Paul Sarbanes

Mr. SARBANES

Mr. SARBANES. Of the conference committee.

Mr. SARBANES. I say to my colleague from Connecticut, the procedure here that was unusual and somewhat unique, although it is becoming more frequent--I regret to say in the workings of this Congress, it is becoming more frequent--was that all the true believers gathered together to try to work out the House and Senate differences but did not include in those discussions the people who were on the other side. Now, that is not a good way to legislate, in my opinion, because sometimes by having the people on the other side, you have a dialog and a discussion, and you are able to work out measures and improve them. Now, what happened here, that never took place. What finally took place that encompassed everybody including those who were critical of this legislation was the final meeting where they simply railroaded through what the conference agreement was, and it is the conference agreement that has provoked the President's veto in this instance. The President, in fact, has indicated that if he had been given a bill as it had passed the Senate, he would have signed it, as I understand it. So it is conference action that did it, and the conference action was taken by all, any meaningful action on the substance was taken simply by those on one side of issue.

Mr. SARBANES. Certainly.

Mr. SARBANES. If the Senator will yield on that very point, it was changed then in the conference. The fact that the administration----

Mr. SARBANES. No, two other things were done. In the conference, they removed the Specter amendment that had been adopted in the Senate that carried with it further elaborations, carried with it further elaborations by the second circuit with respect to the pleading standard, and second--and this is something the President focused on in his veto message--the statement of managers about the pleading standard in effect sought to put a legislative interpretation spin on it which raised the standard even higher, and some of the law school deans who have written in about this matter have focused on that very fact. In other words, what you did is you changed the standard as it passed the Senate to make it more difficult and then the statement of managers put a further spin on it.

Mr. SARBANES. I listened to the Senator's comments on that subject, and the distinguished Senator from Pennsylvania will have to speak for himself, but even assuming the accuracy of what the Senator stated--and I am not in a position to do that. The Senator from Pennsylvania, I am sure, will be able to do so. Assuming the accuracy, then the way to have corrected it would have embraced all the guidance, not to eliminate that guidance, which was designed to provide some additional protection for the investors as the second circuit elaborated their standard.

Mr. SARBANES. Yes, you can.

Mr. SARBANES. If the Senator will yield, you not only took the guidance out of the statute from the second circuit but you sought to give the courts a different guidance contained in the statement of managers in the conference report. So you committed, as it were, a double violation. You took out the guidance of the second circuit. Then you say, well, if it is not there, the courts will look to the guidance in any event. Ah, but what you did is you then interjected in as guidance with respect to this provision a statement of managers.

Mr. SARBANES. Well, this bill with respect to the statement of managers is obviously an effort to in part rewrite the bill at that level of consideration. Now, Mr. President, let me make one other point while my colleague is still here. My colleague made a lot about the number of hearings that were held, but I have to submit to you that those hearings were in a sense ignored. My distinguished friend from Connecticut earlier stated that with respect to one provision--I think it was on safe harbor. He quoted Arthur Levitt, the Chairman of the Securities and Exchange Commission. But let me just show you how these hearings are ignored. And so the fact that you have a lot of hearings may make no difference at all. On May 12, 1994, the Securities Subcommittee held a hearing, which the distinguished Senator from Connecticut chaired. The Senator himself stated at that hearing: Aiding and abetting liability has been critically important in deterring individuals from assisting possible fraudulent acts by others. That is my colleague from Connecticut speaking at this hearing. Testifying at that hearing, Chairman Levitt, whom he cited earlier for another provision in terms of supporting it, stressed the importance of restoring aiding and abetting liability for private investors. Persons who knowingly or recklessly assist in the perpetration of a fraud may be insulated from liability to private parties if they act behind the scenes and do not themselves make statements directly or indirectly that are relied upon by investors. Because this is conduct that should be deterred, Congress should enact legislation to restore aiding and abetting liability in private actions. And the North American Securities Administrators Association, the Association of the Bar of the City of New York, also endorse restoration of aiding and abetting liability in private actions. So what good does the hearing do us? We have the hearing. This is what the testimony is. The distinguished Senator himself, in a sense, led off that hearing by underscoring the importance of aiding and abetting liability. And it ends up not being in the legislation. So you can have all the hearings you want. It does not necessarily demonstrate that an appropriate and reasonable piece of legislation has been crafted.

Mr. SARBANES. That is accurate. And I commend the Senator for doing that.

Mr. SARBANES. Mr. President, let me just close out by including in the Record a letter from the ABA, from the President of the American Bar Association, to President Clinton opposing key provisions of the legislation, H.R. 1058, and urging the President to veto the legislation. Let me just quote it very briefly: The ABA continues to believe that this proposed legislation can and should be corrected by the Congress to correct the significant difficulties that it would cause in its current state. We agree that underlying problems in the area of securities litigation must be addressed, but that must happen without unduly barring access to the courts to parties who are defrauded. And then they enumerate the most objectionable parts of H.R. 1058, including the rule 11 changes about which my colleague from Connecticut has discussed, and particularly underscoring the fact that the provision now lacks balance in that it treats plaintiffs more harshly than defendants. They also discuss the pleadings rules about which he has spoken, and in effect point out the difficulty it would present to people in having their cases heard, in other words, the danger that meritorious cases will be dismissed at the pleadings stage. It goes on to make other criticisms as well. Mr. President, later I intend to address these comments that we have received from some of our Nation's leading legal scholars----

Mr. SARBANES. Mr. President, I ask unanimous consent that the letter be printed in the Record at the end of my remarks that have been made with respect to the provisions that are before us, letters to the President urging the veto of the bill, which the President made.

Mr. SARBANES. Reserving the right to object, how long does the Senator from Minnesota intend to speak?

