Paul Sarbanes

Mr. SARBANES

Mr. SARBANES. Well, I thank the Senator very much for his explanation and for his very constructive and I think imaginative proposal.

Mr. SARBANES. I thank the Chair. Will the Senator from Florida give me just 2 minutes?

Mr. SARBANES. The first vote in the morning will be at 8:45. I remind my colleagues, that is a vote at 8:45.

Mr. SARBANES. How much time remains?

Mr. SARBANES

Mr. SARBANES. Will the Senator yield me just 1 minute?

Mr. SARBANES. ``The largest financial interest.''

Mr. SARBANES. The richest person in the sense of having the ``largest financial interest in the relief sought by the class'' is the one you are putting forward.

Mr. SARBANES. ``The largest financial interest in the relief sought by the class.''

Mr. SARBANES. On page 99 of the bill, the language is ``in the determination of the court has the largest financial interest in the relief sought by the class.'' That is the language.

Mr. SARBANES. Will the Senator yield so I may respond to his question?

Mr. SARBANES. If the Senator will withhold, the bill says ``in the determination of the court has the largest financial interest in the relief sought by the class'' on page 99 of the bill.

Mr. SARBANES. If I could say, the Senator is correct, there have been no [[Page S 9115]] hearings on this issue. It was not considered at any point until it appeared in the draft.

Mr. SARBANES

Mr. SARBANES. I may. I do not know what he is going to say. Why do we not say 10 minutes evenly divided and go to the vote?

Mr. SARBANES

Mr. SARBANES. But you earlier made the statement in effect that this was all voluntary, and that people, if they were dissuaded, would provide no information. The fact is under current SEC requirement they are required to provide some forward-looking information. Is that correct?

Mr. SARBANES. I just asked the Senator if he would yield for a question.

Mr. SARBANES. Mr. President, I ask the Senator if he will yield.

Mr. SARBANES. Actual knowledge that it was false. Why should anyone be able to make a statement that they have actual knowledge that is false.

Mr. SARBANES. Do you think he should have told? Do you think he should have had a forward-looking statement that said some have said we have a problem; others say we do not have a problem. Would that not be an honest statement to the potential investors?

Mr. SARBANES. Is it the Senator's view--will the Senator yield for a question?

Mr. SARBANES. Is it the Senator's view that all forward-looking statements are voluntary? As I understand it, the Senator says you are going to dissuade forward-looking statements because these are voluntary things; and, if they have a problem with what the standard is, they will not volunteer the information. Is that your position?

Mr. SARBANES. What is your explanation of the language on page 113 of the bill which includes within the definition of a forward-looking statement in paragraph 3, lines 18 through 22, a statement of future economic performance contained in the discussion and analysis of financial condition by the management, or in the results of operations included pursuant to the rules and regulations of the Commission.

Mr. SARBANES. It is my understanding that currently under the rules and regulations of the Commission you are required to provide certain information that is in effect a forward-looking statement. Does the Senator agree to that?

