audits that they conducted, who has had almost nothing to do with the alleged grievance, could be named as a defendant because they have a large asset base--we call these firms deep pockets. I, myself, would never have to worry about being named as one of those defendants because I do not have deep pockets. Deep pockets are generally firms of economic substance who are generally well insured. They find themselves dragged into these suits, and their lawyers tell them it will cost $700,000, $800,000, maybe $1 million to defend themselves, even if the company has had literally little, if anything, to do with the alleged fraud that was perpetrated on stockholders. Let me say again, that these firms are brought in only because they represent an economic interest of some substance. As I said last night, in these lawsuits, they sue everybody and anything that moves and some things that do not move. Your involvement in the fraud could as little as you walked into the building on the days the fraud was committed, but if you have deep pockets you will be sued. They will sue an outsider on the board of directors, who had no knowledge of the schemes, but he will face a $100 million suit, notwithstanding the fact that he had little or nothing to do with the fraud. Even the standard of proof does not help the director; the plaintiffs will claim he should have know, or could have found out about this, or with more diligence could have stopped the fraud, the distinction legally between reckless conduct and negligent conduct is rather unclear. Let me say that again. It is very blurry. So now the director, or the accounting firm, has a corporate decision to make. Whether they will settle the case for what is nothing more than a legal payoff to get rid of the suit, or whether they try to defend themselves, because they think they can win. By staying in the suit the firm could risk a $100 million when they could settle it for $2, $3, or $4 million, and avoid the legal costs. Ordinarily, I expect, firms would fight it out, but under joint and several liability, it does not matter what damage the firm caused, because they have the deep pockets; they can be held liable for the full amount of the settlement. Now, we hear that we should not put the burden on the victims, nor do I think we should. What we have said here is that if somebody committed a tortious act, he will be held responsible for his portion of the damage. If it is 2 percent, he will pay 2 percent of the damages. We even went beyond that. If the fraudulent defendant is bankrupt and cannot pay, we would double the liability of the other defendants. So if a defendant was found 5 percent negligent, but the main defendant was not able to pay, the 5 percent negligent defendant would be held responsible for 10 percent of the damages. If we really want to be fair, and we all want fairness, we should protect the small investor who is legitimately aggrieved but, also protect people who are unfairly dragged into a suit that is nothing less than legal blackmail. These firms are forced to settle because their business cannot be subjected to years of this litigation, or the possibility of having to pick up the entire cost --notwithstanding that their contribution to this scheme was not fraudulent. If a person has contributed 2 percent to the fraud, they should pay the 2 percent of the damages. Why does the plaintiff's bar not want this? Because more firms would be willing to stand up and say, ``Okay, we will battle it out,'' and because more of the charges that the cases are frivolous would be proven. These lawyers are suing the people because they are given an opportunity to hold them up. Now the victim is fighting back. The victim in this is not just the shareholder. The victims in many of these cases are the people with deep pockets who may just associated with the fraudulent company, and because of their connection with a company, they are dragged in. That is not what the law should be about. If you do the act, then you should pay. I absolutely agree. But do not bring in some guy who just happens to be in close proximity or has some connection with the company, has not really participated in this. But let me tell you, if you commit fraudulent conduct, or intentional wrongdoing, there is no escape from paying the full settlement. In our attempt to be fair, we have said quite clearly, that if you are knowingly participating--knowingly--in a fraudulent act then even if you committed only 2 percent of the fraud, you can be held liable for all of it. If you intentionally participate--intentionally--then even though you may have been only 1, 2, or 3 percent liable, who can be held responsible for the entire amount. We do not, as some have claimed, make it possible for people to lie, to cheat, and escape their liability. That is an oversimplification. It demonstrates the lack of knowledge of this legislation on the part of some of the editorial writers. I wish their newspapers had to be held to the same standard that they would ask the business community to be held to. That would be nice. That would be incredible. Imagine, they would have to be accurate, and truthful. It would be quite something. Quite something. We want to be fair, and I think we have tailored this legislation in such a way that we make it clear--if you intentionally mislead, even if that act causes only 1 to 2 percent in damages, you will be held for the whole. We have not changed that. I hope the Senate will not however, make it possible for people to become further exposed to these plots of extortion. That is wrong. Our Founding Fathers did not want it that way. This has developed over the years, and it has come about as a result of the lawyers practicing law, who act not on behalf of the poor stockholders, but on behalf of their own economic aggrandizement. That is not what the practice of law should be about.