Mr. SARBANES

Mr. SARBANES. Mr. President, will the Senator yield for a moment?

Mr. SARBANES. Is the Senator now going to address the securities bill?

Mr. SARBANES. I would like to address the issue the Senator addressed. I can defer until he finishes the securities matter?

Mr. SARBANES. Mr. President, I appreciate the Senator from New York yielding. I think the report that was just brought to the floor underscores what I thought was the wisdom and the reasonableness of the amendment that was offered yesterday and the suggestion that we ought to try to resolve this matter without moving to a confrontation. I listened carefully to my colleague. As I think he said, he intends to be in court on the 26th----

Mr. SARBANES. That is, I think, where the majority has intended to be all along. We have consistently suggested if we would draw back here and try to resolve this matter, it could be worked out without a court test. The assertion is made that by going to court, they will speed the process up. In fact, they will slow it down. That is very clear. Even under expedited procedures, it is going to take a fair amount of time to carry this matter through. So, if you want to get a quick resolution of it, obviously the way to do it would have been to follow the path that we outlined yesterday with respect to the furnishing of the notes and to try to have worked in obtaining from the House an agreement or understanding with the White House that would make it possible for them to do so. They have offered to do it. They have obviously come forward in an effort to try to do it. This push to the courtroom, I think, is simply to create, as it were, a public issue and a confrontation. As I indicated yesterday, I regret that. I continue to regret it. I think it is unnecessary. I think it is a provoked controversy, largely for political content. I think as these other negotiations seem to bear fruit, it only underscores that point. I do think if the matter is carried to court and resolved there, that we may end up with it being clear that a very serious mistake was made by the Senate. I thank the Senator for yielding.

