Paul Sarbanes

Mr. SARBANES

Mr. SARBANES. If the Senator would yield further, because I wish to be fair to my friend from Connecticut and the distinguished chairman of the committee, they say, well, there are these strike suits and we have to try to preclude them because these deep pocket people are being held up, as it were. The way you handle that problem, as is done in this bill, is you make it more difficult to bring the strike suit so you clear out the so- called frivolous suits that have been asserted. And we agree that that is a desirable objective. But by definition, the cases we are talking about are cases where there is liability and there has been fraud, and in that instance there is no rationale that I can think of that warrants putting the participant in the fraud ahead of the innocent victim of the fraud.

Mr. SARBANES. Senator Burns actually spoke to me earlier, and we slipped it from 4:30 to 5 to accommodate him, or as I understood it was slipped from 4:30 to 5 to accommodate Senator Burns, and if we could slip it another 15 minutes----

Mr. SARBANES

Mr. SARBANES. All right--to do away with it. And these are people, extremely wealthy people, literally billionaires we are talking about, who renounce their American citizenship in order to avoid paying American taxes. And the Treasury has worked out a proposal whereby they will not be able to get away with that. The conference was unwilling to encompass that proposal and to include it in the report. So you have these tremendously wealthy people in effect walking scot- free from paying reasonable taxes. When you talk about this, the other side says, well, there you are; it is class warfare. The class warfare is coming from the people at the top who are pulling in these benefits. That is the real class warfare that is happening here. Those who have much want more, more, more, and they throw the burden on those who have little, those who are struggling to make it through the day, struggling to educate their children, senior citizens who are struggling to meet their medical need problems, young families that are worried about how they are going to provide for their parents, worried about how they are going to provide for their children. They cut back on the very programs designed to address those problems--Medicare, college loans, child nutrition programs, earned- income tax credit for working families--they cut back on those programs and at the same time that they are cutting back on those programs, they are giving large tax breaks to people with six-figure incomes, well above $100,000 a year. Now, what is the sense of that? Where is the equity in that? Where is the wisdom in that in terms of investing in America's future? Those making those large incomes ought to be concerned about what is happening to working families and their children because you cannot reside at the top of the house with any sense of security and comfort when the foundations down below are not solid. And those foundations need to be solid. We have to break out of this mentality of trickle- down economics: You put it all in at the top, and somehow it is going to trickle its way down to ordinary people. We need percolate-up economics where you create prosperity in the great base of American society. The people at the top will benefit from that, as will everybody else. But it will work its way up; it will come up from the grassroots; it will come up from working people; we will have a strong middle class, which was always the hallmark of a strong American economy and which we are losing. This budget resolution is a classic example of how to intensify those negative trends.

Mr. SARBANES. If the Senator will yield, most of the Governors have been very clear that they cannot make it up. They are just not in a position to do so. Now what that means, because you talk about these cuts and you talk about numbers, you have to talk about services and people. And what it means, as the Senator from Massachusetts so eloquently pointed out, is the frail elderly who are now benefiting from the Medicaid program in terms of long-term care in nursing homes and so forth and so on. What is going to happen to those people? What is going to happen to them and to their families? Some families are stretched beyond the limits trying to handle the problem of their aged parents-- beyond the limits. Is it not enough of a burden to face the emotional and the psychological stress and strain which goes with that kind of problem? Talk to a young couple, with a parent who has Alzheimer's and is in a nursing home, about what they are up against, just emotionally what they are up against, the stress in their lives. Then you are going to add to it an intense financial and economic stress. Why are we doing this? Why are we subjecting so many of our people to this incredible pressure? We have to cut so we can give big tax breaks, that is one reason. We will not reform the medical care system, which might well help us to deal with these problems; we are unwilling to do that. So we leave this incredible pressure and burden on ordinary families all across America to face what for many of them are desperate problems. It is the same thing with educating their children. Any young couple will tell you that is one of the prime worries in their mind, how they are going to educate their young children. We tried to put together a system. We had the Pell grants, which is a grant, not a loan. It has diminished in impact because we say we cannot afford it, so we shift it over to loans. We said, ``All right, you take a loan, you will enhance your earning capacity, you will pay it back over your working career.'' Now the loan is going to be compounded because we are not going to forgive the interest charge. So this is what has happened.

Mr. SARBANES

Mr. SARBANES. Mr. President, I will be very brief. The amendment offered by the distinguished Senator from Nevada [Mr. Bryan] on the statute of limitations question is a very important amendment. I hope my colleagues will consider it very carefully over the weekend and again on Monday, when we will debate the amendment and have a vote on or in relation to the amendment. Let me say that Senators Dodd and Domenici, when they introduced their bill, included a provision on the statute of limitations that closely parallels what Senator Bryan has offered. They recognized the statute of limitations problem and they sought to correct it in the package which they introduced. In fact, they apparently thought it was of such consequence that in the title to their bill, they put it first and foremost. Their bill as introduced is to amend the Securities Exchange Act of 1934 to establish a filing deadline, and to provide certain other things. They put it right up front. That gives Members, perhaps, some indication of recognition of its importance. That provision was then dropped out in the committee's consideration--very unwisely, some Members think--and the measure now before the Senate does not contain that provision, which was in the original bill as introduced by Senators Domenici and Dodd. Of course, the amendment offered by the distinguished Senator from Nevada, Senator Bryan, is trying to correct that situation. Now, once again, we hear this argument made about the frivolous suits or the strike suits, but that really is not related to the statute of limitations problem. A shorter statute of limitations may well knock out meritorious suits, as well. Now, we tried to get a distinction between meritorious suits and frivolous suits with other provisions of the bill--provisions that we are not trying to amend here on the floor. In other words, there has been an acceptance of the proposition that there is something of a problem that we need to try to deal with. Certain provisions in this bill do that, and represent an appropriate change in the existing securities litigation system. Other provisions, we submit, go well beyond that. They are excessive and constitute overreach, and will in effect, reduce investor protections. We hope, in the course of the consideration of this measure, to change those provisions, to strengthen investor protections and, in effect, to make this a better bill, and eventually, if one could alter it sufficiently, make it worthy of broad-based general support. The statute of limitations problem does not reach the question of the distinction between meritorious suits and frivolous suits, unless one is going to assert the proposition: ``Well, the more immediate the statute of limitations, the more suits you can knock out.'' It makes no distinction whether we are knocking out meritorious suits or frivolous suits. In fact, probably you will more likely knock out meritorious suits, since those usually take time to work out, and if people are responsible, they do not bring the suit until they have asserted a substantial basis for it. Now, Senator Bryan earlier today said it takes the SEC itself--with all of the resources that it has, all of the expertise that it has, all of the experience that it has--about 2.2 years to bring a suit once they begin working on it. That is the SEC. What does that mean for investors who are trying to bring private suits in terms of what constitutes a reasonable statute of limitations for them? Second, the 2- and 5-year time periods were what was generally applicable throughout a good period of our experience with the Securities and Exchange Act. It worked well. I have heard very little criticism of how it worked over that time period. I have heard criticisms of other aspects of the litigation system, but not really sharp criticism with respect to the statute of limitations question. As I indicated earlier, in fact, a provision was included in the bill that Senators Dodd and Domenici are pushing, this effort to revise the securities litigation system, very strongly. They included that in the legislation which they proposed. The Senate Banking Committee, in 1991, unanimously, just a couple of years ago, unanimously approved a provision that provided for the 2- and 5-year statute of limitations. The 2 years would mean that from the time you learned of the fraud, you would have 2 years to bring your action. These are complicated cases. You want people to bring responsible actions, and bringing responsible actions means it takes time to prepare them. In some respects, a shorter statute of limitations is an invitation for the filing of, in a sense, not well-grounded suits, because you just want to get in under the wire and you will go ahead and file the suit. The 5-year period would be the statute no matter what, even if you had not discovered the fraud. Now, unless we change that, it is only a 3-year period. Some of these things are concealed--they are concealed from the victims. In fact, the previous Chairman of the SEC, Mr. Breeden, testified to that effect: Adoption of these measures will give private litigants a more realistic timeframe in which to discover that they have been defrauded, while also accommodating legitimate interests in providing finality to business transactions and avoiding stale claims. The shorter period does not allow investors adequate time to discover and pursue violations of securities laws. Many of these things are very complicated. There is a lot of deception and concealment involved. The 1- and 3-year limits really break with 40 years of legal precedent. I just hope that the Senate, when it considers this matter, will adopt the Bryan amendment, and go to the 2- and 5-year limitation period. I think it is reasonable. Some States have longer periods, as a matter of fact. I think it is reasonable to go to the 2- and 5-year standard, which is generally what prevailed over four decades of experience with the security laws. I am very hopeful my colleagues, in considering this amendment on Monday, will be supportive of it. I suggest the absence of a quorum.

