[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1058 Enrolled Bill (ENR)]
H.R.1058
One Hundred Fourth Congress
of the
United States of America
AT THE FIRST SESSION
Begun and held at the City of Washington on Wednesday,
the fourth day of January, one thousand nine hundred and ninety-five
An Act
To reform Federal securities litigation, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,

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(a) Short Title.--This Act may be cited as the ``Private Securities
Litigation Reform Act of 1995''.
(b) Table of Contents.--The table of contents for this Act is as
follows:

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297c8250806231179511652aaffeb4cf0d84635a80aa10cd50c9a26ecda28b77

TITLE I

-REDUCTION OF ABUSIVE LITIGATION

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6f06d3e653d7dcf1a33087f3a4e56d3e64f6281eba31c605951115c83a0427f8

(a) Amendment to the Securities Act of 1933.--Title I of the
Securities Act of 1933 (15 U.S.C. 77a et seq.) is amended by inserting
after section 27 (as added by this Act) the following new section:
``SEC. 27A. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.
``(a) Applicability.--This section shall apply only to a forward-
looking statement made by--
``(1) an issuer that, at the time that the statement is made,
is subject to the reporting requirements of section 13(a) or
section 15(d) of the Securities Exchange Act of 1934;
``(2) a person acting on behalf of such issuer;
``(3) an outside reviewer retained by such issuer making a
statement on behalf of such issuer; or
``(4) an underwriter, with respect to information provided by
such issuer or information derived from information provided by the
issuer.
``(b) Exclusions.--Except to the extent otherwise specifically
provided by rule, regulation, or order of the Commission, this section
shall not apply to a forward-looking statement--
``(1) that is made with respect to the business or operations
of the issuer, if the issuer--
``(A) during the 3-year period preceding the date on which
the statement was first made--
``(i) was convicted of any felony or misdemeanor
described in clauses (i) through (iv) of section
15(b)(4)(B) of the Securities Exchange Act of 1934; or
``(ii) has been made the subject of a judicial or
administrative decree or order arising out of a
governmental action that--
``(I) prohibits future violations of the antifraud
provisions of the securities laws;
``(II) requires that the issuer cease and desist
from violating the antifraud provisions of the
securities laws; or
``(III) determines that the issuer violated the
antifraud provisions of the securities laws;
``(B) makes the forward-looking statement in connection
with an offering of securities by a blank check company;
``(C) issues penny stock;
``(D) makes the forward-looking statement in connection
with a rollup transaction; or
``(E) makes the forward-looking statement in connection
with a going private transaction; or
``(2) that is--
``(A) included in a financial statement prepared in
accordance with generally accepted accounting principles;
``(B) contained in a registration statement of, or
otherwise issued by, an investment company;
``(C) made in connection with a tender offer;
``(D) made in connection with an initial public offering;
``(E) made in connection with an offering by, or relating
to the operations of, a partnership, limited liability company,
or a direct participation investment program; or
``(F) made in a disclosure of beneficial ownership in a
report required to be filed with the Commission pursuant to
section 13(d) of the Securities Exchange Act of 1934.
``(c) Safe Harbor.--
``(1) In general.--Except as provided in subsection (b), in any
private action arising under this title that is based on an untrue
statement of a material fact or omission of a material fact
necessary to make the statement not misleading, a person referred
to in subsection (a) shall not be liable with respect to any
forward-looking statement, whether written or oral, if and to the
extent that--
``(A) the forward-looking statement is--
``(i) identified as a forward-looking statement, and is
accompanied by meaningful cautionary statements identifying
important factors that could cause actual results to differ
materially from those in the forward-looking statement; or
``(ii) immaterial; or
``(B) the plaintiff fails to prove that the forward-looking
statement--
``(i) if made by a natural person, was made with actual
knowledge by that person that the statement was false or
misleading; or
``(ii) if made by a business entity; was--
``(I) made by or with the approval of an executive
officer of that entity, and
``(II) made or approved by such officer with actual
knowledge by that officer that the statement was false
or misleading.
``(2) Oral forward-looking statements.--In the case of an oral
forward-looking statement made by an issuer that is subject to the
reporting requirements of section 13(a) or section 15(d) of the
Securities Exchange Act of 1934, or by a person acting on behalf of
such issuer, the requirement set forth in paragraph (1)(A) shall be
deemed to be satisfied--
``(A) if the oral forward-looking statement is accompanied
by a cautionary statement--
``(i) that the particular oral statement is a forward-
looking statement; and
``(ii) that the actual results could differ materially
from those projected in the forward-looking statement; and
``(B) if--
``(i) the oral forward-looking statement is accompanied
by an oral statement that additional information concerning
factors that could cause actual results to differ
materially from those in the forward-looking statement is
contained in a readily available written document, or
portion thereof;
``(ii) the accompanying oral statement referred to in
clause (i) identifies the document, or portion thereof,
that contains the additional information about those
factors relating to the forward-looking statement; and
``(iii) the information contained in that written
document is a cautionary statement that satisfies the
standard established in paragraph (1)(A).
``(3) Availability.--Any document filed with the Commission or
generally disseminated shall be deemed to be readily available for
purposes of paragraph (2).
``(4) Effect on other safe harbors.--The exemption provided for
in paragraph (1) shall be in addition to any exemption that the
Commission may establish by rule or regulation under subsection
(g).
``(d) Duty To Update.--Nothing in this section shall impose upon