Mr. SARBANES

Mr. SARBANES. Mr. President, I am proud to join with the Baltimore community and the friends of education throughout Maryland in honoring the memory of Henry Knott, Sr., an exemplary family man and a great philanthropist. Mr. Knott was an extraordinary citizen whose public generosity ranks him with the great names of Baltimore and Maryland philanthropy. Henry Knott who died recently at the age of 84, began his working days in the 1920's as a bricklayer in his father's construction business. This first and humble job would lay the foundation to a celebrated career in real estate and development over the course of seven decades. The achievement of his distinguished building career is reflected in apartment buildings, residences, and commercial centers which are located in Baltimore and its surrounding communities. What singles out Henry Knott is that he translated his success with bricks and mortar into extraordinary philanthropy by graciously donating huge amounts of his personal wealth to Maryland educational institutions, including his alma mater Loyola College, and also to many local hospitals. A modest philanthropist, Mr. Knott was one who deeply respected the value of a quality education. Henry Knott was also a man who practiced what he preached. A devout communicant of the Roman Catholic Church, he and his wife of over 67 years, Marion Burr Knott, raised a wonderful family of 12 children, 51 grandchildren, and 55 great grandchildren. I extend my most sincere sympathies to his wife Marion, their children, and to all of the family and friends of Henry Knott, Sr. Mr. President, I ask that an article from the Baltimore Sun that pays tribute to Mr. Knott be printed in the Record. The article follows: [From the Baltimore Sun, Nov. 27, 1995] Henry Knott, Sr. Dies; Philanthropist Was 89 Construction tycoon gave fortunes to hospitals, schools (By Marcia Myers and David Folkenflik) Henry J. Knott Sr., the hard-driving multimillionaire developer renowned for his prodigious philanthropy, died yesterday at Johns Hopkins Hospital after a brief illness. He was 89. Mr. Knott, who had entered the hospital recently for surgery, later contracted pneumonia, which was listed as the cause of death. He started work as a bricklayer with his father's construction company in the 1920s but rose through business as a brick contractor and made his fortune developing real estate. Much of that fortune he gave to Maryland colleges, schools and hospitals, with gifts that particularly linked his name to Loyola College, Hopkins Hospital and the state's Roman Catholic schools. Those who knew Mr. Knott attributed his success to his lifelong industriousness. ``His interest was work. He was a workaholic,'' said Joseph M. Knott, Mr. Knott's youngest brother and godson. Hobbies held less attraction, Joseph Knott said, ``He wasn't interested in golf. He never belonged to any of the country clubs. He said he couldn't afford it.'' There were few things Henry Knott could not afford during his adult life. His personal wealth, estimated at $150 million in 1987, included major holdings in the Arundel Corp. (before its sale the following year to Florida Rock Industries for $88 million), Henry A. Knott Home Builders and Knott Enterprises. Mr. Knott's companies built thousands of homes and businesses in Baltimore, including apartment buildings, rowhouses and shopping centers that dot the metropolitan area from Essex to Lansdowne and from Kingsville to Catonsville. The reach of his family was almost as wide as that of his businesses. Mr. Knott and his wife of 67 years, Marion Burke Knott, raised 12 children. At his death, Mr. Knott left 51 grandchildren and 55 great-grandchildren. ``He had three very intense interests: his family, the Catholic Church and his work,'' said Rick O. Berndt, a lawyer for the Archdiocese of Baltimore who knew Mr. Knott for almost 30 years. Cardinal William H. Keeler was visiting with the Knott family last night. Through a spokesman, he said, ``We mourn the passing of Henry Knott, whose deep faith and extraordinary charity will long be remembered. I pray that God may comfort his dear wife, Marion, and all his family. Catholic education in Maryland at every level has benefited from the vision and generosity of Henry Knott.'' Mr. Knott gave millions to charity, primarily Catholic educational institutions such as Loyola College, his alma mater; the College of Notre Dame of Maryland; Mount St. Mary's College, Emmitsburg; and the University of Notre Dame, South Bend, Ind. By 1988, the Knotts' charitable contributions had exceeded $140 million. ``He was highly disciplined and unbelievably focused about whatever he was doing. You could not distract him,'' said Mr. Berndt, who was a 26-year-old fledgling attorney when he met Mr. Knott. ``I was very idealistic and had many thoughts about how the world should work,'' Mr. Berndt recalled. ``Mr. Knott was one of the ones who regularly brought me down to earth. He was great at the art of what was possible.'' In 1988, Mr. Knott and his wife created a $26 million fund to benefit 31 local educational, health and cultural institutions. Among the recipients were the Johns Hopkins Oncology Center, which received $5 million, and the Baltimore Symphony Orchestra, which was given $1 million. Four Baltimore hospitals, St. Joseph, Mercy, St. Agnes and Bon Secours, each received $1 million to establish an income fund to provide medical care for the poor. schaefer's sorrow ``I talked to Mr. Knott's son the other day. He told me that Mr. Knott would not get out of this one,'' former Gov. William Donald Schaefer said. ``I had a real, great sorrow overcome me. Mr. Knott was truly one of the great men of our times, perhaps of all times. He was one of the great pillars of Baltimore.'' Mr. Knott's largess seemed at odds with his public persona as a gruff, demanding businessman. Yet associates insisted that he was, in private, the antithesis of that image. Peter G. Angelos, Orioles owner and former city councilman, knew Mr. Knott for more than 25 years and took issue with what he characterized as a public impression of Mr. Knott as ``a hard-nosed businessman bent on accumulating most of the money in Maryland.'' Rather, Mr. Angelos said, he came to know Mr. Knott as ``the very gentle person he really is,'' and as an individual who, in private conversation, was fond of discussing broad intellectual subjects, often quoting Plato or Aristotle to make his point. ``He's made a lot of money because he drives a hard bargain, but an honest bargain,'' Mr. Angelos said. Mr. Knott was among the first to sign on when Mr. Angelos pulled together local investors to buy the Baltimore Orioles in 1993. ``He expects a lot from most people, but he expects the most from himself,'' said Mr. Angelos. The late Rev. Joseph A. Sellinger, S.J., president of Loyola College, once characterized Mr. Knott as a ``pussy cat'' inside a gruff exterior. Mr. Knott's own summation of his talent for accumulating money and then giving it away was made in four short sentences quoted in a Baltimore magazine profile in 1987. ``It's like catching fish,'' he said. ``You get up early. You fill the boat up with fish. And then you give them all away before they all start to rot.'' The Rev. Harold E. Ridley Jr., president of Loyola, said that Mr. Knott maintained a becoming modesty in not seeking credit for his gifts. ``I think that is what made him such an extraordinary individual: His legendary generosity was tempered by an even greater humility,'' Father Ridley said The Knott family lived in a large house on Guilford's Greenway during the years in which the 12 children were growing up. Friends jokingly called the home ``the Stork Club''--partly after the posh New York restaurant of the period, but mostly because of the children. As word spread of the dynamic household, Mrs. Knott became the subject of newspaper feature articles in which she explained how she managed her day, getting the children through breakfast and off to school, darning socks and mediating squabbles among a very energetic brood. ``My family is my club life and outside interests,'' she said in a 1952 interview. Meanwhile, Mr. Knott built houses, apartment buildings and shopping centers, acquiring a reputation as a can-do contractor. In addition to his building ventures, he became active in a broad range of business and civic activities. He served on Maryland's Advisory Committee on Higher Education in 1964, he became chairman and CEO of the Arundel Corp. and its largest stockholder in 1967 and he headed former Gov. Marvin Mandel's re-election committee in 1974. mr. knott's family In addition to his wife, Mr. Knott is survived by his children: Patricia K. Smyth, Alice K. Voelkel, Margaret K. Riehl, Henry J. Knott Jr., Catherine K. Wies, Rose Marie K. Porter, Lindsay K. Harris, Francis X. Knott, James F. Knott, Martin G. Knott, and Mary Stuart K. Rodgers, all of Baltimore; and Marion K. McIntyre, of Del Ray Beach, Fla.; brothers, John L. Knott, the Rev. Francis X. Knott, S.J., and Joseph M. Knott, all of Baltimore; 51 grandchildren and 55 great-grandchildren. Visiting hours will be 2 p.m. to 4 p.m. and 7 p.m. to 9 p.m. today and tomorrow at St. Mary's Seminary, 5400 Roland Ave, with a funeral Mass at 11 a.m. Wednesday at the Cathedral of Mary Our Queen, 5200 N. Charles St. Burial will follow at the New Catholic Cemetery. Memorial contributions may be made to Loyola College, Loyola High School, Johns Hopkins Hospital, or the College of Notre Dame of Maryland.

