Christopher Dodd

Mr. DODD

Mr. DODD. My colleague from New York is absolutely correct. The point we have been trying to make here is that if you go here --and ``Stock Disasters'' is the title of this, Mr. President--and then you switch on ``Stock Disasters''--and the stocks decline in a couple cases, some stocks going up--there is no allegation here of fraud or mismanagement, merely stock fluctuations. Stock disasters? That is not a disaster. It is 10:52 this morning. That is how these suits are filed. It is ludicrous to somehow suggest we are talking about deep fraud in these cases. All we are trying to do is slow this down so that legitimate plaintiffs can bring lawsuits, and also legitimate investors particularly--and a lot of these companies, by the way, I point out, Mr. President, a lot of these companies, if you look at the losers as of 10:52 this morning, are your small high- tech firms. That is the future of our economy, by the way. That is the knowledge- based economy of our country for the 21st century. Let some predator law firm go out there because they get a slight stock fluctuation and bring a lawsuit against them, having to spend millions of dollars to defend the company, you lose the company. Who benefits from that? I tell you who does. The law firm. That is who does. That is all this is about, the bottom line. That is all this is about. So we talk here about the statute of limitations. Again, I am all for extending it. I think there is a case to be made on that. But to say here with nationally traded securities on national markets, these exchanges, that you are going to have to go through 50 different jurisdictions is to defeat the very purpose of what we are trying to do here. And that is, with nationally traded securities and national exchanges, we ought to have a uniform standard. I would have it be a bit longer, but that is not the issue before us. What is before us is whether or not we are going to have one standard here so that we can try to have some predictability and a little fairness in this process. Certainly what we have seen, of course, is a rush to the courthouse, and that is why I think this amendment is unnecessary. And if its adoption were to occur, it would destroy the very purpose which has brought us here at this point in our debate. For those reasons, Mr. President, I urge rejection of the amendment.

Mr. DODD. Absolutely none.

Mr. DODD. None whatsoever.

Mr. DODD. I am happy to yield to my colleague.

Mr. DODD. Mr. President, I rise in opposition to the amendment. The purpose of this amendment is, obviously, to thwart the underlying rationale for the legislation. My colleagues have already pointed out that there are 50 jurisdictions with different statutes of limitations in them. My colleague from Nevada has worked long and hard on the issue of trying to extend the statute of limitations at the Federal level, which is an effort that I applaud and support. After the Lampf decision, I thought it is worthwhile. I don't disagree with him on that. I disagree with my colleague from Maryland. That is not the issue. The issue, of course, is not whether or not there is a statute of limitations at the Federal level but whether or not you are going to allow 50 different individuals to apply State statute of limitations on nationally traded securities accounts on national markets. The purpose of this bill is a uniform standard for which nationally traded securities are traded on national markets. If you are going to allow 50 different jurisdictions to apply 50 different statutes of limitations, you have just destroyed the very purpose of the legislation. Vote against the bill if you want. But you can't very well vote for this amendment and then vote for the bill. It doesn't make any sense at all. Of course, this idea that this has been a great disadvantage, let me share some hard facts with my colleagues about what has happened, because in order to make this amendment a Federal limit, you have to have information backing it, supporting it, underlying it, which indicates there is a problem here. The evidence since 1991, when the Lampf decision was rendered, clearly refutes the contention that State courts are necessarily a safety net for meritorious claims. The evidence of that would lead one to the opposite conclusion. The statute of limitations was shortened, as my colleague from Nevada and the Senator from Maryland pointed out, by a Supreme Court decision in 1991. That was 4 years, between 1991 and 1995, before we passed the 1995 litigation reform bill. So it is kind of an interesting 4 years to look at. You have the Lampf decision in 1991. We passed in 1995 the litigation reform bill. What happened between 1991 and 1995? There is almost no evidence, none, that plaintiffs brought securities fraud cases in class actions against nationally traded securities in State courts during 1991 and 1995--no evidence of it at all. That would be the time you might do it because there the law said, of course, you could go into State courts and use the State statute of limitations. If you want to take advantage of it, that period of time would certainly be an indication of what was going on. There is evidence that many of the suits brought in State courts since the 1995 act are well within the 1 to 3 years. Again, let me emphasize that I don't have any difficulty with the notion of having a longer period. I agree with my colleague on that. But he knows and I know we have been through that. We haven't been successful in extending it. Now, maybe someday we can. Maybe we can convince others. But that is a different debate--an important debate but a different debate. The debate here raised by this amendment is, do we allow the 50 different jurisdictions, 33 States which do better, 17 which do worse--by the way, in 17 States you would be disadvantaged between what the Federal law provides and what the State courts do. So you get a mixed bag on this. But since 1995, most of the actions that have been brought in the statute of limitations were brought well within the 1 year of the discovery or 3 years of when the fraud was committed, which is what the Lampf decision allowed and provided for. In fact, it is worthwhile to note that in some of these cases the suggestion somehow that the statute of limitations is a problem is ludicrous on its face. Three suits were filed against Intel Corporation within 48 hours of an adverse earnings announcement--48 hours; three lawsuits were filed within 48 hours. One in 3 years. It is ridiculous; these lawsuits are being filed almost momentarily in many cases. We have a second case of the EMC corporation. A case was filed within 20 hours of an adverse announcement. The notion somehow that this a great effort to discover fraud in these cases--the notion somehow that those of us in support of this bill in any way want to discourage investors from bringing legitimate lawsuits as plaintiffs is totally wrong. And part of what we rest our case on, Mr. President--let me share with my colleagues what you could find on your Internet this morning, not a year ago or 5 years ago or 6 months ago. It is entitled ``Stock Disasters.'' ``Stock Disasters'' it is called. That might suggest we have had some real fraud going on--``Stock Disasters.'' You hit on your little mouse here, and you hit on ``Top Stock Losers of the Day.'' Boom, this page pops up. You have to get this one, and then you get this one. What does it show you? It lists stock fluctuations, stocks that lost money, stocks that gained money. That is all.

