- The Washington Times - Thursday, July 25, 2002

The Dow Jones Industrial Average soared nearly 500 points yesterday after breakthroughs were announced in legal and legislative efforts to stop the corporate scandals afflicting the market.
The Dow's 489-point leap to 8,191, its second-largest point gain, recouped a 170-point loss at the start of trading and came after news of the arrest of Adelphia Communications Corp. executives charged with looting the cable TV company.
The buying spree accelerated in midmorning after congressional negotiators announced they had reached agreement on a tough bill to stop fraud in the executive suite and strictly regulate auditors to ensure they protect investors' interests.
"Today was a day of action and a day of accomplishment in Washington, D.C.," President Bush said after meeting with Democratic lawmakers. "This government will investigate, will arrest and will prosecute corporate executives who break the law and the Justice Department took action today."
The president directed Treasury Secretary Paul H. O'Neill yesterday to postpone a scheduled trip and stay in town to help shepherd through the compromise reform bill.
"We're making progress on a piece of legislation which will enable us to say that we passed laws to help protect investors, 401(k) stockholders, from corporate fraud," Mr. Bush said.
Responding to public clamor to bring the executives behind the scandals to justice, and the daily drumbeat of stocks falling on the news, congressional negotiators melded the strongest provisions of the House and Senate bills.
The agreement adopts the House's tougher penalties for securities fraud, including a maximum prison sentence of up to 25 years, while embracing the Senate's stricter independent regulatory board to oversee and police accountants.
The compromise tracks the Senate Democratic bill, drafted in recent weeks and passed unanimously amid news of WorldCom Inc.'s massive accounting fraud and subsequent failure. But it includes key concessions to House Republicans and business groups that had feared regulatory overkill.
"Everything we have seen and heard is positive, and the president looks forward to signing it," said White House spokesman Ari Fleischer.
Mr. Bush has called for swift passage of the measure before Congress adjourns next week for its August recess, contending that concerted action will help bolster confidence in the markets.
Yesterday's market reaction appeared to bear out his prediction, though stock analysts said the surge in stock prices was in part a "technical" rebound from low levels and "oversold" conditions that prevailed earlier this week.
"I'm a little skeptical," said Todd Clark, a trader at Wells Fargo Securities LLC. "Every time we've had one of these violent rallies, it's been a classic bear-market bounce with no follow-through."
The Dow's 6.4 percent gain was mimicked by other major indexes, with the technology-focused Nasdaq Composite Index advancing nearly 5 percent, or 61 points, to 1,290 after dropping through 1,200 early in the day. The Standard & Poor's 500 index shot up 5.7 percent to 843.
Investors who had lost trillions of dollars this year because of burgeoning corporate scandals were greeted in the morning with the widely televised arrest of Adelphia founder John Rigas and two of his sons on charges of grand theft and securities fraud.
"The market has been waiting for this," said Alan Ackerman, vice president at Fahnestock & Co. "We have a big turnaround in process, but whether it will last or not is a big question. Some of this is based on the fact that the House and Senate appear to have made progress on corporate reforms."
The House and Senate, Republicans and Democrats each declared themselves the victors in announcing a quick agreement on the most significant overhaul of corporate governance laws in a generation.
Republicans portrayed the speed of the complex agreement reached in a week as a victory, while House Minority Leader Richard A. Gephardt, Missouri Democrat, said the mostly Democratic content of the bill represented "unconditional surrender" by Republicans running scared that the public would blame them for the scandals.
To ensure the independence of auditors, the compromise accepts the Senate's ban on providing nine non-auditing services to clients, including management consulting, investment banking and legal services.
The agreement accedes to the House by clarifying that the Securities and Exchange Commission has certain powers over the new accounting board. It includes the House's proposed compensation fund for defrauded investors and a requirement for next-day disclosure of "material" changes in a company's finances.
In a bow to business groups, the compromise drops a Senate requirement that a company's board chairman, as well as its chief executive and chief financial officer, must certify the accuracy of financial statements. It drops any criminal liability for "reckless," though not criminally driven, acts by executives.
The compromise, endorsed by the Business Roundtable and Securities Industry Association, clarifies that the Senate's ban on corporate loans to executives does not apply to credit cards or margin loans for buying stock.
It includes a Senate provision, fought by the U.S. Chamber of Commerce, extending by two years the statute of limitations on investor lawsuits.
While the bill's journey through Congress was marked by increasingly partisan maneuvering and rhetoric, the final compromise reflected how close the parties originally were and how closely they worked together behind the scenes.
The latest political brawl involved a suggestion by SEC Chairman Harvey Pitt that the negotiators elevate his agency to Cabinet-level status with higher salaries for himself and other commissioners.
The proposal was rejected quickly by both parties and roundly criticized by Democrats. Senate Majority Leader Tom Daschle, South Dakota Democrat, said the idea proves Mr. Pitt is not fit for his job.
The SEC said the suggestion was on a "wish list" negotiators requested from the agency. The SEC's close consultation over the compromise was evident when it issued a rule yesterday carrying out a key provision requiring stock analysts to certify that their advice was not influenced by investment-banking relationships.

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