Ed Markey

Mr. MARKEY

Mr. MARKEY. Mr. Chairman, the Schumer amendment is really the did-it- really-work amendment. Are all the promises which are being made by the proponents of this reform going to being told that they will see lower doctor bills, that they will see lower costs for products because insurance rates are going to go down? Now I remember back in 1988 in the Committee on Commerce when we had hearings. In that particular hearing we actually had insurance executives, and I asked them, ``Will insurance rates go down?'' They said, ``No, no, no.'' Well, if that is the ostensible guise for all of this, let us have a determination 5 years later whether or not the promise, like Reaganomics, of cutting taxes and actually having more revenues is going to work here in insurance product liability as well, and if it cannot withstand the crucible of scrutiny 5 years from today, and insurance companies are retaining windfall profits as----

Mr. MARKEY

Mr. MARKEY. I thank the gentlewoman for yielding this time to me. Mr. Chairman, if we take the case which is before us and we change it just slightly, the business executive who was mowing the lawn and his 15-year-old son or daughter was mowing the lawn and the engine of the lawnmower exploded, blinding the executive, blinding the daughter, the measure of damages now would be, under this punitive new standard, that the executive could collect his $3 million as a punitive damage. The girl, the daughter, could only collect whatever the jury might think she might be entitled to, but capped at her economic worth, which is $5 an hour, which is what her mother or father was paying her to mow the lawn. The point of a punitive suit being to send a signal to the entire lawnmower industry to fix this engine. Now, who should collect? It should be that little girl, not some socialistic scheme that gives the money back to the States. It should be to that girl who had the courage to bring the case.

Mr. MARKEY

Mr. MARKEY. I can even imagine a situation where we draft something that allows for even those kinds of statements to be made. But of course we would have to put some kind of skull and crossbones around it and inside of the statement so we differentiated it from the facts ma'am, nothing but the facts in terms of what the actual condition of the company is. So this is, in my opinion, a very dangerous amendment. We can change the forward-looking statement regulations of this country. I do not have any problem with doing that and I think a lot of CEO's in this country need some relief, and I think we can work with them to do it. But the way this is drafted right now, the single worst, most unscrupulous business executives in this country will be free to make any kind of misstatements they want and by just making this very simple disclaimer that the estimates may not be realized, they are off the hook. And they will hire the fanciest law firms in America to draft a 30-page statement with this one line in it and it is caveat emptor out in the marketplace, running completely contrary to our long history of disclosure and protection for investors. So this is not a safe harbor, this is a safe ocean of fraud, and the SEC will have to wage a two-ocean struggle with limited resources to keep track of all of the fraud and misrepresentation that will be possible. I sincerely hope that the Members would reject this amendment. I think it can be drafted in a way which does in fact comport with the needs to reform the forward statement conditions under which we are now operating, but this is not that amendment.

Mr. MARKEY. Mr. Speaker, I demand a recorded vote.

Mr. MARKEY. Mr. Speaker, I demand a recorded vote.

Mr. MARKEY. Mr. Chairman, I rise in support of the Manton amendment. The Manton amendment seeks to prevent the scrapping of 200 years of American law being used to ensure that plaintiffs can bring cases where they feel they have been wronged in the financial marketplace. The English rule in this bill creates a burden on a plaintiff, a set of obstacles on a plaintiff that are higher than the set of obstacles that were in yesterday's loser-pay bill that was out here to be considered in diversity cases. It is an even stricter burden. Loser pays is un-American. It is something that is completely outside of the traditions of the American jurisprudential history. It is absolutely impossible to imagine a situation where an investor who has lost only $5,000 or $10,000 or $15,000 would even consider against a large company, if they feel that they have been defrauded; and if they lose the case, not lose the case and be out of court, but then have to prove that in fact the case was substantially justified, not just that it was not frivolous, but have to go through an entirely new proceeding to avoid having all of the costs that have been assumed by the large financial institution, by the large corporation, and hiring the largest law firms in New York or California or Boston to represent them. It is un-American. The Manton amendment seeks to preserve the American tradition, where individuals can go to court and ensure that their case can be heard and not risk losing their house, losing everything they have saved in trying to fight to restore that which they have been wrongfully defrauded. So this is a critical moment again for the House. It is once again going to vote on whether or not we want to impose the English rule, the loser-pay standard, upon American investors. My heartfelt recommendation to every Member who is about to come out here and to vote is to continue, those who stood against loser pay yesterday to stand with the Manton amendment, to ensure that we retain that 200-year tradition of giving every American the right to go to court, the right to vindicate themselves before the bar of justice, without having to risk everything that they have ever earned in their life in paying the legal bills incurred by large corporations in trying to defend themselves against average Americans.

Mr. MARKEY. Mr. Chairman, I move to strike the requisite number of words.

