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8000 - Miscellaneous Statutes and Regulations



CIVIL PENALTIES FOR INSIDER TRADING

SEC. 21A.  (a)   AUTHORITY TO IMPOSE CIVIL PENALTIES.--

(1)  JUDICIAL ACTIONS BY COMMISSION AUTHORIZED.--Whenever it shall appear to the Commission that any person has violated any provision of this title or the rules or regulations thereunder by purchasing or selling a security or security-based swap agreement while in possession of material, nonpublic information in, or has violated any such provision by communicating such information in connection with, a transaction on or through the facilities of a national securities exchange or from or through a broker or dealer, and which is not part of a public offering by an issuer of securities other than standardized options or security futures products, the Commission--

(A)  may bring an action in a United States district court to seek, and the court shall have jurisdiction to impose, a civil penalty to be paid by the person who committed such violation; and

(B)  may, subject to subsection (b)(1), bring an action in a United States district court to seek, and the court shall have jurisdiction to impose, a civil penalty to be paid by a person who, at the time of the violation, directly or indirectly controlled the person who committed such violation.

(2)  AMOUNT OF PENALTY FOR PERSON WHO COMMITTED VIOLATION.--The amount of the penalty which may be imposed on the person who committed such violation shall be determined by the court in light of the facts and circumstances, but shall not exceed three times the profit gained or loss avoided as a result of such unlawful purchase, sale, or communication.

(3)   AMOUNT OF PENALTY FOR CONTROLLING PERSON.--The amount of the penalty which may be imposed on any person who, at the time of the violation, directly or indirectly controlled the person who committed such violation, shall be determined by the court in light of the facts and circumstances, but shall not exceed the greater of $1,000,000, or three times the amount of the profit gained or loss avoided as a result of such controlled person's violation. If such controlled person's violation was a violation by communication, the profit gained or loss avoided as a result of the violation shall, for purposes of this paragraph only, be deemed to be limited to the profit gained or loss avoided by the person or persons to whom the controlled person directed such communication.

(b)   LIMITATIONS ON LIABILITY.—

(1)   LIABILITY OF CONTROLLING PERSONS.—No controlling person shall be subject to a penalty under subsection (a)(1)(B) unless the Commission establishes that--

(A)  such controlling person knew or recklessly disregarded the fact that such controlled person was likely to engage in the act or acts constituting the violation and failed to take appropriate steps to prevent such act or acts before they occurred; or

(B)  such controlling person knowingly or recklessly failed to establish, maintain, or enforce any policy or procedure required under section 15(f) of this title or section 204A of the Investment Advisers Act of 1940 and such failure substantially contributed to or permitted the occurrence of the act or acts constituting the violation.

(2)  ADDITIONAL RESTRICTIONS ON LIABILITY.--No person shall be subject to a penalty under subsection (a) solely by reason of employing another person who is subject to a penalty under such subsection, unless such employing person is liable as a controlling person under paragraph (1) of this subsection. Section 20(a) of this title shall not apply to actions under subsection (a) of this section.

(c)   AUTHORITY OF COMMISSION.--The Commission, by such rules, regulations, and orders as it considers necessary or appropriate in the public interest or for the protection of investors, may exempt, in whole or in part, either unconditionally or upon specific terms and conditions, any person or transaction or class of persons or transactions from this section.

(d)   PROCEDURES FOR COLLECTION.--

(1)  PAYMENT OF PENALTY TO TREASURY.—A penalty imposed under this section shall (subject to subsection (e)) be payable into the Treasury of the United States, except as otherwise provided in section 308 of the Sarbanes-Oxley Act of 2002.

(2)  COLLECTION OF PENALTIES.— If a person upon whom such a penalty is imposed shall fail to pay such penalty within the time prescribed in the court's order, the Commission may refer the matter to the Attorney General who shall recover such penalty by action in the appropriate United States district court.

(3)   REMEDY NOT EXCLUSIVE.--The actions authorized by this section may be brought in addition to any other actions that the Commission or the Attorney General are entitled to bring.

(4)   JURISDICTION AND VENUE.— For purposes of section 27 of this title, actions under this section shall be actions to enforce a liability or a duty created by this title.

(5)  STATUTE OF LIMITATIONS.--No action may be brought under this section more than 5 years after the date of the purchase or sale. This section shall not be construed to bar or limit in any manner any action by the Commission or the Attorney General under any other provision of this title, nor shall it bar or limit in any manner any action to recover penalties, or to seek any other order regarding penalties, imposed in an action commenced within 5 years of such transaction.

(e)  DEFINITION.--For purposes of this section, "profit gained" or "loss avoided" is the difference between the purchase or sale price of the security and the value of that security as measured by the trading price of the security a reasonable period after public dissemination of the nonpublic information.

(f)  The authority of the Commission under this section with respect to security-based swap agreements (as defined in section 206B of the Gramm-Leach-Bliley Act) shall be subject to the restrictions and limitations of section 3A(b) of this title.