Mr. SARBANES

Mr. SARBANES. Mr. President, I have listened to my colleagues now for well over an hour very carefully. This is an important piece of legislation, and it deserves very careful attention. I think perhaps the best summary, in a sense, of some of the statements we have heard was the comment made by my distinguished colleague from Connecticut, who said that there might well be a tendency in the course of debating this bill to use increasingly extreme examples and overheated rhetoric. I think that was his exact quote. And we have already seen some of that at work over the opening debate that has taken place now for well over an hour. I do not know of anyone who differs with the goal of deterring frivolous lawsuits, and sanctioning appropriate parties when such lawsuits are filed. My colleague from Connecticut at one point said this bill is an important step in repairing an ailing system. Parts of this bill are an important step in doing that. Other parts of this bill will, in my judgment, contribute to an unhealthy system. And the challenge that is before the Senate over the next few days as we work through this legislation is to be able to distinguish between those parts in this legislation. In the course of this consideration, amendments will be offered. Amendments were offered in committee. Some were decided by very close votes. We hope by proposing those amendments to be able to focus on what the problems are. But let me just generally make the point that this legislation as now drafted will affect far more than frivolous suits. The examples that have been cited, the horror cases, are examples that any of us would want to address and try to deal with. This bill goes beyond that. This bill overreaches that mark and, in fact, in my judgment, will make it more difficult for investors to bring legitimate fraud actions. That is the essential question. That is the discernment we have to make here. Jane Bryant Quinn said in an article less than a week ago in the Washington Post, entitled ``Making it Easier to Mislead Investors,'' and I quote from the opening of this article: A lawsuit protection bill speeding through Congress will give freer rein to Wall Street's eternal desire to hype stocks. It's cast as a law against frivolous lawsuits that unfairly torture corporations and their accountants, but the versions in both the House and Senate do far more than that. They effectively make it easier for corporations and stockholders to mislead investors. Class action suits against the deceivers would be costly for small investors to file and incredibly difficult to win. I'm against frivolous lawsuits. Who is not? But these bills would choke meritorious lawsuits, too. At the end of this long article, she concludes as follows, and I quote: Baseless lawsuits do indeed exist. Lawyers may earn too much from a suit, leaving defrauded investors too little. The incentives to sue should be reduced, but not with these bills. They let too many crooks get away. And an article in the U.S. News & World Report, the most recent issue, by Jack Egan entitled, ``Will Congress Condone Fraud,'' says in part, and I quote, speaking about this legislation: It just might come to be remembered as legislation that has steeply tilted the playing field against investors. It makes it very hard for shareholders to sue over legitimate grievances. And, at the end, it goes on to say: The pendulum has swung too far toward the lawyers, and now it is swinging too far the other way. Unfortunately, some major investor frauds may have to take place before it again moves back toward the center. The challenge for the Senate is to get this pendulum in the right place to begin with, here, now, over the course of the next few days so that they do not have to have major investor frauds in order to swing the pendulum back toward the center. This legislation, and certain of its provisions, goes too far. In fact, two provisions that were in the original bill as introduced were dropped in the course of evolving this legislation. Those provisions, had they remained in the bill, would deal with a number of the problems which we intend to outline over the next few days in the course of its consideration. That was in the original proposed legislation, and was taken out. As a consequence, the legislation, in my judgment, has been weakened, and the balance has tilted in an unfair and unjust way. The fact is that this bill will make it harder to bring securities fraud actions and to recover losses. Individual investors, local governments, pension plans, all will find it more difficult to bring fraud actions and to recover their full damages as a result of this legislation. I know examples are going to be used, but I say to my colleagues, you have to move beyond those examples. The provisions in the bill which deal with the egregious examples that would be cited ought to be in this bill and they ought to be passed. The difficulty is that the bill overreaches and it goes too far. Let me give you some instances of that. The safe harbor provision will for the first time protect fraudulent statements within the Federal securities laws. Individual investors will not be able to sue people who make fraudulent projections of important items such as revenues and earnings. The SEC has been working to address the question of forward looking statements, but the Chairman of the SEC, Arthur Levitt, has raised very serious questions about the safe harbor provision in this legislation. If I wanted to engage in the Senator's rhetorical combat that he spoke about earlier, I would say, rather than safe harbor, it is a pirate's cove that is in this legislation. The proportionate liability provision will for the first time put fraud [[Page S 8901]] participants ahead of innocent victims and individual investors. Fraud victims will not recover their full damages. The argument is made that you have people who are held liable, they vary in their proportionate share of the responsibility, and the deep- pocket people are held entirely liable when the principal malefactor goes bankrupt or cannot pay the award. This is in a suit that is proven to be successful, been upheld as being meritorious in court. Well, there is a problem amongst the malefactors. But to throw the burden on the innocent victim as a solution to that problem is a departure which really astounds one. In other words, you are the victim of the fraud. A number of people have participated in it in varying degrees, and you are going to be held to assume a large part of the burden before the participants in the fraud have to be responsible. As a consequence, fraud victims will not recover the full damages. The managers of the bill speak about its balance. In fact, the bill has a tilt, as this column in U.S. News & World Report said, and I quote it again: It just might come to be remembered as legislation that's steeply tilted the playing field against investors. There is not included in this legislation provisions that the SEC and the State securities regulators feel are necessary to protect victims of securities fraud. I was interested that the Senator from Connecticut quoted Arthur Levitt as saying in a hearing there is a need for change. That is quite true. But Chairman Levitt criticizes the measure that is now before us. If you are going to cite Arthur Levitt as supporting the proposition for change, which actually none of us is contending against here--we are not coming to the floor and saying do nothing, just leave the existing law. We are saying that there are some provisions in this legislation that ought to be passed, but there are other provisions that overreach and go too far, and Arthur Levitt says the same. The very person cited in a sense as an expert for the proposition that change ought to be made has also told us that some of the changes contained in this legislation are undesirable. In addition to the safe harbor issue, which we will come back and revisit in the course of the amending process, is the proportionate liability issue. This bill does not extend the statute of limitations for securities fraud actions. Fraud victims will not have time to bring their cases to court. That in fact was a provision that was in the original bill as introduced and has been dropped from the provision now before us. The bill does not restore the ability of investors to sue individuals who aid and abet violations of the securities laws. Fraud victims will not be able to pursue everyone who helped commit a securities fraud. It is asserted that this bill as is has reached the proper balance, but the fact remains that it is opposed, the legislation as before us, by a host of securities regulators, by State and local government officials, by consumer groups, by labor unions, by bar associations, and others, including the North American Securities Administrators Association, the Government Finance Officers Association, the National League of Cities, the U.S. Conference of Mayors, the Consumer Federation of America, and a number of the large trade unions, including the Teamsters and the United Auto Workers. The assault from the other side has been on the lawyers. These groups do not represent the lawyers. These groups represent the public, consumers, investors, and they have all reached the judgment that this bill is unbalanced--unbalanced. Let me just speak for a moment or two about the background. It is asserted by some that there is a crisis in the securities litigation system that is threatening our capital markets. Let us take a look very quickly at our capital markets and some statistics about it. For 1993, the U.S. equity market capitalization stood at $5.2 trillion, over one-third of the world total. More than 600 foreign companies from 41 different countries are listed on our exchanges and more foreign companies come every year. Average daily trading volume on the New York Stock Exchange has increased from 45 million shares in 1980 to 291 million shares in 1994. From 1980 to 1993, mutual fund assets increased by more than 10 times to $1.9 trillion. In effect, Mr. President, what this demonstrates is that the U.S. capital markets remain the largest and the strongest in the world. Now, this, I would submit, is not in spite of the Federal securities laws but in part because of the Federal securities laws. This tremendous growth in the American marketplace and its preeminent position worldwide is not in spite of Federal securities laws but in part because of Federal securities laws. The Federal securities laws have generally provided for sensible regulation and self-regulation of exchanges, brokers, dealers, and issues. This regulation has helped to sustain investor confidence in our markets. Without that confidence in the markets, you are not going to get the kind of dominant position that we have had. And confidence in the markets