any person a duty to update a forward-looking statement.
``(e) Dispositive Motion.--On any motion to dismiss based upon
subsection (c)(1), the court shall consider any statement cited in the
complaint and cautionary statement accompanying the forward-looking
statement, which are not subject to material dispute, cited by the
defendant.
``(f) Stay Pending Decision on Motion.--In any private action
arising under this title, the court shall stay discovery (other than
discovery that is specifically directed to the applicability of the
exemption provided for in this section) during the pendency of any
motion by a defendant for summary judgment that is based on the grounds
that--
``(1) the statement or omission upon which the complaint is
based is a forward-looking statement within the meaning of this
section; and
``(2) the exemption provided for in this section precludes a
claim for relief.
``(g) Exemption Authority.--In addition to the exemptions provided
for in this section, the Commission may, by rule or regulation, provide
exemptions from or under any provision of this title, including with
respect to liability that is based on a statement or that is based on
projections or other forward-looking information, if and to the extent
that any such exemption is consistent with the public interest and the
protection of investors, as determined by the Commission.
``(h) Effect on Other Authority of Commission.--Nothing in this
section limits, either expressly or by implication, the authority of
the Commission to exercise similar authority or to adopt similar rules
and regulations with respect to forward-looking statements under any
other statute under which the Commission exercises rulemaking
authority.
``(i) Definitions.--For purposes of this section, the following
definitions shall apply:
``(1) Forward-looking statement.--The term `forward-looking
statement' means--
``(A) a statement containing a projection of revenues,
income (including income loss), earnings (including earnings
loss) per share, capital expenditures, dividends, capital
structure, or other financial items;
``(B) a statement of the plans and objectives of management
for future operations, including plans or objectives relating
to the products or services of the issuer;
``(C) a statement of future economic performance, including
any such statement contained in a 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;
``(D) any statement of the assumptions underlying or
relating to any statement described in subparagraph (A), (B),
or (C);
``(E) any report issued by an outside reviewer retained by
an issuer, to the extent that the report assesses a forward-
looking statement made by the issuer; or
``(F) a statement containing a projection or estimate of
such other items as may be specified by rule or regulation of
the Commission.
``(2) Investment company.--The term `investment company' has
the same meaning as in section 3(a) of the Investment Company Act
of 1940.
``(3) Penny stock.--The term `penny stock' has the same meaning
as in section 3(a)(51) of the Securities Exchange Act of 1934, and
the rules and regulations, or orders issued pursuant to that
section.
``(4) Going private transaction.--The term `going private
transaction' has the meaning given that term under the rules or
regulations of the Commission issued pursuant to section 13(e) of
the Securities Exchange Act of 1934.
``(5) Securities laws.--The term `securities laws' has the same
meaning as in section 3 of the Securities Exchange Act of 1934.
``(6) Person acting on behalf of an issuer.--The term `person
acting on behalf of an issuer' means an officer, director, or
employee of the issuer.
``(7) Other terms.--The terms `blank check company', `rollup
transaction', `partnership', `limited liability company',
`executive officer of an entity' and `direct participation
investment program', have the meanings given those terms by rule or
regulation of the Commission.''.
(b) Amendment to the Securities Exchange Act of 1934.--The
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by
inserting after section 21D (as added by this Act) the following new
section:
``SEC. 21E. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.
``(a) Applicability.--This section shall apply only to a forward-
looking statement made by--
``(1) an issuer that, at the time that the statement is made,
is subject to the reporting requirements of section 13(a) or
section 15(d);
``(2) a person acting on behalf of such issuer;
``(3) an outside reviewer retained by such issuer making a
statement on behalf of such issuer; or
``(4) an underwriter, with respect to information provided by
such issuer or information derived from information provided by
such issuer.
``(b) Exclusions.--Except to the extent otherwise specifically
provided by rule, regulation, or order of the Commission, this section
shall not apply to a forward-looking statement--
``(1) that is made with respect to the business or operations
of the issuer, if the issuer--
``(A) during the 3-year period preceding the date on which
the statement was first made--
``(i) was convicted of any felony or misdemeanor
described in clauses (i) through (iv) of section
15(b)(4)(B); or
``(ii) has been made the subject of a judicial or
administrative decree or order arising out of a
governmental action that--
``(I) prohibits future violations of the antifraud
provisions of the securities laws;
``(II) requires that the issuer cease and desist
from violating the antifraud provisions of the
securities laws; or
``(III) determines that the issuer violated the
antifraud provisions of the securities laws;
``(B) makes the forward-looking statement in connection
with an offering of securities by a blank check company;
``(C) issues penny stock;
``(D) makes the forward-looking statement in connection
with a rollup transaction; or
``(E) makes the forward-looking statement in connection
with a going private transaction; or
``(2) that is--
``(A) included in a financial statement prepared in
accordance with generally accepted accounting principles;
``(B) contained in a registration statement of, or
otherwise issued by, an investment company;
``(C) made in connection with a tender offer;
``(D) made in connection with an initial public offering;
``(E) made in connection with an offering by, or relating
to the operations of, a partnership, limited liability company,
or a direct participation investment program; or
``(F) made in a disclosure of beneficial ownership in a