(g)  DUTY OF MEMBERS AND EMPLOYEES OF CONGRESS.--

(1)  IN GENERAL.--Subject to the rule of construction under section 10 of the STOCK Act and solely for purposes of the insider trading prohibitions arising under this Act, including section 10(b) and Rule 10b-5 thereunder, each Member of Congress or employee of Congress owes a duty arising from a relationship of trust and confidence to the Congress, the United States Government, and the citizens of the United States with respect to material, nonpublic information derived from such person's position as a Member of Congress or employee of Congress or gained from the performance of such person's official responsibilities.

(2)  DEFINITIONS.--In this subsection--

(A)  the term "Member of Congress" means a member of the Senate or House of Representatives, a Delegate to the House of Representatives, and the Resident Commissioner from Puerto Rico; and

(B)  the term "employee of Congress" means--

(i)  any individual (other than a Member of Congress), whose compensation is disbursed by the Secretary of the Senate or the Chief Administrative Officer of the House of Representatives; and

(ii)  any other officer or employee of the legislative branch (as defined in section 109(11) of the Ethics in Government Act of 1978 (5 U.S.C. App. 109(11))).

(3)  RULE OF CONSTRUCTION.--Nothing in this subsection shall be construed to impair or limit the construction of the existing antifraud provisions of the securities laws or the authority of the Commission under those provisions.

(h)  DUTY OF OTHER FEDERAL OFFICIALS.--

(1)  IN GENERAL.--Subject to the rule of construction under section 10 of the STOCK Act and solely for purposes of the insider trading prohibitions arising under this Act, including section 10(b), and Rule 10b--5 thereunder, each executive branch employee, each judicial officer, and each judicial employee owes a duty arising from a relationship of trust and confidence to the United States Government and the citizens of the United States with respect to material, nonpublic information derived from such person's position as an executive branch employee, judicial officer, or judicial employee or gained from the performance of such person's official responsibilities.

(2)  DEFINITIONS.--In this subsection-

(A)  the term "executive branch employee"--

(i)  has the meaning given the term "employee" under section 2105 of title 5, United States Code;

(ii)  includes--

(I)  the President;

(II)  the Vice President; and

(III)  an employee of the United States Postal Service or the Postal Regulatory Commission;

(B)  the term "judicial employee" has the meaning given that term in section 109(8) of the Ethics in Government Act of 1978 (5 U.S.C. App. 109(8)); and

(C)  the term "judicial officer" has the meaning given that term under section 109(10) of the Ethics in Government Act of 1978 (5 U.S.C. App. 109(10)).

(3)  RULE OF CONSTRUCTION.--Nothing in this subsection shall be construed to impair or limit the construction of the existing antifraud provisions of the securities laws or the authority of the Commission under those provisions.

(i)  PARTICIPATION IN INITIAL PUBLIC OFFERINGS.--An individual described in section 101(f) of the Ethics in Government Act of 1978 may not purchase securities that are the subject of an initial public offering (within the meaning given such term in section 12(f)(1)(G)(i)) in any manner other than is available to members of the public generally.

[Codified to 15 U.S.C. 78u--1]

[Source:  Section 21A of the Act of June 6, 1934 (Pub. L. No. 291), as added by section 3 of the Act of November 19, 1988 (Pub. L. No. 100--704; 102 Stat. 4677--4679), effective November 19, 1988; as amended by setion 202(b) of title II of the Act of October 15, 1990 (Pub. L. No. 101--429; 104 Stat. 939), effective October 15, 1990; sections 205(a)(4) of title II and 303(k), and (l) of title III of the Act of December 21, 2000 (Pub. L. No. 106--554; 114 Stat. 2763A--426, 456, and 457, respectively), effective December 21, 2000; section 308(d)(2) of title III of the Act of July 30, 2002 (Pub. L. No. 107--204; 116 Stat. 785), effective July 30, 2002; section 762(d)(7) of title VII of the Act of July 21, 2010 (Pub. L. No. 111--203; 124 Stat. 1761 and 1762), effective July 21, 2010; section 923(b) of title IX of the Act of July 21, 2010 (Pub. L. No. 111--203; 124 Stat. 1850), effective July 21, 2010; sections 4(b)(2), 9(b)(2)(B), and 12 of the Act of April 4, 2012 (Pub. L. No. 112--105; 125 Stat. 292, 297, and 300), effective April 4, 2012]

CIVIL REMEDIES IN ADMINISTRATIVE PROCEEDINGS

SEC. 21B. (a) COMMISSION AUTHORITY TO ASSESS MONEY PENALTIES.--(i) IN GENERAL.-- In any proceeding instituted pursuant to sections 15(b)(4), 15(b)(6), 15B, 15C, 15D, 15E, or 17A of this title against any person, the Commission or the appropriate regulatory agency may impose a civil penalty if it finds, on the record after notice and opportunity for hearing, that such penalty is in the public interest and that such person--

(A)  has willfully violated any provision of the Securities Act of 1933, the Investment Company Act of 1940, the Investment Advisers Act of 1940, or this title, or the rules or regulations thereunder, or the rules of the Municipal Securities Rulemaking Board;

(B)  has willfully aided, abetted, counseled, commanded, induced, or procured such a violation by any other person;

