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U.S. Securities and Exchange Commission

Testimony of

Arthur Levitt, Chairman

Concerning H.R. 1689, The “Securities Litigation Uniform Standards Act of 1997,” Before the Subcommittee on Finance and Hazardous Materials, Committee on Commerce, United States House of Representatives

May 19, 1998

Chairman Oxley, Congressman Manton and other Members of the Committee:

I appreciate the opportunity to testify on behalf of the U.S. Securities and Exchange Commission ("Commission") concerning H.R. 1689, the "Securities Litigation Uniform Standards Act of 1997." We commend this subcommittee and the authors of H.R. 1689, Representatives Anna Eshoo and Rick White, for examining whether uniform standards for the prosecution of certain securities fraud class actions can make the process of capital formation less costly, while continuing to allow defrauded investors a meaningful right to relief. 1

I.   Introduction

In December 1995, Congress passed the Private Securities Litigation Reform Act of 1995 ("Reform Act") in an effort to curtail what was perceived to be frivolous securities litigation. The Reform Act’s key provisions include a safe harbor for forward-looking statements, a stay of discovery pending any motion to dismiss, and heightened pleading standards. 2

A number of studies on practice under the Reform Act suggest that there has been some shift of securities class actions from federal courts to state courts, where the Reform Act’s provisions do not apply. 3 Other research indicates that, after an initial increase in response to the Reform Act, the number of securities class actions in state courts is declining. 4 The Commission has not undertaken its own study on the number of securities class actions filed in state court before or after the Reform Act and expresses no view on the accuracy of the findings of the cited studies. In addition, passage of the National Securities Markets Improvement Act of 1996 ("NSMIA"), 5 which implemented a uniform standard for the registration of certain securities, has led to Congressional consideration of whether uniform standards are sensible in the area of securities litigation as well. These events have led to the introduction of H.R. 1689.

The Subcommittee has requested the Commission’s views concerning H.R. 1689. The bill would create a national standard governing securities fraud class actions involving nationally traded securities. The bill would require class actions to be brought in federal court pursuant to federal law, 6 where each would be subject to the more stringent terms of the Reform Act.

The Commission has previously testified that it "sympathize(s) with the argument that national securities markets should be governed by a national standard, provided the national standard properly safeguards the right of injured investors to pursue meritorious claims." 7 The Commission recently supported enactment of S. 1260, 8 the Senate’s version of the "Securities Litigation Uniform Standards Act," after certain amendments and important legislative history were proposed which the Commission deemed vital to investor protection. For the Commission to support H.R. 1689, those same amendments would have to be incorporated and the legislative history of S. 1260 would have to be preserved. To best aid the Subcommittee as it considers H.R. 1689, this testimony addresses (i) the main features of H.R. 1689; (ii) changes that the Commission believes are necessary; and

II.   Main Features of H.R. 1689

H.R. 1689 would require securities "class actions" to be brought in federal court pursuant to federal law if two prerequisites are met -- (1) the case involves a "covered security;" and (2) allegations of fraud are involved.

The bill includes three alternative definitions of "class action," as follows:

"Any single lawsuit or group of lawsuits involving common questions of law or fact in which:

1. "damages are sought on behalf of more than 25 persons;

2. "one or more named parties seek to recover damages on a representative basis on behalf of themselves and other similarly situated unnamed parties; or

3. "one or more parties seeking to recover damages did not personally authorize the filing of the lawsuit."

The bill defines "covered securities" as all securities of an issuer so long as the issuer has outstanding any security satisfying the standard for a covered security set forth in Securities Act section 18(b)(1) at any time during which the alleged fraudulent conduct took place. To satisfy section 18(b)(1), the security generally must be one that lists or is authorized for listing on the New York Stock Exchange, the American Stock Exchange, or the Nasdaq National Market System.

While H.R. 1689 would serve the admirable goal of adding greater uniformity and certainty to the securities litigation process, and thereby potentially enhancing the capital formation process, the following pages discuss several areas of concern and set forth amendments recommended to strengthen investor protection and prevent the bill from having unintended consequences.

III.   Necessary Changes

The Commission believes that the following changes are necessary to prevent H.R. 1689 from operating in an overly broad manner and having unintended consequences. These changes, in the form of amendments and legislative history, were added to S. 1260 at an Executive Session preceding the Senate Banking Committee’s May 4, 1998 mark-up of the bill.