report required to be filed with the Commission pursuant to
section 13(d).
``(c) Safe Harbor.--
``(1) In general.--Except as provided in subsection (b), in any
private action arising under this title that is based on an untrue
statement of a material fact or omission of a material fact
necessary to make the statement not misleading, a person referred
to in subsection (a) shall not be liable with respect to any
forward-looking statement, whether written or oral, if and to the
extent that--
``(A) the forward-looking statement is--
``(i) identified as a forward-looking statement, and is
accompanied by meaningful cautionary statements identifying
important factors that could cause actual results to differ
materially from those in the forward-looking statement; or
``(ii) immaterial; or
``(B) the plaintiff fails to prove that the forward-looking
statement--
``(i) if made by a natural person, was made with actual
knowledge by that person that the statement was false or
misleading; or
``(ii) if made by a business entity; was--
``(I) made by or with the approval of an executive
officer of that entity; and
``(II) made or approved by such officer with actual
knowledge by that officer that the statement was false
or misleading.
``(2) Oral forward-looking statements.--In the case of an oral
forward-looking statement made by an issuer that is subject to the
reporting requirements of section 13(a) or section 15(d), or by a
person acting on behalf of such issuer, the requirement set forth
in paragraph (1)(A) shall be deemed to be satisfied--
``(A) if the oral forward-looking statement is accompanied
by a cautionary statement--
``(i) that the particular oral statement is a forward-
looking statement; and
``(ii) that the actual results might differ materially
from those projected in the forward-looking statement; and
``(B) if--
``(i) the oral forward-looking statement is accompanied
by an oral statement that additional information concerning
factors that could cause actual results to materially
differ from those in the forward-looking statement is
contained in a readily available written document, or
portion thereof;
``(ii) the accompanying oral statement referred to in
clause (i) identifies the document, or portion thereof,
that contains the additional information about those
factors relating to the forward-looking statement; and
``(iii) the information contained in that written
document is a cautionary statement that satisfies the
standard established in paragraph (1)(A).
``(3) Availability.--Any document filed with the Commission or
generally disseminated shall be deemed to be readily available for
purposes of paragraph (2).
``(4) Effect on other safe harbors.--The exemption provided for
in paragraph (1) shall be in addition to any exemption that the
Commission may establish by rule or regulation under subsection
(g).
``(d) Duty To Update.--Nothing in this section shall impose upon
any person a duty to update a forward-looking statement.
``(e) Dispositive Motion.--On any motion to dismiss based upon
subsection (c)(1), the court shall consider any statement cited in the
complaint and any cautionary statement accompanying the forward-looking
statement, which are not subject to material dispute, cited by the
defendant.
``(f) Stay Pending Decision on Motion.--In any private action
arising under this title, the court shall stay discovery (other than
discovery that is specifically directed to the applicability of the
exemption provided for in this section) during the pendency of any
motion by a defendant for summary judgment that is based on the grounds
that--
``(1) the statement or omission upon which the complaint is
based is a forward-looking statement within the meaning of this
section; and
``(2) the exemption provided for in this section precludes a
claim for relief.
``(g) Exemption Authority.--In addition to the exemptions provided
for in this section, the Commission may, by rule or regulation, provide
exemptions from or under any provision of this title, including with
respect to liability that is based on a statement or that is based on
projections or other forward-looking information, if and to the extent
that any such exemption is consistent with the public interest and the
protection of investors, as determined by the Commission.
``(h) Effect on Other Authority of Commission.--Nothing in this
section limits, either expressly or by implication, the authority of
the Commission to exercise similar authority or to adopt similar rules
and regulations with respect to forward-looking statements under any
other statute under which the Commission exercises rulemaking
authority.
``(i) Definitions.--For purposes of this section, the following
definitions shall apply:
``(1) Forward-looking statement.--The term `forward-looking
statement' means--
``(A) a statement containing a projection of revenues,
income (including income loss), earnings (including earnings
loss) per share, capital expenditures, dividends, capital
structure, or other financial items;
``(B) a statement of the plans and objectives of management
for future operations, including plans or objectives relating
to the products or services of the issuer;
``(C) a statement of future economic performance, including
any such statement contained in a 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;
``(D) any statement of the assumptions underlying or
relating to any statement described in subparagraph (A), (B),
or (C);
``(E) any report issued by an outside reviewer retained by
an issuer, to the extent that the report assesses a forward-
looking statement made by the issuer; or
``(F) a statement containing a projection or estimate of
such other items as may be specified by rule or regulation of
the Commission.
``(2) Investment company.--The term `investment company' has
the same meaning as in section 3(a) of the Investment Company Act
of 1940.
``(3) Going private transaction.--The term `going private
transaction' has the meaning given that term under the rules or
regulations of the Commission issued pursuant to section 13(e).
``(4) Person acting on behalf of an issuer.--The term `person
acting on behalf of an issuer' means any officer, director, or
employee of such issuer.
``(5) Other terms.--The terms `blank check company', `rollup
transaction', `partnership', `limited liability company',
`executive officer of an entity' and `direct participation
investment program', have the meanings given those terms by rule or
regulation of the Commission.''.