(C)  has willfully made or caused to be made in any application for registration or report required to be filed with the Commission or with any other appropriate regulatory agency under this title, or in any proceeding before the Commission with respect to registration, any statement which was, at the time and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, or has omitted to state in any such application or report any material fact which is required to be stated therein; or

(D)  has failed reasonably to supervise, within the meaning of section 15(b)(4)(E) of this title, with a view to preventing violations of the provisions of such statutes, rules and regulations, another person who commits such a violation, if such other person is subject to his supervision;1

(2)  CEASE-AND-DESIST PROCEEDINGS.--In any proceeding instituted under section 21C against any person, the Commission may impose a civil penalty, if the Commission finds, on the record after notice and opportunity for hearing, that such person--

(A)  is violating or has violated any provision of this title, or any rule or regulation issued under this title; or

(B)  is or was a cause of the violation of any provision of this title, or any rule or regulation issued under this title.

(b)  MAXIMUM AMOUNT OF PENALTY.--

(1)  FIRST TIER.--The maximum amount of penalty for each act or omission described in subsection (a) shall be $5,000 for a natural person or $50,000 for any other person.

(2)  SECOND TIER.--Notwithstanding paragraph (1), the maximum amount of penalty for each such act or omission shall be $50,000 for a natural person or $250,000 for any other person if the act or omission described in subsection (a) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement.

(3)  THIRD TIER.--Notwithstanding paragraphs (1) and (2), the maximum amount of penalty for each such act or omission shall be $100,000 for a natural person or $500,000 for any other person if--

(A)  the act or emission described in subsection (a) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and

(B)  such act or omission directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other persons or resulted in substantial pecuniary gain to the person who committed the act or omission.

(c)  DETERMINATION OF PUBLIC INTEREST.--In considering under this section whether a penalty is in the public interest, the Commission or the appropriate regulatory agency may consider--

(1)  whether the act or omission for which such penalty is assessed involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement;

(2)  the harm to other persons resulting either directly or indirectly from such act or omission;

(3)  the extent to which any person was unjustly enriched, taking into account any restitution made to persons injured by such behavior;

(4)  whether such person previously has been found by the Commission, another appropriate regulatory agency, or a self-regulatory organization to have violated the Federal securities laws, State securities laws, or the rules of a self-regulatory organization, has been enjoined by a court of competent jurisdiction from violations of such laws or rules, or has been convicted by a court of competent jurisdiction of violations of such laws or of any felony or misdemeanor described in section 15(b)(4)(B) of this title;

(5)  the need to deter such person and other persons from committing such acts or omissions; and

(6)  such other matters as justice may require.

(d)  EVIDENCE CONCERNING ABILITY TO PAY.--In any proceeding in which the Commission or the appropriate regulatory agency may impose a penalty under this section, a respondent may present evidence of the respondent's ability to pay such penalty. The Commission or the appropriate regulatory agency may, in its discretion, consider such evidence in determining whether such penalty is in the public interest. Such evidence may relate to the extent of such person's ability to continue in business and the collectability of a penalty, taking into account any other claims of the United States or third parties upon such person's assets and the amount of such person's assets.

(e)  AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING AND DISGORGEMENT.--In any proceeding in which the Commission or the appropriate regulatory agency may impose a penalty under this section, the Commission or the appropriate regulatory agency may enter an order requiring accounting and disgorgement, including reasonable interest. The Commission is authorized to adopt rules, regulations, and orders concerning payments to investors, rates of interest, periods of accrual, and such other matters as it deems appropriate to implement this subsection.

(f)  SECURITY-BASED SWAPS.--

(1)  CLEARING AGENCY.--Any clearing agency that knowingly or recklessly evades or participates in or facilitates an evasion of the requirements of section 3C shall be liable for a civil money penalty in twice the amount otherwise available for a violation of section 3C.

(2)  SECURITY-BASED SWAP DEALER OR MAJOR SECURITY-BASED SWAP PARTICIPANT.--Any security-based swap dealer or major security-based swap participant that knowingly or recklessly evades or participates in or facilitates an evasion of the reuqirements of section 3C shall be liable for a civil money penalty in twice the amount otherwise available for a violation of section 3C.

[Codified to 15 U.S.C. 78u--2]

[Source:  Section 21B of the Act of June 6, 1934 (Pub. L. No. 291), as added by section 202(a) of title II of the Act of October 15, 1990 (Pub. L. No. 101--429; 104 Stat. 937), effective October 15, 1990; section 501(b) of title V of the Act of July 30, 2002 (Pub. L. No. 107--204; 116 Stat. 793), effective July 30, 2002; section 4(b)(1)(B) of the Act of September 29, 2006 (Pub. L. No. 109--291; 120 Stat. 1337), effective September 29, 2006; section 773 of title VII of the Act of July 21, 2010 (Pub. L. No. 111--203; 124 Stat. 1802), effective July 21, 2010; section 929P(a)(2) of title IX of the Act of July 21, 2010 (Pub. L. No. 111--203; 124 Stat. 1863), effective July 21, 2010]