Mr. D'AMATO. Mr. President, let us take a look at this. My distinguished colleague from Nevada has put forth a very compelling case on the principles underlying joint and several. Let us turn to the abstract--let us look at reality. Do you want to know what the reality is? About 300 cases being brought a year--and, believe me, they are not being brought on behalf of stockholders, the stockholders are being used; 93 percent of those cases are settled. Do you think they are being settled because the people have done something wrong? The vast majority of those cases are being settled because an innocent person cannot face the exposure and cost of this kind of suit. Minimal participation, not knowing fraud, but just being around the company, being the auditor, being the lawyers, being the investment adviser can bring you to the case. Let me tell you something, when you are facing a $100 million or a $200 million lawsuit and you can buy your way out for $6 or $7 million, and your lawyer says and the board of directors says settle it, you have no choice but to settle. These cases take people and put them up against a wall. They cannot fight; they have to surrender. It is as if you held them up. We are providing the ability for legal blackmail. We have to stop that. This bill does assign greater responsibility. If you know the fraud is taking place, that this business that is going on, this hanky-panky in the company, if you are the auditor, you have to report it. Some people in the past did report it. They said, ``We reported it to the managing directors,'' and that is the end of our responsibility. We go further and say you have to report it and see that the directors act, and if they do not, you have to go to the SEC. That is how you deal with fraud. I want to assure you that Senator Domenici and Senator Dodd do not want to protect fraudulent acts. But just because they are alleged does not mean the companies should be forced to settle without a chance to defend themselves. Is it right to force people who are coerced into settling to pay for the losses of the so-called victims? I say so- called. Some of these cases are totally without merit. I am not talking about the Keating case. Of the 300 cases that are settled, most of them are meritless, but what we have constructed is a system where a person cannot defend him or herself because the cost of that defense, is prohibitive and the effects of the negative exposure, even though the exposure may be minimal, are so great. A company can be wiped out by these suits, a company can be hit for $300, $400 million, so how can they not settle for $2 or $3 million? Investors are not being made whole. You would believe and think somehow investors are being made whole, but they get pennies for their losses. What we are talking about is giving people the ability to defend themselves. Most of these defendants have not even reached negligence standards. But the law is not clear on those standards, and a jury decision is never a sure thing. How can a firm put in the hands of the jury the decision of whether they are totally wiped out? Some 600, 700, 800, 900 people who everyday go to work and depend on those jobs, wiped out? They cannot afford to defend themselves. A lawyer can say, ``Look, I think you are going to win; you have a 90-percent chance of winning.'' ``Ninety percent? You mean to tell me that I have a 10-percent chance of losing and getting hit with the entire settlement which could wipe out this firm just because I'm the guy with the deep pockets?" The answer is yes. This causes a huge cost to society? When you pay your insurance premiums, you are paying for these settlements. Also, the cost of insurance for the firms has gotten so high, because the insurance firm is worried it will be sued, that many small firms cannot afford it. These costs are passed out to everybody. We are not protecting somebody who commits fraud. What we want to do is give people a reasonable opportunity to defend themselves; to have that opportunity and not to face this incredibly destructive process in which they really cannot defend themselves; 93 percent of these cases are being settled because the firms cannot afford to defend themselves. That is not what the American justice system is about: You should send somebody a summons and they have to surrender. That is what is happening. You have the entrepreneurial lawyers who have made this an art form, who basically hire these plaintiffs. They have them on the payroll. They bring them in and race to the courthouse. They are not interested in getting money back for poor defrauded people and, in many cases, there has been no fraud. I will tell you what is a fraud in this system. When you coerce somebody to pay and they have not done anything wrong, that is a fraud. I have not heard anybody say anything about the fraud of coercing honest, hard-working people because they find they would face financial ruin if they defended themselves or there were some finding against them and they would be responsible for the entire settlement. They cannot even fight it out because the risks are so great, they must surrender. What about that kind of fraud? Is that what our system is about--that we strip away the ability of a person to stand up for his or her rights because to do so would be totally destructive to them? I do not think that is what our system is about, but that is what they have turned the system into. If you intentionally committed fraud you should pay the piper. That is what we are saying. Do you know why the lawyers are against this? I will tell you why. It is because this will give to the entrepreneur who built a building, the fellow that is the accountant, the securities people, the investors, the ability to stand up and fight. The strike suit lawyers do not want that. These lawyers be able to hit everyone with that summons--just like holding a gun to them--and then say, OK, how much you are going to pay us. They do not want the guy to have the ability to reach back and take that gun and say, in return, OK, let us fight it out. They do not want cases to be heard on whether or not there was real fraud. This Senator does not want to protect anybody who commits fraud. That is nonsense that I read in these insipid editorials--insipid. We want to give people their day in court. If you want to protect the holdup artists we should we should keep joint and several liability. I hear people say, you are going to be defending the Keatings. No way. If the fraud is intentional, we are going to get you. Charles Keating was selling products for a bank and suggested that the Federal Government was insuring it. Senator Dodd and I cosponsored legislation we introduced on May 5, 1995, that financial institutions cannot sell these products and imply they are backed by the Government. That is how you stop the Charles Keating types. We will hold these people responsible, and we are going to stop them from conducting these actions. Let us not talk about defending fraudulent conduct. We do not. But we must give a person an opportunity to fight for himself instead of giving up to the holdup artists.