e39e4911acdc63650772384db24c80527454356c82bf7e9c369c8574df5404aa

(a) Prohibition of Referral Fees.--Section 15(c) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o(c)) is amended by adding at the end
the following new paragraph:
``(8) Prohibition of referral fees.--No broker or dealer, or
person associated with a broker or dealer, may solicit or accept,
directly or indirectly, remuneration for assisting an attorney in
obtaining the representation of any person in any private action
arising under this title or under the Securities Act of 1933.''.
(b) Prohibition of Attorneys' Fees Paid From Commission
Disgorgement Funds.--
(1) Securities act of 1933.--Section 20 of the Securities Act
of 1933 (15 U.S.C. 77t) is amended by adding at the end the
following new subsection:
``(f) Prohibition of Attorneys' Fees Paid From Commission
Disgorgement Funds.--Except as otherwise ordered by the court upon
motion by the Commission, or, in the case of an administrative action,
as otherwise ordered by the Commission, funds disgorged as the result
of an action brought by the Commission in Federal court, or as a result
of any Commission administrative action, shall not be distributed as
payment for attorneys' fees or expenses incurred by private parties
seeking distribution of the disgorged funds.''.
(2) Securities exchange act of 1934.--Section 21(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u(d)) is amended by
adding at the end the following new paragraph:
``(4) Prohibition of attorneys' fees paid from commission
disgorgement funds.--Except as otherwise ordered by the court upon
motion by the Commission, or, in the case of an administrative
action, as otherwise ordered by the Commission, funds disgorged as
the result of an action brought by the Commission in Federal court,
or as a result of any Commission administrative action, shall not
be distributed as payment for attorneys' fees or expenses incurred
by private parties seeking distribution of the disgorged funds.''.