CEASE-AND-DESIST PROCEEDINGS

SEC. 21C. (a) AUTHORITY OF THE COMMISSION.--If the Commission finds, after notice and opportunity for hearing, that any person is violating, has violated, or is about to violate any provision of this title, or any rule or regulation thereunder, the Commission may is, was, or would be a cause of the violation, due to an act or omission the person knew or publish its findings and enter an order requiring such person, and any other person that should have known would contribute to such violation, to cease and desist from committing or causing such violation and any future violation of the same provision, rule, or regulation. Such order may, in addition to requiring a person to cease and desist from committing or causing a violation, require such person to comply, or to take steps to effect compliance, with such provision, rule, or regulation, upon such terms and conditions and within such time as the Commission may specify in such order. Any such order may, as the Com mission deems appropriate, require future compliance or steps to effect future compliance, either permanently or for such period of time as the Commission may specify, with such provision, rule, or regulation with respect to any security, any issuer, or any other person.

(b)  HEARING.--The notice instituting proceedings pursuant to subsection (a) shall fix a hearing date not earlier than 30 days nor later than 60 days after service of the notice unless an earlier or a later date is set by the Commission with the consent of any respondent so served.

(c)  TEMPORARY ORDER.--

(1)  IN GENERAL.--Whenever the Commission determines that the alleged violation or threatened violation specified in the notice instituting proceedings pursuant to subsection (a), or the continuation thereof, is likely to result in significant dissipation or conversion of assets, significant harm to investors, or substantial harm to the public interest, including, but not limited to, losses to the Securities Investor Protection Corporation, prior to the completion of the proceedings, the Commission may enter a temporary order requiring the respondent to cease and desist from the violation or threatened violation and to take such action to prevent the violation or threatened violation and to prevent dissipation or conversion of assets, significant harm to investors, or substantial harm to the public interest as the Commission deems appropriate pending completion of such proceedings. Such an order shall be entered only after notice and opportunity for a hearing, unless the Commission determines that notice and hearing prior to entry would be impracticable or contrary to the public interest. A temporary order shall become effective upon service upon the respondent and, unless set aside, limited, or suspended by the Commission or a court of competent jurisdiction, shall remain effective and enforceable pending the completion of the proceedings.

(2)  APPLICABILITY.--Paragraph 1 shall apply only to a respondent that acts, or, at the time of the alleged misconduct acted, as a broker, dealer, investment adviser, investment company, municipal securities dealer, government securities broker, government securities dealer, registered public accounting firm (as defined in section 2 of the Sarbanes--Oxley Act of 2002 or transfer agent, or is, or was at the time of the alleged misconduct, an associated person of, or a person seeking to become associated with, any of the foregoing.

(3)  TEMPORARY FREEZE.--

(A)  IN GENERAL.--

(i)  ISSUANCE OF TEMPORARY ORDER.--Whenever, during the course of a lawful investigation involving possible violations of the Federal securities laws by an issuer of publicly traded securities or any of its directors, officers, partners, controlling persons, agents, or employees, it shall appear to the Commission that it is likely that the issuer will make extraordinary payments (whether compensation or otherwise) to any of the foregoing persons, the Commission may petition a Federal district court for a temporary order requiring the issuer to escrow, subject to court supervision, those payments in an interest-bearing account for 45 days.

(ii)  STANDARD.--A temporary order shall be entered under clause (i), only after notice and opportunity for a hearing, unless the court determines that notice and hearing prior to entry of the order would be impracticable or contrary to the public interest.

(iii)  EFFECTIVE PERIOD.--A temporary order issued under clause (i) shall--

(I)  become effective immediately;

(II)  be served upon the parties subject to it; and

(III)  unless set aside, limited or suspended by a court of competent jurisdiction, shall remain effective and enforceable for 45 days.

(iv)  EXTENSIONS AUTHORIZED.--The effective period of an order under this subparagraph may be extended by the court upon good cause shown for not longer than 45 additional days, provided that the combined period of the order shall not exceed 90 days.

(B)  PROCESS ON DETERMINATION OF VIOLATIONS.--

(i)  VIOLATIONS CHARGED.--If the issuer or other person described in subparagraph (A) is charged with any violation of the Federal securities laws before the expiration of the effective period of a temporary order under subparagraph (A) (including any applicable extension period), the order shall remain in effect, subject to court approval, until the conclusion of any legal proceedings related thereto, and the affected issuer or other person, shall have the right to petition the court for review of the order.

(ii)  VIOLATIONS NOT CHARGED.--If the issuer or other person described in subparagraph (A) is not charged with any violation of the Federal securities laws before the expiration of the effective period of a temporary order under subparagraph (A) (including any applicable extension period), the escrow shall terminate at the expiration of the 45--day effective period (or the expiration of any extension period, as applicable), and the disputed payments (with accrued interest) shall be returned to the issuer or other affected person.

