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Legislation - Page 7
A Bankrupt BillNew York Times – July 28, 2002
(7/27/02) - It was probably expecting too much to think that Congress's stand-up attitude to big business would last until the weekend. A little more than a day after passing tough corporate-governance legislation, lawmakers rushed to approve an ill-advised overhaul of the nation's bankruptcy laws long sought by credit card companies and other creditors. The House seemed on the verge of approving the bill early this morning, and the Senate is expected to vote on it next week.
Each chamber passed different versions of the legislation last year, but the effort stalled in recent months over a tangential dispute involving the ability of anti-abortion protesters to use bankruptcy protection to avoid paying fines arising from their behavior. On Thursday, House and Senate negotiators agreed to deny protection only to protesters who engage in violent conduct at abortion clinics.
Earlier the two houses resolved another point of contention — the unlimited homestead exemptions permitted by six states, prominently Texas and Florida. These exemptions allow bankrupt debtors to shield the entire value of their homes from creditors. The House initially chose to do nothing to close this venerable loophole. But the prospect that a bunch of Enron and WorldCom executives who might be found guilty of defrauding investors could end up keeping their gaudy Sun Belt villas led House negotiators to embrace the Senate's $125,000 cap on the amount of home equity that can be shielded. Regrettably, though, the cap will apply only to those who have owned their homes for less than 40 months or have been convicted of certain felonies or securities fraud.
These compromises cleared the way for passage of a bill that will upset the careful balancing of creditor and debtor interests achieved by the bankruptcy code. It will do so by making it harder for many debtors who file for bankruptcy to erase their credit card and other unsecured debt, which they can do under current law, forcing them to repay some of their obligations under a court-supervised plan. This will impose a heavy burden on many filers seeking a fresh start after a personal misfortune.
Credit card issuers and other financial companies that lobbied aggressively for this bill claim that the legislation is needed because too many spendthrift consumers deliberately run up huge credit card bills and then default, raising rates for the rest of us in the process. This is a wildly exaggerated view. Most bankruptcies stem from a lost job, an illness or some other mishap. But Congress accepted the industry's line as readily as it has accepted the industry's campaign contributions, which total $700 million to both parties since 1996.
The basic outrage here is that creditors want to have it both ways. One reason that borrowers are being pushed to default and bankruptcy is that the financial companies keep pushing more and more lines of credit on people who are barely living from one paycheck to the next. The high risk inherent in this strategy is already accounted for in credit card companies' business model, in the form of steeper fees and higher interest rates for borrowers with poorer credit ratings. It's a free-market model that works for the companies. Credit card issuers have seen their profits soar in recent years.
Nonetheless, they insist on acting as if they were a utility forced to provide universal service on equal terms to everyone instead of what they are — mass mailers of five billion unsolicited credit card offers a year. They are therefore arguing that Congress is somehow obliged to protect them from the risks associated with their behavior. The Senate still has time to recognize the absurdity of this claim, and to turn them down.
Corporate-Reform Bill Sent to BushWashington Post – by Albert B. Crenshaw – July 27, 2002
Friday, July 26, 2002; Page A16
Congress moved swiftly yesterday to pass and send to President Bush rules designed to stamp out corporate and accounting fraud and restore public confidence in the nation's financial markets.
The House approved the measure, 423 to 3, and the Senate followed in the afternoon, voting 99 to 0. The votes came as stock prices slipped again after news of further investigations into possible accounting irregularities, this time at AOL Time Warner Inc.
The White House said Bush would sign the bill "promptly."
Many business leaders put aside earlier reservations and said the bill was essential to ending the stock market slide, which had gained momentum from scandals at Enron Corp., WorldCom Inc. and Adelphia Communications Corp., and regulatory investigations and restatements of earnings at several other companies.
"It's a strong bill that when fully implemented will prove a benefit not only to companies but to the investing public," said John J. Castellani, president of the Business Roundtable, a trade group.
Republicans said they hoped the bill would send a strong signal that Congress would no longer tolerate the excesses like the ones discovered at Enron and WorldCom.
"We get it," said Rep. Richard H. Baker (R-La.), chairman of the House Financial Services Committee's subcommittee on capital markets. He said Republicans were willing to accept a stricter bill than the original House version because "market conditions deteriorated beyond anyone's worst predictions."
Consumer and investor groups also praised the legislation.
"The recent rash of corporate crime has destroyed the trust of investors and threatened the stability of our markets," said Travis Plunkett, legislative director of the Consumer Federation of America. "This strong reform package sends a clear message that Congress and the administration can act decisively in a bipartisan fashion to address this threat and prevent future accounting debacles.
"This legislation will protect investors, crack down on fraud and wrongdoing, and provide tough oversight of the accounting industry," he said in a statement. "Leaders in Congress heeded the call to put the interest of investors and employees first."
The three "no" votes in the House came from Mac Collins (R-Ga.), Ron Paul (R-Tex.) and Jeff Flake (R-Ariz.).