A. State of Mind Requirements for Pleading and Proving Fraud

A uniform fraud standard for securities class actions must adequately protect defrauded investors and operate to deter wrongdoing. In this regard, the Commission remains highly concerned about cases raising the issue of whether the Reform Act’s pleading standards eliminated liability for reckless violations of the federal securities laws. Most courts to interpret the Reform Act’s pleading standards -- 18 out of 31-- have agreed with the Commission’s position that reckless conduct continues to be a valid basis for pleading and proving fraud. 9 Nine courts, however, have held that, in the wake of the Reform Act’s heightened pleading standards, recklessness no longer suffices as a basis to plead securities fraud. 10 As the Commission has previously testified, "(a) uniform federal standard for liability that did not include recklessness as a basis for liability would jeopardize the integrity of the securities markets, and would deal a crippling blow to defrauded investors with meritorious claims." 11

The Commission was able to support S. 1260 only upon receiving assurances that legislative history would be inserted into the record making clear that the Reform Act was not meant to define or alter the state of mind requirements for securities fraud liability and that these requirements were intended to be part of the national standard created by S. 1260. This legislative history became part of the Senate Report on S. 1260, which was filed on May 4, 1998. A copy of this portion of the Senate Report is attached. The Commission believes this legislative history will help diminish confusion in the courts about the proper interpretation of the Reform Act’s pleading standards and add important assurances that any uniform standards created will provide for liability premised on reckless misconduct.

B. A "Carve-Out" to Preserve State Jurisdiction Over Certain Corporate Law Claims

H.R. 1689, as currently drafted, could preempt important state corporate law claims, most notably claims made pursuant to the "fiduciary duty of disclosure." The fiduciary duty of disclosure imposes on directors and others the duty to speak truthfully when addressing shareholders with respect to certain corporate matters. "(W)hen a corporate board of directors (or a majority stockholder) seeks stockholder action in connection with a tender offer, a vote of stockholders or action by written consent, there arises a fiduciary obligation to disclose fully and fairly all material facts within the board’s (or majority stockholder’s) control." 12 In addition, when the stockholder action involves the purchase or sale of a security (e.g., corporate programs to repurchase their own shares and tender offers), the bill likely would have the effect of eliminating state causes of action arising out of such transactions.

Corporate law claims have traditionally been the province of state law. As a result, many state courts, particularly those in Delaware, have developed expertise and a coherent body of case law concerning fiduciary duties owed by corporate officers and directors to shareholders. Broad preemption would diminish the value of this body of precedent as a tool for structuring corporate transactions and resolving corporate disputes and would federalize corporate governance claims, a result we think is neither intended nor desirable. 13

Working with members of the Delaware bar, an ABA Task Force on Litigation Reform, and certain academics, Commission staff have drafted a "carve-out" to preserve state jurisdiction over these types of claims. The "carve-out," a copy of which is attached, has been incorporated into S. 1260. The Commission urges that it also be incorporated into H.R. 1689.

C. Definition of "Class Action"

The bill’s definition of "class action" is significantly broader than the definition used in federal securities fraud class actions. Most federal securities fraud class actions are brought pursuant to Fed. R. Civ. P. 23(b)(3) 14 which requires, among other things, a finding by the court that common questions of law or fact predominate over individual issues. 15

The Commission recommends the following four changes to H.R. 1689's definition of "class action" to help ensure that it does not operate in an overly broad fashion:

• common questions of law or fact should be required to predominate over individual issues;

• the allowance of "grouping" of lawsuits should be omitted;

• the 25 person threshold should be increased to 50; and

• the third alternative definition, encompassing suits where one or more of the parties seeking to recover damages did not personally authorize filing of the suit, should be omitted.

First, to more closely parallel the federal definition, common questions of law or fact should be required to predominate over individual issues. This will help ensure that lawsuits that are only tangentially related are not deemed class actions subject to preemption.

Second, and on a related point, the allowance of the "grouping" of lawsuits should be omitted. 16 Under S. 1260’s unusual "grouping" provision, any time more than 25 individuals file state court complaints "in the same court involving common questions of law or fact," they will be deemed to be part of a "class action" under the bill. As a result, individuals who bring suits in state court in their own name may find -- if others have brought similar suits -- that their claims are preempted because they are part of a "class action." This could lead to broader preemption than we believe is necessary or appropriate. 17

Third, we recommend increasing the number of persons on whose behalf damages are sought from 25 to 50 before the action may qualify as a class action. Regulated persons, such as brokers, dealers, and investment advisers, who perpetrate frauds on their clients should remain subject to suit in state court where stricter sanctions may be available. These frauds, including Ponzi schemes and pyramid transactions, may be perpetrated on multiple clients. A 25 person threshold is too low and may force many of these types of cases into federal court.