Mr. MARKEY. Is it not true that out of the 270,000 cases in Federal district court that this bill is only going to touch 300 of them, which only affects 125 companies per year, and yet the number of tens of thousands we are talking about a half of a half of a half of 1 percent of all of the law cases brought in Federal court in the course of a year? And the gentleman from Wisconsin is completely wrong in his statistical representations.

Mr. MARKEY. Mr. Chairman, will the gentleman yield?

Mr. MARKEY. As my colleague knows, the problem with this provision in the legislation is that it requires each person who has been defrauded, knows they have been defrauded, every bone in their body tells them that this financial advisor, this banker, this person that sold them this stock that has gone sour, defrauded them. But if they are going to sue, they have to be like Carnac. They have to be able to know exactly what was in the mind of the person who defrauded them, exactly on that night, December 18, 1993, when that person sold them or concocted the concept of defrauding the individual with the life savings losing investment which the person made as a result. I say to my colleagues, you couldn't sue Charlie Keating. You couldn't sue anybody because, as the other person, absent the psychic Carnac-like powers, you're left to the marketplace to have a strong sense that you, in fact, have been defrauded, know that all of the circumstantial evidence points in that direction, but not be able to plead with the specificity that satisfies this Mount Everest of burdens which has been constructed. And we have everyone from Anthony Lewis in the New York Times who has said it is very hard, indeed impossible for a plaintiff to know such things about a defendant's state of mind. We have Judge Abner Mikva who was an experienced Federal judge and is now counsel to the President who has spoken out against this smoking gun pleading requirement in the bill. This just creates insurmountable obstacles to an ordinary person being able to bring an action. And remember the pleadings standard in the Bryant bill is identical to the Tauzin bill of last year. All we have done is taken the language that the gentleman from Louisiana [Mr. Tauzin] had in his bill and brought it out here on the floor for those of my colleagues who supported the Tauzin bill last year.

Mr. MARKEY. Mr. Chairman, will the gentleman yield?

Mr. MARKEY. Mr. Chairman, I thank the gentleman very much for yielding. I asked him to yield only because this is going to be a consensus, and the gentleman from Oregon has already consumed most of his time, and I would like to have an opportunity to hear him again before the amendment is put to the House. The Wyden amendment is consistent with H.R. 1058's goal of curbing the explosive growth of securities fraud lawsuits. It requires frauds to be detected, reported, and corrected before they become lawsuits. The Wyden amendment will restore the confidence of the investing public in the integrity of financial disclosures made by public companies. It requires that audits include procedures designed to detect fraud and related-party transactions as well as to evaluate the issuer's ability to continue as a going concern. It deters frivolous lawsuits against accountants by precluding private rights of action against accountants for any finding, conclusion, or statement expressed in the fraud reports made to the SEC by the accountant or by the accounting firm. The amendment has already been reported unanimously twice by the full House, three times by the full Committee on Commerce. It is based on a solid record of 34 days of hearings conducted since 1985. It is a voluminous set of reports which covers just about every case from ESM to the American Savings & Loan Association case to the Home State Savings, the Z.Z. Best, Mission Insurance, Transit Casualty, the whole range of issues that have been raised over the last decade. The gentleman from Oregon [Mr. Wyden] has synthesized it into a single amendment with a set of recommendations which we believe go a long way toward insuring that there will be early and adequate detection of fraud by the accounting firms of this country, while inoculating them against suit in any of the activities which they undertake pursuant to the amendment which we are now considering.

Mr. MARKEY. If I can reclaim my time, the SEC comment letter to the committee on it said: Because the Commission is in the midst of a rulemaking proceeding, it would be inappropriate to take a position on the substantive safe-harbor provisions. The most appropriate solution to the issue, from the Commission's perspective, would be a provision directing the Commission to complete its rulemaking proceeding and report back to Congress. So they are in the midst of doing the rulemaking on this issue right now and they have been, and again, the point is that we are stripping individuals from their ability to sue, not the SEC to bring an enforcement action. We want some ordinary person who has put $50,000 or $100,000 of their own money into a company, maybe even $1,000 of their own money into a company under completely, or almost fraudulent, not almost, but actually a fraudulent set of misrepresentations made by the company.

Mr. MARKEY. I am glad to yield to the gentleman from California.