"I just have principles that I stand on and this [bill] went against my principles," Collins said.
"I did not see the need to go so far as we did with this bill," Collins said. In his view it would add to business costs and apply more pressure on businesses to move overseas.
The measure, largely the work of Sen. Paul S. Sarbanes (D-Md.), would expose top corporate officers to new criminal penalties and change the oversight of the accounting industry. It would create a board to oversee and discipline accountants, and it would prohibit accounting firms from selling many consulting services to their audit clients.
The legislation also would require corporate chief executive officers and chief financial officers -- though not the board chairman when he or she is not also the chief executive -- to certify their companies' financial statements. It would impose prison terms of up to 20 years for permitting seriously misleading material into such reports.
In June, the Securities and Exchange Commission required the chief executives of 945 companies to certify their most recent financial statements by Aug. 14.
The measure passed yesterday also would require lawyers working for corporations to report evidence of fraud or other misconduct.
Business lobbyists had hoped that the measure would emerge closer to the House version, but as more scandals erupted and the stock market plunged, lawmakers decided to show voters that they had gotten tough.
In one of the few business victories, the bill provides that executives could go to prison if they "willfully and knowingly" allow misleading information into financial statements. The Senate bill originally had characterized the offense as "reckless and knowing," a much easier standard for prosecutors to meet.
John C. Coffee Jr., a Columbia University law professor and corporate governance expert, said the legislation's stiff penalties for corporate malfeasance amount to "election-year fluff."
"Most of what we know about white-collar crime is that the likelihood of apprehension is a much bigger deterrent than the penalty," he said.
Martin Regalia, vice president for tax and economic policy at the U.S. Chamber of Commerce, said that while "the need to reaffirm the confidence of investors in the markets is paramount," the Securities and Exchange Commission and the stock exchanges, through their own rules, were moving to accomplish most of what was in the bill.
"In general, we still kind of question the need for this bill," Regalia said.
Lawyers, too, were unhappy with the provision requiring them to inform on clients.
Robert E. Hirshon of Portland, Maine, president of the American Bar Association, called the provision "just plain wrong." He said it could "undercut the process that presently regulates attorneys" and undermine the attorney-client privilege.
He said the bill could have "a number of unintended consequences. We're hoping perhaps there's to be a technical corrections bill" that will give lawyers an opportunity to "mitigate" them.
Others said the bill did not go far enough. Sen. Jon S. Corzine (D-N.J.) noted that the measure did not address matters such as listing stock options as expenses and further protecting employee retirement funds.
But Sen. Phil Gramm (R-Tex.) said he feared the bill would unleash a torrent of unnecessary lawsuits.
Gramm, the sole dissenter among the conferees who worked out the bill, said, "In the environment that we're in, virtually anything could have passed the Congress." But he acknowledged that it was necessary to assure investors and voters that Congress was hearing their complaints.
Some investors said they would have wanted tougher rules, especially involving accountants. Diane Tod South, director of social research at the Citizens Funds, a "socially responsible" mutual fund group based in Portsmouth, N.H., said "we're thrilled that it goes as far as it does."
Officials of the European Union are also unhappy with the bill because it would subject European companies and their auditors to the authority of the new accounting oversight board if those companies' shares are listed on U.S. stock exchanges.
Staff writers Juliet Eilperin, Helen Dewar and Jonathan Weisman contributed to this report.
The McCain-Levin Stock Options AmendmentPublic Citizen – Press Release – July 26, 2002
The conference committee bill passing the House and Senate today is a good start to counteract this corporate crime wave, which was enabled by the broad corporate campaign to deregulate business. It will toughen the standards for accounting, change the rules to deter fraud against investors, authorize criminal penalties for top executives and put more federal cops on the regulatory beat. Sen. Paul Sarbanes (D-Md.) deserves enormous credit for developing this legislation land persisting in overcoming a huge corporate lobbying campaign to prevent its passage.
But the measure omits an essential ingredient that would eliminate a prime incentive for executives to cook up phony numbers intended to scam investors - and that is a requirement that companies treat stock options as a business expense that drains profits and reduces shareholder equity. Unless Congress does that before it adjourns, corporations will be free to continue lying to investors about their profits. Investors deserve better.
Sens. John McCain (R-Ariz.) and Carl Levin (D-Mich.) were promised a vote on their amendment to require this commonsense accounting change. This promise must be honored. The senators must be allowed to offer their amendment on "must-pass" legislation this session.
Finally, the bill does little to help investors recover losses experienced because of corporate fraud. The Congress must pass legislation authorizing investors to sue those aiding and abetting fraud, such as accountants, lawyers and bankers, and cutting back on 1995 legislation limiting investors' rights to recourse.
Sham Trade Ban in US Energy BillReuters – by Chris Baltimore – July 26, 2002
WASHINGTON, July 25 (Reuters) - Republican negotiators agreed on Thursday to add to a broad energy bill a ban on sham electricity trades that have shaken investor confidence in U.S. energy companies and triggered several federal investigations.