(d)  REVIEW OF TEMPORARY ORDERS.--

(1)  COMMISSION REVIEW.--At any time after the respondent has been served with a temporary cease-and-desist order pursuant to subsection (c), the respondent may apply to the Commission to have the order set aside, limited, or suspended. If the respondent has been served with a temporary cease-and-desist order entered without a prior Commission hearing, the respondent may, within 10 days after the date on which the order was served, request a hearing on such application and the Commission shall hold a hearing and render a decision on such application at the earliest possible time.

(2)  JUDICIAL REVIEW.--Within--

(A)  10 days after the date the respondent was served with a temporary cease-and-desist order entered with a prior Commission hearing, or

(B)  10 days after the Commission renders a decision on an application and hearing under paragraph (1), with respect to any temporary cease-and-desist order entered without a prior Commission hearing,

the respondent may apply to the United States district court for the district in which the respondent resides or has its principal place of business, or for the District of Columbia, for an order setting aside, limiting, or suspending the effectiveness or enforcement of the order, and the court shall have jurisdiction to enter such an order. A respondent served with a temporary cease-and-desist order entered without a prior Commission hearing may not apply to the court except after hearing and decision by the Commission on the respondent's application under paragraph (1) of this subsection.

(3)  NO AUTOMATIC STAY OF TEMPORARY ORDER.--The commencement of proceedings under paragraph (2) of this subsection shall not, unless specifically ordered by the court, operate as a stay of the Commission's order.

(4)  EXCLUSIVE REVIEW.--Section 25 of this title shall not apply to a temporary order entered pursuant to this section.

(e)  AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING AND DISGORGEMENT.--In any cease-and-desist proceeding under subsection (a), the Commission may enter an order requiring accounting and disgorgement, including reasonable interest. The Commission is authorized to adopt rules, regulations, and orders concerning payments to investors, rates of interest, periods of accrual, and such other matters as it deems appropriate to implement this subsection.

(f)  AUTHORITY OF THE COMMISSION TO PROHIBIT PERSONS FROM SERVING AS OFFICERS OR DIRECTORS.--In any cease-and-desist proceeding under subsection (a), the Commission may issue an order to prohibit, conditionally or unconditionally, and permanently or for such period of time as it shall determine, any person who has violated section 10(b) or the rules or regulations thereunder, from acting as an officer or director of any issuer that has a class of securities registered pursuant to section 12, or that is required to file reports pursuant to section 15(d), if the conduct of that person demonstrates unfitness to serve as an officer or director of any such issuer.

[Codified to 15 U.S.C. 78u--3]

[Source:  Section 21C of the Act of June 6, 1934 (Pub. L. No. 291), as added by section 203 of title II of the Act of October 15, 1990 (Pub. L. No. 101--429; 104 Stat. 939), effective October 15, 1990; as amended by sections 3(b)(3), 1103(a), 1103(b), and 1105(a) of title XI of the Act of July 30, 2002 (Pub. L. No. 107--204; 116 Stat. 749 and 807--809, respectively), effective July 30, 2002; section 985(b)(8) of title IX of the Act of July 21, 2010 (Pub. L. No. 111--203; 124 Stat. 1934), effective July 21, 2010]

SEC. 21D. PRIVATE SECURITIES LITIGATION.

(a)  PRIVATE CLASS ACTIONS.--

(1)  IN GENERAL.--The provisions of this subsection shall apply in each private action arising under this title that is brought as a plaintiff class action pursuant to the Federal Rules of Civil Procedure.

(2)  CERTIFICATION FILED WITH COMPLAINT.--

(A)  IN GENERAL.--Each plaintiff seeking to serve as a representative party on behalf of a class shall provide a sworn certification, which shall be personally signed by such plaintiff and filed with the complaint, that--

(i)  states that the plaintiff has reviewed the complaint and authorized its filing;

(ii)  states that the plaintiff did not purchase the security that is the subject of the complaint at the direction of plaintiff's counsel or in order to participate in any private action arising under this title;

(iii)  states that the plaintiff is willing to serve as a representative party on behalf of a class, including providing testimony at deposition and trial, if necessary;

(iv)  sets forth all of the transactions of the plaintiff in the security that is the subject of the complaint during the class period specified in the complaint;

(v)  identifies any other action under this title, filed during the 3-year period preceding the date on which the certification is signed by the plaintiff, in which the plaintiff has sought to serve as a representative party on behalf of a class; and

(vi)  states that the plaintiff will not accept any payment for serving as a representative party on behalf of a class beyond the plaintiff's pro rata share of any recovery, except as ordered or approved by the court in accordance with paragraph (4).

(B)  NONWAIVER OF ATTORNEY-CLIENT PRIVILEGE.--The certification filed pursuant to subparagraph (A) shall not be construed to be a waiver of the attorney-client privilege.

(3)  APPOINTMENT OF LEAD PLAINTIFF.--

(A)  EARLY NOTICE TO CLASS MEMBERS.--

(i)  IN GENERAL.--Not later than 20 days after the date on which the complaint is filed, the plaintiff or plaintiffs shall cause to be published, in a widely circulated national business-oriented publication or wire service, a notice advising members of the purported plaintiff class--

(I)  of the pendency of the action, the claims asserted therein, and the purported class period; and

(II)  that, not later than 60 days after the date on which the notice is published, any member of the purported class may move the court to serve as lead plaintiff of the purported class.