Mr. SARBANES

Mr. SARBANES. Mr. President, I rise today to pay tribute to a celebrated member of the Maryland business community, Mr. Israel ``Izzy'' Cohen, who recently passed away at the age of 83. As the chairman of Giant Food, Inc. Izzy Cohen managed one of Maryland's and the Capital area's most successful corporations--and he accomplished this task with deep respect for his employees and a commitment to his community. Izzy Cohen's warm personality, devotion to customers and Giant employees is legendary. These were the talents that earned him the nomination of generations of employees and patrons. Under his leadership, Giant Foods pioneered in consumer information and involvement. His commitment to community was also reflected in his strong support of the educational television program, ``It's Academic,'' and in his many other fundraising activities. One notable example is Computers for Kids where customers save their Giant receipts and schools collect them for money for classroom computers and equipment. Thousands of children across the State of Maryland have benefited from Izzy Cohen's patronage of these programs. Izzy Cohen was truly an accomplished leader in commerce, and one of those outstanding citizens who by example and action evoked the very best in all of us. I extend my most sincere sympathies to all the family and friends of Izzy Cohen. Mr. President, I ask that the following articles from the Washington Post that pay tribute to Izzy Cohen be printed in the Record. The articles follow: [From the Washington Post, Nov. 24, 1995] Israel Cohen, Chairman of Giant Food, Dies at 83 Cancer Cliams Pioneer In Supermarket Industry (By Claudia Levy) Israel Cohen, the Giant Food Inc. chairman who built his company into the largest regional grocery store chain in the nation, died late Wednesday at his home in Washington at the age of 83. He had non-Hodgkin's lymphoma, a form of cancer. A pioneer in an industry where razor-thin profit margins quickly separate the winners from the losers, ``Izzy'' Cohen was the principal architect in the rise of Giant from a single store on Georgia Avenue to what many analysts say is the premier regional supermarket chain in the nation. Washington area consumers today spend 44.8 cents of every grocery dollar at Giant, largely because of Cohen's business savvy. Cohen was one of the wealthiest people in the Washington area and an important member of the local business community. Yet he remained a very private person, talking little about himself or his personal life, and worked in relative obscurity. But ``as a retailer he had no fear,'' said business consultant Sheldon ``Bud'' Fantle, former chairman of People's Drug Stores Inc. ``All of his ideas were before the fact. He was a leader.'' Cohen commended a tight-knit organization that now includes 164 stores, largely in suburban neighborhoods, from New Jersey to Northern Virginia. Its headquarters is in Landover in Prince George's County, and 107 of its stores are in the Washington area. Giant has more than 26,000 employees and annual sales of $3.7 billion. The Giant real estate division, GFS Realty Inc., owns or manages 27 shopping centers in the Washington area. Giant also owns a bakery, a dairy, an ice cream plant, a soft-drink plant, a plastic milk container manufacturing plant and other food-processing businesses. Under Cohen, Giant advertised heavily in newspapers and was quick to employ such marketing innovations as bulk sales, in- store pharmacies and products labeled with Giant's private brand names. It hired former White House counselor Esther Peterson as its first consumer adviser, promoted her heavily and listened seriously to the customers. Giant was the first chain in the country to install computer price scanners at checkouts, now standard in the industry. ``This is the best businessman in Washington in his time,'' said Donald E. Graham, chairman of The Washington Post Co. and publisher of The Post. ``He built a great company in a completely personal way. Everyone in Giant down to the cashiers knew who they worked for and they knew it because every week of his life he visited some Giant store. He didn't just visit, he spent time,'' stopping to help customers if needed. Cohen made it a point to promote from within, to the extent of training company employees for sophisticated technical jobs, Graham said. ``Every year, Giant relentlessly worked to gain slivers of market shares,'' building it to the largest in the country, Graham said. Fantle said Cohen ``was always two or three steps ahead of his competition.'' Fantle's drug stores went head to head with Giant's in-house pharmacies. For years Giant has had the highest profit margins among Washington area supermarkets--3 percent in an industry where the national average is 1 percent. Much of that margin came from the profit of his drugstore operations and the fact that Giant Food was a ``vertically integrated'' company that manufactured everything from milk cartons to ice cream and soda for its private brands. Cohen would say this was a result of having ``smart persons to make decisions around here,'' Graham said, ``But everybody else would give him the credit.'' Fantle said ``He ran a bright, clean store with good values. And certainly he had the knack of advertising. . . .'' When Cohen's longtime partners in Giant, members of the Lehrman family, agreed to sell their share in the corporation to a British supermarket chain in 1994, control of Giant remained with Cohen, who owned half the voting stock and controlled four of the seven seats on the board of directors. Giant announced yesterday that four senior officers and Cohen's sister, Lillian Cohen Solomon, will now vote his stock and manage Giant. Cohen had controlled the company since 1964, when his father, company cofounder Nehemiah Meir ``N.M.'' Cohen, retired. For a period, Washington attorney Joseph B. Danzansky was chairman, a compromise choice resulting from a dispute between Giant's founding families. But it was a titular post, and Cohen ran the operation. Israel Cohen was born in Rishon-Le-Zion, Palestine, where his father was a rabbi and teacher in a one-room school. The Cohen family settled in Lancaster, Pa., when Israel Cohen was 9. N.M. Cohen at first operated a kosher butcher shop. In the mid-1930s, he went into partnership in Washington with Samuel Lehrman, a Harrisburg, Pa., food distributor, to begin a self-service grocery store of the sort coming into vogue in California. They selected Washington because they believed that federal employees would form a reliable customer base. The first store opened in the midst of a snowstorm on Feb. 6, 1936, on Georgia Avenue at Park Road NW. Issy Cohen worked at the store along with his brother, Manny, stocking shelves and driving the company's truck. Izzy Cohen served in the Army during World War II and after the war began to rise through administrative positions in the Giant company, patterning his understated business style after his father, who retired in 1964. Izzy Cohen took a year off in the 1950s to recover from tuberculosis, which he had contracted in the Army, and used the time to become a master bridge player. He was known to fellow tournament players for his ``poker'' face, a card player's best asset. He owned a condominium in Miami, where he often went to play cards, and a stable of horses at Laurel Race Course. Cohen set about expanding the Giant empire despite increased competition, which in recent years has included warehouse grocery firms and others. One key to its success, Cohen told stockholders, was ``having our people fully understand both the nature of what is a competitive war and what their role is in the fight.'' On his visits to stores, Cohen would pitch in to bag groceries when the checkout lines were getting too long, Giant President Pete L. Manos recalled yesterday. Cohen would point out that the unshelled peanut bin needed a scoop or that a sign was wrong, Manos said. He'd stop to talk to customers and would inspect the produce rooms and meat lockers for cleanliness, Manos said. When it was known that he was going to visit a store, some employees whose shifts were over ``would wait around to shake his hand,'' Manos said. ``It goes back to the early days of the company,'' Manos said. ``At Giant, we've always felt like we're a family, and Izzy was the patriarch of the family. People looked forward to seeing him.'' In the stores, he greeted employees by their first names-- all Giant workers wear name badges--and insisted on being called Izzy. ``Mr. Cohen is my father's name,'' he used to say, refusing to answer to it. Years ago, there was an executive dining room at Giant headquarters, which Cohen closed because he wanted executives to mingle with other employees, Manos said. Cohen had been estranged for many years from his wife, Barbara, when she died in 1994. Their two children were not involved in the business. Cohen avoided social functions, living a quiet life in his parents' old house in the Forest Hills section of Northwest Washington. He was close with his brother Manny, who died several years ago, and his sister Lillian, who lives next door. Together, they founded a charitable foundation and named it for their father. Giant Food also operates a charitable foundation. Izzy Cohen was chauffeured to work nearly every day in his Cadillac. He would visit stores during the week and on weekends. ``You have to have a place to go in the morning,'' he told Washington Post Staff Writer Kara Swisher in 1994. Survivors include his children, Peter Cohen of Altamonte Springs, Fla., and Dana Cohen Ellis of McLean; his sister and two grandchildren.