A prohibition on so-called wash or round-trip trades will become part of a wide-ranging energy bill that aims to boost U.S. production of oil and gas, increase energy conservation and triple ethanol use.
In wash trades, a company simultaneously buys and sells energy to the same counterparty. The practice inflates a company's trading volume and can tilt market prices.
Republican Rep. Billy Tauzin of Louisiana, who chairs the Senate-House panel of negotiators working on an energy bill, said he supported banning such trades.
"They need to be made illegal -- particularly practices like round-trip trades, practices that were designed to inflate volume in a fraudulent way," he told reporters.
He spoke after negotiators met to discuss conservation, weatherization funding and other minor provisions of the energy bill.
California Democrats have already called for a ban on wash trading, which they blamed for worsening the state's electricity crisis of 2000-01. A tenfold jump in prices then led to blackouts and the bankruptcy of a major utility.
Bill negotiators have until Sept. 16 to work out provisions that would prohibit wash trading and reform other aspects of the U.S. electricity market, Tauzin said.
Negotiators aim to complete all work by Sept. 30 on a wide- ranging package that includes proposals to drill in an Alaskan wildlife refuge and tighten automobile gasoline mileage standards. That would give the full Senate and House a week to debate and vote on final energy legislation before Congress' scheduled Oct. 4 adjournment.
$1 MILLION PENALTY
Recent wash trading admissions by CMS Energy (NYSE:CMS - News) , Reliant Resources Inc. (NYSE:RRI - News) , Duke Energy Corp. (NYSE:DUK - News) and others have propelled a sharp sell-off in energy stocks and a crisis of confidence in deregulated wholesale power markets.
"Let's just ban them so you can't do it," said Republican Rep. Joe Barton of Texas. Draft legislative language proposed by Barton would amend the Federal Power Act to do just that.
He proposed setting penalties of up to $1 million for companies that "simultaneously arrange a financially offsetting trade ... with an intent to deceptively affect reported revenues, trading volumes, or prices.
"I think a $1 million penalty gets peoples' attention," Barton said.
Pat Wood, chairman of the Federal Energy Regulatory Commission, on Wednesday said he would support a ban on round- trip trades. However, he said another effective deterrent was the skid in stock market prices for companies that have admitted to some of those practices.
Earlier this summer, FERC launched an investigation of wash trading to determine the role it played in the California electricity crisis. The agency has promised to release an interim report on its investigation by early August.
Other probes are underway by the Securities and Exchange Commission and by a federal grand jury in Houston.
PRICES WOULD BE PUBLISHED
Republicans on the House-Senate negotiating panel said they also want to require the FERC to publish wholesale electricity market prices on a real-time basis, aimed at giving regulators the ability to spot unfair practices.
The measure, supported by Tauzin, would require the FERC to create an electronic information system.
Every "broker, exchange, or other market-making entity" that buys or sells wholesale power would have to provide data on interstate trades "as soon as practicable and updated as frequently as practicable," according to the draft language.
Legislators are closely watching the current plight of energy companies like Williams Cos Inc. (NYSE:WMB - News) and Dynegy Inc. (NYSE:DYN - News), which have seen their share prices plummet.
The top 12 energy companies have lost 86 percent of their market capital since May of 2001, or $222 billion in value, according to data circulated by lawmakers. That is roughly the annual value of all trades in the U.S. wholesale power market.
Sen. Larry Craig, an Idaho Republican, said energy legislation must not destabilize the market.
"We'd better be very cautious what we do in that market environment, or we may cause it to collapse even further," Craig said.
Unlike bankrupt energy trader Enron Corp. (Other OTC:ENRNQ.PK - News), many other firms have been punished undeservedly, Barton said.
"Somebody somewhere ... is not going to have electricity or natural gas" because stock market declines have forced energy companies to cut capital spending on plant construction, he said.
House Approves ‘Cash Balance’ Amendment!Bernie.house.gov – Press Release– July 25, 2002
Corporate America fails in attempt to protect their raiding of workers pensions
(7/24/02) - WASHINGTON, DC- Representative Bernie Sanders (I-VT) successfully offered an amendment today on the floor of the U.S. House to protect workers from pension age discrimination and other attempts by corporate America to raid worker pension funds. By a vote of 308 to 121, the U.S. House passed the measure that forbids the IRS from acting in contravention of federal pension age discrimination laws and prohibits changes in current law that protect workers’ pensions during conversions from traditional defined benefit pension plans to controversial so-called “cash balance schemes.” Sanders amendment was supported the AARP, the AFL-CIO, the Pension Rights Centers, and other unions. It was opposed by the ERISA Industry Committee and the American Benefits Council.
Sanders said, “The outrage of the American people over the criminal and immoral conduct of corporate America is finally being heard in the Congress. We have heard a lot about accounting gimmicks but corporate raids on the pensions of millions of workers are another aspect of the corporate thievery that is plaguing our nation. The bottom line is that if a worker is promised a certain pension benefit, a corporation must not renege on that agreement.”