In addition, the 25 person threshold may also have the unintended effect of depriving some investors of any use of the class action device. If a state class action involving over 25 plaintiffs is preempted by S. 1260, the class members may not be able to proceed as a class in state or federal court. Under Federal Rule of Civil Procedure 23(a), a federal court may not certify a class unless the number of plaintiffs "is so numerous that joinder of all members is impracticable." Pursuant to this "numerosity" requirement, federal courts have on occasion denied class certification to groups of over 25 plaintiffs. 18 In such circumstances, preemption would preclude these groups from proceeding as a class action at all. Since the costs of bringing an individual lawsuit are often prohibitive for the small investor, the effect of the 25 person threshold in these instances may be to deny these defrauded investors any effective remedy for their loss.

Finally, we recommend omitting the third alternative definition of "class action": "one or more of the parties seeking to recover damages did not personally authorize the filing of the lawsuit." This definition is written so broadly as to possibly include within it a number of actions brought on a representative basis that are not typically thought of as class actions, and as to which there is no record of abuse. Such actions include a trustee's suit on behalf of a trust that has not itself authorized the suit, or a guardian’s suit on behalf of a minor or an incompetent who has not or cannot authorize the lawsuit. The Commission believes that preemption of such cases does not advance the purposes of the legislation.

The Commission is concerned that the third alternative definition of "class action" could reach shareholder derivative lawsuits. In shareholder derivative actions, the party seeking to recover damages -- the corporation -- typically has not "authorize(d) the filing of the lawsuit." In fact, in most states a shareholder is not permitted to bring a derivative action unless the shareholder first demands that the corporation bring suit and such demand is refused. Including shareholder derivative actions within the bill’s scope threatens the continued existence of significant doctrines of state corporate law. Moreover, there have been no demonstrated abuses involving these suits.

The Commission also notes that a potential ambiguity exists in the bill’s inclusion of cases in which "damages are sought on behalf of more than 25 persons." Because "on behalf of" is somewhat vague, this language could be used by defendants to argue that lawsuits filed by certain institutional investors who invest on behalf of individuals -- such as pension plans, investment companies, hedge funds and other partnerships -- are "class actions" under the bill even when the institutional investor is the only plaintiff. We recommend clarification in the bill that these entities only qualify as one person for purposes of counting the number of persons seeking damages.

H.R. 1689 properly leaves intact actions brought in state court by individual investors. No abuses have been demonstrated involving these types of actions. In addition, some states’ laws allow punitive damages to be assessed in egregious cases where individuals have been defrauded by brokers, dealers, investment advisers, and others. Preemption of individual actions would also raise federalism concerns by precluding investors defrauded in localized transactions from suing in state court.

D. Definition of "Covered Security"

H.R. 1689's definition of "covered security" differs in two material respects from the definition of the same term found in S. 1260. First, the definition in S. 1260 deems the securities issued by a registered investment company (e.g., mutual fund) to be "covered securities." 19 The Commission supports this classification. Shares of closed-end investment companies are deemed covered securities under H.R. 1689 because they trade over national exchanges. There is no reason why the definition should not be extended to also reach open-end investment companies.

Second, S. 1260 looks at the security involved in the class action to determine if that security itself is a covered security. By contrast, H.R. 1689 deems all of an issuer’s securities covered securities so long as the issuer has outstanding any security qualifying as a covered security at the time of the fraud. Once an issuer has a class of securities that either trade over a national exchange or the Nasdaq NMS, that issuer becomes immune from any state securities class-action fraud suit in the future, so long as the issuer remains listed on a national exchange. This operates to preempt suits in which the state interest may outweigh the federal interest. For example, if an issuer having stock which lists on Nasdaq NMS defrauds investors face-to-face, such as at a roadshow, it cannot be sued in a state court class action. The coverage provision could also operate to preempt suits involving speculative securities such as high yield bonds, so long as the issuer has another class of securities that qualify as covered securities. For these reasons, we recommend adopting the definition of "covered security" found in S. 1260.

