Paul Sarbanes

Mr. SARBANES

Mr. SARBANES. Professor Miller says in the course of this letter, I have always taken great pride in the fact that the words `equal justice under law' are engraved on the portico of the Supreme Court. I fear, however, that if the proposed legislation is signed into law, access to the Federal courts for those who have been victimized by illicit practices in our securities markets will be foreclosed, effectively discriminating against millions of Americans who entrust their earnings to the securities markets. Do not make the mistake of exposing our investors to the pitfalls that the public officials, State security regulators, and these distinguished academics have pointed out. I urge sustaining the veto. Exhibit 1 [Letter from National League of Cities (NLC), National Association of Counties (NACo), National Association of County Treasurers and Finance Officers (NACTFO), U.S. Conferences of Mayors (USCM), Government Finance Officers Association (GFOA), and Municipal Treasurers' Association (MTA), Dec. 21, 1995] Hon. Bob Dole, U.S. Senate, Washington, DC. Dear Senator Dole: On behalf of the state and local government officials we represent, we urge you to vote to sustain President Clinton's veto of the Private Securities Litigation Reform Act of 1995 (H.R. 1058) and support legislation in Congress that truly accomplishes the goal of reducing frivolous litigation. Our organizations all support ending frivolous lawsuits because as issuers of municipal securities, we too may be sued, especially in light of the new Securities and Exchange Commission requirement for issuers to disclose annual financial information. On the other hand, we also are major investors of public pension funds and taxpayer monies who want to ensure that litigation reform is balanced and does not harm investors. Unfortunately, H.R. 1058 is a bill that is special interest excess masquerading as reform and it makes a mockery of our world-renowned system of investor protection. The over 1,000 letters from state and local government officials from all over the country that have been sent to Congress in the last few weeks attest to our deep conviction that this bill should not become law. The following are the major concerns state and local governments have with the bill and the major reasons we supported a veto: Safe Harbor for Forward-Looking Statements--The safe-harbor provision relating to forward-looking statements would allow false predictions to be made as long as they are accompanied by cautionary language. Municipal bond issuers take great care to provide full and accurate disclosure related to their finances and operations and cannot countenance a lesser standard for corporate issuers under any circumstances. No issuer, whether governmental or corporate, should be able to mislead potential investors. In addition, these provisions will be particularly harmful to state and local government pension funds, which rely on corporate information to assist in their investment decisions and would be denied recovery under this section. Aiding and Abetting Liability--There is no language in the bill making aiders and abettors liable for fraud. If aiders and abettors of fraud are immune from civil liability, state and local governments, as issuers of securities, would become the ``deep pockets'' in a lawsuit and, as investors, we would be limited in our ability to recover losses. Our confidence in consultants who assist us in complex municipal bond transactions and in investing public funds is diminished by this bill because these consulting professionals have been granted immunity from responsibility. It is not reasonable to hold out the hope that this important issue can be dealt with in a subsequent bill. It must be dealt with as part of this reform effort or the opportunity will have been lost. Statute of Limitations--It is equally important that the statute of limitations be extended. Otherwise, investors will be harmed by wrongdoers who are able to conceal fraud beyond the allowable period. Again, we do not believe this important change will be given serious consideration in the future if H.R. 1058 is passed in its present form. Loser-Pays Provision--Finally, under the bill, fraud victims would face a potential ``loser-pays'' sanction and possible bond posting requirement at the beginning of a case. We are sure you are aware of the difficulty public officials would have in justifying proceeding with an investor lawsuit if there was also the risk that the injured government investor would have to pay the legal fees of a Wall Street investment banking firm, which is a defendant in a securities lawsuit. To us, this is an unacceptable and unfair approach to investor protection. We urge you to support the President on this important issue. We are not asking you to support frivolous litigation. To the contrary, we want you to support legislation that stops the deplorable strike suits that are the target of securities litigation reform. However, a new law can be fashioned that deals with lawsuit abuses without jeopardizing our most basic and essential investor protections. Our groups pledge to work with the President and members of Congress so that a new law can be fashioned that deals with these concerns.

Mr. SARBANES. Mr. President, I yield myself 3 minutes and ask the Chair to let me know when the 3 minutes have been used.

Mr. SARBANES. Mr. President, what is the time situation?

Mr. SARBANES. This is not only State regulators and local government officials, whom I just cited, but consumer groups and legal experts. Money magazine has editorialized on this issue, and I ask unanimous consent that it be printed in the Record.

Mr. SARBANES. They conclude by saying: ``This bill will undermine the public's confidence in our financial markets and, without that confidence, this country is nowhere.'' I am fearful that that is the price we will pay for this legislation. Finally, I ask unanimous consent to have printed in the Record a letter from Prof. Arthur Miller at the Harvard Law School.