Hundreds of American companies, including IBM, CBS, AT&T, Enron, and WorldCom, switched their pensions from a traditional plan to a cash balance plan. These conversions adversely affect older workers whose pension value can decrease by 20-50%. The Equal Employment Opportunity Commission has received some 800 age discrimination complaints from workers at companies that have moved to a cash balance plan. In addition, for the past almost three years, the IRS has refused to sign off on cash balance plans as it reviews the legality of these plans in terms of age discrimination.
Based on a recent Department of Labor Inspector General report, enactment of the Sanders amendment could increase pension benefits for workers by up to $199 million annually because it prevents a dilution of current regulations regarding pension balance calculations.
Sanders concluded, “It is high time that the Congress deal with every kind of corporate abuse, including corporate raids on their workers’ pensions. Today’s vote sends a signal to corporate America that the days of robbing their employees are coming to an end.”
Cash Balance Plan ProvisionL. A. Times – by Kathy M. Kristof – July 25, 2002
(7/24/02) - Battle lines are being drawn over a one-paragraph legislative amendment aimed at protecting worker pensions when companies convert traditional pensions to so-called cash-balance plans.
The amendment--tagged onto the Treasury-Postal Appropriations bill by U.S. Rep. Bernard Sanders (I-Vt.)--would keep the Internal Revenue Service from undermining existing rules governing the calculation of certain corporate pension benefits.
This bill is being debated this week in the House. The Sanders provision--supported by the American Assn. of Retired Persons and the Pension Rights Center--is strongly opposed by a powerful industry group whose members include some of the biggest companies in the country.
The amendment could force companies to provide more generous benefits to early retirees, and it could help the case of thousands of workers who have sued their companies for allegedly underpaying pensioners.
Cash-balance plans are hybrid pensions that look like a 401(k) but operate more like a traditional defined-benefit plan. Companies, and some younger workers, like the plans because they are transported easily from one firm to the next if an employee changes jobs.
But some older workers have sued over the plans, alleging that some companies' efforts to convert their traditional pensions to cash-balance plans rob longtime employees of promised benefits.
"Sanders is protecting the litigation bar's efforts to litigate this issue," said Mark Ugoretz, president of the ERISA Industry Council, which represents 125 large companies. "There are probably a couple hundred of these plans in litigation."
Sanders said he became involved in the cash-balance pension issue because IBM Corp. is the largest private employer in Vermont.
When IBM converted to a cash-balance pension plan, Sanders was inundated with calls from workers contending the company had improperly cut their pension benefits in half.
The IBM controversy was voluntarily resolved, largely in workers' favor. But hundreds of other companies have converted their traditional pensions to cash-balance plans, touching off protests from workers.
The IRS has not approved any conversions to cash-balance plans in at least a year.
Earlier this year, the Department of Labor's inspector general issued a study that said one in five cash-balance plans improperly calculates early-retirement benefits, underpaying workers by millions of dollars each year. Extrapolating the study sample to the hundreds of cash-balance plans nationwide, Sanders said retirees in cash-balance plans are being shortchanged by $85 million to $199 million each year.
Ugoretz denies that firms have underpaid workers. However, he said the determination of whether they did or did not probably will rest on the maintenance of the IRS rule that Sanders wants to legislatively protect.
The issue boils down to this: Companies are barred by federal pension law from taking away earned retirement benefits from workers when they terminate or convert their pension plans. As a result, companies must give each worker an amount equal to the "present value" of their future pension benefits when the old pension plan is changed.
But that value can swing wildly based on the assumption of what the invested money would earn in the long haul.
Companies would like to assume relatively high returns--in the 7% to 10% a year range. In turn, that could drastically reduce that present value of the benefits.
The IRS rule that Sanders wants to protect sets the assumed rate at around 5%, which would mean a higher present value for many retirees.
The IRS' conservative rate assumption has been upheld in two recent court cases, said David Certner, director of federal affairs at AARP. But companies have been negotiating with the IRS to change the rule, which like many IRS regulations was never made permanent. The rule has been in place since 1996, but is still technically a proposed rule.
Sanders' amendment would bring those negotiations to a halt because it would bar IRS staffers from negotiating any settlement that changed the return assumption.
Energy Bill Contradicts Corporate ReformPublic Citizen – Press Release – July 24, 2002
Congress Rails Against Corporate Crime One Minute, Deregulates Corporations the Next
WASHINGTON, D.C. - Even as Congress is cracking down on corporate wrongdoing in the accounting realm, it is moving to gut pro-consumer regulations for some of the nation's largest and most powerful corporations and give them more latitude to embark on questionable deals, Public Citizen said today.
As part of the ongoing conference over House and Senate energy legislation, conferees are discussing the Senate version's electricity title, which includes language that will repeal the Public Utility Holding Company Act (PUHCA). If lawmakers repeal this key consumer protection law, they will further deregulate the energy industry and allow more Enron-like manipulations.