The Commission appreciates that great care has been taken to ensure that H.R. 1689 does not preempt class actions involving "penny stock" 20 and "micro cap" 21 securities. In testimony before the Senate Permanent Subcommittee on Investigations, Chairman Levitt, on behalf of the Commission, expressed concern about "abuses in the market for micro cap securities, which provides opportunity for small businesses to raise capital, but also provides opportunity for fraudsters to prey on innocent investors." 22 Given the special concerns that exist in this area, we strongly agree that preemption of cases involving these securities would not be warranted.

E. Explicit Preservation of Authority for State Regulatory Authorities

NSMIA contained a provision explicitly preserving the enforcement authority of state

regulators. 23 We believe that H.R. 1689 implicitly preserves these actions by only preempting "private," as opposed to public, actions. However, to prevent arguments that, as shown in NSMIA, Congress knew how to expressly preserve these actions and did not do so here, we recommend a provision which makes clear these public actions are not to be preempted. S. 1260 contains such a provision.

IV.   Additional Areas of Concern

The Commission has additional concerns with the promulgation of national standards for securities fraud class actions. Certain investor protection laws available at the state level, which the Commission favors, would no longer be available to class action plaintiffs upon passage of H.R. 1689. Forty-nine states as well as the District of Columbia allow for some form of aiding-and-abetting liability. Under a 1994 Supreme Court decision, 24 there is no aiding-and-abetting liability in private actions for most federal securities fraud claims. In addition, as a result of a 1991 Supreme Court decision, private actions under the federal securities laws are subject to a short statute of limitations. 25 Specifically, private actions under Section 10(b) of the Exchange Act must be brought within one year after discovery of the alleged violation, and no more than three years after the violation occurred. 26 In contrast, 33 states allow for longer limitations periods. The Commission continues to favor legislation restoring a private right of action for aiding and abetting, 27 and lengthening the federal securities law statute of limitations. 28

V.   Conclusion

The Commission supports establishment of a uniform national standard for securities fraud class action litigation, so long as that standard protects the rights of injured investors and guards against the risk of unintended consequences. We believe that the amendments recommended in this testimony are necessary to advance these objectives. As always, the Commission will be pleased to assist the Committee as it goes forward in consideration of this bill.



-[1]- Commissioner Johnson has submitted a separate written statement to express his own concurring and dissenting views.

-[2]- For a more complete discussion of the principal provisions of the Reform Act, see SEC Staff Report to the President and the Congress on the First Year of Practice Under the Private Securities Litigation Reform Act of 1995 ("Staff Report"), April 1997, at pp. 10 - 20 (available at www.sec.gov/SEC Digest and Statements/Special Studies).

-[3]- See Joseph A. Grundfest and Michael A. Perino, Securities Litigation Reform -- The First Year's Experience , Cornerstone Research , Feb. 27, 1997, at 10 - 11 (finding that 69 securities class actions were filed in state court during 1996 whereas the number in prior years was "de minimis"); Denise M. Martin et al., Recent Trends IV: What Explains Filings and Settlements in Shareholder Class Actions? , National Economic Research Associates (1996) ("NERA Study") (finding that 110 securities class actions were filed in state court during 1996 as compared to 57 in 1995); and Price Waterhouse letter to Senator Alfonse D’Amato (claiming that the average number of state suits filed in 1996 and 1997 grew 355% over the 1991 to 1995 average).

-[4]- Federal Shareholder Class Action Filings Rise to Pre-Reform Act Levels As State Filings Fall, National Economic Research Associates, Inc. (July 1997) (finding that the shift of securities class actions to state court after passage of the Reform Act was "transient").

-[5]- Pub. L. No. 104-290, 110 Stat. 3416 (1996).

-[6]- Currently, both the Securities Act of 1933 and the Securities Exchange Act of 1934 contain "savings clauses" which preserve state rights of action for securities fraud. Securities Act § 16, 15 U.S.C. § 77p; Exchange Act § 28, 15 U.S.C. § 78bb.

-[7]- Testimony of Arthur Levitt, Chairman, U.S. Securities and Exchange Commission, Concerning S. 1260, the "Securities Litigation Uniform Standards Act," Before the Subcomm. on Securities of the Senate Comm. on Banking, Housing, and Urban Affairs (Oct. 29, 1997), at 23.

-[8]- The Senate approved S. 1260 by a vote of 79-21 on May 13, 1998.