on the part of investors is a consequence not only of the public regulatory scheme administered by the SEC but also because investors know that they have effective remedies against people who try to swindle them. In other words, if you weaken unreasonably or improperly these remedies, you are going to affect investor ability to have recourse in instances in which they have been unfairly or improperly exploited, and the consequence of that is you begin to cast a doubt over the integrity of the securities markets. Both Republican and Democratic Chairmen of the Securities and Exchange Commission have stressed the crucial role of the private right of action in maintaining investor confidence. In 1991, then-Chairman Richard Breeden testified before the Banking Committee, and I quote: Private actions . . . have long been recognized as a ``necessary supplement'' to actions brought by the Commission and as an ``essential tool'' in the enforcement of the Federal securities laws. Because the Commission does not have adequate resources to detect and prosecute all violations of the Federal securities laws, private actions perform a critical role in preserving the integrity of our securities markets. Current Chairman Arthur Levitt echoed this very point in testimony delivered this year. The Securities Subcommittee held hearings over the past 2 years reviewing the Federal securities litigation system. It received testimony from plaintiffs' lawyers, from corporate defendants, from accountants, from academics, from securities regulators, and from investors. There was considerable disagreement among the witnesses over how well the existing securities litigation system is functioning. Some argued, and my colleagues who have already spoken argue, American business, particularly younger companies in the high-technology area, face a rising tide of frivolous securities litigation. Corporate executives suggested that securities class actions are filed when a company fails to meet projected earnings or its stock drops. Clearly, some frivolous securities cases are filed as, indeed, some frivolous cases of every sort are filed. However, the Director of the SEC's Division of Enforcement testified in June 1993 with respect to statistics from the Administrative Office of the U.S. Courts: The approximate aggregate number of securities cases, including Commission cases, filed in Federal district courts does not appear to have increased over the past 2 decades. Similarly, while the approximate number of securities class actions filed during the past 3 years is significantly higher than during the 1980's, the numbers do not reveal the type of increase that ordinarily would be characterized as an ``explosion.'' Some said that these actions were inhibiting the capital formation process. In fact, initial public offerings have been setting records in recent years: $39 billion in 1992; $57 billion in 1993. The $34 billion in initial public offerings in 1994 was exceeded only by the records set in the previous 2 years. On May 22, the New York Times reported, and I quote: One of the great booms in initial public offerings is now under way, providing hundreds of millions in new capital for high-tech companies, windfalls for those with good enough connections to get in on the offerings and millions in profit for the Wall Street firms underwriting the deals. Asserting a crisis in securities litigation, which the figures do not seem to bear out, this bill makes it harder to bring lawsuits. We should ask ourselves [[Page S 8902]] not simply whether these changes will result in fewer lawsuits, but whether each proposed change will make the securities laws serve our Nation better. We should ask whether legitimate cases can still be brought or whether the provisions in this legislation, which it is asserted are designed to screen out the frivolous cases, will go beyond that and, in effect, make it difficult to bring legitimate cases. I hope Members will focus on this very issue. It is very important not to become, as it were, mesmerized by these extreme examples which my colleague from Connecticut said would obviously be cited, because no one is protecting the extreme examples. The question is whether the provisions here will make it impossible or highly difficult to bring legitimate actions, whether it will swing the pendulum too far in the other direction. One of the articles I quoted said: Unfortunately, some major investor frauds will have to take place before it, again, moves back toward the center. We do not want that to happen. We have an opportunity here on the floor by correcting this legislation to prevent that from happening. Let me very quickly turn to some of the major defective provisions in the legislation. First is the so-called safe harbor provision. This legislation has a statutory definition of an exemption from liability for forward-looking statements which the bill broadly defines to include 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 development of new products. In short, forward-looking statements include precisely the type of information that is most important to investors deciding whether to purchase a particular stock. The SEC currently has a safe harbor regulation for forward-looking statements that protects specified forward-looking statements that were made in documents filed with the SEC. To sustain a fraud suit, the investor must show that the forward-looking information lacked a reasonable basis and was not made in good faith. The SEC, recognizing the desirability of having some safe harbor for forward-looking statements, has been seeking to define it in regulation. It has been conducting, in fact, a comprehensive review of its safe harbor regulation. This legislation, as originally introduced by Senators Domenici and Dodd, would have allowed the SEC to continue this regulatory effort. And Chairman Levitt endorsed that approach. However, the committee print substitute for S. 240, unlike the bill as introduced, abandoned this approach in favor of enacting a statutory safe harbor. The committee print now before us, in effect, protects fraudulent forward-looking statements. For the first time, such statements would find shelter under the Federal securities law. In a letter to the committee, Chairman Levitt, expressing his personal views about a legislative approach to safe harbor, stated: A safe harbor must be thoughtful so that it protects considered projections but never fraudulent ones. The bill, as reported, provides safe harbor protection for all statements except those knowingly made with the expectation, purpose, and actual intent of misleading investors. The committee report states that expectation, purpose, and actual intent are separate elements, each of which must be proven by the investor, otherwise the maker of the statement is shielded. This language so troubled Chairman Levitt that he wrote to committee members on May 25, the morning of the markup. He stressed that the substitute committee print failed to adhere to his belief that a safe harbor should never protect fraudulent statements. I want to be very clear about this. No one is arguing whether there should be some provision for a safe harbor. The question is: What should that provision be? What is reasonable? What is proper? What is balanced? What constitutes overreaching? The chairman of the SEC said the following in that letter to the committee on the morning of the markup: I continue to have serious concerns about the safe harbor fraud exclusion as it relates to the stringent standard of proof that must be satisfied before a private plaintiff can prevail. As Chairman of the Securities and Exchange Commission, I cannot embrace proposals which would allow willful fraud to receive the benefit of safe harbor protection. The scienter standard in the amendment may be so high as to preclude all but the most obvious frauds. He warned that the bill's standard of ``knowingly made with the expectation, purpose, and actual intent of misleading investors'' was a far more stringent standard than currently used by the SEC and the courts. The committee report states that the safe harbor provision is intended to encourage disclosure of information by issuance. Encouraging reasonable disclosure is one thing. Encouraging fraudulent projections is obviously yet another. The safe harbor provision that is in this bill, which was not in the original bill as introduced by Senators Dodd and Domenici--this safe harbor provision before us would hurt investors trying to make intelligent investment decisions and penalize companies trying to communicate honestly with their shareholders. It runs counter to the entire philosophy of Federal securities laws, the very laws that have helped give us such strong markets, laws that rest on the premise that fraud must be deterred and punished when it occurs. That is one of the major areas in which attention will have to be focused over the next few days. Next I turn to the proportionate liability provision in the bill. The difficulty with the proportionate liability section in the bill is we need to understand the issue of liability for reckless conduct. In 1976, the Supreme Court held that a defendant is liable under Federal securities antifraud provisions only if he or she possesses the state of mind known in the law as ``scienter.'' Conduct that is intended to deceive or mislead investors satisfies the scienter requirement. While the Supreme Court did not decide the question, courts in every Federal circuit have held that reckless conduct also satisfies the scienter requirement. This follows the guidance of hundreds of years of court decisions in fraud cases. As the Restatement of Torts states, ``The common law has long recognized recklessness as a form of scienter for the purposes of proving fraud.'' Now, the most commonly accepted definition of reckless conduct was set forth by the Seventh Circuit in the Sundstrand case. That standard--and I will quote it, an order which attached joint and several liability--said: A highly unreasonable omission involving not merely simple, or even gross, negligence, but an extreme departure from the standards of ordinary care and which present a danger of misleading buyers or sellers that is either known to the defendant or is so obvious that the actor must have been aware of it. Now, recklessness liability is often applied to the issuers' professional advisers--attorneys, underwriters, accountants. And under joint and several liability, all parties who participate in a fraud are liable for the entire amount of the victim's damages--both those parties who intended to mislead the investors, and those whose conduct was reckless. The rationale for this is that a fraud cannot succeed without the assistance of each participant, so each wrongdoer is held equally liable. This bill limits joint and