Enacted decades ago to protect consumers from rapacious electric companies, PUHCA is one of the few remaining federal laws regulating the nation's giant power corporations. Repealing the law will allow those companies to embark on another frenzy of mergers and acquisitions and encourage corporate financial escapades in far-flung, risky ventures that have nothing to do with providing reliable and affordable electricity service to consumers - an essential commodity.
"Members of Congress are touting themselves as reformers while simultaneously giving in to yet more corporate demands for less regulation and less accountability," said Wenonah Hauter, director of Public Citizen's Critical Mass Energy and Environment Program. "The nauseating political enthusiasm for deregulating corporate America and acceding to corporate demands is what got us into this mess in the first place. By blasting corporate crime one minute and deregulating energy companies the next, Congress is putting its hypocrisy and disregard for public interest on blazing display."
PUHCA prohibits utility holding companies from investing ratepayers' money in areas that will not directly contribute to low bills and reliable service, such as out-of-region power plants or non-electricity industries.
Both the Senate and House versions of energy legislation were heavily influenced by the Bush administration's energy agenda, an agenda developed in secret between Vice President Dick Cheney and some of the nation's most powerful energy executives.
Identical or similar portions of the House and Senate energy bills mirror Bush-Cheney energy proposals on several industry giveaways, including hundreds of millions of dollars in taxpayer subsidies for the nuclear and fossil fuel industries. Neither bill takes serious steps to increase automobile fuel economy. The Senate measure requires utilities to obtain a portion of their power from renewable energy sources, but the renewable standard was severely watered down prior to passage. And the conference will consider the Senate's renewal of the taxpayer-backed insurance scheme for the nuclear power industry, an industry that still can't get insurance coverage in the private market and so must rely on government financial protection for its very existence.
Instead of lifting regulations on the energy industry, Public Citizen urges the conference committee to:
"Enron, WorldCom, Global Horizon and the rest have reminded everyone yet again that corporations serve society only if they are properly monitored and regulated," Hauter said. "Members of Congress are scouring Washington right now for television cameras, so they can look into them and profess their passionate commitment to reforms that will protect the public from greedy, dishonest corporations. Those lawmakers who sit on the energy bill conference committee have an excellent opportunity to put their words into action."
Corporate Fraud BillAssociated Press – by Tom Raum – July 21, 2002
WASHINGTON - Amid a stock market nosedive, President Bush pressed Congress on Saturday to act quickly on a tough package of reforms to fight business fraud, saying "the trust of the American people has been betrayed" by recent corporate scandals.
Bush used his weekly radio address to keep pressure on lawmakers to complete work on a compromise bill before the August recess.
"I am confident that the differences between the House and Senate approaches can be bridged," he said.
Members of Congress didn't seem to need too much prodding, particularly in light of Friday's 400-point selloff that brought the Dow Jones Industrial average to its lowest level in nearly four years. House and Senate negotiators met for the first time Friday to begin writing a final version of the bill, and staff members from both sides were working through the weekend.
Sen. Phil Gramm, R-Texas, said his fellow negotiators already had "unanimous agreement on about 90 percent of the issues." The panel is expected to resume its deliberations early next week.
"Unethical business practices by corporate leaders amount to theft and fraud," Bush said. "These practices are unacceptable, and we are fighting them with active prosecutions and tough enforcement" by the Securities and Exchange Commission, he said.
"We will not accept anything less than complete honesty," Bush said.
Both the Democratic-sponsored Senate bill and the Republican-sponsored House version create new criminal penalties for business fraud and tighten oversight of the accounting industry, but would do so in different ways.
Bush said both would "toughen penalties and provide transparency and hold corporate executives accountable for their behavior."
He said some members of Congress are suggesting it would take up to two months for a final bill to be on his desk, but "there is no good reason for the legislative process to take that long,"
The president also said his administration "will do everything in its power to ensure business integrity and long-term growth."
In a Democratic response, Colorado Attorney General Ken Salazar said Bush and his administration "have only paid lip service" in calling for a corporate cleanup.
"With their hands-off regulatory approach, they are the ones who gave the green light for this kind of corporate excess," Salazar said in a Spanish language broadcast beamed to Hispanic audiences. "Democrats have taken the lead on this issue of corporate responsibility."
He said the Senate-passed bill is tougher than the House version, "but the president still hasn't embraced this bill - which gives one the impression he's unwilling to do anything substantive to address the problem."
Salazar's was one of two Democratic radio addresses. It was delivered in Spanish, but the Democratic National Committee distributed an English translation. The other address, in English, was by Sen. Paul Wellstone, D-Minn., and dealt with prescription drugs.
Several speeches by the president on the issue of corporate accountability have failed to stem the stock market losses.