(ii)  MULTIPLE ACTIONS.--If more than one action on behalf of a class asserting substantially the same claim or claims arising under this title is filed, only the plaintiff or plaintiffs in the first filed action shall be required to cause notice to be published in accordance with clause (i).

(iii)  ADDITIONAL NOTICES MAY BE REQUIRED UNDER FEDERAL RULES.--Notice required under clause (i) shall be in addition to any notice required pursuant to the Federal Rules of Civil Procedure.

(B)  APPOINTMENT OF LEAD PLAINTIFF.--

(i)  IN GENERAL.--Not later than 90 days after the date on which a notice is published under subparagraph (A)(i), the court shall consider any motion made by a purported class member in response to the notice, including any motion by a class member who is not individually named as a plaintiff in the complaint or complaints, and shall appoint as lead plaintiff the member or members of the purported plaintiff class that the court determines to be most capable of adequately representing the interests of class members (hereafter in this paragraph referred to as the "most adequate plaintiff") in accordance with this subparagraph.

(ii)  CONSOLIDATED ACTIONS.--If more than one action on behalf of a class asserting substantially the same claim or claims arising under this title has been filed, and any party has sought to consolidate those actions for pretrial purposes or for trial, the court shall not make the determination required by clause (i) until after the decision on the motion to consolidate is rendered. As soon as practicable after such decision is rendered, the court shall appoint the most adequate plaintiff as lead plaintiff for the consolidated actions in accordance with this paragraph.

(iii)  REBUTTABLE PRESUMPTION.--

(I)  IN GENERAL.--Subject to subclause (II), for purposes of clause (i), the court shall adopt a presumption that the most adequate plaintiff in any private action arising under this title is the person or group of persons that--

(aa)  has either filed the complaint or made a motion in response to a notice under subparagraph (A)(i);

(bb)  in the determination of the court, has the largest financial interest in the relief sought by the class; and

(cc)  otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure.

(II)  REBUTTAL EVIDENCE.--The presumption described in subclause (I) may be rebutted only upon proof by a member of the purported plaintiff class that the presumptively most adequate plaintiff--

(aa)  will not fairly and adequately protect the interests of the class; or

(bb)  is subject to unique defenses that render such plaintiff incapable of adequately representing the class.

(iv)  DISCOVERY.--For purposes of this subparagraph, discovery relating to whether a member or members of the purported plaintiff class is the most adequate plaintiff may be conducted by a plaintiff only if the plaintiff first demonstrates a reasonable basis for a finding that the presumptively most adequate plaintiff is incapable of adequately representing the class.

(v)  SELECTION OF LEAD COUNSEL.--The most adequate plaintiff shall, subject to the approval of the court, select and retain counsel to represent the class.

(vi)  RESTRICTIONS ON PROFESSIONAL PLAINTIFFS.--Except as the court may otherwise permit, consistent with the purposes of this section, a person may be a lead plaintiff, or an officer, director, or fiduciary of a lead plaintiff, in no more than 5 securities class actions brought as plaintiff class actions pursuant to the Federal Rules of Civil Procedure during any 3-year period.

(4)  RECOVERY BY PLAINTIFFS.--The share of any final judgment or of any settlement that is awarded to a representative party serving on behalf of a class shall be equal, on a per share basis, to the portion of the final judgment or settlement awarded to all other members of the class. Nothing in this paragraph shall be construed to limit the award of reasonable costs and expenses (including lost wages) directly relating to the representation of the class to any representative party serving on behalf of a class.

(5)  RESTRICTIONS ON SETTLEMENTS UNDER SEAL.--The terms and provisions of any settlement agreement of a class action shall not be filed under seal, except that on motion of any party to the settlement, the court may order filing under seal for those portions of a settlement agreement as to which good cause is shown for such filing under seal. For purposes of this paragraph, good cause shall exist only if publication of a term or provision of a settlement agreement would cause direct and substantial harm to any party.

(6)  RESTRICTIONS ON PAYMENT OF ATTORNEYS' FEES AND EXPENSES.--Total attorneys' fees and expenses awarded by the court to counsel for the plaintiff class shall not exceed a reasonable percentage of the amount of any damages and prejudgment interest actually paid to the class.

(7)  DISCLOSURE OF SETTLEMENT TERMS TO CLASS MEMBERS.--Any proposed or final settlement agreement that is published or otherwise disseminated to the class shall include each of the following statements, along with a cover page summarizing the information contained in such statements:

(A)  STATEMENT OF PLAINTIFF RECOVERY.--The amount of the settlement proposed to be distributed to the parties to the action, determined in the aggregate and on an average per share basis.

(B)  STATEMENT OF POTENTIAL OUTCOME OF CASE.--

(i)  AGREEMENT ON AMOUNT OF DAMAGES.--If the settling parties agree on the average amount of damages per share that would be recoverable if the plaintiff prevailed on each claim alleged under this title, a statement concerning the average amount of such potential damages per share.