ea950af5a148488bca817fb16cc458a5955cc6597b1d12a5316da57965d281ae

Section 20 of the Securities Exchange Act of 1934 (15 U.S.C. 78t)
is amended--
(1) by striking the section heading and inserting the
following:
``liability of controlling persons and persons who aid and abet
violations'';
and
(2) by adding at the end the following new subsection:
``(f) Prosecution of Persons Who Aid and Abet Violations.--For
purposes of any action brought by the Commission under paragraph (1) or
(3) of section 21(d), any person that knowingly provides substantial
assistance to another person in violation of a provision of this title,
or of any rule or regulation issued under this title, shall be deemed
to be in violation of such provision to the same extent as the person
to whom such assistance is provided.''.

513670b2f1619c6b8f604371e45fa13f44117a229e0b31fb97f494d89d8ec015

Section 12 of the Securities Act of 1933 (15 U.S.C. 77l) is
amended--
(1) by inserting ``(a) In General.--'' before ``Any person'';
(2) by inserting ``, subject to subsection (b),'' after ``shall
be liable''; and
(3) by adding at the end the following:
``(b) Loss Causation.--In an action described in subsection (a)(2),
if the person who offered or sold such security proves that any portion
or all of the amount recoverable under subsection (a)(2) represents
other than the depreciation in value of the subject security resulting
from such part of the prospectus or oral communication, with respect to
which the liability of that person is asserted, not being true or
omitting to state a material fact required to be stated therein or
necessary to make the statement not misleading, then such portion or
amount, as the case may be, shall not be recoverable.''.

347a0da53cc1cb1c3d90e437a7efb6564ae31fb48cb3fe5ff36f351b2a7b0792

QUALIFIED RETIREMENT PLANS.
(a) In General.--Not later than 180 days after the date of
enactment of this Act, the Securities and Exchange Commission shall--
(1) determine whether investors that are senior citizens or
qualified retirement plans require greater protection against
securities fraud than is provided in this Act and the amendments
made by this Act;
(2) determine whether investors that are senior citizens or
qualified retirement plans have been adversely impacted by abusive
or unnecessary securities fraud litigation, and whether the
provisions in this Act or amendments made by this Act are
sufficient to protect their investments from such litigation; and
(3) if so, submit to the Congress a report containing
recommendations on protections from securities fraud and abusive or
unnecessary securities fraud litigation that the Commission
determines to be appropriate to thoroughly protect such investors.
(b) Definitions.--For purposes of this section--
(1) the term ``qualified retirement plan'' has the same meaning
as in section 4974(c) of the Internal Revenue Code of 1986; and
(2) the term ``senior citizen'' means an individual who is 62
years of age or older as of the date of the securities transaction
at issue.

470a767296c3d188d38fa4f22e916b1c63ec48eb777574aeb07a7f883c70905e

ACT.
Section 1964(c) of title 18, United States Code, is amended by
inserting before the period ``, except that no person may rely upon any
conduct that would have been actionable as fraud in the purchase or
sale of securities to establish a violation of section 1962. The
exception contained in the preceding sentence does not apply to an
action against any person that is criminally convicted in connection
with the fraud, in which case the statute of limitations shall start to
run on the date on which the conviction becomes final''.

4a19c69679562b88e86e93cf5da24964d14d37af3ef6373ffa090a8924414d6f

The amendments made by this title shall not affect or apply to any
private action arising under title I of the Securities Exchange Act of
1934 or title I of the Securities Act of 1933, commenced before and
pending on the date of enactment of this Act.