several liability under the Federal securities laws to certain defendants, specifically excluding defendants whose conduct was reckless. This change will hurt investors in cases where the perpetrator of the fraud is bankrupt, has fled, or otherwise cannot pay the investors' damages. In those cases, innocent victims of fraud will be denied full recovery of their damages. Chairman Levitt said: The Commission has consistently opposed proportionate liability. Before the Securities Subcommittee, he said: Proportionate liability would inevitably have the greatest effect on investors in the most serious cases (for example, where an issuer becomes bankrupt after a fraud is exposed). It is for this reason that the Commission has recommended that Congress focus on measures directly targeted at meritless litigation before considering any changes to the liability rules. Now, even the authors of the measure before us recognize something of a problem, so they have tried to make [[Page S 8903]] some compensating features with respect to proportionate liability, and we will address those in greater detail when we propose an amendment. Let me just simply make this point. They would provide coverage to victims with a net worth under $200,000 who lose more than 10 percent of that net worth. Well, that hardly is meaningful. Virtually anyone who owns a home has a net worth of $200,000. And to require many small investors to lose more than 10 percent of that net worth--in other words, you would have to lose $20,000 before you would be made whole by those who have participated in or condoned the fraud. There is another provision for a 50-percent overage, but neither provision will make fraud victims whole. They will protect only a tiny number of investors. For most investors, the balance of their losses may be uncollectible. So the innocent party is going to be called upon to bear this burden. Just think of the equities of that. Reckless participation. Participants will no longer be responsible for the result of their conduct. Innocent investors--individuals, pension funds, county governments--will have to make up the loss. This is not fairness--certainly not to the investors. In addition, I am disappointed that this legislation, as reported, does not contain provisions to help investors bring meritorious suits. In his letter to the members of the Banking Committee, Chairman Levitt stated: In addition to my concerns about the safe harbor, there is not complete resolution of two important issues for the Commission. First, there is no extension of the statute of limitations for private fraud actions from 3 to 5 years. My very able, distinguished colleague from Nevada, who is a member of the subcommittee that considered this legislation, and is extremely knowledgeable on all aspects of it, will later, in the course of the amending process, address this specific provision. For over 40 years, courts held that the statute of limitations for private rights of action under section 10(b) of the Securities Exchange Act of 1934, the principal antifraud provision of the Federal securities laws, was the statute of limitations determined by applicable State law. While these statutes varied, they generally afforded securities fraud victims sufficient time to discover and bring suit. In 1991, in the Lampf case, the Supreme Court significantly shortened the period of time in which investors may bring such securities fraud actions. By a 5 to 4 vote, the Court held that the applicable statute of limitations is 1 year after the plaintiff knew of the violation and in no event more than 3 years after the violation occurred. This is shorter than the statute of limitations for private securities actions under the law of more than 60 percent of the States today. This shorter period does not allow individual investors adequate time to discover and pursue violations of securities laws. Testifying before the Banking Committee in 1991, SEC Chairman Richard Breeden stated ``the timeframes set forth in the [Supreme] Court's decision is unrealistically short and will do undue damage to the ability of private litigants to sue.'' Chairman Breeden pointed out that in many cases, Events only come to light years after the original distribution of securities and the . . . cases could well mean that by the time investors discover they have a case, they are already barred from the courthouse. The FDIC and the State securities regulators joined the SEC in favor of overturning the Lampf decision. On this basis, the Banking Committee in 1991 without opposition adopted an amendment to a banking bill. The amendment lengthened the statute of limitations for securities fraud actions to 2 years after the plaintiff knew of the securities law violation, but in no event more than 5 years after the violation occurred. When the bill reached the Senate floor in November 1991, some Senators indicated they would seek to attach additional provisions relating to securities litigation. They argued that the statute of limitations should not be lengthened without additional reform of the litigation system. No arguments were raised specifically against the extension of the statute of limitations. To expedite consideration of the bill, the extension of the statute of limitations was dropped. Senators Domenici and Dodd included the extended statute of limitations in their comprehensive securities litigation reform bill, both in the last Congress and in this Congress. There was no rationale for dropping that provision out. Chairman Levitt testified before the Securities Subcommittee in April 1995, ``extending the statute of limitations is warranted because many securities frauds are inherently complex, and the law should not reward the perpetrator of a fraud who successfully conceals its existence for more than 3 years.'' I defy any of my colleagues to explain to us why the perpetrator of the fraud ought to be given a shorter period of time in which to get away with this fraudulent conduct. Finally, let me turn to the failure to restore aiding and abetting liability. This was another matter touched on by Chairman Levitt when he expressed his disappointment that ``the draft bill does not fully restore the aiding and abetting liability eliminated in the Supreme Court's Central Bank of Denver opinion.'' Prior to that decision, courts in every circuit in the country had recognized the ability of investors to sue aiders and abettors of securities frauds. Most courts required that an investor show that a securities fraud was committed, that the aider and abettor gave substantial assistance to the fraud, and that the aider and abettor has some degree of scienter--intent to deceive or recklessness toward the fraud. Why should the aiders and abettors of the fraud escape any liability? As Senator Dodd stated at a May 12, 1994, Securities Subcommittee hearing, ``aiding and abetting liability has been critically important in deterring individuals from assisting possible fraudulent acts by others.'' Testifying at that hearing, Chairman Levitt stressed the importance of restoring aiding and abetting liability for private investors: persons who knowingly or recklessly assist 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. The North American Securities Administrators Association and the Association of the Bar of the City of New York also endorsed restoration of aiding and abetting liability in private actions. In summing up, let me simply say I support the goal of deterring and sanctioning frivolous securities litigation. This bill, though, will deter legitimate fraud actions as well. By protecting fraudulent forward looking statements, and by restricting the application of joint and several liability, this bill may undermine the investor confidence on which our markets depend. Further, it fails to include provisions that are needed to ensure that investors have adequate time and means to pursue securities fraud actions. We are not alone in concluding this legislation will threaten our markets by undermining investor confidence. Since the Banking Committee approved this bill we have received letters of opposition from securities regulators, State and local government officials, consumer groups and others, which I will place in the Record following this statement. The assertion is, on the other side, there is a certain private interest involved. We are trying to get at the abuse of the existing securities laws. But, in effect, independent observers, as it were, the securities regulators, local government officials, State government officials, have looked at this thing and they say this is excessive. This is overreaching. In a June 8, 1995 letter, the Government Finance Officers Association [GFOA] strongly supported our position. Consisting of more than 13,000 State and local government financial officials, the GFOA's members both issue securities and invest billions of dollars of public pension and taxpayer funds. In its letter, the GFOA opposed S. 240 as reported: We support efforts to deter frivolous securities lawsuits, but we believe that any legislation to accomplish this must also maintain an appropriate balance that ensures the rights of investors to seek recovery against those who engage in fraud in the securities markets. We believe that S. 240 does not [[Page S 8904]] achieve this balance, but rather erodes the ability of investors to seek recovery in cases of fraud. The North American Securities Administrators Association, which represents the 50 State securities regulators, wrote earlier this week ``to express * * * opposition to S. 240 as it was reported out of the Banking Committee.'' The letter expresses ``NASAA's view that the bill succeeds in curbing frivolous lawsuits only by making it equally difficult to pursue rightful claims against those who commit securities fraud.'' And they mention the amendments pertaining to safe harbor, proportional liability, the statute of limitations, and aiding and abetting liability as being desirable changes to be made in this legislation. On May 23, 1995, 12 separate groups wrote to the Committee, including the National League of Cities, the American Council on Education, and the California Labor Federation of the AFL-CIO They wrote that the committee print ``has not moved at all in the direction of the achieving the balance we believe is so critical.'' The St. Louis Post Dispatch had an editorial headed ``Don't Protect Securities Fraud''; the Los Angeles Times, ``This Isn't Reform--It's a Steamroller: GOP bill curbing lawsuits would flatten the small investor''; the Philadelphia Inquirer, ``Going easy on crooks in 3- piece suits''; and other papers across the country. Mr. President, I ask unanimous consent that the letters that I cited and earlier made reference to, the articles, and these editorials be printed in the Record at the end of my statement.