Mr. DODD. I want to thank the Senator from New York, the Chairman of the Banking Committee, for his leadership on this bill and for engaging in this colloquy with me. In proceeding to create uniform national standards while some issues concerning the '95 Reform Act are still being decided by the courts, we must act based on what we intended and understand the '95 Reform Act to mean. As a sponsor of both the Senate bill that became the '95 Reform Act and the bill, S. 1260, that we are debating today, I am glad that we have had this opportunity to clarify how the PSLRA's pleading standards will function as the uniform national standards to be created in S. 1260, the Securities Litigation Uniform Standards Act of 1998.

Mr. DODD. It appears that these district courts have misread the language of the '95 Reform Act's ``Statement of Managers.'' As I made clear in the legislative debate following the President's veto, however, the disputed language in the Statement of Managers was simply meant to explain that the Conference Committee omitted the Specter amendment because that amendment did not adequately reflect existing Second Circuit caselaw on the pleading standard. I can only hope that when the issue reaches the federal courts of appeals, these courts will undertake a more thorough review of the legislative history and correct these decisions. While I trust that the courts will ultimately honor Congress' clear intent, should the Supreme Court eventually find that recklessness no longer suffices to meet the scienter standard, it is my intent to introduce legislation that would explicitly restore recklessness as the pleading and liability standard for federal securities fraud lawsuits. I imagine that I would not be alone in this endeavor, and I ask my good friend from New York whether he would join me in introducing such legislation?

Mr. DODD. I agree with the comments of my colleague from New York. I too, did not intend for the PSLRA to alter the state of mind requirement in securities fraud lawsuits or to adopt a pleading standard more stringent than that of the Second Circuit. In fact, I specifically stated during the legislative debates preceding and following the President's veto that the '95 Reform Act adopted the Second Circuit's pleading standard. This continues to be my understanding and intent today. Ensuring that the scienter standard includes reckless misconduct is critical to investor protection. Creating a higher scienter standard would lessen the incentives for issuers of securities to conduct a full inquiry into potentially troublesome areas and could therefore damage the disclosure process that has made our markets a model for other nations. The U.S. securities markets are the envy of the world precisely because investors at home and abroad have enormous confidence in the way our markets operate. Altering the scienter standard in the way envisioned by some of these district court decisions could be very damaging to that confidence.

Mr. DODD. At a hearing on S. 1260 last October, the Securities and Exchange Commission (SEC) voiced concern over some recent federal district court decisions on the state of mind--or scienter--requirement for pleading fraud was adopted in the Private Securities Litigation Reform Act of 1995 ('95 Reform Act or PSLRA). According to the SEC, some federal district courts have concluded that the '96 Reform Act adopted a pleading standard that was more rigorous than the Second Court's, which, at the time of enactment of the PSLRA, had the toughest pleading standards in the nation. Some of these courts have also suggested that the 95 Reform Act changed not only the pleading standard but also the standard for proving the scienter requirement. At the time we enacted the PSLRA, every federal court of appeals in the nation--ten in number--concluded that the scienter requirement could be met by proof of recklessness.

Mr. DODD. I didn't realize how much time had already gone on. My colleague from Texas is chairman of the Securities Subcommittee and the principal author of the bill, of which I am proud to be a cosponsor. While he is in the Chamber, let me commend and congratulate my colleague from Texas on this issue. This is a strong bipartisan bill, 14 to 4, coming out of this committee. It took a long time to go through all of this. We have had extensive hearings on it. We have listened to an awful lot of people. This is a good piece of legislation. It is needed out there, if we are going to in this day and age, with so many people wanting to get into this market, get more information to them, having a single standard here. Jobs and investors are affected when you have a handful of attorneys out there deciding they are going to act in a way that really brings great danger to our markets. And so I urge adoption of the legislation. I yield the floor at this point.