Mr. SARBANES. Mr. President, I rise to urge my colleagues to support the veto. We have a number of public interest groups that are in strong support of this veto. The North American Securities Administrators Association and the Association of the States Securities Regulators have written to Members of the Senate to urge us ``to sustain President Clinton's veto.'' They go on to say--and this is a very important point that we have continually emphasized during the debate: While everyone agrees on the need for constructive improvement in the Federal securities litigation process, the reality is that the major provisions of H.R. 1058 go well beyond curbing frivolous lawsuits and will work to shield some of the most egregious wrongdoers from legitimate lawsuits brought by defrauded investors. That is the whole point. This legislation goes well beyond the purpose of curbing frivolous lawsuits. The examples that are always cited on the other side are examples with which we do not take issue. We would like to curb those kinds of examples, but we do not want to go beyond that, as the North American Securities Administrators say, ``to shield some of the most egregious wrongdoers from legitimate lawsuits brought by defrauded investors.'' I will ask unanimous consent that this letter be printed in the Record at the conclusion of my remarks, along with a letter from the National League of Cities, the National Association of Counties, the National Association of County Treasurers and Finance Officers, U.S. Conference of Mayors, Government Finance Officers Association, the Municipal Treasuries Association, which also states that those organizations support ending frivolous lawsuits, but pointing out that they are major investors of public pension funds and taxpayer moneys, who want to ensure that litigation reform is balanced and does not harm investors. They go on to say, unfortunately, H.R. 1058 is a bill that is special-interest excess masquerading as reform, and it makes a mockery of our world-renowned system of investor protection. I ask unanimous consent that they be printed in the Record.

Mr. SARBANES. I yield the remainder of our time to the distinguished Senator from Nevada.

Mr. SARBANES

Mr. SARBANES. Mr. President, I yield the floor. Mr. CHAFEE addressed the Chair.

Mr. SARBANES. Will the Senator yield?

Mr. SARBANES. I was not clear what conference the Senator was referring to about thunder and lightning.

Mr. SARBANES. There was no legitimate conference. There were meetings of all the same-thinking types, and then a meeting of the conference committee was called to which everyone came, including people who had a different point of view, and the thing was simply railroaded through. Obviously, there was not thunder and lightning and this so-called conference--there was no such conference.

Mr. SARBANES. But no discussion of substance. The true thinkers had worked all the substance out at other secret meetings before they ever came to the conference. The Senator knows that as well as I do.

Mr. SARBANES. Will the Senator yield?

Mr. SARBANES. The defense would not be held liable for all the costs? Plaintiff would but not the defense?

Mr. SARBANES. If the Senator will yield, I find that an absolutely staggering assertion, saying that you should have this disparity in treatment between plaintiff and the defense. The Senate-passed bill contained a presumption that the appropriate sanction was an award of reasonable attorney's fees and other expenses incurred as a direct result of the violation, and it applied that to both plaintiff and the defendant, as the bill went out of the Senate. The conference changed that. So they imposed a much more onerous burden upon plaintiff as compared with the defendant. There is no basis in logic or reason to do that.

Mr. SARBANES. That would be the direct result of a violation under the language of the Senate-passed bill. In the conference, they changed this language.

Mr. SARBANES. They changed it in such a way that you get a disparate treatment of the plaintiff and the defendant. There is no basis to do that.

Mr. SARBANES. I apologize to the Senator.

Mr. SARBANES. Mr. President, I observe for my colleague from Connecticut that the two words ``I do''--it is only two words--but they have tremendous, far-reaching significance. So the fact that there are only 11 words, you know, if they are critical 11 words they can make a tremendous difference, and in the lives of people there are the two words ``I do.'' They can make an enormous difference in our lives.

Mr. SARBANES. If there are only 11 words, why do you not take this bill and rewrite it and meet the objections? It is interesting. I find it very interesting that this is being treated as though Congress were about to end. The fact of the matter is that there is an opportunity to address these problems, eliminate them. Actually, I am not going to go at great length here because I understand the distinguished Senator from Minnesota wishes to speak. I can address this problem later, but I am going to quote from some of these leading law professors in the country about the problems they see in this legislation. Now, I just want to make a couple of points here though because we were trying to have an exchange and I wish to register them at this point in the Record. It is interesting; there is a lot in this legislation that those of us who have opposed its support. We do not disagree with trying to fashion legislation to deal with the problem of frivolous lawsuits, and there is much in this legislation that we would support. There are other things that are not in it that we think ought to be in it, which we have debated, and there are things in it which we think ought not to be in it, which is the focus obviously of the current attention.

Mr. SARBANES. I yield to the Senator for a question.

Mr. SARBANES. I am not sure it will be because--first of all, I do not know that it is only 11 words that are at issue, and I do not think that is correct. But, in any event, those provisions were not included in this legislation and were resisted very strongly by those, whoever brought the measure to the floor, and yet they have a significant impact on what the effect of this legislation will be.

Mr. SARBANES. Well, the President sent the veto here, and the issue is whether to sustain the veto. I think we should sustain the veto.

Mr. SARBANES. Yes, indeed. Now, let me address a couple of other things. The Senator from Connecticut spoke about the thunder and lightning at the conference on this legislation. And I say to the Senator, I was a member of the conference committee. I only remember it meeting once. Am I erroneous in that remembrance?

Mr. SARBANES

Mr. SARBANES. Mr. President, let me simply say I am delighted to hear the courthouse has been named for our very able colleague, Howard Baker. I did wonder whether Howard Baker would be able to practice law in the Howard Baker Courthouse, but I guess that issue can be settled when the time arises. But it is certainly a recognition that his very distinguished career here in the Senate makes well deserved.