- The Washington Times - Friday, July 26, 2002

The House and Senate swiftly enacted a landmark corporate reform bill yesterday as federal prosecutors prepared to indict WorldCom Inc. executives on fraud charges.

The fast-moving drama in Washington was echoed on Wall Street, where the Dow Jones Industrial Average swung wildly. It was up 118 points and down as much as 245 points, only to end nearly unchanged after staging its second-largest point gain of 489 points on Wednesday.

That the Dow managed to hold on to its earlier gains was a good sign for stock watchers, who worry that the market's still-fragile recovery, spawned partly by agreement on the corporate reform bill, could be easily reversed.

The tech-led Nasdaq Composite Index did not fare as well as the Dow, dropping 4 percent and ending down 50 points at 1,240 on news of a federal investigation of the accounting practices at AOL Time Warner Inc.

"The country faces a real challenge; there's a potential serious danger to the economy, and we need to get a bill and put in place a system that'll start to address this," said Sen. Paul S. Sarbanes, chairman of the Senate Banking, Housing and Urban Affairs Committee and author of the Senate bill that formed the basis of the House-Senate compromise.

The House passed the compromise bill 423-3 yesterday morning. The Senate quickly followed suit, with a 99-0 vote, sending the bill to President Bush, who has promised to sign it.

The three House members who voted against the bill were Republicans: Mac Collins of Georgia, Jeff Flake of Arizona and Ron Paul of Texas.

Mr. Sarbanes, Maryland Democrat, maintained a bipartisan spirit of compromise during House-Senate negotiations over the bill, despite the increasingly partisan maneuvering as parties seek to gain an edge in the November midterm elections.

Mr. Sarbanes said the refinements and provisions added by House Republicans, including a restitution fund for defrauded investors, improved the bill, a note driven home by Republican leaders as they ushered the bill through the House yesterday.

The bill would establish an independent oversight board to strictly regulate accountants and require them to separate their auditing from consulting activities. It imposes stiff penalties for corporate officers who engage in fraud.

The bill authorizes a $750 million increase in funding for the Securities and Exchange Commission, enabling it to increase its surveillance of corporate finances and strongly enforce the bill's strengthened mandates to protect investors from corporate fraud.

Sen. Phil Gramm, Texas Republican and the bill's most vocal critic, gave it a backhanded endorsement yesterday, noting that little time was taken to craft the legislation in Congress' rush to address corporate scandals and their depressing effect on the stock market.

"This bill could have been a lot worse," he said, predicting that some parts will be found cumbersome and will need to be reworked in coming months. "In the environment we're in, virtually anything could have passed this Congress."

The SEC and the Justice Department have been moving forcefully against the executives behind the crop of scandals this year, with news of the arrest of Adelphia Communications Corp. executives contributing to the strong stock rally Wednesday.

The Justice Department's corporate fraud task force is eyeing what could be the biggest game of all, leaking plans yesterday to indict WorldCom executives on charges related to its admitted $3.9 billion understatement of expenses this spring.

Within a day of WorldCom's stunning admission, the SEC charged the company with civil securities fraud. Now, the government may indict former Chief Executive Bernie Ebbers, once a darling on Wall Street, as well as the company's former chief financial officer, Scott Sullivan, and its comptroller, David Myers, published reports say.

Prosecutors are seeking cooperation from the two finance officers to produce evidence against Mr. Ebbers, who they say knew about the company's move to hide operating lease expenses in its capital accounts where investors wouldn't see them, in violation of basic accounting principles.

The government also may seek to indict the entire company, as it did in the case against Arthur Andersen LLP, which resulted in the collapse of the auditing firm and a conviction last month on charges of obstruction of justice.

WorldCom, whose bankruptcy filing Sunday night was the largest in the nation's history, is a larger corporation than Andersen, with a far bigger imprint on the economy, as it handles half the world's Internet traffic and one-third of its defense communications.

Julie Moore, WorldCom spokesman, said the company had no indication that indictments are coming. "That is flatly inconsistent with what federal prosecutors have communicated to the company," she told the Associated Press.

Mr. Ebbers earlier this month testified that he did not engage in any criminal conduct at WorldCom.

It is not clear whether any WorldCom indictments issued by a grand jury meeting in New York would help the markets, where investors lost billions of dollars after the company's announcement, or hurt them because of the potential economic effect.

Concern about the economy has been a factor in the stock market's decline, with the report that orders for capital equipment and other big-ticket goods had dropped in June adding to pressure on the market particularly the stocks of technology companies that supply capital goods.

A revival in technology and manufacturing had been the brightest spot in the economy this year, and economists said the drop in big-ticket purchases by businesses indicates a possible retrenchment resulting from the stock market swoon.

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