Mr. DODD. The problem has been, as you start trying to codify, we--I will take a look at what the Senator has. I haven't seen it. The suggestion has been made--what I was trying to respond to, prior to rising here, was that the suggestion was made that somehow this piece of legislation and '95 Act had undone the standard of recklessness that had been used. We made it quite clear--at least I thought we did--in 1995 that we were not altering the standard. Certainly the SEC believes that was what we intend. This legislative history and this debate on today's bill makes it clear it was not the intent. What I objected to was the suggestion that somehow we had changed the scienter standard. We had not done that. And the letter from the three members of the Securities and Exchange Commission, I think, reinforces the point--not whether or not you add something in the statement of facts or whether or not you have it in the legislative history where I believe it is most appropriate--about addressing the underlying concern and issue. And that is whether or not this legislation in any way, or the 1995 Reform Act in any way, tried to fool around with the standard of recklessness. We didn't then, and we aren't now. So what I am saying here today, what the chairman of the committee has said, and others, this is raising a red herring. It doesn't exist. It is difficult enough to debate where there is a legitimate disagreement, and there will be amendments offered where clearly there are provisions in the bill which my colleagues, including my distinguished friend from Nevada, disagree with. It is a fundamental difference here. Recklessness, as a matter of this legislation, is not a problem. It is trying to raise an issue that really does not exist. That is the reason I felt I should address that issue prior to making my general comments and statements about what I think is a valuable piece of legislation. Now, Madam President, let me, if I may, proceed here. It has been said, in the sense that we get the pendulum swings and the proposals are offered, in a sense, this is a very narrow bill. It is not designed to be all-encompassing and all-sweeping, yet it is being received by certain quarters as if it were a wide, sweeping piece of legislation. It is dealing with an underlying problem that still exists. The facts bear out the necessity of us trying to move with nationally traded securities on the national exchanges to see to it that we can set some standards here so we don't continue to end up with a proliferation of lawsuits chasing forums all over this country to satisfy a trial bar at the expense of jobs, investors in these companies out there. That is what has been happening. That is what we try to address with this bill. At the beginning of the debate today on S. 1260, the securities litigation reform standards, marks, in a sense, an anniversary, Madam President. It was almost 3 years ago that we took the floor of this body, many of my colleagues, in support of the Private Securities Litigation Reform Act of 1995. That bill, overwhelmingly enacted into law by Congress, was designed to curb abuses in the field of private securities class action lawsuits. Let me pause, if I can, to note just how important the private litigation system has been in maintaining integrity of our capital markets. It is highly questionable whether our markets would be as deep, as liquid, as strong, or as transparent were it not for our system of maintaining private rights of action against those who commit fraud. America's markets are the envy of the world because of the tremendous confidence that American and foreign investors have in the regulatory system that supports those markets. But it is precisely because of the vital importance of the private litigation system that the depths to which it had sunk by 1995 had become so damaging. The system was no longer an avenue for aggrieved investors to seek justice and restitution, but it had become, instead, a pathway for a few enterprising attorneys to manipulate its procedures for their own considerable profit, to the detriment of legitimate companies and investors all across our Nation. If we needed a reminder about how abusive that system had become, we received yet another example of it last week, with the conclusion of one of the last lawsuits filed under that old system. This litigation against a Massachusetts biotech company called Biogen, lasted more than 3 years, cost that company, in direct litigation expenses alone, more than $3 million. But even more than the direct costs, the lawsuit enacted an untold loss on the company because of the time and resources devoted by its top management and their scientists to defending themselves. The conclusion to this litigation on May 6 came in swift contrast to the lengthy and expensive lawsuit itself, as reported by Reuters: A Federal jury has ruled as baseless a class-action shareholder lawsuit accusing Biogen, Inc. and its chairman of misleading investors . . . The 10-member jury took less than three hours to reach their verdict. . . . So this week's debate marks not only the opening of Congress' effort to establish strong national standards of liability for nationally- traded securities, but also allows us to mark the close of an era in securities litigation that perversely offered more comfort to those filing abusive and frivolous lawsuits than it offered to redress to those who had been legitimately defrauded. But the very success of the 1995 reform act in shutting down avenues of abuse on the Federal level has created a new home for such kinds of litigation in State courts. Throughout 1996, the first year of the reform act, reports were coming to Congress that there was a dramatic increase in the number of cases filed in State courts. Prior to enactment of the '95 reform act, it was extremely unusual, extremely unusual, for a securities fraud class action case to be brought in a State court anywhere in this country. But by the end of 1996, it had become clear from both the number of cases filed in State court, and the nature of those claims, that a significant shift was underfoot, as some attorneys sought to evade the provisions of the reform act that made it more difficult to coerce a settlement, which was what was going on. John Olson, the noted securities law expert, testified in February before the subcommittee on securities that: In the years 1992 through 1994, only six issuers of publicly traded securities were sued for fraud in State court class actions. In contrast, at least 77 publicly traded issuers were sued in State court class actions between January 1, 1996, and June 30, 1997. Indeed, the increase in State court filings may even be greater than indicated by these dramatic statistics. Obtaining an accurate count of State court class actions is extraordinarily difficult, because there is no central repository of such data and plaintiffs are under no obligation to provide notice of the filing of such suits. In April, 1997, the Securities and Exchange Commission staff reported to the Congress, and the President found that: Many of the State cases are filed parallel to a Federal court case in an apparent attempt to avoid some of the procedures imposed by the reform act, particularly the stay of discovery pending a motion to dismiss. This may be the most significant development in securities litigation post- reform act. Even though the number of State class actions filed in 1997 was down from the high of 1996, it was still 50 percent higher than the average number filed in the 5 years prior to the reform act, and it represented a significant jump in the number of parallel cases filed. So there was a significant increase. It did drop in 1997. But if you are going to use the bar of when the reform act was passed, it was still substantially higher. It was a rare occasion indeed when people ran to State courts. We didn't think we would need this bill. We honestly thought that dealing with this problem at the Federal level would work. That is where the cases were brought. Why are we here today? We are here because these enterprising attorneys, as the chairman of the committee pointed out--many without clients, by the way--discovered that if they ran into a State court here, they could avoid the legislation that we adopted and passed so overwhelmingly here in 1995. But there are other reasons as well. It isn't just an increase in the caseload. That would not, in my view, necessarily warrant moving today. There are other issues. This change in the number and nature of the cases filed has had two measurable, negative impacts that I think our colleagues ought to take very good note of. First, for those companies hit with potentially frivolous or abusive State court class actions, all of the cost and expense that the '95 reform act sought to prevent are once again incurred. So, in effect, we did nothing. Today, all of that cost and discovery, and so forth, before a motion to dismiss could be filed--today you have to go do it all over again. It is as if the `95 act were never passed. That is what happened here. Some might question whether a State class action can carry with it the same type of incentives to settle even frivolous lawsuits that existed on the Federal level prior to 1995. Allow me to provide one example of how this is so. Adobe Systems, Inc. wrote to the Banking Committee on April 23, 1998, this year, about its experience with State class action lawsuits. One of the key components of the 1995 reform act was to allow judges to rule on a motion to dismiss prior to the commencement of the discovery process. This is not precedent-setting procedure. That is normally, in many cases, how you deal with it, a motion to dismiss coming up early. Under the old system, Adobe had won a motion for summary dismissal, but only after months of discovery by the plaintiffs that cost the company more than $2 million in legal expenses and untold time and energy by officials to produce the tens of thousands of documents and numerous depositions. With the 1995 act in place, those kinds of expenses are far less likely to occur at the Federal level. But in an ongoing securities class action suit filed in California state court since 1995, Adobe has had to spend more than $1 million in legal expenses and has had to produce more than 44,000 pages of documents, all before the state judge is even able to entertain a motion for summary dismissal. In fact, in an April 23rd, letter to Chairman D'Amato, Colleen Pouliot, Adobe's General Counsel, noted that: There are a number of California judicial decisions which permit a plaintiff to obtain discovery for the very purpose of amending a complaint to cure its legal insufficiencies. This one example makes clear that while Adobe, which has the resources for a costly and lengthy legal battle, might fight a meritless suit, these costs provide a powerful incentive for most companies without that kind of wherewithal to settle these suits rather than incur such expenses. The second clear impact of the migration of class action suits to state court is that it has caused companies to continue to avoid using the safe harbor for forward looking statements that was a critical component of the `95 reform act. In this increasingly competitive market, investors are demanding more and