Mr. SARBANES. We are quite happy to hear the three proponents of the bill who are on the floor now. We heard from Senator D'Amato, and we would be happy to hear from the Senator from Connecticut and Senator Domenici. And then those of us who oppose it might have a chance to make our statements. But I would be happy to defer to the Senator from Connecticut. Then we can address his comments.

Mr. SARBANES. Mr. President, the securities markets are crucial to our economic growth; we should evaluate efforts to tamper with them very, very carefully. I hope in the course of our consideration of this measure over the next few days that Members will focus on the issues. I mean, the issue is not an extreme example for which there are provisions in the bill to deal with, with which no one quarrels. The issues are these items which I have cited about which we have heard from the Chairman of the Securities and Exchange Commission, from the Government Finance Officers Association, from the North American Securities Administrators Association, from a broad range of consumer groups, and from leading editorials and columnists across the country. I very much hope my colleagues will support amendments to correct the flaws in this legislation. If that were to be done, then we could move forward with a piece of legislation that I think would accomplish the proper balance. Mr. President, I yield the floor. Exhibit 1 Securities and Exchange Commission, Washington, DC, May 19, 1995. Hon. Alfonse M. D'Amato, Chairman, Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, DC. Dear Mr. Chairman: As Chairman of the Securities and Exchange Commission I have no higher priority than to protest American investors and ensure an efficient capital formation process. I know personally just how deeply you share these goals. In keeping with our common purpose, both the SEC and the Congress are working to find an appropriate ``safe harbor'' from the liability provisions of the federal securities laws for projections and other forward-looking statements made by public companies. Several pieces of proposed legislation address the issue of the safe harbor and the House-passed version, H.R. 1058, specifically defines such a safe harbor. Your committee is now considering securities litigation reform legislation that will include a safe harbor provision. Rather than simply repeat the Commission's request that Congress await the outcome of our rulemaking deliberations, I thought I would take this opportunity to express my personal views about a legislative approach to a safe harbor. There is a need for a stronger safe harbor than currently exists. The current rules have largely been a failure and I share the disappointment of issuers that the rules have been ineffective in affording protection for forward-looking statements. Our capital markets are built on the foundation of full and fair disclosure. Analysts are paid and investors are rewarded for correctly assessing a company's prospects. The more investors know and understand management's future plans and views, the sounder the valuation is of the company's securities and the more efficient the capital allocation process. Yet, corporate America is hesitant to disclose projections and other forward-looking information, because of excessive vulnerability to lawsuits if predictions ultimately are not realized. As a businessman for most of my life, I know all too well the punishing costs of meritless lawsuits--costs that are ultimately paid by investors. Particularly galling are the frivolous lawsuits that ignore the fact that a projection is inherently uncertain even when made reasonably and in good faith. This is not to suggest that private litigation under the federal securities laws is generally counterproductive. In fact, private lawsuits are a necessary supplement to the enforcement program of the Commission. We have neither the resources nor the desire to replace private plaintiffs in policing fraud; it makes more sense to let private forces continue to play a key role in deterrence, than to vastly expand the commission's role. the relief obtained from Commission disgorgement actions is no substitute for private damage actions. Indeed, as government is downsized and budgets are trimmed, the investor's ability to seek redress directly is likely to increase in importance. To achieve our common goal of encouraging enhanced sound disclosure by reducing the threat of meritless litigation, we must strike a reasonable balance. A carefully crafted safe harbor protection from meritless private lawsuits should encourage public companies to make additional forward-looking disclosure that would benefit investors. At the same time, it should not compromise the integrity of such information which is vital to both investor protection and the efficiency of the capital market--the two goals of the federal securities law. The safe harbor contained in H.R. 1058 is so broad and inflexible that it may compromise investor protection and market efficiency. It would, for example, protect companies and individuals from private lawsuits even where the information was purposefully fraudulent. This result would have consequences not only for investors, but for the market as well. There would likely be more disclosure, but would it be better disclosure? Moreover, the vast majority of companies whose public statements are published in good faith and with due care could find the investing public skeptical of their information. I am concerned that H.R. 1058 appears to cover other persons such as brokers. In the Prudential Securities case, prudential brokers intentionally made baseless statements concerning expected yields solely to lure customers into making what were otherwise extremely risky and unsuitable investments. Pursuant to the Commission's settlement with Prudential, the firm has paid compensation to its defrauded customers of over $700 million. Do we really want to protect such conduct from accountability to these defrauded investors? In the past two years or so, the Commission has brought eighteen enforcement cases involving the sale of more than $200 million of interests in wireless cable partnerships and limited liability companies. Most of these cases involved fraudulent projections as to the returns investors could expect from their investments. Promoters of these types of ventures would be immune from private suits under H.R. 1058 as would those who promote blank check offerings, penny stocks, and roll-ups. It should also address conflict of interest problems that may arise in management buyouts and changes in control of a company. A safe harbor must be balanced--it should encourage more sound disclosure without encouraging either omission of material information or irresponsible and dishonest information. A safe harbor must be thoughtful--so that it protects considered projections, but never fraudulent ones. A safe harbor must also be practical--it should be flexible enough to accommodate legitimate investor protection concerns that may arise on both sides of the issue. This is a complex issue in a complex industry, and it raises almost as many questions as one answers: Should the safe harbor apply to information required by Commission rule, including predictive information contained in the financial statements (e.g. pension liabilities and over-the-counter derivatives)? Should it extend to oral statements? Should there be a requirement that forward-looking information that has become incorrect be updated if the company or its insiders are buying or selling securities? Should the safe harbor extend to disclosures made in connection with a capital raising transaction on the same basis as more routine disclosures as well? Are there categories of transactions, such as partnership offerings or going private transactions that should be subject to additional conditions? There are many more questions that have arisen in the course of the Commission's exploration of how to design a safe harbor. We have issued a concept release, received a large volume of comment letters in response, and held three days of hearings, both in California and Washington. In addition, I have met personally with most groups that might conceivably have an interest in the subject: corporate leaders, investor groups, plaintiff's lawyers, defense lawyers, state and federal regulators, law professors, and even federal judges. The one thing I can state unequivocally is that this subject eludes easy answers. [[Page S 8905]] Given these complexities--and in light of the enormous amount of care, thought, and work that the Commission has already invested in the subject--my recommendation would be that you provide broad rulemaking authority to the Commission to improve the safe harbor. If you wish to provide more specificity by legislation, I believe the provision must address the investor protection concerns mentioned above. I would support legislation that sets forth a basic safe harbor containing four components: (1) protection from private lawsuits for reasonable projections by public companies; (2) a scienter standard other than recklessness should be used for a safe harbor and appropriate procedural standards should be enacted to discourage and easily terminate meritless litigation; (3) ``projections'' would include voluntary forward-looking statements with respect to a group of subjects such as sales, revenues, net income (loss), earnings per share, as well as the mandatory information required in the Management's Discussion and Analysis; and (4) the Commission would have the flexibility and authority to include or exclude classes of disclosures, transactions, or persons as experience teaches us lessons and as circumstances warrant. As we work to reform the current safe harbor rules of the Commission, the greatest problem is anticipating the unintended consequences of the changes that will be made in the standards of liability. The answer appears to be an approach that maintains flexibility in responding to problems that may develop. As a regulatory agency that administers the federal securities laws, we are well situated to respond promptly to any problems that may develop, if we are given the statutory authority to do so. Indeed, one possibility we are considering is a pilot safe harbor that would be reviewed formally at the end of a two year period. What we have today is unsatisfactory, but we think that, with your support, we can expeditiously build a better model for tomorrow. I am well aware of your tenacious commitment to the individual Americans who are the backbone of our markets and I have no doubt that you share our belief that the interests of those investors must be held paramount. I look forward to continuing to work with you on safe harbor and other issues related to securities litigation reform. Thank you for your consideration. Sincerely, Arthur Levitt.