Mr. SARBANES

Mr. SARBANES. Mr. President, as I understand it, the distinguished Senator from Tennessee would like to address the Senate for a short period of time. I ask unanimous consent the Senator from Tennessee be recognized, and at the conclusion of his remarks I then be recognized.

Mr. SARBANES

Mr. SARBANES. Mr. President, first I want to say that the logic of my colleague from Utah is absolutely right. I think he said right at the end of his remarks that I was against the bill and, therefore, he assumed that I would be in support of the veto. And he is obviously correct. I will not now--I may later--talk a bit about the broader defects which I see in the legislation. But I want to address now the items that were touched upon in the President's veto message as the basis for his vetoing the legislation. My own view is that there are other reasons as well that go well beyond what the President indicated. But I want to focus on that for the moment since it is the veto message, the veto, that is before us. And the issue, of course, would be whether to override the veto. I listened to my distinguished colleague from Utah as he talked, and to the various examples that he gave as a reason for why we should pass this legislation in terms of the kinds of suits that had been brought and the frivolousness of the actions. And I want to simply say to him that, if that is all the bill did, if the bill were crafted in a way to get at the kind of examples he was citing, I think the bill would have passed 99-0. So I do not really differ with him in the examples that he cited as being problems and saying that those are problems and measures ought to be taken in order to correct them. The problem is that this bill goes way beyond that. That is the problem. The President, since the conference report was passed 2 weeks ago, has now vetoed it. That actually reflects, I think, the overwhelming position taken by newspaper and magazine editors around the country who have analyzed this legislation and who have no vested interest in it. There are a number of interest groups who have an interest on either side of this legislation. But these are common indicators outside of that framework. They have by and large strongly come down against it. The President said in his message, ``Those who are victims of fraud should have recourse in our courts. Unfortunately, changes made in this bill during conference could well prevent that.'' I hope that the Senate will sustain the President's veto so that we could get about the business of crafting legislation better targeted at the goal that I think we all share--deterring frivolous lawsuits. I want to emphasize that again. I know of no one who argues against reasoned measures to deter frivolous lawsuits. The President's veto message recognizes that this bill is not a balanced response to the problem of frivolous lawsuits. This legislation will affect far more than frivolous lawsuits. As I said at the outset, if the bill dealt only with the problem of frivolous lawsuits, I would be for it, and presumably the President would have signed it. Unfortunately, this bill that is before us will make it more difficult for investors to bring and recover damages in legitimate fraud actions. Investors will find it far more difficult to bring and to recover damages in legitimate fraud actions. The editors of Money magazine concluded that this legislation hurts investors, stating in their December editorial as follows: ``Now only Clinton can stop Congress from hurting small investors like you.'' That is Money magazine. The President has tried to do that through the veto. We should do our part now by supporting this veto. The President's message identified three areas of concern with the bill: The pleading standard, the safe harbor, and the rule 11 provision. On the first point, the President said, and I quote him: ``The pleading requirements of the conference report with regard to a defendant's state of mind impose an unacceptable procedural hurdle to meritorious claims being heard in Federal courts.''--``an unacceptable procedural hurdle to meritorious claims being heard in Federal court.'' What are pleading standards? Some of this, of course, gets very lawyerly, but it has to get lawyerly because you are really talking about the basis on which people have access to the courts. That may appear to be a highly technical legal matter, and in some respects it is. But the practical result is very real for people who may have been defrauded or abused in terms of making their investment decisions. Pleading standards refer to what an investor must show in order to initiate a securities fraud lawsuit. In other words, what must you establish in order to get the lawsuit started? The bill that was reported by the Senate Banking Committee adopted the pleading standard used by the U.S. Court of Appeals for the Second Circuit. That standard says that investors seeking to file securities fraud cases must, and I quote: ``specifically allege facts giving rise to a strong inference that the defendant acted with the required state of mind.'' In other words, the plaintiff in setting out his pleading has to specifically allege facts that give rise to a strong inference that the defendant acted with the required state of mind. This is a standard more stringent than the Federal Rules of Civil Procedure. It, in fact, is a minority view amongst the circuit courts in terms of the threshold that the plaintiff has to cross in order to initiate a securities fraud lawsuit. But that was a standard adopted in the committee, in the committee- reported bill. When the bill came to the Senate floor, the Senate adopted an amendment to this provision that was offered by the distinguished Senator from Pennsylvania, Senator Specter. Senator Specter's amendment codified, brought into the statute, additional second circuit holdings clarifying this standard. These additional second circuit holdings state that a plaintiff may meet the pleading standard by alleging facts showing the defendant had motive and opportunity to commit fraud or constituting strong circumstantial evidence of state of mind. What the second circuit has done is they have enunciated this holding with respect to pleadings, and then in subsequent opinions they had clarified this standard to make it clear that motive and opportunity to commit fraud, or facts constituting strong circumstantial evidence of a state of mind, would also meet the pleading standard. The argument made was that, if you are going to take the second circuit standard, then you ought to take the second circuit's elaboration of its standard, which seems to me an eminently logical and reasonable position. I think it is probably safe to say that the only pro-investor amendment adopted on the Senate floor was the Specter amendment. I thought it was a constructive contribution to the legislation, and a majority of this body, I think on a vote of 57 to 42, agreed with that. Unfortunately, this amendment was dropped in conference, the Specter amendment. The conference report deleted the Specter amendment, leaving investors without the protection of the additional second circuit holdings. And the President in his veto message said the following: The conferees deleted an amendment offered by Senator Specter and adopted by the Senate that specifically incorporated Second Circuit case law with respect to pleading a claim of fraud. Then they specifically indicated that they were not adopting Second Circuit case law but instead intended to strengthen the existing pleading requirements of the Second Circuit. All this shows that the conferees meant to erect a higher barrier to bringing suit than any now existing--one so high that even the most aggrieved investors with the most painful losses may get tossed out of court before they have a chance to prove their case. Mr. President, I think that President Clinton was well advised to object to that provision of the conference report. A number of eminent law professors, experts without any axe to grind, wrote to the President warning of the consequences of that provision. Professor Arthur Miller of the Harvard Law School, a nationally recognized expert on civil procedure, warned that the pleading standard adopted in conference, and I quote him, ``effectively will destroy the private enforcement capacities that have been given to investors to police our Nation's marketplace.'' John Sexton, the very able and distinguished dean of the New York University School of Law, one of our Nation's preeminent law schools, and also an expert on civil procedure, wrote, ``It simply will be impossible for the plaintiff, without discovery, to meet the standard inserted by the conference committee at the last minute.'' Let me repeat that from Dean Sexton. ``It simply will be impossible for the plaintiff, without discovery, to meet the standard inserted by the conference committee at the last minute.'' Joel Seligman, dean of the University of Arizona School of Law and an expert in securities law, also expressed concern that the pleading standard would ``prevent a significant number of meritorious lawsuits from going forward.'' These are all very distinguished legal experts, very knowledgeable on this particular area of the law, and all expressing these very strong judgments about the impact of what was done in the conference with respect to this issue. I ask unanimous consent that those letters be printed in the Record at the end of my remarks.