more information from company officials about where it thinks that the company is going, and what is likely to happen. In fact, today we have more investors in our markets than ever before. People want more information. The safe harbor provisions which we crafted were designed to encourage companies to step forward and to tell us where they were going. Clearly, there can be some who decide it would be deceitful. In no way do we try to protect anybody who is lying or cheating in the process. We are trying to encourage companies to tell us more about where they are going so those investors can make good decisions. But what has happened as a result of this rush to State courts is that the very companies that said they need the safe harbor provisions are not writing the safe harbor provisions because they know they don't have the same protection in State court, which is where these cases are running. So after all the encouragement of the 1995 act to have the safe harbor, companies haven't been putting it in. So investors out there trying to make decisions of where to put their hard-earned dollars don't have the benefit of that safe harbor language, which may give them a better idea in which companies to make those investments. The California Public Employees Pension System, one of the biggest institutional investors in the Nation stated that ``forward-looking statements provide extremely valuable and relevant information to investors.'' SEC Chairman Arthur Levitt also noted the importance of such information in the marketplace in 1995: Our capital markets are built on the foundation of full and fair disclosure. . . . The more investors know and understand management's future plans and views, the sounder the valuation is of the company's securities and the more efficient the capital allocation process. In recent years, the Securities and Exchange Commission, in recognition of this fact, sought to find ways to encourage companies to put such forward-looking statements into the marketplace. Congress too sought to encourage this and this effort ultimately culminated in the creation of a statutory safe harbor, so that companies need not fear a lawsuit if they did not meet their good-faith projections about future performance. Unfortunately, the simple fact is that the fear of State court litigation is preventing companies from effectively using the safe harbor. Again, the SEC's April 1997 study found that ``companies have been reluctant to provide significantly more forward looking disclosure than they had prior to enactment of the safe harbor.'' (p. 24); the report went on to cite the fear of State court litigation as one of the principal reasons for this failure. Stanford Law School lecturer Michael Perino stated the case very well in a forthcoming law review article: If one or more states do not have similar safe harbors, then issuers face potential state court lawsuits and liability for actions that do not violate federal standards. . . . for disclosures that are . . . released to market participants nationwide, the state with the most plaintiff- favorable rules for forward looking disclosures, rather than the Federal Government, is likely to set the standard to which corporations will conform. If the migration of cases to state court were just a temporary phenomenon, then perhaps it would be appropriate for Congress to tell these companies and their millions of investors to simply grin and bear it, that it will all be over soon. But the SEC report contains the warning that this is no temporary trend: ``If state law provides advantages to plaintiffs in a particular case, it is reasonable to expect that plaintiffs' counsel will file suit in state court.'' The plain English translation of that is that any plaintiffs' lawyer worth his salt is going to file in state court if he feels it advantageous for his case; since most state courts do not provide the stay of discovery or a safe harbor, we're confronted with a likelihood of continued state court class actions. While the frustration of the objectives of the 1995 Reform Act provide compelling reasons for congressional action, it is equally important to consider whether the proposition of creating a national standard of liability for nationally-traded securities makes sense in it's own right. I certainly believe it does. In 1996, Congress passed the ``National Securities Markets Improvement Act'' which established a precedent of national treatment for securities that are nationally-traded. In that act, Congress clearly and explicitly recognized that our securities markets were national in scope and that requiring that the securities that trade on those national markets comply with 52 separate jurisdictional requirements both afforded little extra protection to investors and imposed unnecessarily steep costs on raising capital. Last July, then-Securities Commissioner Steven Wallman submitted testimony to the Securities Subcommittee in which he said: Disparate, and shifting, state litigation procedures may expose issuers to the potential for significant liability that cannot be easily evaluated in advance, or assessed when a statement is made. At a time when we are increasingly experiencing and encouraging national and international securities offerings and listing, and expending great effort to rationalize and streamline our securities markets, this fragmentation of investor remedies potentially imposes costs that outweigh the benefits. Rather than permit or foster fragmentation of our national system of securities litigation, we should give due consideration to the benefits flowing to investors from a uniform national approach. That is what we are trying to do with this bill. At that same hearing, Keith Paul Bishop, then-California's top state securities regulator testified along the same lines that: California believes in the federal system and the primary role of the states within that system. However, California does not believe that federal standards are improper when dealing with truly national markets. California businesses, their stockholders and their employees are all hurt by inordinate burdens on national markets. Our businesses must compete in a world market and they will be disadvantaged if they must continue to contend with 51 or more litigation standards. SEC Chairman Arthur Levitt, at his reconfirmation hearing before the Banking Committee on March 26, 1998, said that the legislation we are debating today: Addresses an issue that . . . deals with a certain level of irrationality. That to have to two separate standards is not unlike if you had, in the state of Virginia, two speed limits, one for 60 miles an hour and one for 40 miles an hour. I think the havoc that would create with drivers is not dissimilar from the kind of disruption created by two separate standards [of litigation] and I have long felt that in some areas a single standard is desirable. which is all we are trying to do here with this bill, to set one speed limit, if you will, on a national debate on trading securities and on markets. That is all, one speed limit, not two, to live up to the fact of what we tried to do with the 1995 bill. The message from all of these sources is clear and unequivocal: A uniform, national standard of litigation is both sensible and appropriate. The legislation under consideration today accomplishes that goal in the narrowest, most balanced way possible. Before I discuss what the legislation will do, let me point out a few things that it won't do: It will not affect the ability of any state agency to bring any kind of enforcement action against any player in the securities markets; It will not affect the ability of any individual, or even a small group of individuals, to bring a suit in state court against any security, nationally traded or not; It will not affect any suit, class action or otherwise, against penny stocks or any stock that is not traded on a national exchange. It will not affect any suits based upon corporate disclosure to existing shareholders required by state fiduciary duty laws; And it will not alter the national scienter requirement to prevent shareholders from bringing suits against issuers or others who act recklessly. There has been a lot of talk about this last point, so let me address it head-on. It is true that in 1995, Congress wrestled with the idea of trying to establish a uniform definition of recklessness; but ultimately, the 1995 Private Securities Litigation Reform Act was silent on the question of recklessness. While the act requires that plaintiffs plead ``Facts giving rise to a strong inference that the defendant acted with the requisite state of mind . . .'' The act at no point attempts to define that state of mind. Congress left that to courts to apply, just as they had been applying their definition of state of mind prior to 1995. Unfortunately, a minority of district courts have tried to read into some of the legislative history of the reform act an intent to do away with recklessness as an actionable standard. I believe that these decisions are erroneous and cannot be supported by either the black letter of the statute nor by any meaningful examination of the legislative history. There are several definitions of recklessness that operate in our courts today, and some of them are looser than others. But I agree with those who believe that reckless behavior is an extreme departure from the standards of ordinary care; a departure that is so blatant that the danger it presents to investors is either known to the defendant or is so obvious that he or she must have been aware of it. The notion that Congress would condone such behavior by closing off private lawsuits against those who fall within that definition is just ludicrous. And if, by some process of mischance and misunderstanding, investors lost their ability to bring suits based on that kind of scienter standard, I would be the first, though certainly not the last, Senator to introduce legislation to restore that standard. As I mentioned a moment ago, Mr. President, S.1260 is a moderate, balanced and common sense approach to establishing a uniform national standard of litigation that will end the practice of meritless class action suits being brought in state court. This legislation keeps a very tight definition of class action and applies it's standards only to those securities that have been previously defined in law as trading on a national exchange. That is why the Securities and Exchange Commission has stated that ``We support enactment of S. 1260;'' That is why the Clinton administration has also indicated it's support for the legislation. In the final analysis, it is both the millions of Americans who have invested their hard-earned dollars in these nationally-traded companies and the men and women who will hold the new jobs that will be created as a result of newly available resources, whom we hope will be the real beneficiaries of the action that we take here today. I strongly urge my colleagues to join the Securities and Exchange Commission, dozens of our colleagues, the Clinton administration, dozens of governors, state legislators and state securities regulators in supporting passage of the Securities Litigation Uniform Standards Act of 1998. Madam President, I see my colleague. How much time remains?