Mr. MARKEY. Mr. Chairman, I move to strike the requisite number of words, and I rise in opposition to the amendment. Mr. Chairman, the subject matter on the floor at this time is an extremely sensitive one, because it deals with the public materials made available to investors in this country, and upon that information, investors make their decisions as to whether or not they should put their money into any particular company in this country. If you are CALPERS, that is, this huge institutional investor, you do not have to worry. You are able to hire dozens of extremely sophisticated analysts to give you all the information you want. So it would make sense for CALPERS to sign up on something like this. I think they are wrong. I think they should be embarrassed, because they know that the ordinary investor does not have the same kind of access to information. Perhaps they are looking for more people to sign into CALPERS as their agent to do this kind of analysis. But for the ordinary investor, they are dependent upon the prospectuses, upon the annual reports, upon the registration reports, upon the quarterly reports of publicly held companies. Now, a forward-looking statement under historical definition is one which the company makes projections about what they think is going to happen. Inside the contours of that statement, they have to be respectful of the truth as opposed to absolute outright conjecture. For example, you cannot say today in your forward-looking statement, ``And over the next year, we expect to find the cure for AIDS. And we expect to see our stock increase in value 1,000 percent.'' ``And, by the way, the cure for cancer could come in one year, but that might be a two-year project and then we expect to see yet a doubling again of our stock.'' has not been allowed, unless you know that is going to happen, because people might think that you are asserting that you are going to find a cure for AIDS, or for cancer, or some other breakthrough in some other area of American entrepreneurial endeavor. You can, however, make a forward-looking statement about what you think looks reasonable for the future, reasonable. What we have in this amendment is for all intents and purposes not a safe harbor. A safe harbor is something we can all support and historically we do, and the Securities and Exchange Commission right now is in the process, as the experts in this field, of drafting new safe harbor legislation, new regulation for this country. But if this particular amendment passes, we are going to have to change the old statement to be amended to ``lies, damn lies, and forward-looking statements'' because you will be able to say whatever you want and you will be protected. And here is the language in the amendment that makes that possible, it is pretty simple: A person shall not be liable with respect to any forward- looking statement if the risk that such projections, estimates, or descriptions may not be realized is made part of the statement. So you just have to say after 30 pages of describing the cure for AIDS and the cure for cancer, psoriasis, and baldness and then put in one sentence that says, ``the risk that such projections, estimates, or descriptions may not be realized,'' that is it, that could be a footnote, but it will be in there after 30 pages. Now if you are CALPERS you will find it. You are hiring summa cum laudes from Stanford or Harvard Business School to read these things for you. You are investing billions of dollars. But what about the tens of thousands of individuals who are just going to be relying upon a prospectus? They are going to be reading this statement without any real knowledge that in fact this one little sentence is the disclosure, the inoculation against suit after you put your life savings in this company thinking they are guaranteeing. So I do not have any problem with forward-looking statements. As a matter of fact, I could even construct this amendment.

Mr. MARKEY. If I may reclaim my time, it is not the SEC we are talking about in this particular legislation, it is the investor, him or herself who will be limited in their ability to sue to get money back for themselves.

Mr. MARKEY. Reclaiming my time, Mr. Chairman, just to conclude by making this point: Once again there are no allegations against any mayor or city council in the United States. Why are we going to charge them with being frivolous in any lawsuits which they are going to bring if there has never been an allegation in the history that has come before this body as testimony that would lend that kind of limitation upon their ability to sue if they have been defrauded? The gentleman from Michigan [Mr. Dingell] does not even ask that they be given the rights for eternity, but only for the next 3 years so that the existing body of financial sales, of representations which have been made in the marketplace to municipalities, continue to be litigated under the old law.

Mr. MARKEY. I yield to the gentleman from California.

Mr. MARKEY. I yield to the gentleman from California.

Mr. MARKEY. I yield to the gentleman from Texas.

Mr. MARKEY. I yield to the gentleman from California.

Mr. MARKEY. I yield to the gentleman from Texas.

Mr. MARKEY. I yield once again to the gentleman from Michigan, the author of this amendment, so he can elaborate upon that point.

Mr. MARKEY. Mr. Chairman, I move to strike the requisite number of words. Mr. Chairman, I rise in support of the amendment offered by the gentleman from Michigan [Mr. Dingell] and I rise just to make again the very simple point that the gentleman from Michigan is seeking to ensure that the cities and towns of the United States, who may have already been placed in jeopardy by financial transactions that financial losses which their citizens, their taxpayers, are going to suffer, be allowed to be exempt from this legislation for 3 years so that a lot of this financial activity can be made more manifestly obvious. The reason for it is quite simple. One, there has been no allegation that any mayor, that any city counselors, that any city solicitor, in the United States has ever filed a frivolous lawsuit, and the ostensible justification for this legislation is that we are going after the lawyers and the professional plaintiffs who are making a mockery of the court system of this country. If that is our justification for passing legislation, let us not allow the cities and towns, the taxpayers of this country, to be swept into this. If we do not have the capacity to exempt municipalities from this legislation, even though there are no allegations against them, then clearly the intent is to inoculate those whose municipalities might sue rather than protect municipalities themselves. So let us know what this amendment is all about. I say to my colleagues, The Dingell amendment is to give your mayor, your city counselors, the ability to sue.

Mr. MARKEY. I thank the gentleman for yielding. Mr. Chairman, the mayors of the United States, those whom we are talking about putting block grants together and trusting them with hundreds of billions of dollars of American taxpayers' money, now we are going to put real restrictions upon them, putting them into a suspect class of frivolous plaintiffs who have been abusing the court system of this country. Whereas the mayors and Government Finance Officers Association has a sterling record for bringing suits only where they are justified.