Dear Chris:

Thank you for Your letter of July 18, concerning the Private Securities Litigation Reform Act. I am pleased that the Senate is holding a hearing to learn about how the Act Is working.

As you know, I have long supported reasonable reform of the securities litigation system, and have been particularly concerned about frivolous litigation and its negative Impact on innovation and productivity. I also believe it is important to the efficient functioning of our capital markets that investors have the maximum amount of accurate information on which to base their investment decisions.

However, as I made clear during the debate on the Reform Act, it is critically important that investors who are defrauded or who are otherwise harmed by misinformation retain effective access to the courts. It is for this reason, that during consideration of the Reform Act, I raised concerns about higher pleading standards, the length of the statute of limitations, and the lack of private aidinq and abetting actions in federal court. This was also the basis for my request that the SEC study the Reform Act Is impact and report back to me.

Now that the SEC has completed its work, T think it is fair to say that the SEC's study was conclusive on only two points: during 1996, the number of state court securities fraud actions increased; and the Reform Act's safe harbor -- meant to increase information available to investors -- is not being fully utilized. Recent tabulations of federal and state court securities actions indicate that the 1996 trend toward state court actions has been reversed in 1997, and may have been a temporary phenomenon. However, the possibility of changes in one or more states' securities laws similar to those proposed in California's Proposition 211 suggests that there may be a need to reconsider the appropriate balance of federal and state roles in securities law. As I said when I opposed Proposition 211 last August, the proliferation of multiple.and inconsistent standards could undermine national law.

The Honorable Christopher J. Dodd
Page Two

As we work through this process, we should be guided by the same principles that were applicable to the Reform Act debate: a strong stand against abuse of the legal system, whether in federal or state court, in the bringing and settling of actions and discovery or in other procedural activities; a strong presumption in favor of fully -- and accurately -- informed markets; and a thorough respect for the different roles of federal and state legal systems and courts, and of enforcement agencies and private litigants.

With these principles in mind, I believe that my Administration will be able to formulate an appropriate response to issues raised about the effectiveness of the Reform Act and the role of federal securities law in a national market system. My economic advisors will soon provide me with recommendations. I look forward to working with you on this issue.

Sincerely,

Bill Clinton

The Honorable Christopher J. Dodd
United States Senate
Washington D.C. 20510

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