Mr. DODD. I will do that in my remarks. There is a very difficult problem codifying the standard on recklessness. Congress has wrestled with this over the years. We were not the first committee to try. We thought leaving the standard as it has been in the courts, making sure we are not trying to make any change to that standard here, any way other than what has been an accepted standard, was a better way to proceed, based on the advice we received. We certainly did not change that standard, as has been the suggestion, either with this act or the act of 1995 despite the fact that some courts may have read it otherwise. I can't preclude a court from misinterpreting the decisions of a Congress. But the recklessness standard has been a good standard over the years and ought not to be tampered with, in my opinion.

Mr. DODD. I will make my comments, and then I will be glad to yield for a debate, but I want to finish my opening statement.

Mr. DODD. I think the chairman of committee raises an excellent point, that in fact our legislative history included with S. 1260, the debate we have had, makes it quite clear what the intent of the committee was in 1995, what the intent of the committee in this legislation is today. In the absence of that, I think you might have courts ruling otherwise, even though we may have not drawn that conclusion in the earlier legislation.

Mr. DODD. Madam President, let me begin by thanking my chairman of the committee, Senator D'Amato, and Senator Gramm with whom I authored this particular proposal. Senator Domenici has been very involved in this issue, going back a number of years when the issue first arose, trying to deal with this sinister practice going on of strike lawsuits and predator law firms. I will share briefly some news out this morning as to how the law firms that we are trying to deal with operate, where the issue of fraudulent behavior is hardly their motivation; it has to do with simple stock fluctuation. Some Internet activity today will highlight that in categorical terms, as early as about 4 or 5 hours ago. This is a pervasive problem that needs to be addressed. We passed this bill out of our committee 14-4 on a strong bipartisan vote. The bill is endorsed by the Securities and Exchange Commission, supported by this administration, the Clinton administration. We will be happy to entertain the amendments as they are offered that come up that were raised in committee. We had hearings on this matter--not a lengthy markup, but an extensive markup--with an opportunity to vote a lot of the issues. I will pick up on some of the concluding comments and remarks of my two colleagues from Maryland and Nevada with regard to the recklessness standard. We received a letter of endorsement and support from the Securities and Exchange Commission, signed by Chairman Arthur Levitt, Isaac Hunt, and Laura Unger, March 24. This letter, I believe, has been introduced in the Record by Chairman D'Amato, but I am, at this juncture, going to highlight two paragraphs of this letter because they go right to the heart of what was raised a few moments ago when it comes to the recklessness standard. I will address this more directly in my remarks. Let me quote two paragraphs in this letter. As you know, when the Commission testified before the Securities Subcommittee of the Senate Banking Committee in October 1997, we identified several concerns about S. 1260. In particular, we stated that a uniform standard for securities fraud class actions that did not permit investors to cover losses attributable to reckless misconduct would jeopardize the integrity of the securities markets. In light of this profound concern, we are gratified by the language in your letter of today agreeing to restate in S. 1260's legislative history, and in the expected debate on the Senate floor, that the Private Securities Litigation Reform Act of 1995 did not, and was not intended to, alter the well- recognized and critically important scienter standard. Jumping down another paragraph, The ongoing dialog between our staffs has been constructive. The result of this dialog, we believe, is an improved bill with legislative history that makes clear, by reference to the legislative debate in 1995, that Congress did not alter in any way the recklessness standard when it enacted the Reform Act. Then it goes on to complete the paragraph. I don't know if anything can be more clear in this letter. Certainly the intent, stated in committee, stated on the floor previously, stated in this letter, and we stated again here on the floor today as to what the intentions were of those of us who crafted this legislation when it comes to ``recklessness.'' Now I agree. I mentioned earlier, some courts, a few district courts, have read otherwise. That happens. But we will try to make it clear that was aberrational behavior, erroneous behavior, in my view, rather than what we intended. I see my colleague from New York is rising.

