    [Senate Hearing 107-948]
    [From the U.S. Government Publishing Office]

                   ACCOUNTING REFORM AND INVESTOR PROTECTION
                                   VOLUME III

                                                            S. Hrg. 107-948

                             ACCOUNTING REFORM AND
                              INVESTOR PROTECTION

    =======================================================================

                                   DOCUMENTS

                                   before the

                                  COMMITTEE ON
                       BANKING,HOUSING,AND URBAN AFFAIRS
                              UNITED STATES SENATE

                          ONE HUNDRED SEVENTH CONGRESS

                                 SECOND SESSION

                                   VOLUME III

                                       ON

           THE LEGISLATIVE HISTORY OF THE SARBANES-OXLEY ACT OF 2002:
     ACCOUNTING REFORM AND INVESTOR PROTECTION ISSUES RAISED BY ENRON AND
                             OTHER PUBLIC COMPANIES

                                   ----------

                     EXCERPTS FROM THE CONGRESSIONAL RECORD

                                   ----------

                    JULY 8, 9, 10, 11, 12, 15, AND 25, 2002

                                   ----------

      Printed for the use of the Committee on Banking, Housing, and Urban
                                    Affairs

    87-708              U.S. GOVERNMENT PRINTING OFFICE
                                WASHINGTON : 2003
    ____________________________________________________________________________
    For Sale by the Superintendent of Documents, U.S. Government Printing Office
    Internet: bookstore.gpr.gov  Phone: toll free (866) 512-1800; (202) 512�091800
    Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001

                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      PAUL S. SARBANES, Maryland, Chairman
    CHRISTOPHER J. DODD, Connecticut     PHIL GRAMM, Texas
    TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
    JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
    CHARLES E. SCHUMER, New York         WAYNE ALLARD, Colorado
    EVAN BAYH, Indiana                   MICHAEL B. ENZI, Wyoming
    ZELL MILLER, Georgia                 CHUCK HAGEL, Nebraska
    THOMAS R. CARPER, Delaware           RICK SANTORUM, Pennsylvania
    DEBBIE STABENOW, Michigan            JIM BUNNING, Kentucky
    JON S. CORZINE, New Jersey           MIKE CRAPO, Idaho
    DANIEL K. AKAKA, Hawaii              JOHN ENSIGN, Nevada

               Steven B. Harris, Staff Director and Chief Counsel
                 Wayne A. Abernathy, Republican Staff Director
                      Martin J. Gruenberg, Senior Counsel
                           Dean V. Shahinian, Counsel
                       Stephen R. Kroll, Special Counsel
                           Lynsey Graham Rea, Counsel
                            Vincent Meehan, Counsel
                            Sarah A. Kline, Counsel
                      Judith Keenan, Senior Policy Advisor
        Alexander M. Sternhell, Staff Director, Securities Subcommittee
                    Linda L. Lord, Republican Chief Counsel
                  Stacie Thomas Morales, Republican Economist
                    Michelle R. Jackson, Republican Counsel
         Geoffrey P. Gray, Republican Senior Professional Staff Member
                      Mark F. Oesterle, Republican Counsel
                    Katherine McGuire, Republican Economist
             Michael D. Thompson, Republican Legislative Assistant
       Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
                           George E. Whittle, Editor
                    Irene Whiston Carroll, Assistant Editor
                       Frank E. Wright, Assistant Editor
                        Kevin D. High, Assistant Editor

                                      (ii)

                                C O N T E N T S

                                  ----------

                                    VOLUME I

                                  ----------

                           TUESDAY, FEBRUARY 12, 2002

                                                                       Page

    Opening statement of Chairman Sarbanes...........................     1

    Opening statements, comments, or prepared statements of:
        Senator Shelby...............................................     3
        Senator Miller...............................................     4
        Senator Enzi.................................................     4
        Senator Corzine..............................................     6
        Senator Hagel................................................     7
        Senator Stabenow.............................................     7
        Senator Bayh.................................................     8
        Senator Carper...............................................     8
        Senator Johnson..............................................     9
            Prepared statement.......................................    55
        Senator Schumer..............................................    10
        Senator Dodd.................................................    11
        Senator Akaka................................................    56

                                   WITNESSES

    Arthur Levitt, Chairman, U.S. Securities and Exchange Commission,
      1993 to 2000...................................................    14
        Prepared statement...........................................    56
    Richard C. Breeden, Chairman, U.S. Securities and Exchange
      Commission, 1989 to 1993.......................................    16
        Prepared statement...........................................    58
        Response to written questions of Senator Hagel...............    94
    David S. Ruder, Chairman, U.S. Securities and Exchange
      Commission, 1987 to 1989.......................................    20
        Prepared statement...........................................    69
        Response to written questions of Senator Hagel...............    94
    Harold M. Williams, Chairman, U.S. Securities and Exchange
      Commission, 1977 to 1981.......................................    23
        Prepared statement...........................................    75
        Response to written questions of Senator Hagel...............    95
    Roderick M. Hills, Chairman, U.S. Securities and Exchange
      Commission, 1975 to 1977.......................................    26
        Prepared statement and exhibits..............................    78
        Response to written questions of Senator Hagel...............    95

                                  ----------

                          THURSDAY, FEBRUARY 14, 2002

    Opening statement of Chairman Sarbanes...........................    97

    Opening statements, comments, or prepared statements of:
        Senator Gramm................................................    98
            Prepared statement.......................................   141
        Senator Stabenow.............................................    99
            Prepared statement.......................................   141
        Senator Enzi.................................................    99
        Senator Bayh.................................................   100
        Senator Crapo................................................   101
        Senator Bunning..............................................   101
        Senator Shelby...............................................   113
        Senator Carper...............................................   113
        Senator Akaka................................................   114
            Prepared statement.......................................   142
        Senator Miller...............................................   128
        Senator Corzine..............................................   129
        Senator Johnson..............................................   142

