(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

Bill Would Amend 1995 Securities Reform Act

A bill pending in the House of Representatives would change the safe harbor and discovery provisions of the Private Securities Litigation Reform Act of 1995 and repeal the Securities Litigation Uniform Standards Act of 1998, which made federal courts the exclusive venue for most securities class actions. The Shareholder and Employee Rights Restoration Act of 2002, H.R.3829, introduced by Rep. Bart Stupak, is strongly supported by a number of consumer groups but business groups have already begun an advertising campaign in opposition to the measure.

The bill would restore aiding and abetting liability for those who help perpetrate fraud and provide for joint and several liability in securities fraud cases. Investors have not been able to recover for such conduct in private suits since the decision of the U.S. Supreme Court in Central Bank of Denver v. First Interstate Bank (1993-94 CCH Dec. ¶98,178). The PSLRA largely replaced joint and several liability with proportionate liability. According to Rep. Stupak, restoration of joint and several liability in securities fraud cases is especially important in a case like Enron where the primary wrongdoer is bankrupt.

In addition, H.R.3829 would extend the statute of limitations of securities fraud lawsuits. Currently, a victim of securities fraud must file within a year after the fraud is discovered and within three years of the actual fraud. The bill provides that an implied private right of action could be brought within three years after the alleged fraud was discovered.

The bill also proposes to make changes to the discovery standards. Currently under the PSLRA, discovery is halted while a motion to dismiss is under consideration. Mr. Stupak worries that this standard can lead to abuses, mentioning in this regard the shredding of Enron documents. His bill would repeal the halt on discovery during a dismissal motion.

The bill would also repeal key PSLRA provision, the safe-harbor provision for forward-looking statements, which has lead to growth in the use of such comments. According to Mr. Stupak, the current standard provides protection from liability from action against any predictive statements, even those made recklessly, as long as the statement has a basic disclaimer.