[This veto was overriden by Congress and became law. - Staff]
THE WHITE HOUSE
December 20, 1995
TO THE HOUSE OF REPRESENTATIVES:
I am returning herewith without my approval H.R. 1058, the "Private
Securities Litigation Reform Act of 1995." This legislation is designed
to reform portions of the Federal securities laws to end frivolous
lawsuits and to ensure that investors receive the best possible
information by reducing the litigation risk to companies that make
I support those goals. Indeed, I made clear my willingness to support
the bill passed by the Senate with appropriate "safe harbor" language,
even though it did not include certain provisions that I favor -- such
as enhanced provisions with respect to joint and several liability,
aider and abettor liability, and statute of limitations.
I am not, however, willing to sign legislation that will have the effect
of closing the courthouse door on investors who have legitimate claims.
Those who are the victims of fraud should have recourse in our courts.
Unfortunately, changes made in this bill during conference could well
This country is blessed by strong and vibrant markets and I believe that
they function best when corporations can raise capital by providing
investors with their best good-faith assessment of future prospects,
without fear of costly, unwarranted litigation. But I also know that
our markets are as strong and effective as they are because they operate
-- and are seen to operate -- with integrity. I believe that this bill,
as modified in conference, could erode this crucial basis of our
Specifically, I object to the following elements of this bill. First, I
believe that the pleading requirements of the Conference Report with
regard to a defendant's state of mind impose an unacceptable procedural
hurdle to meritorious claims being heard in Federal courts. I am
prepared to support the high pleading standard of the U.S. Court of
Appeals for the Second Circuit -- the highest pleading standard of any
Federal circuit court. But the conferees make crystal clear in the
Statement of Managers their intent to raise the standard even beyond
that level. I am not prepared to accept that.
The conferees deleted an amendment offered by Senator Specter and
adopted by the Senate that specifically incorporated Second Circuit case
law with respect to pleading a claim of fraud. Then they specifically
indicated that they were not adopting Second Circuit case law but
instead intended to "strengthen" the existing pleading requirements of
the Second Circuit. All this shows that the conferees meant to erect a
higher barrier to bringing suit than any now existing -- one so high
that even the most aggrieved investors with the most painful losses may
get tossed out of court before they have a chance to prove their case.
Second, while I support the language of the Conference Report providing
a "safe harbor" for companies that include meaningful cautionary
statements in their projections of earnings, the Statement of Managers -
- which will be used by courts as a guide to the intent of the Congress
with regard to the meaning of the bill -- attempts to weaken the
cautionary language that the bill itself requires. Once again, the end
result may be that investors find their legitimate claims unfairly
Third, the Conference Report's Rule 11 provision lacks balance, treating
plaintiffs more harshly than defendants in a manner that comes too close
to the "loser pays" standard I oppose.
I want to sign a good bill and I am prepared to do exactly that if the
Congress will make the following changes to thislegislation: first,
adopt the Second Circuit pleading standards and reinsert the Specter
amendment into the bill. I will support a bill that submits all
plaintiffs to the tough pleading standards of the Second Circuit, but I
am not prepared to go beyond that. Second, remove the language in the
Statement of Managers that waters down the nature of the cautionary
language that must be included to make the safe harbor safe. Third,
restore the Rule 11 language to that of the Senate bill.
While it is true that innocent companies are hurt by frivolous lawsuits
and that valuable information may be withheld from investors when
companies fear the risk of such suits, it is also true that there are
innocent investors who are defrauded and who are able to recover their
losses only because they can go to court. It is appropriate to change
the law to ensure that companies can make reasonable statements and
future projections without getting sued every time earnings turn out to
be lower than expected or stock prices drop. But it is not appropriate
to erect procedural barriers that will keep wrongly injured persons from
having their day in court.
I ask the Congress to send me a bill promptly that will put an end to
litigation abuses while still protecting the legitimate rights of
ordinary investors. I will sign such a bill as soon as it reaches my
WILLIAM J. CLINTON
THE WHITE HOUSE, December 19, 1995.
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