Mr. SARBANES. On the motion or on the bill? Either?

Mr. SARBANES. Is there further debate in order?

Mr. SARBANES. Mr. President, parliamentary inquiry? What is the parliamentary situation here?

Mr. SARBANES

Mr. SARBANES. It is a red herring. It is a diversionary thing.

Mr. SARBANES. Mr. President, I will be very quick. I think we have had a good opening debate. I very strongly commend to my colleagues the very thoughtful and perceptive statements that were made by Senator Bryan and Senator Boxer. I hope Members will review those very carefully. We have to focus this debate on what the real issues are that divide us. There are provisions in this legislation--I was listening to the chairman of the committee talking just now, and he mentioned a number of provisions that we are not contesting. We accept those and think they are designed to deal with some abuses that have been taking place. But we do want to get the focus on other provisions where we think a proper balance has not been struck, where we think investors will be jeopardized, and where we think immunity is being provided to potential wrongdoers that ought not to be provided to them. This is a very complicated question, there is no doubt about it. My good friend from New York, the chairman now, got very excited about the appointment of the lead plaintiff in a class action. Well, let me read you what the SEC said about that, and it is not all black and white, I admit that. Here is what they said: One provision of section 102 requires a court generally to appoint as lead plaintiff the class member that has the largest financial interest in the case. While this approach has merit, it may create additional litigation concerning the qualification of the lead plaintiff, particularly when the class member with the greatest financial interest in the litigation has ties to management or interests that may be different from other class members. Now, I am not pretending this is simple. There is the problem. The SEC has stated this, and we need to think about it and address it. We may be making a mistake. I am sort of puzzled a bit by the absolute certainty of the people on the other side of this. I think this is complicated. I am not absolutely certain that the position I am advocating anticipates all of the problems. But, clearly, outside observers, in many respects, are far more knowledgeable than we are-- the State securities regulators, the chairman of the SEC, and the finance officer people have all come in here expressing a lot of misgivings. One group said, ``We think you need these amendments. If you get these amendments in, we will take a different view of the bill. Without these amendments, we oppose the bill.'' They, in effect, are saying they recognize that there are other aspects or features of the bill that are acceptable or desirable. As I said earlier, parts of this bill are desirable; parts of it are not desirable. We need to address, in my judgment, the undesirable parts. If we can do that, I think we can end up strengthening the bill, changing its thrust, achieving a better balance, and eliminating, hopefully, the differences between us. As the very able Senator from California pointed out, that is the quest that she is on now, as we come to address this legislation. So, again, I strongly commend to my colleagues the opening statement of Senator Bryan and the opening statement of Senator Boxer. I say to them that this is a complicated issue. They need to consider it very carefully, because we will have to live with the consequences of this thing. As one commentator observed, ``The pendulum had swung too far toward the lawyers, and now it is swinging too far the other way. Unfortunately, some major investor frauds may have to take place before it again moves back toward the center.'' I want to get it to the center before we send it out of here, so the major investor frauds will never happen. I do not want a situation where we send it out of here, then the major investor frauds happen, and everybody comes back and says, oh, my goodness, we overreached. Let us correct it now and avoid it. Get the pendulum, as this says, in the center to begin with. I thank the Chair.