Mr. SARBANES. Mr. President, sustaining the President's veto would give the Congress a chance to craft a more reasonable pleading standard. This is a very important issue. It may not appear to be so, but the end result of not having a reasonable pleading standard is that you will prevent people with meritorious claims from being able to initiate and carry through their suit. I wish to underscore, I am talking about people with meritorious claims. A reasonable pleading standard, as was in the original proposed bill and enhanced by the Specter amendment, would not provide any opening for frivolous lawsuits but it would ensure that meritorious lawsuits were not barred from the courtroom. Let me turn to safe harbor, which, of course, was an issue on which there was extended discussion in this Chamber in the course of the consideration of this legislation and then again on the conference report. The President stated with respect to the safe harbor provision--this is the President in the veto message: While I support the language of the conference report providing a ``safe harbor'' for companies that include meaningful cautionary statements in their projections of earnings, the Statement of Managers--which will be used by courts as a guide to the intent of the Congress with regard to the meaning of the bill--attempts to weaken the cautionary language that the bill itself requires. Once again, the end result may be that investors find their legitimate claims unfairly dismissed. The safe harbor provision creates a statutory exemption from liability for so-called forward-looking statements. Forward-looking statements are broadly defined in the bill to include both oral and written statements--both oral and written statements. Examples include projections of financial items such as revenues and income for the quarter or for the year, estimates of dividends to be paid to shareholders, and statements of future economic performance such as sales trends and developments of new products. In short, forward- looking statements include the type of information that is important to investors deciding whether to purchase a particular stock. I differ somewhat with the President on his analysis because I think the safe harbor language in the bill as well as the language in the statement of managers is troublesome. It is my very deep concern that the safe harbor provision in this legislation will, for the first time, protect fraudulent statements under the Federal securities law. The American Bar Association wrote the President that the safe harbor ``has been transformed not simply into a shelter for the reckless but for the intentional wrongdoer as well.'' Think of that, not simply into a shelter for the reckless but for the intentional wrongdoer as well. Projections by corporate insiders will be protected, even though they may be unreasonable, misleading, and fraudulent, if accompanied by boilerplate cautionary language. The claim is made that the bill codifies a legal doctrine applied by the courts known as ``bespeaks caution.'' As I understand it, all courts that have applied this doctrine have required that projections be accompanied by disclaimers specifically tailored to the projections. If companies want to immunize their projections, they must alert investors to the specific risks affecting those projections. In other words, general boilerplate language will not do that. The bill before us today does not include--does not include--this requirement of specific cautionary language to investors. The Association of the Bar of the city of New York warned of this provision stating: . . . the proposed statutory language, while superficially appearing to track the concepts and standards of the leading cases in this field, in fact radically departs from them and could immunize artfully packaged and intentional misstatements and omissions of known facts. Let me just repeat that because the Association of the Bar of the city of New York is a very distinguished organization and they do in- depth studies of important legal issues. Their studies are widely respected and widely referred to in the legal profession. What they warned about in this safe harbor provision was that: . . . the proposed statutory language, while superficially appearing to track the concepts and standards of the leading cases in this field, in fact radically departs from them and could immunize artfully packaged and intentional misstatements and omissions of known facts. This letter was signed for the bar association by Stephen Friedman, a former SEC Commissioner. Prof. John Coffee, a distinguished professor at the Columbia Law School, wrote to the President: . . . rather than simply codify the emerging `bespeaks caution' doctrine, it is much closer to the truth to say that the Act overrules that doctrine. Mr. President, I ask unanimous consent that the Coffee letter discussing this issue and another by him be printed in the Record at the conclusion of my remarks.