After Friday's market sell-off, White House spokesman Scott McClellen said, "The fundamentals of the economy are strong and the president is continuing to work closely with Congress on the additional priorities he has outlined to strengthen the economy."
In his radio address, Bush said that fundamentals of the American economy are strong but that "our free enterprise system is being tested."
"Unethical business conduct that began in the in the boom of the 1990s is being uncovered. Investors have lost money. Some in retirement have lost security. Workers have lost jobs, and the trust of the American people has been betrayed," he said.
Bush also urged Congress to send him legislation to authorize the federal government to help subsidize terrorism insurance for commercial properties and to restore expired presidential authority to negotiate trade deals without congressional interference.
He also renewed a call for Congress to get a better handle on spending, hinting that he might veto measures that are too costly. "Unless Congress controls its spending, we will face a decade of deficits," he contended.
House Toughens Up On Corporate FraudCBS.MarketWatch.com – by Matt Andrejczak – July 17, 2002
WASHINGTON (CBS.MW) -- Reflecting growing public concern over the spate of corporate scandals, the House took a hard stance against wrongdoers on Tuesday and quickly passed legislation to create tougher criminal penalties for dishonest corporate executives.
Not wanting to be outdone by the Senate, which passed a sweeping accounting reform and corporate fraud bill late Monday, the House passed by 391 to 28 the Republican-sponsored bill. The legislation incorporates many of the measures included in the Senate's bill.
"This is a tough bill," said House Judiciary Chairman James Sensenbrenner, R-Wis., sponsor of the legislation, calling it harsher than the Senate's version. "It will put people in jail for a very long time."
The latest House action reflected the growing momentum on Capitol Hill behind legislation to crack down on corporate crime and restore investor confidence.
Meanwhile Tuesday, fresh from Monday night's unanimous passage of the Senate bill, key Democratic lawmakers urged House leaders to accept Senate legislation to curb the abuses of Wall Street. They worry that the final product will be diluted if lawmakers use the traditional time consuming conference to reach a compromise.
"Some of the very important reforms in this bill (Senate) will be taken out," said House Minority Leader Richard Gephardt, D-Mo.
But it doesn't sound as if the Democrats will get their wish.
"We're going to conference," John Feehery, spokesman for House Speaker Dennis Hastert, R-Ill., said Tuesday.
President Bush said Monday he wants to sign a corporate reform bill in August.
Separately Tuesday, Federal Reserve Chairman Alan Greenspan all-but-endorsed stronger measures to police and punish corporate fraud, saying the economy is poised to recover if the "infectious greed" on Wall Street can be brought under control.
Tuesday's catch-up move by the House builds on corporate reform legislation passed by the chamber in April, which is significantly weaker than the recently approved Senate bill.
One of the biggest differences between Tuesday's bill passed by the House and the Senate proposal is the length of time corporate executives would be sent to jail if found guilty of defrauding investors.
But House Democrats derided the legislation, accusing their Republican colleagues of playing catch-up and blaming them for rejecting attempts to pass a stronger corporate reform bill in late April.
House Republicans rebuffed attempts by Democratic lawmakers in April to include criminal-related provisions in the House's earlier accounting reform legislation.
"This is nothing but a feel good bill," said Rep. Bart Stupak, D-Mich.
And despite the lengthier prison terms, they also said the House measure would make it harder to prosecute corporate fraud because it doesn't include certain provisions contained in the Senate bill.
For instance, the House legislation fails to create a new felony for keeping audit documents for five years and new protections for corporate whistleblowers. It also doesn't extend the time frame investors can bring lawsuits in securities fraud cases.
"The House bill purports to lengthen the maximum jail terms included in the Senate bill, but by dropping other provisions, it would make it harder to uncover and convict corporate fraud in the first place," said Sen. Patrick Leahy, the Vermont Democrat who authored the criminal provisions in the Senate bill.
The House bill would increase prison terms for corporate wrongdoers who commit mail or wire fraud from five to 20 years and create a new securities fraud penalty carrying a maximum penalty of 25 years in jail.
The Senate measure would increase penalties for mail and wire fraud from five to 10 years and create a 10-year securities fraud penalty.
Like the Senate legislation, the House bill would also strengthen document-shredding and obstruction of justice laws.
The House version, however, provides a maximum penalty of 20 years in jail for shredding documents whereas the Senate measure calls for 10 years.
In addition, House legislation passed Tuesday would freeze bonus payments to executives while the company is under federal investigation and close loopholes in bankruptcy laws that corporate executives use to avoid liabilities from securities fraud.
Senate Passes Business Fraud BillAssociated Press – by Marcy Gordon – July 16, 2002
(7/15/02) - WASHINGTON -- With nary a dissent, the Senate approved on Monday the most sweeping changes in corporate accountability since the Depression, creating stiff penalties and jail terms for company fraud and tightening oversight of the accounting industry.
The vote was 97-0 for the bipartisan bill, lifted by a rising tide of unease over a string of corporate accounting scandals that have shattered Americans' confidence in business and the markets and threatened the fragile economic recovery.