Mr. SARBANES. Is enormous.

Mr. SARBANES. If I could bring my dear friend back into the parameters, no one that I know of out here has argued that there should be no safe harbor whatever, which is the statement the Senator just made.

Mr. SARBANES. I say to the Senator from Connecticut, I cannot give a definitive answer to his question because there has not been a court interpretation of the standard that you had put in this bill, the safe harbor. But it is clear that under this standard, that Crazy Eddie was held to a standard that was not as stringent as the standard you have written into this legislation. That is clear. There is no argument about that. The standard by which Crazy Eddie was held under the existing law was a less stringent standard than the standard the Senator has written into this bill, because his standard--he says it is knowingly made with the expectation, purpose, and actual intent of misleading investors, and, of course, the Chairman of the SEC indicated he was fearful that this would allow willful fraud and still enjoy the benefit of safe harbor protection. The other thing, I say to my friend, because I wanted to make this point earlier, is that I do think that the insider trading issue is more related to this bill by far than cattle rustling, if I may state that to my colleague, because, as I understand it, his effort was to counter my good friend from California to say, ``Well, you know, what has insider trading got to do with this bill? What does cattle rustling have to do with this bill?'' I think there is a difference between insider trading as it relates to this kind of legislation and cattle rustling.

Mr. SARBANES. I would say to the distinguished Senator from New York, on the morning of the markup of this bill in the committee, the Chairman of the Securities and Exchange Commission wrote to us and stressed that the substitute committee print failed to adhere to his belief that a safe harbor should never protect fraudulent statements. This is what he said: I continue to have serious concerns about the safe harbor fraud exclusion as it relates to the stringent standard of proof that must be satisfied before a private plaintiff can prevail. As Chairman of the Securities and Exchange Commission, I cannot embrace proposals which allow willful fraud to receive the benefit of safe harbor protection. The scienter standard in the amendment may be so high as to preclude all but the most obvious frauds. That is not me talking. That is me quoting the Chairman of the Securities and Exchange Commission. He expressing very deep concern about the safe harbor provision in this legislation. So there is a very direct answer to the Senator from New York. Second, we offered in the committee an aiding-and-abettingamendment. Earlier in the debate the distinguished Senator from Nevada pointed out about half of the recovery in the Keating case that helped these elderly citizens who had been swindled to get at least some of their money back, about half of the money they got back was because they were able to move against aiders and abettors. There is no aider and abettor provision in this legislation for private litigants--which is, of course, how they were able to proceed in order to get their money back. And later there will be an amendment offered to provide aider and abettor liability in private actions. So there again, unless we get that provision in, the ability that people who have been swindled in the Keating matter had to recover at least some of their losses would otherwise not be available to them. So I say to my friend from California, there are two very clear examples to support the proposition she was just arguing. I thank the Senator for yielding.

Mr. SARBANES. Is that an instruction sheet they gave to their salesmen?

Mr. SARBANES. Not only is that a diverse group from which you just cited, the U.S. Conference of Mayors, the Government Finance Officers Association, the American Association of Retired Persons, and the North American Securities Administrators Association. Now, none of those groups has a vested interest, so to speak, in this conflict. I understand that you have the trial lawyers who have a vested interest and the corporations who have a vested interest, and they are at one another, [[Page S 8937]] and they are at sort of loggerheads over this thing. One makes one set of assertions and the other makes another set of assertions. Everyone whom you cited there--as did the Senator from Nevada earlier in the debate, who listed additional organizations as well--all of whom are sort of outside the fray, they are coming and taking an outside, objective look at this thing. They have reached the judgment that this legislation is deficient. We are not getting outside groups reaching the judgment that the legislation, as is, is OK. The outside groups that say it is OK are players in the legislation. There are groups that say it is bad who are also players. But these are all organizations, in effect, that represent the public interest, the consumer. We have a whole list of consumer organizations as well. I think it is very important. I think Members really have to stop and think about this, because we are getting the same thing out of the editorial boards of the newspapers around the country. Overwhelmingly, those editorial boards are critical of this legislation. They see it goes too far. Most write editorials and say there are some bad practices that need to be corrected, but this legislation goes well beyond that and overreaches. I appreciate the Senator yielding. I think it is a very important point. None of those organizations have a vested interest in this conflict, unlike many other groups that do have such an interest.

Mr. SARBANES. We are trying to get at what is a proper approach on the safe harbor issue. Now, it is a complicated issue. The Senator himself said that earlier in the day, a very complicated issue. But the potential for harm and damage, if you do not get it right, is enormous.

Mr. SARBANES. That is right. And we have to strike the balance in the right place. That is all I am saying to my distinguished friend.

Mr. SARBANES. Not quite. Because until 1979 the SEC would not even permit forward-looking statements and yet our markets did very well. They grew. People prospered. Investments were made. The SEC would not even allow a forward-looking statement because they were so worried about what might happen to the investors. Then people came in and made the argument, well, you know, this is difficult; we ought to be able to make some projection. And they began to try to accommodate that, which is what they have been trying to do. So we have been trying to make some changes. But you have to get it right. And when the chairman of the SEC comes in with a letter when he came to the committee, it ought to give you pause. You ought to pause. You ought to stop and think about this thing. We ought not to have to enact something, then have devastation happen to investors and then come back and try to get it right, I say to my friend.

Mr. SARBANES. Will the Senator yield?

Mr. SARBANES. Will the Senator yield?

