- The Washington Times - Tuesday, July 16, 2002


The Senate yesterday approved the most sweeping changes in corporate accountability since the Great 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 series of corporate accounting scandals that has shaken 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, Georgia Democrat, said on the Senate floor before the vote.

Sen. Charles E. Grassley, Iowa Republican, 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.'"

Mr. Bush urged Congress to send him a bill to sign before adjourning for its summer recess. Congressional leaders indicated they would try to do so.

In a show of bipartisanship, a spokesman for House Speaker J. Dennis Hastert, Illinois Republican, said lawmakers would try to begin resolving differences today between the bill in the Democratic-controlled Senate and a version passed in April by the Republican-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 spokesman, John Feehery.

Senate Majority Leader Tom Daschle, South Dakota Democrat, went further, asking Republican leader Sen. Trent Lott, Mississippi Republican, to join him in a request to Mr. 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.

As the Senate resumed debate on the legislation yesterday, Sen. Phil Gramm, Texas Republican, blocked an amendment that would have initiated a study of new regulations on stock options. The measure was offered by Sen. Carl Levin, Michigan Democrat, who favors listing the cost of such options as an expense on company financial statements.

In his Birmingham address, Mr. Bush coupled an upbeat assessment of the economy with a warning to corporate leaders to "behave responsibly," an attempt to restore investor confidence.

Despite the attempt, the markets dropped even further after his remarks. The Dow Jones Industrial Average was down 440 points in early-afternoon trading but rallied late in the session to close down 45 points.

Mr. 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 Richard B. Cheney's former company, Halliburton Co., is being investigated by the SEC for its accounting practices while Mr. 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 audit documents. WorldCom Inc., Xerox Corp. and Global Crossing Ltd. also are under investigation.

Senators continued to sound a populist note yesterday in the floor debate. Sen. Byron L. Dorgan, North Dakota Democrat, ticked off the 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 value.

In contrast, Mr. Dorgan said, "The folks at the bottom lost their shirts." Employees later lost jobs and retirement savings in accounts heavy with Enron stock.

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