-[9]- City of Painesville v. First Montauk Financial Corp , 1998 WL 59358 (N.D. Ohio Feb. 8, 1998); Epstein v. Itron, Inc . , No. CS-97-214 (RHW), 1998 WL 54944 (E.D. Wash. Jan. 22, 1998); In re Wellcare Mgmt. Group, Inc. Sec. Lit . , 964 F. Supp. 632 (N.D.N.Y. 1997); Page v. Derrickson , No. 96-842-CIV-T-17C, 1997 U.S. Dist. LEXIS 3673 (M.D. Fla. Mar. 25, 1997); Weikel v. Tower Semiconductor Ltd., No. 96-3711 (D.N.J. Oct. 2, 1997); Gilford Ptnrs. L.P. v. Sensormatic Elec. Corp ., 1997 U.S. Dist. LEXIS 13724 (N.D. Ill. Sept. 10, 1997); Galaxy Inv. Fund, Ltd. v. Fenchurch Capital Management, Ltd ., 1997 U.S. Dist. LEXIS 13207 (N.D. Ill. Aug. 29, 1997); Pilarczyk v. Morrison Knudsen Corp ., 965 F. Supp. 311, (N.D.N.Y. 1997); OnBank & Trust Co. v. FDIC , 967 F. Supp. 81, 88 & n.4 (W.D.N.Y. 1997); Page v. Derrickson , 1997 WL 148558, at *9 (M.D. Fla. 1997); Fugman v. Aprogenex, Inc . 961 F. Supp. 1190, 1195 (N.D. Ill. 1997); Shahzad v. H.J. Meyers & Co., Inc ., No. 95 Civ. 6196 (DAB), 1997 U.S. Dist. LEXIS 1128 (S.D.N.Y. Feb. 6, 1997); Rehm v. Eagle Fin. Co ., 954 F. Supp. 1246, 1252 (N.D. Ill. 1997); In re Health Management Inc ., 970 F. Supp. 192, 201 (E.D.N.Y. 1997); STI Classic Fund v. Bollinger Indus., Inc ., 1996 WL 885802 (N.D. Tex. Oct. 25, 1996); Zeid v. Kimberley , 930 F. Supp. 431 (N.D. Cal. 1996); Marksman Partners, L.P. v. Chantal Pharmaceutical Corp ., 927 F. Supp. 1297, 1309 n.9 (C.D. Cal. 1996); Fischler v. AmSouth Bancorporation , No. 96-1567-CIV-T-17A, 1996 U.S. Dist. LEXIS 17670 (Nov. 14, 1996).

-[10]- In re Silicon Graphics Sec. Lit ., 970 F. Supp. 746 (N.D. Cal. 1997); In re Comshare, Inc. Sec. Litig ., Case No. 96-73711-DT, 1997 U.S. Dist. LEXIS 17262 (E.D. Mich. Sept. 18, 1997); Voit v. Wonderware Corp ., No. 96-CV. 7883, 1997 U.S. Dist. LEXIS 13856 (E.D. Pa. Sept. 8, 1997); Powers v. Eichen , No. 96-1431-B (AJB), 1997 U.S. Dist. LEXIS 11074 (S.D. Cal. Mar. 13, 1997); Norwood Venture Corp. v. Converse Inc., 959 F. Supp. 205, 208 (S.D.N.Y. 1997); Friedberg v. Discreet Logic, Inc. , 959 F. Supp. 42, 48-49 (D. Mass. 1997); In re Glenayre Technologies, Inc. , 1997 WL 691425 (S.D.N.Y. Nov. 5, 1997); Havenick v. Network Express, Inc. , 1997 WL 626539 (E.D. Mich. Sep. 30, 1997); Chan v. Orthologic Corp., et al., No. CIV-96-1514-PHX-RCB (D. Ariz. Feb. 5, 1998) (dicta). Four other cases have held that allegations of motive and opportunity, which sufficed prior to the Reform Act, no longer remain sufficient: Novak v. Kasaks , No. 96 Civ. 3073 (AGS), 1998 WL 107033 (S.D.N.Y. Mar. 10, 1998); Myles v. MidCom Communications, Inc ., No. C96-614D (W.D. Wash. Nov. 19, 1996); In re Baesa Securities Litig ., 969 F. Supp. 238 (S.D.N.Y. 1997); Press v. Quick & Reilly Group, Inc. , No. 96 Civ. 4278 (RPP), 1997 U.S. Dist. LEXIS 11609, at *5 (S.D.N.Y. Aug. 8, 1997).