2cbe6fd2e59f94b4c81ed837ee7f0806f8a35f5f24feb23214b41ec0f095a9e8

(a) Amendment to Securities and Exchange Act of 1934.--Section 21D
of the Securities Exchange Act of 1934 (as added by this Act) is
amended by adding at the end the following new subsection:
``(g) Proportionate Liability.--
``(1) Applicability.--Nothing in this subsection shall be
construed to create, affect, or in any manner modify, the standard
for liability associated with any action arising under the
securities laws.
``(2) Liability for damages.--
``(A) Joint and several liability.--Any covered person
against whom a final judgment is entered in a private action
shall be liable for damages jointly and severally only if the
trier of fact specifically determines that such covered person
knowingly committed a violation of the securities laws.
``(B) Proportionate liability.--
``(i) In general.--Except as provided in paragraph (1),
a covered person against whom a final judgment is entered
in a private action shall be liable solely for the portion
of the judgment that corresponds to the percentage of
responsibility of that covered person, as determined under
paragraph (3).
``(ii) Recovery by and costs of covered person.--In any
case in which a contractual relationship permits, a covered
person that prevails in any private action may recover the
attorney's fees and costs of that covered person in
connection with the action.
``(3) Determination of responsibility.--
``(A) In general.--In any private action, the court shall
instruct the jury to answer special interrogatories, or if
there is no jury, shall make findings, with respect to each
covered person and each of the other persons claimed by any of
the parties to have caused or contributed to the loss incurred
by the plaintiff, including persons who have entered into
settlements with the plaintiff or plaintiffs, concerning--
``(i) whether such person violated the securities laws;
``(ii) the percentage of responsibility of such person,
measured as a percentage of the total fault of all persons
who caused or contributed to the loss incurred by the
plaintiff; and
``(iii) whether such person knowingly committed a
violation of the securities laws.
``(B) Contents of special interrogatories or findings.--The
responses to interrogatories, or findings, as appropriate,
under subparagraph (A) shall specify the total amount of
damages that the plaintiff is entitled to recover and the
percentage of responsibility of each covered person found to
have caused or contributed to the loss incurred by the
plaintiff or plaintiffs.
``(C) Factors for consideration.--In determining the
percentage of responsibility under this paragraph, the trier of
fact shall consider--
``(i) the nature of the conduct of each covered person
found to have caused or contributed to the loss incurred by
the plaintiff or plaintiffs; and
``(ii) the nature and extent of the causal relationship
between the conduct of each such person and the damages
incurred by the plaintiff or plaintiffs.
``(4) Uncollectible share.--
``(A) In general.--Notwithstanding paragraph (2)(B), upon
motion made not later than 6 months after a final judgment is
entered in any private action, the court determines that all or
part of the share of the judgment of the covered person is not
collectible against that covered person, and is also not
collectible against a covered person described in paragraph
(2)(A), each covered person described in paragraph (2)(B) shall
be liable for the uncollectible share as follows:
``(i) Percentage of net worth.--Each covered person
shall be jointly and severally liable for the uncollectible
share if the plaintiff establishes that--
``(I) the plaintiff is an individual whose
recoverable damages under the final judgment are equal
to more than 10 percent of the net worth of the
plaintiff; and
``(II) the net worth of the plaintiff is equal to
less than $200,000.
``(ii) Other plaintiffs.--With respect to any plaintiff
not described in subclauses (I) and (II) of clause (i),
each covered person shall be liable for the uncollectible
share in proportion to the percentage of responsibility of
that covered person, except that the total liability of a
covered person under this clause may not exceed 50 percent
of the proportionate share of that covered person, as
determined under paragraph (3)(B).
``(iii) Net worth.--For purposes of this subparagraph,
net worth shall be determined as of the date immediately
preceding the date of the purchase or sale (as applicable)
by the plaintiff of the security that is the subject of the
action, and shall be equal to the fair market value of
assets, minus liabilities, including the net value of the
investments of the plaintiff in real and personal property
(including personal residences).
``(B) Overall limit.--In no case shall the total payments
required pursuant to subparagraph (A) exceed the amount of the
uncollectible share.
``(C) Covered persons subject to contribution.--A covered
person against whom judgment is not collectible shall be
subject to contribution and to any continuing liability to the