"It is high time we call corporate executives on the carpet and hold them responsible," Sen. Max Cleland, D-Ga., declared on the Senate floor before the vote.
Sen. Charles Grassley, R-Iowa, denounced "the crooks running these corporations."
As the Senate neared passage of the legislation after nearly a week of debate and votes on amendments, President Bush told business leaders, "We intend to hold people accountable."
"We can't pass a law that says, 'You will be honest,"' the president said in a speech at the University of Alabama at Birmingham. "We can pass laws that say, 'If you're not honest we'll get you."'
Bush urged Congress to get him a bill to sign before adjourning for its summer recess. Congressional leaders indicated they would try to do that.
In a show of bipartisanship, a spokesman for House Speaker Dennis Hastert, R-Ill., said lawmakers would try to begin Tuesday resolving differences between the bill in the Democratic-controlled Senate and a version passed in April by the GOP-led House. The House measure is widely considered weaker, because it lacks penalties for corporate fraud and does not go as far toward reining in accountants.
"That's something that we're going to try to aim for," said the Hastert spokesman, John Feehery.
Senate Majority Leader Tom Daschle, D-S.D., went further, asking Republican leader Sen. Trent Lott, R-Miss., to join him in a request to Hastert for the House to vote on the newly passed Senate measure.
In rare shows of unanimity, senators voted last week to add a series of new penalties, including 10-year prison terms for securities fraud. Chief executive officers and chief financial officers who certified false company financial reports would be slapped with prison terms of five to 10 years and fines of $500,000 to $1 million.
In his Birmingham address, Bush coupled an upbeat assessment of the economy with a warning to corporate leaders to "behave responsibly," an attempt to restore investor confidence in the wake of a wave of business scandals.
Despite the attempt, the markets dropped even further after his remarks. The Dow Jones industrials were down about 400 points in early-afternoon trading but rallied late in the session to close down 45 points.
Bush has been dogged in recent weeks by a decade-old insider-trading investigation by the Securities and Exchange Commission into his $848,000 sale of stock in his former oil company, Harken Energy Corp., where he was a director.
Additionally, Vice President Dick Cheney's former company, Halliburton Co., is being investigated by the SEC for its accounting practices while Cheney was its chief executive.
The Senate bill would ban personal loans from companies to their top officials and directors, and would require company insiders to notify the SEC more promptly when they buy or sell company stock.
The measure creates a new private-sector oversight board for the accounting industry with disciplinary powers, to replace the current system in which the industry polices itself. The board would be overseen by the SEC, which also would appoint members in consultation with the Treasury Department and the Federal Reserve Board.
The legislation restricts a wide range of consulting and other nonauditing services that accounting firms would be allowed to provide to their audit clients, including bookkeeping, financial systems design and personnel and legal services. The move has been fiercely opposed by the accounting industry, a major contributor to lawmakers' campaign funds.
Investor confidence has been shaken since a series of corporate accounting scandals, beginning with the collapse of Enron Corp. Its longtime auditor, Arthur Andersen LLP, recently was convicted of obstructing justice by shredding Enron audit documents. WorldCom Inc., Xerox Corp. and Global Crossing Ltd. also are under investigation.
Senators continued to sound a populist note Monday in the floor debate. Sen. Byron Dorgan, D-N.D., ticked off names of former chairman Kenneth Lay and other top Enron executives who cashed in millions of dollars of company stock last year before it plunged.
In contrast, Dorgan said, "The folks at the bottom lost their shirts." Employees later lost jobs and retirement savings in accounts heavy with Enron stock.
The White House has defended Bush's low-interest loans of $180,000 from Harken, a type of transaction that Bush now wants to ban as part of the crackdown on corporate wrongdoing.
Bush and the Republicans have been on the defensive as Democrats have made corporate accountability a political issue in this congressional election year. Presidential spokesman Ari Fleischer portrayed the questions the White House has been facing over its handling of corporate scandals as politicking by Democrats.
"The closer it gets to the election, it's going to be expected that some people are going to engage in statements that are political in nature," Fleischer said Monday.
Meanwhile, Bush's SEC chairman, Harvey Pitt, remained under fire because of his past work representing the accounting industry and big corporations before the agency. Several members of Congress, including Republican Sen. John McCain of Arizona, have urged his resignation.
Fleischer shrugged off calls for Pitt to step down, saying "the president stands by his team."
Senate Stock Options ManeuveringNew York Times – by Richard A. Oppel Jr. – July 14, 2002
WASHINGTON, July 12 — Senator Carl Levin said today that he would try to force accounting rule makers to revisit the issue of how corporations account for stock options.
It is the second time this year that Mr. Levin, a Democrat from Michigan, has tried to push through Congress a measure to address how corporations handle stock options, which many critics consider a chief factor in the financial chicanery that has recently been exposed. He intends to attach his amendment on Monday to the Senate's fast-moving accounting and corporate overhaul bill, sponsored by Senator Paul S. Sarbanes, Democrat of Maryland.