Mr. D'AMATO. I am happy to yield to the Senator.

Mr. D'AMATO. Mr. President, will my colleague yield?

Mr. D'AMATO. I see my good friend, Senator Bryan, would like to speak and although I do not want to dominate this debate I think it is important to note that as a result of the give and take in shaping a bill that is balanced, we have put into this bill a provision, on page 138 of the bill, called the Audited Disclosure Of Corporate Fraud. That provision was suggested by our colleague from Massachusetts, Senator Kerry. By the way, I do not think including this provision is going to change his final vote on the bill, nor was it an attempt to do that. It was an attempt to make this bill better at the suggestion of our colleague. Senator Kerry pointed out that after our accountants come across situations which are fraudulent, they have a duty to report that to the board but they should not be allowed to sit back and relax and say, ``I reported it to the board.'' When we say we are trying to protect the little guy, we are. This provision means that if the board does not do anything the accountants have to follow up on their report. They must then go to the Securities and Exchange Commission and report this wrongdoing. Why do I mention this? Because when the bill has been characterized in some of the media, there is no mention of the protections we have built in. I continue to hear that this bill allows people to commit fraud. Let me say, as it relates to proportional liability, if you knowingly are involved in a fraud you do not escape being liable for the entire suit. And that is the way it should be. In other words, if you participate in a fraudulent scheme then you should be and would be accountable for the entire loss. Let us understand what this legislation does is not let the fraudulent conduct, or the people who participate in that, off the hook. I yield the floor.

Mr. D'AMATO. In fairness, my friend did answer that. I would like to make the point that those people whose conduct under this bill was knowingly fraudulent, even if they were only partially responsible, will still be liable for the entire amount if the others have gone bankrupt. In other words, and in layman's terms, if you committed fraud intentionally, and others have gone bankrupt, you can be held liable for the entire amount. I think we need to keep that fact in sight. That was my the point.

Mr. D'AMATO

Mr. D'AMATO. Mr. President, I ask unanimous consent that the Committee on Labor and Human Resources be authorized to meet for a hearing on the future of the Legal Services Corporation, during the session of the Senate on Friday, June 23, 1995, at 9:30 a.m.