plaintiff on the judgment.
``(5) Right of contribution.--To the extent that a covered
person is required to make an additional payment pursuant to
paragraph (4), that covered person may recover contribution--
``(A) from the covered person originally liable to make the
payment;
``(B) from any covered person liable jointly and severally
pursuant to paragraph (2)(A);
``(C) from any covered person held proportionately liable
pursuant to this paragraph who is liable to make the same
payment and has paid less than his or her proportionate share
of that payment; or
``(D) from any other person responsible for the conduct
giving rise to the payment that would have been liable to make
the same payment.
``(6) Nondisclosure to jury.--The standard for allocation of
damages under paragraphs (2) and (3) and the procedure for
reallocation of uncollectible shares under paragraph (4) shall not
be disclosed to members of the jury.
``(7) Settlement discharge.--
``(A) In general.--A covered person who settles any private
action at any time before final verdict or judgment shall be
discharged from all claims for contribution brought by other
persons. Upon entry of the settlement by the court, the court
shall enter a bar order constituting the final discharge of all
obligations to the plaintiff of the settling covered person
arising out of the action. The order shall bar all future
claims for contribution arising out of the action--
``(i) by any person against the settling covered
person; and
``(ii) by the settling covered person against any
person, other than a person whose liability has been
extinguished by the settlement of the settling covered
person.
``(B) Reduction.--If a covered person enters into a
settlement with the plaintiff prior to final verdict or
judgment, the verdict or judgment shall be reduced by the
greater of--
``(i) an amount that corresponds to the percentage of
responsibility of that covered person; or
``(ii) the amount paid to the plaintiff by that covered
person.
``(8) Contribution.--A covered person who becomes jointly and
severally liable for damages in any private action may recover
contribution from any other person who, if joined in the original
action, would have been liable for the same damages. A claim for
contribution shall be determined based on the percentage of
responsibility of the claimant and of each person against whom a
claim for contribution is made.
``(9) Statute of limitations for contribution.--In any private
action determining liability, an action for contribution shall be
brought not later than 6 months after the entry of a final,
nonappealable judgment in the action, except that an action for
contribution brought by a covered person who was required to make
an additional payment pursuant to paragraph (4) may be brought not
later than 6 months after the date on which such payment was made.
``(10) Definitions.--For purposes of this subsection--
``(A) a covered person `knowingly commits a violation of
the securities laws'--
``(i) with respect to an action that is based on an
untrue statement of material fact or omission of a material
fact necessary to make the statement not misleading, if--
``(I) that covered person makes an untrue statement
of a material fact, with actual knowledge that the
representation is false, or omits to state a fact
necessary in order to make the statement made not
misleading, with actual knowledge that, as a result of
the omission, one of the material representations of
the covered person is false; and
``(II) persons are likely to reasonably rely on
that misrepresentation or omission; and
``(ii) with respect to an action that is based on any
conduct that is not described in clause (i), if that
covered person engages in that conduct with actual
knowledge of the facts and circumstances that make the
conduct of that covered person a violation of the
securities laws;
``(B) reckless conduct by a covered person shall not be
construed to constitute a knowing commission of a violation of
the securities laws by that covered person;
``(C) the term `covered person' means--
``(i) a defendant in any private action arising under
this title; or
``(ii) a defendant in any private action arising under
section 11 of the Securities Act of 1933, who is an outside
director of the issuer of the securities that are the
subject of the action; and
``(D) the term `outside director' shall have the meaning
given such term by rule or regulation of the Commission.''.
(b) Amendments to the Securities Act of 1933.--Section 11(f) of the
Securities Act of 1933 (12 U.S.C. 77k(f)) is amended--
(1) by striking ``All'' and inserting ``(1) Except as provided
in paragraph (2), all''; and
(2) by adding at the end the following new paragraph:
``(2)(A) The liability of an outside director under subsection (e)
shall be determined in accordance with section 38 of the Securities
Exchange Act of 1934.
``(B) For purposes of this paragraph, the term `outside director'
shall have the meaning given such term by rule or regulation of the
Commission .''.