Mr. SARBANES

Mr. SARBANES. Mr. President, today, I am introducing, along with a number of my colleagues, a package of five bills directed to continuing and enhancing the efforts to clean up the Chesapeake Bay. Joining me in sponsoring elements of this package are my distinguished colleague from Maryland, Senator Mikulski, and my two distinguished Virginia colleagues, Senators Warner and Robb. Mr. President, the Chesapeake Bay is the largest estuary in the United States and the key to the ecological and economic health of the mid-Atlantic region. The bay, in fact, is one of the world's great natural resources. We tend to take it for granted, since it is right here at hand, so to speak, and I know many Members of this body have enjoyed the Chesapeake Bay. The bay provides thousands of jobs for the people in this region. It is a world-class fishery that produces a significant portion of the country's fin fish and shellfish catch. It is a major commercial waterway and shipping center for the region and for much of the eastern United States. And it is an unparalleled recreational center for almost 10 million people. The Chesapeake Bay also provides vital habitat for living resources. Over 2,700 plant and animal species live in the bay. It provides a major resting area for migratory birds and waterfowl along the Atlantic flyway, including many endangered and threatened species. I could go on and on about this dimension of the bay, but most people are aware of it. Certainly, our Nation's scientists are aware of it and have consistently regarded the protection and the enhancement of the quality of the Chesapeake Bay as an extremely important national objective. It is a treasured asset for those of us in Maryland--in fact, for all those who live around the bay in the other States, our neighboring State of Virginia, and the States to the north of us. Much of the water that comes into the bay comes from the Susquehanna River which originates in New York State. The Chesapeake Bay is a defining element in Maryland history and a key to the quality of Maryland life throughout our history. When the bay began to experience serious unprecedented declines in water quality and living resources in recent decades, the people in my State suffered as well. We lost thousands of jobs in the fishing industry. We lost much of the wilderness that defined the watershed. We began to appreciate for the first time the profound impact that human activity could have on the Chesapeake Bay ecosystem. Untreated sewage, deforestation, toxic chemicals, farm runoff, and increased development resulted in a degradation of water quality and a destruction of wildlife and its habitat. Now, fortunately, over the last two decades we have also come to understand that humans can have a positive influence on the environment, and that we can, if we choose, assist nature to repair much of the damage which has been done. We now treat sewage before it enters our waters. We ban toxic chemicals that were killing the wildlife, we have initiated programs to reduce nonpoint source pollution, and we have taken aggressive steps to restore depleted fisheries. The States of Maryland, Virginia, and Pennsylvania deserve much of the credit for undertaking many of the actions that have put the bay and its watershed on the road to recovery. All three States have had major cleanup programs. They have made significant commitments in terms of resources. It is an important priority item on the agendas of the bay States. Successive administrations--Governors have been strongly committed, State legislatures, the public. There are a number of private organizations-- the Chesapeake Bay Foundation, for example--which do extraordinarily good work in this area. But there has been an involvement of the Federal Government as well in helping to bring about the recent successes. It has been an essential and critical involvement. Without the Federal Clean Water Act, the Federal ban on DDT, and EPA's watershed-wide coordination of Chesapeake Bay restoration and cleanup activities, we would not have been able to bring about the concerted effort, the real partnership, that is succeeding in improving the water quality of the bay and is succeeding in bringing back many of the fish and wildlife species that were on their way to simply being a memory. So there has been an important role that has been played by the National Government in serving as a catalyst to bring together the State and local effort and the private sector effort. An extraordinary partnership has been built that is much greater than the sum of its parts. There is a dynamic element that has resulted, as a consequence, that has enabled us to gain a significant momentum in raising the quality of the Chesapeake Bay to the benefit of everyone. The Chesapeake Bay is getting cleaner, but we cannot afford to be complacent. There are tremendous stresses imposed upon the bay. This is a fast-growing area of the country, with increased population. The commercial stresses intensify. So we need to address the continuing needs of the bay restoration effort. The hard work, investment, and commitment, at all levels, which has brought gains over the last two decades, must not be allowed to relax. The measures I am introducing today are designed to build upon our National Government's past role in the Chesapeake Bay program, the highly successful Federal-State-local partnership to which I made reference, that so ably coordinates and directs efforts to restore the bay. The proposed legislation reauthorizes the bay program and expands the responsibilities of the Federal agencies with a stake in the future of the bay so as to address continuing trouble spots in the watershed. Difficulties identified by the Chesapeake Bay community include loss of wetlands and forests, soil erosion, toxics, nuisance species, and shellfish disease. Let me just outline briefly how these various measures seek to accomplish this. First among this package of five bills is legislation that carries forward and enhances the role of the Environmental Protection Agency as the lead Federal agency committed to cleaning up the bay. It establishes a mechanism for interagency coordination and cooperation in the Chesapeake Bay restoration efforts. The proposal also calls on EPA to initiate new programs to conduct watershed-wide research, programs to restore essential habitat, and programs to reduce toxics in the watershed. Another bill in this package directs the Coast Guard to develop guidelines for ships entering U.S. waters, to limit the opportunity for the introduction of potentially harmful nonindigenous species through ballast water releases. In other words, the bay is a ship artery. It is a commercial waterway. The Port of Baltimore is one of our Nation's leading ports. Ships coming into the Chesapeake Bay often release ballast water. The concern is that in the course of doing so they will release into the bay species that are nonindigenous to the bay. In other words, species that had been taken on elsewhere in the world and then would be released into the bay to its detriment. In fact, this legislation builds on the program undertaken in the Great Lakes where nonindigenous species, such as the zebra mussel, are already causing millions of dollars in damage. We want to avoid such a situation developing in the Chesapeake Bay, and this provision giving the Coast Guard a role to play with respect to the release of ballast water is important in that regard. Third, the package of legislation continues NOAA's role as the Federal agency responsible for providing key marine research in the Chesapeake Bay. It directs NOAA to continue to undertake research on and to develop solutions for the diseases that have ravaged oyster fisheries throughout the United States and, in particular, in the Chesapeake Bay. We have been very hard hit by these diseases that have virtually decimated the oyster industry. NOAA is the agency to carry forward this key marine research. Fourth, the package of legislation calls on the Army Corps of Engineers to provide assistance to State and local governments in the design and construction of water-related infrastructure, and to assist in developing resource protection projects. Let me just give an example of the projects I am talking about. The beneficial use of dredge material which offers a win-win situation. We have to dredge the bay channels for shipping purposes. There is a problem with the disposal of the spoil from that dredging. We now realize that if we move it to eroding islands, we can rebuild the islands. In other words, you have a disposal site so that you dispose of it in a way that is beneficial to the environment by renewing habitat. We also are interested in the corps addressing sediment and erosion control questions, the protection of eroding shoreline, and the protection of essential public works such as waste water treatment and water supply facilities. The final piece of legislation in this package directs the U.S. Department of Agriculture, acting through the Natural Resources Conservation Service and through the Forest Service, to encourage the planting of streamside forests in the Chesapeake Bay watershed and in other conservation priority areas. In other words, we encourage the planting of forest buffers, which then help to limit the pollution of water resources by reducing the entry of nonpoint pollutants into streams, and by stabilizing stream banks. It is a very important and worthwhile program. By planting these buffer zones of trees we are able to stabilize the stream bank, and also filter out pollutants which otherwise would go into the bodies of water. Mr. President, it is the hope of the cosponsors that most of these measures will ultimately be incorporated into larger pieces of legislation that are due to be reauthorized or considered this year. However, if such legislation is not considered or should become stalled in the legislative process--the larger legislation covers a whole range of issues--it is our intention to try to move forward with this legislation separately. The Chesapeake Bay cleanup effort has been a major bipartisan undertaking in this body. It has consistently, over the years, been strongly supported by virtually all Members of the Senate. I strongly urge my colleagues to join with us in supporting this legislation and contributing to the improvement and the enhancement of one of our Nation's most valuable and treasured natural resources. Mr. President, I ask unanimous consent that the text of these bills and a section-by-section analysis of the bills be printed in the Record.