Mr. SARBANES. While I believe the safe harbor language in this bill is a problem, the President in his veto message has raised an additional valid point with respect to the safe harbor language in the statement of managers. The President points out that the language in the statement of managers attempts to weaken the cautionary language that the bill itself requires. The President received advice on this point from Professor Coffee, who wrote: . . . under the proposed legislative history there now appears to be no obligation to disclose the most important reasons why the forward-looking statement may prove false. And Professor Coffee went on to state: . . . no public policy justification can support such selective disclosure of the less important facts while withholding the most important. So I have difficulty with the provision in the legislation itself, as I have indicated, but on top of that you have this Statement of Managers seeking to create legislative interpretation which, as the President pointed out, attempts to weaken the cautionary language that the bill itself requires. So that a weak provision has been rendered, well, Professor Coffee, I guess, would say, nonexistent. He stated earlier: . . . rather than simply codify the emerging ``bespeaks caution'' doctrine, it is much closer to the truth to say that the Act overrules that doctrine. Sustaining the veto would give the Congress the chance to craft a more reasonable legislative approach on the safe harbor issue. Let me turn to the rule 11 provision. The President's veto message on this matter states: . . . The Conference Report's Rule 11 provision lacks balance, treating plaintiffs more harshly than defendants in a manner that comes too close to the ``loser pays'' standard I oppose. We had a discussion about this when we dealt with the conference report, I say to my colleagues. When we sent the bill to conference, the way we drafted the bill in the Senate, under Rule 11, we treated plaintiffs and defendants evenhandedly with respect to either bringing of frivolous suits or asserting a frivolous defense. It is clear to me that that is the way it ought to be done. Rule 11 of the Federal Rules of Civil Procedure is the principal sanction against the filing of frivolous lawsuits in the Federal courts. It requires all cases filed in the Federal courts to be based on reasonable legal arguments and supported by the facts. As passed by the Senate, the bill required that courts include specific findings in securities class actions regarding compliance by all parties and attorneys with rule 11(b) of the Federal Rules of Civil Procedure. This is as passed by the Senate. If a court found a violation of rule 11 by the plaintiff or the defendant, the court was required to impose sanctions. The provision was balanced. The sanctions would have applied equally to plaintiffs and defendants. This was intended as a deterrent to frivolous cases. I believe it would have worked well. In conference, this balance was removed so the legislation now applies more harshly to investors than to corporate insiders. The Senate bill as we passed it contained a presumption that the appropriate sanction for failure of the complaint or the responsive pleading or motion to comply with rule 11 was an award of reasonable attorneys fees and other expenses incurred as a direct result of the violation. The conference changed this presumption so it no longer applies equally to plaintiffs and defendants. I defy any of my colleagues to justify this either in logic or reason. This was a change made by the conference so that it no longer applies equally to plaintiffs and defendants. If the defendant substantially violates rule 11, he pays only reasonable attorneys fees and other expenses incurred as a direct result of the violation; this is the standard that was in the Senate- passed bill. If the plaintiff is found to have substantially violated rule 11, he pays all attorneys fees incurred in the action, not just those resulting from the violation. This is a major and significant disparity. There is no justification for such disparate treatment. Of course, its result will be to scare investors from bringing meritorious fraud suits. The legal experts agree that that will be the result of this provision. Professor Miller, of Harvard Law School, wrote of this provision--and I quote him--and listen carefully to this quote: . . . It is inconceivable that any citizen, even one with considerable wealth and a strong case on the merits, could undertake securities fraud litigation in the face of the risks created by these provisions. Dean Sexton, of New York University Law School, wrote: . . . the obvious effect of these provisions: who but a fool would risk the remainder of his or her life savings, having already been defrauded out of much of them? Even wealthy interest will not expose their assets to the possible onslaught of unlimited defense costs, or judicial fee- shifting excesses. Sustaining the President's veto would give Congress the chance to craft a more reasonable rule 11 provision, actually to go back to the provision that the Senate passed before it was mutilated in the conference committee. Sustaining the President's veto, of course, obviously would not be the end of this legislative effort. There is, obviously, very strong support in the Congress for dealing with the issue of frivolous lawsuits. The difference is not to go so far that you have an unbalanced product. The debate tends to be a citation of abusive instances, and I want to make it very clear that those of us who support the veto do not defend the abusive instances and would support legislation designed to deal with it. But this legislation goes too far, as I have indicated, in the three provisions the President focused on in his veto message: the pleading standard, the safe harbor and the now unbalanced rule 11 provision. In each instance, that would make it more difficult for innocent investors to bring lawsuits and to recover damages when they have been defrauded. This is a piece of legislation people are going to have to live with on their history, and I am prepared to predict here today that the consequence of this legislation will be that innocent people with meritorious claims will not be able to assert them in court; the people who have been defrauded will not be able to obtain a remedy; the Charles Keatings of the world will walk free; and senior citizens, pension plans, ordinary investors will have no recourse. The stories then that are going to be told are going to be the stories of predatory actions against innocent people, with them not having any way to obtain justice. The President said in the veto message: It is not appropriate to erect procedural barriers that will keep wrongly injured persons from having their day in court. The Congress ought to take the opportunity to rework this legislation to eliminate these defects, to get a piece of legislation that we could all agree on as being worthwhile and meritorious, that was not subjected to the sort of scathing criticism that is reflected in these letters from some very distinguished legal scholars with respect to this