-[11]- Testimony of Arthur Levitt, Chairman, U.S. Securities and Exchange Commission, Concerning S. 1260, the "Securities Litigation Uniform Standards Act," Before the Subcomm. on Securities of the Senate Comm. on Banking, Housing and Urban Affairs (Oct. 29, 1997) at 13.

-[12]- A. Gilchrist Sparks, III and Donna L. Culver, "The Delaware Fiduciary Duty of Disclosure," 972 PLI/Corp 383 (January 1993).

-[13]- See, e.g ., Testimony of Representative Anna Eshoo Concerning S. 1260 Before the Subcomm. on Securities of the Senate Comm. on Banking, Housing, and Urban Affairs (Oct. 29, 1997) ("(B)oth the Senate and the House bills may extend into certain types of cases which . . . traditionally have been heard in state courts, especially in the State of Delaware, such as when company directors advise shareholders on proxy votes . . . . I want to make clear that it is not my intention to interfere with these cases.").

-[14]- See 7B Wright & Miller, Federal Practice and Procedure § 1781 (1986).

-[15]- In addition, the requirements of Fed. R. Civ. P. 23(a) apply. These requirements, applicable to all federal class actions, securities or otherwise, include: that the class be so numerous that joinder of all members is impracticable; involvement of common questions of law or fact; that the claims or defenses of the class representative are typical of the class as a whole; and the class representative will fairly and adequately protect the interests of class members.

-[16]- The Senate bill, as an amendment, adopted a new alternative definition of "class action" that allows for the grouping of lawsuits, but only where "the lawsuits are joined, consolidated, or otherwise proceed as a single action for any purpose." The Commission did not object to this amendment.

-[17]- For instance, if an investment adviser churned the accounts of or recommended unsuitable securities to his clients and more than 25 of them sought to recover in the same court, each filing their own individual action, they likely would constitute a class action and have to pursue their claims -- if possible -- in federal court. There has been no showing that these kinds of suits -- either individually or in the aggregate -- present the kinds of potential abuses that have been attributed to traditional class actions.

-[18]- See, e.g., Zimmerman v. Thomson McKinnon Sec., Inc ., (1989-1990 Transfer Binder) Fed. Sec. L. Rep. (CCH) ¶ 94,733, at 93,961 (S.D.N.Y. Oct. 11, 1989) (refusing to certify a class of 120 plaintiffs on numerosity grounds); Stoudt v. E.F. Hutton & Co ., 121 F.R.D. 36, 38 (S.D.N.Y. 1988) (234 plaintiffs); Steinmetz v. Bache & Co ., 71 F.R.D. 202, 204 n.3 (S.D.N.Y. 1976) (185 plaintiffs).

-[19]- S. 1260 does so by deeming securities specified in Securities Act Section 18(b)(2) to be "covered securities."

-[20]- A penny stock is generally a security that is priced at less than $5 per share and is not traded on a national exchange or the Nasdaq National Market System. 15 U.S.C. § 78c(51) and rules promulgated thereunder.

-[21]- "Micro cap" securities generally describe a somewhat broader universe of stocks than "penny stocks." They include the stock of any company with comparatively low capitalization, regardless of its price or where it is traded.

-[22]- Testimony of Arthur Levitt, Chairman, U.S. Securities and Exchange Commission, Concerning Fraud in the "Micro Cap" Market Before the Permanent Subcomm. on Investigations of the Senate Comm. on Governmental Affairs (Sept. 22, 1997).

-[23]- Securities Act § 18(c), 15 U.S.C. § 77r(c).

-[24]- Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A. , 511 U.S. 164 (1994).

-[25]- Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson , 501 U.S. 350 (1991).

-[26]- Id. at 364.

-[27]- See Testimony of Arthur Levitt, Chairman, Securities and Exchange Commission, Concerning Abandonment of the Private Right of Action for Aiding and Abetting Securities Fraud/Staff Report on Private Securities Litigation: Hearing Before the Subcomm. on Securities of the Senate Comm. on Banking, Housing & Urban Affairs (May 12, 1994) ("Legislation is also needed to restore aiding and abetting liability in private actions which are a necessary supplement to (the SEC’s) overall enforcement program.").

-[28]- See Testimony of Richard C. Breeden, then-Chairman, Securities and Exchange Commission, Concerning the Securities Investors Legal Rights Act of 1991, Before the Subcomm. on Telecommunications and Finance of the House Comm. on Energy and Commerce (Nov. 21, 1991) (advocating a three year/five year statute of limitations).