Mr. DODD

Mr. DODD. Mr. President, I rise today to congratulate the fifth class of inductees into the Connecticut Women's Hall of Fame. These five women gained recognition in fields of nature, justice, the arts, and finance and represent the best of my state and of our nation. I want to take this opportunity to speak about each of this year's inductees. Dorrit Hoffleit, a resident of New Haven, Connecticut, has established herself as a premiere astronomer through her work as senior researcher at Yale University. For over seventy years she has studied astronomy and has received an undergraduate degree from Radcliffe in mathematics and a doctorate from Harvard. Her interest in stars began early in her childhood when she saw two stars collide. During World War II, Professor Hoffleit worked as a mathematician at the Ballistic Research Laboratories at the Aberdeen Proving Ground in Maryland. It is here that she felt the effects of being a female in a male-dominated field. She was paid less for doing the same work as her male colleagues. In fact, despite her doctorate she still received a sub-professional ranking. However, she protested this treatment and as a result was given her due rank and ultimately transferred to Washington. In 1956, she went on to direct the Maria Mitchell Observatory in Nantucket, Mass. Her work there helped to provide women with more substantial opportunities in astronomy. An indication of her success is that twenty-five percent of the students who worked with Professor Hoffleit have gone on to become professional astronomers. As a member of the Yale research faculty, Professor Hoffleit has made immense academic contributions to her field. She is most renowned for her two star catalogs. Her most well known catalog, The Bright Star Catalogue, has been defined as ``the bible of virtually every stellar astronomer.'' Despite retiring from Yale over twenty years ago, Professor Hoffleit continues to go to work every day. In these past twenty years, she has not drawn a salary. She is dedicated to educating her colleagues and future astronomers, rather than promoting herself and her career. As a result of her profound selflessness and service, the effects of her efforts will be as limitless as the stars she has spent a lifetime studying. A second inductee is Judge Constance Baker Motley. Born in New Haven, Connecticut, Judge Motley first became interested in civil rights after being denied admission into a local public beach and skating rink. After graduating from high school, she was unable to afford college, so she worked for $50 a month refinishing furniture. She continued to be active and to voice her beliefs, despite her inability to further her education. A local philanthropist, Clarence Blakeslee, heard her speak at the Youth Council in 1939, and he was so impressed with her that he offered to pay for her education. She graduated from New York University in 1943, and three years later received her law degree from Columbia University. After graduating from Columbia, she worked full time for the Legal Defense and Educational Fund of the NAACP, under then chief counsel Thurgood Marshall. She worked there for twenty years as a staff member and associate counsel and she was known for her impressive skill as an oral advocate. During her time at the Legal Defense and Educational Fund she argued before the Supreme Court ten times, winning nine appeals. She is renowned for her work with Thurgood Marshall and others on the landmark Brown versus Board of Education case. Judge Motley entered politics in 1964, serving in the New York State Senate. In 1965 she became the first woman to serve as a City Borough President. During this time, she worked on ways to improve the inner- city through better housing and schools. In 1966, she became the first African-American woman to be appointed to a federal judgeship in the U.S. District Court for the Southern District of New York. As a federal judge she continued to break new ground. In 1982 she was made chief judge and in 1986 was appointed senior judge. Neither position had ever been held by a woman before her. Judge Motley's work for justice over five decades has been responsible for some of the most extraordinary changes in American culture during our history. She has received many awards and honorary degrees for her immense contributions to civil rights and the legal profession. A third inductee is Rosa Ponselle. Born Rosa Melba Ponzillo, she was a first generation American, the daughter of Italian immigrants who settled in Meriden, Connecticut. She began studying music and singing at age ten. Her musical break came at eighteen when she auditioned for the great opera legend, Enrico Caruso. Immediately after auditioning, she was cast in the role of Leonora in the Metropolitan Opera's staging of Verdi's ``La Forza del Destino.'' She remained loyal to the Metropolitan throughout her career, and she spent all but four seasons of her nineteen-year career performing there. In fact, she was the first American-trained singer to star at the Metropolitan. Ms. Ponselle shocked the opera world when she retired in 1937. She dedicated the remaining forty-four years of her life to helping train and teach aspiring young operatic youths. One of her most notable students was Placido Domingo. She also served as the artistic director of the Baltimore Civic Opera Company. She died in Baltimore in May 1991. Her voice was said to exude a blend of youthfulness and maturity and she remains an inspiration to opera students and audiences worldwide. Lillian Vernon, another inductee, is a resident of Greenwich, Connecticut. She is the founder and CEO of Lillian Vernon Corporation. She entered the industry of mail order catalogues in the 1950's when it was dominated by industry moguls such as Richard Sears and A. Montgomery Ward. The company, which began in 1951, was one of the first to offer personalized merchandise by mail. The corporation was the first company founded by a woman to be publicly traded on the American Stock Exchange. Ms. Vernon also does a great deal of charity work. She serves on the boards of various non-profit organizations, including the Kennedy Center, Lincoln Center, New York University's College of Arts and Science, and the Children's Museum. She has been honored for her work as a business leader and community activist. She received the Ellis Island Medal of Honor, the Big Brothers-Big Sisters National Hero Award, and the Direct Marketing Hall of Fame Award. Ms. Vernon is a remarkable entrepreneur, businesswomen, and role model. The final inductee is Mabel Osgood Wright. She was a resident of Fairfield, Connecticut and was the founder and President of the Connecticut Audubon Society. Wright established the first bird sanctuary in the United States, naming it Birdcraft. She founded the sanctuary around the turn of the century, fearing that bird life was being gradually eradicated. Wright saw conservation education as a key element to sustaining wildlife. She wrote many books in an effort to introduce children to nature appreciation and conservation. She published a field guide to New England birds in 1895. During this time, the Audubon movement was still young and was lacking public support. Through her involvement she helped to revive the organization on the state level. Aside from serving as President of the Connecticut Audubon Society, she served as an officer of the national group and as an editor and writer for Bird Lore magazine. It is said that Wright was unique in the environmental movement. This is because she was a nature writer as well as a community leader and her message focused not on the protection of our national parks but the preservation of our backyards, our gardens, and our bird sanctuaries. She believed the best way to preserve nature was through teaching children how to do it. Although she died in 1935, her message lives on at the Birdcraft Bird Sanctuary which remains a museum containing exhibits of Connecticut wildlife and providing frequent tours for school children. All five of these inductees are richly deserving of this award. I am pleased, indeed, that their remarkable lives will now become better known to the people of Connecticut and the United States for generations to come.