matter. These people do not argue against doing something about frivolous lawsuits, but they are saying in the course of trying to do that, do not go so far that you are ruling out meritorious lawsuits. There is plenty of time remaining in this Congress. It is not as though we are at the end of a Congress, so that if you do not act, you have to start all over again. There is plenty of time remaining in this Congress to deal with this matter. Other provisions in this legislation, which no one has raised an issue about, provide protection against the professional plaintiff, against class action lawyers who abuse investors who have been defrauded. Those provisions no one is questioning. Most of the debate focuses on extreme cases. The provisions in the legislation that address the extreme cases no one is arguing against. So I want it clearly understood, when we hear these various horror stories, the provisions that would get at those instances, no one is questioning. We are prepared to see those go into law. But I think we have to really narrow the focus down to what is at issue here. There is a great tendency to cite the extreme examples, but no one is contesting the extreme examples. We need to craft a piece of legislation, of which we can be proud, that stands legal scrutiny and that will not result in individual investors, pension funds, local governments suffering when they are defrauded in the securities markets and are denied their day in court. Sustaining the veto would enable us to do that, and I think the end result would be that we would have a better piece of legislation, and the end result then would be that we would not come back on another day citing the horror stories of investors who have been defrauded who, by any standard, ought to be able to obtain justice and are denied their day in court. Mr. President, I yield the floor. Exhibit 1 Harvard Law School, Cambridge, MA, December 19, 1995. Hon. William J. Clinton, President of the United States, The White House, Washington, DC. Dear Mr. President: On December 12 I wrote to you concerning the so called ``securities reform'' legislation, then embodied in Senate Bill 240. I urged you to oppose that legislation because (1) it was based on a totally erroneous assumption that there had been a sharp increase in securities litigation in the recent past, which is completely belied by every statistical measure available; (2) the federal courts, exploiting a variety of procedural tools such as pretrial management, summary judgment motions, sanctions, and enhanced pleading requirements, were achieving many of the goals of the so called reformists, most particularly the deterrence of ``frivolous'' litigation; (3) recent history suggests that the same vigilance is needed today to guard against market fraud as was needed during the superheated activity in the securities business in the mid-1980's; and (4) the SEC simply is unable to perform the necessary prophylaxis to safeguard the nation's investors, and private enforcement is an absolutely integral part of policing the nation's marketplaces. I am writing again because the latest version of the legislation, H.R. 1058, contains provisions regarding pleading in securities cases and sanction procedures that, if anything, make the legislation even more draconian and access-barring than Senate Bill 240. It simply is perverse to consider it a ``reform'' measure. I have always taken great pride in the fact that the words ``equal justice under law'' are engraved on the portico of the United States 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. As difficult as the existing Federals Rules of Civil Procedure already make it to plead a claim for securities fraud sufficient to survive a motion to dismiss, especially given existing judicial attitudes toward these cases, the passage in House Bill 1058 requiring that the plaintiff ``state with particularity facts giving rise to a strong inference'' that the defendant acted with scienter, in conjunction with the automatic stay of discovery pending adjudication of dismissal motions, effectively will destroy the private enforcement capacities that have been given to investors to police our nation's marketplace. Despite misleading statements in the Statement of Managers that this provision is designed to make the legislation consistent with existing Federal Rule 9, the truth is diametrically the opposite, since the existing Rule clearly provides that matters relating to state of mind need not be pleaded with particularly. Indeed, it would be more accurate to describe the proposal as a reversion to Nineteenth Century notions of procedure. The proposed legislation also does considerable damage to notions of privilege and confidence by demanding that allegations on information and belief must be accompanied by a particularization of ``all facts on which that belief is formed.'' The situation is compounded by the proposed fee shifting and bond provisions that relate to the enhanced sanction language in the legislation. It is inconceivable that any citizen, even one with considerable wealth and a strong case on the merits, could undertake securities fraud litigation in the face of the risks created by these provisions. As the person who was the Reporter to the Federal Rules Advisory Committee during the formulation and promulgation of the 1983 revision of Federal Rule 11, the primary sanction provision in those Rules, I can assure you that no one on that distinguished committee would have possibly supported what is now so cavalierly inserted into the legislation. I use the word ``cavalierly'' intentionally, because, as I indicated to you in my earlier letter, there is not one whit of empiric research that justifies any of the procedural aspects of this so called ``reform'' legislation. Not only does every piece of statistical evidence available belie the notion that there is any upsurge in securities fraud cases, but these proposals, with their devastating impact on our nation's investors, have completely bypassed the carefully crafted structure established in the 1930's for procedural revision that has enabled the Federal Rules to maintain their stature as the model for procedural fairness and currency. Thus, the proposed legislation represents a mortal blow both to the policies that support the private enforcement of major federal regulatory legislation and to the orderly consideration and evaluation of all proposals for the modification of the Federal Rules. From my perspective, which is that of a practitioner in the federal courts, a teacher of civil procedure for almost thirty-five years, and a co-author of the standard work on federal practice and procedure, I fear that all of this is extremely regrettable. I hope you will give serious consideration to vetoing the legislation. If I can be of any further assistance to you or your staff in considering these and related matters, please do not hesitate to inquire. My telephone number is 617/495- 4111. My very best to you and your family during this wonderful holiday season. Sincerely yours, Arthur R. Miller, Bruce Bromley Professor of Law.

Mr. SARBANES. Will the Senator yield?