WASHINGTON (July 25) - Congress gave final approval on Thursday to a sweeping overhaul of the rules governing corporate America, sending the bill to President Bush who has said he will sign it into law.
Spurred on by weak stock markets, voter anger and approaching congressional elections, lawmakers overwhelmingly agreed to the crackdown on corporate abuses aimed at restoring investor faith in U.S. financial markets.
Final action came as the Senate voted unanimously for the measure that imposes tough oversight on accountants and sharply increases penalties for fraud, following a 423-3 House of Representatives vote earlier in the day.
The bill creates a new oversight board for the accounting industry, until now a largely self-regulated profession that has been implicated in a series of corporate collapses ranging from Enron Corp. to WorldCom Inc.
Maximum jail time for executives who commit mail or wire fraud is quadrupled to 20 years under the bill, which also creates a new crime of securities fraud with a maximum sentence of 25 years.
Bush, on a trip to North Carolina, hailed the legislation and said he looked forward to signing it into law. "Today's passage by Congress of corporate accounting reforms is a victory for America's shareholders and employees," he said.
OPPOSITION MELTS AWAY
The measure, largely written by Maryland Democratic Sen. Paul Sarbanes, once had many critics but opposition melted away in recent days as the stock market continued to struggle and polls said voters were concerned.
Only three lawmakers in the House voted against it, and the main critic in the Senate, Texas Republican Sen. Phil Gramm, decided at the last minute to vote for it, saying the measure was at least better than the status quo. His vote made the Senate tally 99-0.
Gramm said the bill went too far and would lead to more lawsuits against U.S. companies, but added: "The American people expect Congress to respond to a problem ... I cannot argue that this bill should not pass."
Afterward Sarbanes said the measure was "the first large and important step in restoring integrity to our capital markets and providing a boost to investor confidence, so we can turn around this erosion that's been taking place in terms of people's faith in the workings of the economic system."
On Wall Street Thursday, the Dow Jones industrial average retained nearly all of Wednesday's whopping 6.4 percent gain but technology stocks fell 3.9 on a bleak outlook for computer chip makers.
MORE MONEY FOR THE SEC
The corporate reform bill also contains more money for the market-regulating Securities and Exchange Commission. The agency is directed to use fines to help defrauded investors.
House and Senate negotiators had produced Thursday's legislation by reconciling competing bills in talks that began last Friday.
Rep. Mike Oxley, the author of the more modest reform bill that the House approved in April, proposed major changes in the Sarbanes bill, but Democrats strongly resisted.
The final product preserved most of the stricter auditing oversight sought by the Democrat-led Senate but with the stiffer penalties passed by the Republican-controlled House.
Lawmakers are now hoping the combination of stiff new laws against corporate malfeasance, plus tough enforcement, will convince voters they are serious about cracking down on corporate cheats.
"The prospect of doing time, real time, will serve as an effective deterrent to wrongdoing in the corporate suite," Oxley declared, adding that "we saw a little bit of that yesterday" with the arrest of three members of the family that founded bankrupt cable operator Adelphia Communications Corp. .
Corporate reform, which looked set to be watered down two months ago, was propelled to the top of the political agenda by the enormity of WorldCom's $3.85 billion mishandling of its books and weeks of declines in the stock market.
Lawmakers said the vote was historic. Rep. Richard Baker, a Louisiana Republican, said the measure had "more significance of change than any congressional action since the 1933 and 1934 securities acts" that established the SEC during the Great Depression.
But one reform that did not make it into the measure was a provision addressing the accounting treatment of stock options. Many experts say they should be listed as expenses to make company balance sheets more accurate.
Senate Majority Tom Daschle, a South Dakota Democrat, promised to call a vote before year's end on a proposal directing the new accounting board to examine the stock options issue.
ACCOUNTING BOARD
The legislation calls for a new five-member accounting board with the power to fine and discipline auditors and ban the ones who break the rules from ever auditing publicly-traded companies again.
The bill also limits the consulting services that accounting firms can offer audit clients.
While the new board would be independent, it would be overseen by the Securities and Exchange Commission, and the two entities will coordinate their investigations.
The bill requires chief executive and chief financial officers to certify that their financial statements are accurate, under threat of up to 20 years jail for willful violations and up to $5 million in fines.
The SEC has already asked the CEOs and CFOs of nearly 1,000 large companies to certify their financial results by Aug. 14.
The bill bans insider loans to executives of the type that President Bush as a businessman received years ago but now condemns. Loans now outstanding were exempted.
Corporate whistle-blowers could seek court protection under the bill which also establishes the first-ever criminal penalties for retaliation against whistle-blowers .
It also makes shredding documents in federal investigations a crime, even if a subpoena has not yet arrived, and it extends the statute of limitations in investor lawsuits from three to five years.
If you don't have the time to do something right, where are you going to find the time to fix it?
-Stephen King