Mr. DODD

Mr. DODD. Mr. President, I am pleased to submit, with my colleague Senator Grassley, a Senate resolution that will focus attention on an extremely important health care issue for American families--long-term care needs. Rapidly increasing long-term care costs pose huge financial risks to families. With the average cost of nursing home care at $40,000 per year, early planning is required to ensure that long-term care needs don't leave the spouses or children of the elderly and disabled destitute. What most Americans do not realize is that Medicare is very limited in the type of long-term costs it covers. Medicare only provides coverage for ``acute'' health care costs, such as short-term stays in certain kinds of nursing homes, or short-term nursing care in the home following a hospitalization. Medicare was never meant to cover chronic long-term health needs. Medicaid does offer assistance with long-term costs, but only after an individual has totally exhausted his or her assets. This means that families must become completely impoverished in order to get Medicaid coverage for nursing home care. What fills in the gaps? We know that sixty-five percent of many elderly who live at home and need help rely exclusively on unpaid sources, such as family and friends. But this help is not without a price--it takes a huge toll on families. Caregiving frequently competes with the demand of employment and requires caregivers to reduce work hours, take time off without pay, or quit their jobs. Families whose members must be in institutional settings often exhaust all of their resources paying privately for nursing home care. As a country, we need to have better alternatives so that our Golden Years can be lived out with dignity. Our job as policy makers is to inform the public of the importance of planning ahead. Employers need to be encouraged to make private long-term care insurance coverage available to their employees. In turn, families should be encouraged to prepare themselves financially well in advance for this potential expense. A similar proposal by my fellow Connecticut colleague in the House of Representatives, Congressman Chris Shays, has received strong bi- partisan support. My hope is that this commonsense, forward-looking proposal will receive the same kind of support by my colleagues here in the Senate. This Senate resolution truly represents an investment in our future.

Mr. DODD

Mr. DODD. I gather we are waiting for one of our additional colleagues to complete one more item on this bill. I want to take the opportunity, if I can, to join my colleague from Oklahoma in commending the chairman of the committee--I see him now entering the Chamber here--and Senator Roth, Senator Moynihan, Senator Kerrey, Senator Grassley, and others from the Finance Committee who have been involved in producing this piece of legislation. I think this is going to carry overwhelmingly, maybe even unanimously. That is something we do not do that often around here. And that is a tribute to what I think more Americans want to see, and that is a sense of bipartisanship on issues like this. This could have become highly controversial. But the fact that there has been such comity between the majority and minority I think has allowed us to produce the kind of legislation that we will be voting on shortly. I am going to in a minute ask for the attention of the chairman of the Finance Committee because I want to raise an issue. And I will raise it and talk a little bit about it. Maybe he is going to go through his notes a little bit. As our colleagues are aware, Senator Bennett of Utah and I are chair and vice chair of this new special committee on the year 2000 problem, Mr. President. This is to deal with the computer glitch that now has received widespread publicity over the last number of weeks and is an issue that some raised several years ago in this country warning us of the problem we would face if we did not take care of the problems where on January 1, 2000, computer programs, instead of reading, ``January 1, 2000,'' would read, ``January 1, 00,'' and that would be computed by many to be ``1900,'' not ``2000.'' It has been estimated that costs nationally and internationally could run anywhere from $300 billion to close to $2 trillion for this fix. Bob Rubin, the Secretary of the Treasury, has indicated that the fix at that Department alone, excluding, I believe, the Internal Revenue Service costs, is $1.4 billion just to become compliant with the year 2000 problem by September of next year, which is when the systems ought to be on line to be tested for 2 or 3 months before January 1, 2000, occurs. There is an issue here that I believe the committee has tried to resolve. And my colleague from Nebraska, I know, is involved in this. And Senator Moynihan, certainly, who is a member of our special committee, has also been involved in this. And that is so we don't find our reform efforts here running into the date problem of January 1, 2000. I would argue that that all of the problems consumers could face if the IRS were not compliant by January 1, 2000 are just as critical in many ways as the problems we are addressing today. That effort has been made in this bill to try to make sure that does not happen. And I gather further from talking with Senator Bennett of Utah that provisions would be included that would allow for the Joint Taxation Committee to analyze what we are doing and that if, through the good efforts of the committee, it does not quite meet the needs, in conference we may have to move some dates a little bit. I am not sure I am stating this very well at all. And I see the distinguished--either one of my two colleagues might want to respond, Mr. President.

Mr. DODD. I thank immensely my colleague from Nebraska for his comments. I do not know if I phrased this in the form of a question-- sort of a statement I have made about my concerns about this. I know the Senator from Delaware, Mr. President, shares these concerns. And he has been working with Senator Moynihan, his ranking Democrat on this committee, to try to address this. And maybe he would care to comment as well as to where we stand with this.

Mr. DODD. I move to reconsider the vote.

Mr. DODD. Mr. President, if it is appropriate, I send an amendment to the desk to be offered by Senator Moynihan, and I will send it on his behalf. Senator Kerrey and I leave it open for others. Maybe Senator Roth and Senator Bennett may want to be part of it. I ask for its immediate consideration.