Mr. SARBANES. Mr. President, the previous amendment, the one we just considered, which was not adopted on a vote of 43 to 56, would have sent the matter of defining the parameters of the safe harbor exemption to the Securities and Exchange Commission. I, of course, argued very strenuously in the consideration of the amendment [[Page S 9134]] that that is where this ought to be done, that it ought not to be done, well, in the committee and now in this Chamber, because the existing definition in the bill has already been amended. The Senate did not adopt that provision, and the question now arises, if you are going to have a statutory definition, what should it be? What should it be? This amendment that has been sent to the desk would strike out the language that is in the bill. What the bill says is that the exemption from the liability provided does not apply to a forward-looking statement that is knowingly made with the expectation, purpose, and actual intent of misleading investors. Earlier the Senator from New York modified that and struck the word ``expectation,'' but the problem still remains, the essential problem which prompted the Chairman of the Securities and Exchange Commission to say, and I quote him, ``I cannot embrace proposals which allow willful fraud to receive the benefit of safe harbor protection.'' So we are now into the question, if the standard in the bill is inappropriate, as I believe strongly it is, and as has been indicated by the Chairman of the Securities and Exchange Commission, and indeed by other securities regulators, State securities regulators, by Government finance officers and others, all of whom in a sense are outside the controversy amongst the economic interests associated with this bill, and represent the public interest, the question now is, is this standard so difficult that all but the most egregious fraudulent efforts would be exempted from liability. And I submit that it is, and the amendment I have sent to the desk is an effort to modify that. The standard provided for in that amendment is made with the actual knowledge that it was false or misleading. Let me repeat that: Made with the actual knowledge that it was false or misleading. There are forward-looking statements that would be exempted from liability under the standard in the bill that would not be exempted from liability under the standard of this amendment. The question then becomes, is the standard in this amendment an appropriate one? And I defy anyone to advance a rationale why a forward-looking statement made with the actual knowledge that it was false or misleading should be protected from liability. I have heard people talk, oh, we are not going to allow knowing fraud to be protected. That is exactly what this amendment provides. It says that the exemption from liability provided for in this bill does not apply for a forward-looking statement that is made with the actual knowledge that it was false or misleading. And I want to hear from others, if they oppose the amendment, why they believe a forward-looking statement made with the actual knowledge that it was false or misleading ought to be protected from liability. Mr. President, this is an issue of significance and moment. We have heard from the various securities regulators in opposition to the provision in the committee bill. The National Association of Securities Dealers has written to us in opposition to it, as has the Government Finance Officers Association. SEC, of course, I have already quoted their statement. But let me just point out the Government Finance Officers Association, which represents more than 13,000 State and local government financial officials, county treasurers, city managers, and so on, and which issues securities and invests billions of dollars of public pension and public taxpayer funds every year, wrote of the safe harbor provision in the bill, the standard that we are seeking to change, the one in the bill which says knowingly made with the purpose and actual intent of misleading investors, ``We believe this opens a major loophole through which wrongdoers could escape liability while fraud victims would be denied recovery.'' Let me repeat that: ``We believe this opens a major loophole through which wrongdoers could escape liability while fraud victims would be denied recovery.'' The provision in the bill requires you to show the actual intent of the parties making the forward-looking statement. Not only that, you have to show that it was knowingly made with the purpose of misleading investors. And as originally written also the expectation, although that was stricken earlier in our consideration. So it is now knowingly made with the purpose and actual intent of misleading the investors. That is what you have to demonstrate in order for the forward-looking statement to lose its immunization from liability. And that is a standard that is so extreme that the Chairman of the Securities and Exchange Commission wrote to us and said, ``I cannot embrace proposals which allow willful fraud to receive the benefit of safe harbor protection.'' And that is the provision which the Government Finance Officers Assocation said, ``We believe this opens a major loophole through which wrongdoers could escape liability while fraud victims would be denied recovery.'' The amendment that I have sent to the desk very simply states that the exemption from liability is lost for a forward-looking statement that is made with the actual knowledge that it was false or misleading, very simply put. You make a forward-looking statement, and you make it with the actual knowledge that it was false or the actual knowledge that it was misleading, and you lose your immunity. You lose your immunity. Why should anyone who makes a forward-looking statement with an actual knowledge that it was false or misleading have immunity from liability for that forward-looking statement? That is the issue that is before us by this amendment. It was my preference that this issue be worked out by the Commission. I thought that is where it ought to go in terms of expertise. If Members want to deal with it here on the floor, then we need to examine it on the standard, address the standard that is in the bill, why I think it opens, as the Government Finance Officers said, a major loophole, or which, as the Chairman of the Commission said, would allow willful fraud to receive the benefit of safe harbor protection. That ought not to be the case. Therefore, I propose to substitute the language ``made with actual knowledge that it was false or misleading.'' No statement made with the actual knowledge that it was false or with the actual knowledge that it was misleading ought to have safe harbor protection. Mr. President, I yield the floor. Mr. D'AMATO addressed the Chair.

Mr. SARBANES. Mr. President, I send an amendment to the desk and ask for its immediate consideration.

Mr. SARBANES

Mr. SARBANES. How much is remaining on the other side?