006d82a569f37ec948080658db09e2206be9af5cea59e558ed76fc56104fb24f

TITLE II

-REDUCTION OF COERCIVE SETTLEMENTS

The amendments made by this title shall not affect or apply to any
private action arising under the securities laws commenced before and
pending on the date of enactment of this Act.

e01ed5d6dee7131fc7f15104811ec494dc506b13fee89339c818ee2902c886a9

Nothing in this Act or the amendments made by this Act shall be
deemed to create or ratify any implied private right of action, or to
prevent the Commission, by rule or regulation, from restricting or
otherwise regulating private actions under the Securities Exchange Act
of 1934.

45519970106a88a72a995354a470e549e497fcc72ca229f41200e14037687763

(a) In General.--The Securities Exchange Act of 1934 (15 U.S.C. 78a
et seq.) is amended by inserting immediately after section 10 the
following new section:
``SEC. 10A. AUDIT REQUIREMENTS.
``(a) In General.--Each audit required pursuant to this title of
the financial statements of an issuer by an independent public
accountant shall include, in accordance with generally accepted
auditing standards, as may be modified or supplemented from time to
time by the Commission--
``(1) procedures designed to provide reasonable assurance of
detecting illegal acts that would have a direct and material effect
on the determination of financial statement amounts;
``(2) procedures designed to identify related party
transactions that are material to the financial statements or
otherwise require disclosure therein; and
``(3) an evaluation of whether there is substantial doubt about
the ability of the issuer to continue as a going concern during the
ensuing fiscal year.
``(b) Required Response To Audit Discoveries.--
``(1) Investigation and report to management.--If, in the
course of conducting an audit pursuant to this title to which
subsection (a) applies, the independent public accountant detects
or otherwise becomes aware of information indicating that an
illegal act (whether or not perceived to have a material effect on
the financial statements of the issuer) has or may have occurred,
the accountant shall, in accordance with generally accepted
auditing standards, as may be modified or supplemented from time to
time by the Commission--
``(A)(i) determine whether it is likely that an illegal act
has occurred; and
``(ii) if so, determine and consider the possible effect of
the illegal act on the financial statements of the issuer,
including any contingent monetary effects, such as fines,
penalties, and damages; and
``(B) as soon as practicable, inform the appropriate level
of the management of the issuer and assure that the audit
committee of the issuer, or the board of directors of the
issuer in the absence of such a committee, is adequately
informed with respect to illegal acts that have been detected
or have otherwise come to the attention of such accountant in
the course of the audit, unless the illegal act is clearly
inconsequential.
``(2) Response to failure to take remedial action.--If, after
determining that the audit committee of the board of directors of
the issuer, or the board of directors of the issuer in the absence
of an audit committee, is adequately informed with respect to
illegal acts that have been detected or have otherwise come to the
attention of the accountant in the course of the audit of such
accountant, the independent public accountant concludes that--
``(A) the illegal act has a material effect on the
financial statements of the issuer;
``(B) the senior management has not taken, and the board of
directors has not caused senior management to take, timely and
appropriate remedial actions with respect to the illegal act;
and
``(C) the failure to take remedial action is reasonably
expected to warrant departure from a standard report of the
auditor, when made, or warrant resignation from the audit
engagement;
the independent public accountant shall, as soon as practicable,
directly report its conclusions to the board of directors.
``(3) Notice to commission; response to failure to notify.--An
issuer whose board of directors receives a report under paragraph
(2) shall inform the Commission by notice not later than 1 business
day after the receipt of such report and shall furnish the
independent public accountant making such report with a copy of the
notice furnished to the Commission. If the independent public
accountant fails to receive a copy of the notice before the
expiration of the required 1-business-day period, the independent
public accountant shall--
``(A) resign from the engagement; or
``(B) furnish to the Commission a copy of its report (or
the documentation of any oral report given) not later than 1
business day following such failure to receive notice.
``(4) Report after resignation.--If an independent public
accountant resigns from an engagement under paragraph (3)(A), the
accountant shall, not later than 1 business day following the
failure by the issuer to notify the Commission under paragraph (3),
furnish to the Commission a copy of the accountant's report (or the
documentation of any oral report given).
``(c) Auditor Liability Limitation.--No independent public
accountant shall be liable in a private action for any finding,
conclusion, or statement expressed in a report made pursuant to
paragraph (3) or (4) of subsection (b), including any rule promulgated
pursuant thereto.
``(d) Civil Penalties in Cease-and-Desist Proceedings.--If the
Commission finds, after notice and opportunity for hearing in a
proceeding instituted pursuant to section 21C, that an independent
public accountant has willfully violated paragraph (3) or (4) of
subsection (b), the Commission may, in addition to entering an order
under section 21C, impose a civil penalty against the independent
public accountant and any other person that the Commission finds was a
cause of such violation. The determination to impose a civil penalty
and the amount of the penalty shall be governed by the standards set
forth in section 21B.
``(e) Preservation of Existing Authority.--Except as provided in
subsection (d), nothing in this section shall be held to limit or
otherwise affect the authority of the Commission under this title.
``(f) Definition.--As used in this section, the term `illegal act'
means an act or omission that violates any law, or any rule or
regulation having the force of law.''.
(b) Effective Dates.--The amendment made by subsection (a) shall
apply to each annual report--
(1) for any period beginning on or after January 1, 1996, with
respect to any registrant that is required to file selected
quarterly financial data pursuant to the rules or regulations of
the Securities and Exchange Commission; and
(2) for any period beginning on or after January 1, 1997, with
respect to any other registrant.
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.

Private Securities Litigation Reform Act of 1995

Other Sections

TITLE I

TITLE II

TITLE III

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