(ii)  DISAGREEMENT ON AMOUNT OF DAMAGES.--If the parties do not agree on the average amount of damages per share that would be recoverable if the plaintiff prevailed on each claim alleged under this title, a statement from each settling party concerning the issue or issues on which the parties disagree.

(iii)  INADMISSIBILITY FOR CERTAIN PURPOSES.--A statement made in accordance with clause (i) or (ii) concerning the amount of damages shall not be admissible in any Federal or State judicial action or administrative proceeding, other than an action or proceeding arising out of such statement.

(C)  STATEMENT OF ATTORNEYS' FEES OR COSTS SOUGHT.--If any of the settling parties or their counsel intend to apply to the court for an award of attorneys' fees or costs from any fund established as part of the settlement, a statement indicating which parties or counsel intend to make such an application, the amount of fees and costs that will be sought (including the amount of such fees and costs determined on an average per share basis), and a brief explanation supporting the fees and costs sought. Such information shall be clearly summarized on the cover page of any notice to a party of any proposed or final settlement agreement.

(D)  IDENTIFICATION OF LAWYERS' REPRESENTATIVES.--The name, telephone number, and address of one or more representatives of counsel for the plaintiff class who will be reasonably available to answer questions from class members concerning any matter contained in any notice of settlement published or otherwise disseminated to the class.

(E)  REASONS FOR SETTLEMENT.--A brief statement explaining the reasons why the parties are proposing the settlement.

(F)  OTHER INFORMATION.--Such other information as may be required by the court.

(8)  SECURITY FOR PAYMENT OF COSTS IN CLASS ACTIONS.--In any private action arising under this title that is certified as a class action pursuant to the Federal Rules of Civil Procedure, the court may require an undertaking from the attorneys for the plaintiff class, the plaintiff class, or both, or from the attorneys for the defendant, the defendant, or both, in such proportions and at such times as the court determines are just and equitable, for the payment of fees and expenses that may be awarded under this subsection.

(9)  ATTORNEY CONFLICT OF INTEREST.--If a plaintiff class is represented by an attorney who directly owns or otherwise has a beneficial interest in the securities that are the subject of the litigation, the court shall make a determination of whether such ownership or other interest constitutes a conflict of interest sufficient to disqualify the attorney from representing the plaintiff class.

(b)  REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.--

(1)  MISLEADING STATEMENTS AND OMISSIONS.--In any private action arising under this title in which the plaintiff alleges that the defendant--

(A)  made an untrue statement of a material fact; or

(B)  omitted to state a material fact necessary in order to make the statements made, in the light of the circumstances in which they were made, not misleading;

the complaint shall specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.

(2)  REQUIRED STATE OF MIND.--In any private action arising under this title in which the plaintiff may recover money damages only on proof that the defendant acted with a particular state of mind, the complaint shall, with respect to each act or omission alleged to violate this title, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.

(3)  MOTION TO DISMISS; STAY OF DISCOVERY.--

(A)  DISMISSAL FOR FAILURE TO MEET PLEADING REQUIREMENTS.--In any private action arising under this title, the court shall, on the motion of any defendant, dismiss the complaint if the requirements of paragraphs (1) and (2) are not met.

(B)  STAY OF DISCOVERY.--In any private action arising under this title, all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss, unless the court finds upon the motion of any party that particularized discovery is necessary to preserve evidence or to prevent undue prejudice to that party.

(C)  PRESERVATION OF EVIDENCE.--

(i)  IN GENERAL.--During the pendency of any stay of discovery pursuant to this paragraph, unless otherwise ordered by the court, any party to the action with actual notice of the allegations contained in the complaint shall treat all documents, data compilations (including electronically recorded or stored data), and tangible objects that are in the custody or control of such person and that are relevant to the allegations, as if they were the subject of a continuing request for production of documents from an opposing party under the Federal Rules of Civil Procedure.

(ii)  SANCTION FOR WILLFUL VIOLATION.--A party aggrieved by the willful failure of an opposing party to comply with clause (i) may apply to the court for an order awarding appropriate sanctions.

(D)  CIRCUMVENTION OF STAY OF DISCOVERY--Upon a proper showing, a court may stay discovery proceedings in any private action in a State court, as necessary in aid of its jurisdiction, or to protect or effectuate its judgments, in an action subject to a stay of discovery pursuant to this paragraph.

(4)  LOSS CAUSATION.--(A)  LOSS CAUSATION..--Except as provided in subparagraph (B), in any private action arising under this title, the plaintiff shall have the burden of proving that the act or omission of the defendant alleged to violate this title caused the loss for which the plaintiff seeks to recover damages.

(B)  EXCEPTION.--In the case of an action for money damages brought against a credit rating agency or a controlling person under this title, it shall be sufficient, for purposes of pleading any required state of mind in relation to such action, that the complaint state with particularity facts giving rise to a strong inference that the credit rating agency knowingly or recklessly failed--

(i)  to conduct a reasonable investigation of the rated security with respect to the factual elements relied upon by its own methodology for evaluating credit risk; or

(ii)  to obtain reasonable verification of such factual elements (which verification may be based on a sampling technique that does not amount to an audit) from other sources that the credit rating agency considered to be competent and that were independent of the issuer and underwriter.