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

Mr. DODD. Mr. President, the distinguished majority and minority have worked on this over the last number of days. I will let them speak for themselves as to their endorsement of it. I appreciate the chairman's efforts in this regard. I am heartened by his comments that we will have to watch this, our little committee will, and we will keep the Finance Committee well informed. If we discover something, we will let you know very promptly if some other remedial legislative action may be necessary for us to respond to this issue. This will be true of other committees, as well, I say. This is a tremendously serious issue. I see my colleague from Georgia has arrived on the floor, and I know Members want to move along. I am deeply grateful to the chairman and to the ranking minority member and to others for allowing us to offer this amendment. We think it will solve the problem raised here, that will minimize the dangers to the Treasury Department and the IRS noncompliance as we push reforms forward and find a crashing of the system, which, as the Senator from Nebraska has pointed out, would be, frankly, far more injurious than any of the problems we presently have. As bad as the current problems are, a total system crash would be an equally serious problem. I will also offer some overall remarks about the bill, which the distinguished manager and others have presented with us this afternoon. I intend to support it, and I thank them for their efforts. As soon as I have concluded those remarks, I will yield the floor and allow the distinguished chairman and ranking member here, and others, to offer whatever comments they want on this amendment and thank them. Mr. President, I commend my colleagues on the Senate Finance Committee, especially Chairman Roth, Senator Moynihan, and Senator Kerrey of Nebraska for bringing this bill to the floor. It takes an important step forward in the effort to protect the rights of our nation's taxpayers. The IRS is an agency under widespread, deeply felt, and entirely justified criticism. In my view, the bill before us today is perhaps one of the most critical the Senate will vote on this session. It is no secret that the IRS has come under fire lately from taxpayers who, in their dealings with the agency, have experienced anger, frustration, and despair. The hearings conducted by the Senate Finance Committee have highlighted some of the problems at the IRS, including shoddy management, poor taxpayer service, and in some cases, reports of taxpayer abuse by IRS employees. No one likes to pay taxes, but taxes are a fact of life in a civilized society. Most Americans accept that fact. What really gets people, however, is when personnel at the agency that collects their taxes treats them with disrespect and carelessness. No one deserves such treatment. I have heard from many Connecticut constituents about what they feel is unhelpful, unreasonable, and sometimes downright unpleasant treatment by officers of the IRS. I've heard stories from them about calls that aren't answered, and about calls that are bounced from one person to the next, so that they never find a real answer to their questions, or receive any type of guidance or support. I've heard about the nightmare of the IRS losing taxpayer's checks, and then charging them interest and penalties on the very funds that the agency lost. The list goes on and on, Mr. President, and the more people you talk to, the more nightmares you hear. Every citizen who pays taxes has a right to be treated fairly, and treated as innocent until proven liable for failing to meet their legal responsibilities. Although we have taken several steps in this regard in the last few years, there is still more that can be done, and that is why I support the bill before us today. This legislation aims to transform this agency into an institution that provides efficient and fair service, yet still has the ability to effectively collect revenues. The bill includes a number of important provisions to help America's taxpayers. First, the legislation would shift the burden of proof away from the taxpayer, and expand the ability of taxpayers to recover costs and litigation fees. These provisions will help ensure that the IRS exercises appropriate caution and consideration prior to commencing enforcement action against any taxpayer. For too long we've seen a ``shoot now, ask questions later'' approach to enforcement by the IRS. These provisions are designed to see that the agency does its homework before taking any action. Secondly, it would establish a new IRS Oversight Board made up of six members from the private sector, the IRS Commissioner, the Secretary of the Treasury, and a member from an employee organization that represents a substantial number of IRS employees. This board would, among other things, review the operations of the IRS to ensure that our nation's taxpayers are properly treated. Third, this bill would establish the position of the National Taxpayer Advocate who would have a background in customer service and tax law, as well as experience representing individual taxpayers to further ensure that taxpayers are treated fairly and that their rights are not violated. In addition, the bill would create a system of local taxpayer advocates thereby making the IRS more accessible and responsive to taxpayers on a local level. Fourth, this legislation would provide so-called innocent spouses with a measure of relief by allowing taxpayers to elect to limit their liability to the tax attributable to their income only. I'm sure that many of my colleagues have heard stories similar to those I've heard in Connecticut, about people who have become financially wiped out when they find themselves liable for taxes, interest, and penalties because of actions by their spouse of which they were unaware. The innocent spouse provisions wold help prevent such scenarios from occurring in the future. Fifth, this bill would require the IRS to provide taxpayers with better information regarding taxpayer rights, potential liabilities when filing joint returns, and the appeals and collections process, and would extend the attorney-client privilege confidentiality to any individual authorized to practice before the IRS, including certified public accountants, and enrolled agents and actuaries. This legislation also includes a number of provisions designed to give the IRS Commissioner flexibility to make structural and personnel decisions in order to attract expertise from the private sector, redesign its salary and incentive structures to reward employees who meet objectives, and hold non-performing employees accountable. Furthermore, it requires the IRS to terminate employees for certain proven violations, chief of which are actions that mistreat taxpayers. Finally, while this bill gives a degree of flexibility to the IRS to make reforms internally, it also makes sure that there remains a measure of Congressional accountability by requiring the IRS Commissioner to report annually to Congress. Obviously, Mr. President, the IRS is in need of dire reform and we must hold it to the highest standards of efficiency and competence. And, while I acknowledge and applaud the good work Commissioner Rossotti has already put forth to turn this agency around, it is clear that there is much left to be done. The legislation before us today, which enjoys broad, bipartisan support, is a tremendous step forward in our effort to protect the rights of our nation's taxpayers, and we owe it to them to pass this bill favorably. I urge my colleagues to join me in supporting the IRS Restructuring and Reform Act of 1998.

Mr. DODD. I have been informed by my colleague from Utah, Senator Bennett, chairman of the select committee of the year 2000 problem, would like to be added as a cosponsor.

Mr. DODD. Mr. President, I thank my colleague and distinguished chairman of the committee for that point. I say we have just begun this special committee's work. We have not even had our first meetings yet. This body only authorized the expenditure of funds for this committee a few weeks ago. And there are seven of our colleagues, seven of us, who will serve on this select committee--four members from the majority and three from the minority, with Senator Bennett of Utah chairing the effort. We think it is an important issue that must be resolved. This committee obviously has to go forward with its reform package. And I just wanted to make sure we are on record here as saying this is a very critical issue, as the Senator from Nebraska has pointed out. This is one where you can't say we will fix it the second week in January or we will fix it in February of the year 2000. The IRS will have to be compliant and the Treasury will have to be compliant or we will have a huge mess on our hands. Amendment No. 2380 (Purpose: To provide effective dates which allow the Internal Revenue Service to implement changes to the tax code and to meet the year 2000 computer conversion deadline)