On Thursday, Senator John McCain, Republican of Arizona, offered a proposal to force companies to treat stock options as business expenses on their financial statements — a move that would reduce reported profits for some companies by hundreds of millions of dollars. Mr. McCain's efforts ran into a buzz saw of lobbying and opposition from lawmakers in both parties, and his amendment was blocked by a parliamentary tactic.
Now, Mr. Levin is giving option-reform one more shot, but with a more modest proposal that, he hopes, will have the same outcome.
Eight years ago, the Financial Accounting Standards Board, which sets rules on how to account for business transactions, was poised to toughen the rules on options and force companies to count them as an expense on their income statements, as they do other forms of compensation. But the board backed down in the face of extraordinary pressure from lawmakers.
Mr. Levin now intends to require the board to revisit the issue within a year and devise rules using "an appropriate generally accepted accounting principle." Mr. Levin says he thinks that the board's members will come to the same conclusion that they did in 1994 — that the proper course is to require companies to expense options.
But Mr. Levin is optimistic that the group will not back down this time, saying that his amendment should give the board political cover to go through with the decision. He also hopes that other provisions of the Senate legislation that are intended to increase the board's independence from the accounting industry will also make it more willing to change the system.
Stock options are "one of the driving forces behind the corporate abuses that we've seen," Mr. Levin said today. F.A.S.B. officials "were thwarted, they were beaten down" when they tried to change the option accounting rules in 1994.
"I believe that if given another chance, now that they have independent funding, they would do the right thing," he said.
In other action in the Senate, lawmakers approved an amendment today to the Sarbanes bill by Charles E. Schumer, the New York Democrat, that would block executives from receiving large personal loans from their own companies. Such loans contributed to the collapse of Adelphia Communications, which had guaranteed $3.1 billion in loans to the founding Rigas family.
"Why can't these corporate executives go to the bank like everybody else," Mr. Schumer said.
Many institutional investors, and some lawmakers, are concerned that large option grants have increasingly skewed the financial picture of many large companies. Though companies do not now have to count options as an expense, options do cost shareholders, who find their holdings ultimately diluted by the issuance of additional stock.
Moreover, critics worry that option grants contributed to the accounting scandals at Enron and other companies. With executives receiving enormous grants every year — so that moderate changes in stock prices can mean multimillion-dollar gains — they have too much incentive to push accounting rules, or break them outright, critics say.
The Senate majority leader, Tom Daschle, who was instrumental in killing Mr. McCain's proposal on Thursday, endorsed the Levin plan. "Senator Levin has exactly the right proposal with regard to stock options," Mr. Daschle said.
But with a vote on the entire Sarbanes bill expected as soon as Monday night, Mr. Levin still has many obstacles to overcome.
Corporate lobbyists have been working feverishly to stop efforts to change the rules. Particularly fervent are technology companies, which say that options are the most effective way to compensate and retain skilled workers.
Because of Senate rules and the current state of debate on the Sarbanes bill, Mr. Levin needs to get approval from Republicans for his amendment to come up for a vote, according to Senate leaders. But according to Mr. Levin and other Democrats, the Republicans did not allow that to happen today.
Mr. Levin said that Phil Gramm, Republican of Texas, was leading efforts to block the amendment.
"I don't know whether they'll block it again on Monday," Mr. Levin said. "I don't think we ought to be in a situation where Phil Gramm, or any other senator, can deny a vote on a germane amendment."
A spokeswoman for Mr. Gramm disputed that suggestion and said that Mr. Gramm left Washington this morning to inspect flood damage in Texas before Mr. Levin tried to bring his amendment up for debate. The spokeswoman, Angela de Rocha, declined to comment on the substance of the Levin amendment. She also said she did not know whether Mr. Gramm, who is the Senate's most influential Republican on financial and accounting issues, had discussed how to deal with the Levin amendment with other Republicans.
The Senate's Republican leader, Trent Lott of Mississippi, said today that he did not even know the subject of the Levin amendment. "I've been attending to a lot of issues," he said, and "I have not, you know, paid particular" attention to the option amendment.
If the Levin proposal were to become law, it is not clear what the F.A.S.B. might do. Robert Herz, the new chairman, has made clear that he thinks options should be expensed but that he is not sure about how to best measure the expense.
When the board backed down under political pressure eight years ago, it adopted a rule that stated that expensing options was the preferred way of proceeding — but it allowed companies not to do so. A few companies — Boeing and Winn Dixie being the best known of them — chose to follow the preferred method.
The International Accounting Standards Board, which sets rules that will apply in much of the world, is working on an options rule and is expected to propose one later this year. It is expected that it will adopt a rule requiring options to be expensed, and that the American body will then consider whether to adopt the international rule.
Though American businesses have lobbied heavily against that, the F.A.S.B. may eventually adopt an international rule unless the political pressure is too strong.