(c)  SANCTIONS FOR ABUSIVE LITIGATION.--

(1)  MANDATORY REVIEW BY COURT.--In any private action arising under this title, upon final adjudication of the action, the court shall include in the record specific findings regarding compliance by each party and each attorney representing any party with each requirement of Rule 11(b) of the Federal Rules of Civil Procedure as to any complaint, responsive pleading, or dispositive motion.

(2)  MANDATORY SANCTIONS.--If the court makes a finding under paragraph (1) that a party or attorney violated any requirement of Rule 11(b) of the Federal Rules of Civil Procedure as to any complaint, responsive pleading, or dispositive motion, the court shall impose sanctions on such party or attorney in accordance with Rule 11 of the Federal Rules of Civil Procedure. Prior to making a finding that any party or attorney has violated Rule 11 of the Federal Rules of Civil Procedure, the court shall give such party or attorney notice and an opportunity to respond.

(3)  PRESUMPTION IN FAVOR OF ATTORNEYS' FEES AND COSTS.--

(A)  IN GENERAL.--Subject to subparagraphs (B) and (C), for purposes of paragraph (2), the court shall adopt a presumption that the appropriate sanction--

(i)  for failure of any responsive pleading or dispositive motion to comply with any requirement of Rule 11(b) of the Federal Rules of Civil Procedure is an award to the opposing party of the reasonable attorneys' fees and other expenses incurred as a direct result of the violation; and

(ii)  for substantial failure of any complaint to comply with any requirement of Rule 11(b) of the Federal Rules of Civil Procedure is an award to the opposing party of the reasonable attorneys' fees and other expenses incurred in the action.

(B)  REBUTTAL EVIDENCE.--The presumption described in subparagraph (A) may be rebutted only upon proof by the party or attorney against whom sanctions are to be imposed that--

(i)  the award of attorneys' fees and other expenses will impose an unreasonable burden on that party or attorney and would be unjust, and the failure to make such an award would not impose a greater burden on the party in whose favor sanctions are to be imposed; or

(ii)  the violation of Rule 11(b) of the Federal Rules of Civil Procedure was de minimis.

(C)  SANCTIONS.--If the party or attorney against whom sanctions are to be imposed meets its burden under subparagraph (B), the court shall award the sanctions that the court deems appropriate pursuant to Rule 11 of the Federal Rules of Civil Procedure.

(d)  DEFENDANTS RIGHT TO WRITTEN INTERROGATORIES.--In any private action arising under this title in which the plaintiff may recover money damages, the court shall, when requested by a defendant, submit to the jury a written interrogatory on the issue of each such defendant's state of mind at the time the alleged violation occurred.

(e)  LIMITATION ON DAMAGES.--

(1)  IN GENERAL.--Except as provided in paragraph (2), in any private action arising under this title in which the plaintiff seeks to establish damages by reference to the market price of a security, the award of damages to the plaintiff shall not exceed the difference between the purchase or sale price paid or received, as appropriate, by the plaintiff for the subject security and the mean trading price of that security during the 90-day period beginning on the date on which the information correcting the misstatement or omission that is the basis for the action is disseminated to the market.

(2)  EXCEPTION.--In any private action arising under this title in which the plaintiff seeks to establish damages by reference to the market price of a security, if the plaintiff sells or repurchases the subject security prior to the expiration of the 90-day period described in paragraph (1), the plaintiff's damages shall not exceed the difference between the purchase or sale price paid or received, as appropriate, by the plaintiff for the security and the mean trading price of the security during the period beginning immediately after dissemination of information correcting the misstatement or omission and ending on the date on which the plaintiff sells or repurchases the security.

(3)  DEFINITION.--For purposes of this subsection, the "mean trading price" of a security shall be an average of the daily trading price of that security, determined as of the close of the market each day during the 90-day period referred to in paragraph (1).

(f)  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 subparagraph (A), 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.

[Codified to 15 U.S.C. 78u--4]

[Source:  Section 21D of the Act of June 6, 1934 (Pub. L. No. 291), as added by sections 101(b) of title I and 201(a) of title II of the Act of December 22, 1995 (Pub. L. No. 104--67; 109 Stat. 743 and 758), effective December 22, 1995; as amended by sections 101(b)(2) and 301(b)(13) of title III of the Act of November 3, 1998 (Pub. L. No. 105--353; 112 Stat. 3233 and 3236), effective November 3, 1998; section 933(b) of title IX of the Act of July 21, 2010 (Pub. L. No. 111--203; 124 Stat. 1883 and 1884), effective July 21, 2010]

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.

[Codified to 15 U.S.C. 78u--5]

[Source:  Section 21E of the Act of June 6, 1934 (Pub. L. No. 291), as added by section 102(b) of title I of the Act of December 22, 1995 (Pub. L. No. 104--67; 109 Stat. 753), effective December 22, 1995]

1So in original. The semicolon should be a period. Go back to Text


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