Mr. D'AMATO

Mr. D'AMATO. Mr. President, I would like to speak on the amendment that was submitted by my colleague, Senator Bryan. The issue of whether we should extend the statute of limitations to bring an implied right of action is fraught with confusion. In 1991, the Supreme Court, for the first time, set the statute of limitations on implied private rights of action. Before the Court's ruling there was no unified statute of limitations in these kinds of cases. The statute of limitations varied from State to State. Whether you could bring suit depended entirely on what the statute of limitations was in any particular State. In the 1991 Lampf case, the Court finally set a standard statute of limitations. There has been no evidence shown that extending this Supreme Court set statute to 5 years will benefit wronged investors. In fact, extending the statute of limitations will do nothing more than hold a sword over businesses, and create more of an unreasonably long opportunity for litigation. That is why we will be opposing this amendment to extend the statute of limitations. The bill holds to the statutes of limitations set by the Lampf case, 1 year from the time of discovery. It seems to me that once you discover fraud, you should be able to bring a lawsuit within 1 year. To extend that to 2 years is unreasonable. If you have discovered a fraud, then bring the suit. Why would you need 2 years? Also, the SEC has the authority to bring suit at any time on behalf of investors who have been wronged; the SEC has no statute of limitations. Extending the statute of limitations to 2 years will make our judicial system a paradise for these lawyers. We have not diminished the right to bring a suit after fraud has been discovered, you can bring a suit 5, 10 years later through the SEC. However, the lawyers do not make money in huge settlements when the SEC brings suit, so they oppose the provision. I would rather have the SEC bring suit so that the defrauded investors actually recover their losses when a settlement is made. In fact, the function of the Securities and Exchange Commission is to protect the investor. The SEC recently forced Prudential to set up an open-ended disbursement fund to compensate investors who were defrauded in the 1980's. I am confident that these investors are actually getting that money. The SEC had the authority to require this firm to set aside $330 million for investors, and the SEC did not skim off $30 million of that settlement for lawyers. Is that not the way the system should operate? We debate whether 1 year is enough time after the fraud is discovered to bring suit. I ask, why would 1 year not be enough time? Investors are protected by the SEC's authority after that 1 year has expired. By limiting the statute of limitations to 1 year, however, we are able to stop lawyers from shopping around for years, looking for any possible violation to allege. If there is fraud which comes to light after the statute of limitations has expired the SEC can always bring suit. Understand that in most cases there is no fraud, the lawyers search until they find something with which to allege fraud so that they can force the defendants to settle. We need to stop this wasteful practice. We are not protecting people who commit fraudulent actions. We are saying that you cannot allege fraud year after year, just to make the charge. Again, I stress if there is a real fraud, doggone it, we know that the SEC will bring suit. This is not a new practice for the SEC, they have done it before and they will do it again. The SEC, however, will not waste time or money on a multiplicity of specious, spurious claims. So when the proponents of the extension of the statute of limitations say that investors brought 300 suits and the SEC only brought 1, I would note that those 300 suits were mostly frivolous. I would rather have one meritorious suit that recovers money for investors and is not used as a vehicle to extort money, than hundreds of meritless suits. So when we talk about extending the statute of limitations understand that we are not doing anything more, in most cases, than giving people an opportunity to fish around until they catch a way to allege fraud and file a lawsuit. Once fraud has been discovered, I think it is preposterous to say that more than 1 year is needed to bring suit. Remember, most of these cases allege fraud although no fraud has been committed. They allege fraud in order to force defendants to settle because they cannot defend themselves without putting themselves at risk of even greater losses. So I very strenuously oppose the extension of the statute of limitations, which I think would do a great disservice to the litigation system. The Supreme Court, the highest court in the land, established this statute of limitations and stated the need for uniformity in that statute. I would like to make two other observations. I read in a New York Times editorial that we are making it impossible to bring suit. This is not the case, we are only limiting the ability of lawyers to use these cases as a collection vehicle to enrich themselves just by alleging fraud. I will repeat that the SEC can bring a case where it believes fraud has been committed, without any statute of limitations, and the private right of action is still available in the State court system. If a State court, or State legislature extends the statute of limitations to 5 years from the commission of fraud and 2 years from the time of discovery, investors will be able to file suit. Of course, even in the terrible Keating case suit was brought within a year of discovery and within 2 years of fraud. So when people say we are against extending the statute of limitations, I answer, yes, we are going to bar specious claims, ridiculous claims brought only to enrich the lawyers, however we keep protections against real fraud. In fact, the Securities and Exchange Commission, I believe, is in a much better position to judge where there is merit and where there is not in these cases. Mr. President, I have nothing further to add on the amendment put forth by my distinguished colleague, Senator Bryan.

Mr. D'AMATO

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