                                   WITNESSES

    Paul A. Volcker, Chairman, International Accounting Standards
      Committee Foundation; Chairman, Arthur Andersen's Independent
      Oversight Board; Former Chairman, Federal Reserve System.......   102
        Prepared statement...........................................   143
    Sir David Tweedie, Chairman, International Accounting Standards
      Board; Former Chairman, United Kingdom's Accounting Standards
      Board..........................................................   107
        Prepared statement...........................................   147

                  Additional Material Supplied for the Record

    Letter from Paul A. Volcker, Chairman, International Accounting
      Standards Committee Foundation; Chairman, Arthur Andersen's
      Independent Oversight Board; Former Chairman, Federal Reserve
      System to Chairman Paul S. Sarbanes, dated May 17, 2002........   159
    Editorial from The Wall Street Journal by Paul A. Volcker,
      Chairman, International Accounting Standards Committee
      Foundation, dated February 19, 2002............................   164
    Memo from Sir David Tweedie, Chairman, International Accounting
      Standards Board; Former Chairman, United Kingdom's Accounting
      Standards Board on Funding of the UK Accounting Standards Board   166
    Article from Sir David Tweedie, Chairman, International
      Accounting Standards Board; Former Chairman, United Kingdom's
      Accounting Standards Board, dated January 2002.................   168

                                  ----------

                           TUESDAY, FEBRUARY 26, 2002

    Opening statement of Chairman Sarbanes...........................   181

    Opening statements, comments, or prepared statements of:
        Senator Gramm................................................   183
        Senator Miller...............................................   184
        Senator Enzi.................................................   184
        Senator Stabenow.............................................   186
        Senator Allard...............................................   187
            Prepared statement.......................................   234
        Senator Shelby...............................................   187
            Prepared statement.......................................   234
        Senator Corzine..............................................   188
            Prepared statement.......................................   234
        Senator Schumer..............................................   219

                                   WITNESSES

    Walter P. Schuetze, Chief Accountant, U.S. Securities and
      Exchange Commission, 1992 to 1995..............................   189
        Prepared statement...........................................   235
    Michael H. Sutton, Chief Accountant, U.S. Securities and Exchange
      Commission, 1995 to 1998.......................................   193
        Prepared statement...........................................   239
    Lynn E. Turner, Chief Accountant, U.S. Securities and Exchange
      Commission, 1998 to 2001.......................................   196
        Prepared statement...........................................   243
    Dennis R. Beresford, Former Chairman, Financial Accounting
      Standards Board, 1987 to 1997..................................   201
        Prepared statement...........................................   258
        Response to question raised by Senator Miller................   270

                  Additional Material Supplied for the Record

    Article by Walter P. Schuetze in Abacus, a Journal of Accounting,
      Finance, and Business Studies, ``What Are Assets and
      Liabilities?'' dated February 2001.............................   271
    Article by Walter P. Schuetze, 2001 RJ Chambers Research Lecture,
      dated November 27, 2001........................................   288
    Letter from Walter P. Schuetze to Senator Charles E. Schumer,
      dated March 25, 2002...........................................   296
    Letter with attachments from Lynn E. Turner, Director, College of
      Business, Colorado State University, dated March 1, 2002.......   302

                                  ----------

                          WEDNESDAY, FEBRUARY 27, 2002

    Opening statement of Chairman Sarbanes...........................   341

    Opening statements, comments, or prepared statements of:
        Senator Gramm................................................   342
        Senator Miller...............................................   343
        Senator Corzine..............................................   362

                                   WITNESSES

    John H. Biggs, Chairman, President, and CEO, Teachers Insurance
      and Annuity Association-College Retirement Equities Fund (TIAA-
      CREF)..........................................................   343
        Prepared statement...........................................   373
    Ira M. Millstein, Co-Chairman of the Blue Ribbon Committee on
      Improving the Effectiveness of Corporate Audit Committees;
      Senior Partner, Weil, Gotshal & Manges, LLP....................   350
        Prepared statement...........................................   378

                  Additional Material Supplied for the Record

    Miscellaneous exhibits submitted by Ira M. Millstein, Co-Chairman
      of the Blue Ribbon Committee on Improving the Effectiveness of
      Corporate Audit Committees; Senior Partner, Weil, Gotshal &
      Manges, LLP....................................................   388

                                  ----------

                                   VOLUME II

                                  ----------

                             TUESDAY, MARCH 5, 2002

    Opening statement of Chairman Sarbanes...........................   505

    Opening statements, comments, or prepared statements of:
        Senator Bunning..............................................   506
        Senator Dodd.................................................   507
        Senator Miller...............................................   507
        Senator Crapo................................................   508
        Senator Corzine..............................................   508
            Prepared statement.......................................   550
        Senator Stabenow.............................................   515
            Prepared statement.......................................   550
        Senator Bennett..............................................   515

                                   WITNESSES

    David M. Walker, Comptroller General of the United States, U.S.
      General Accounting Office; accompanied by: Thomas McCool,
      Managing Director, Financial Markets and Community Investment;
      and Robert Gramling, Former Director, Corporate Financial
      Audits.........................................................   508
        Prepared statement...........................................   551
    Robert R. Glauber, Chairman and Chief Executive Officer, National
      Association of Securities Dealers, Inc.........................   527
        Prepared statement...........................................   569
    Joel Seligman, Dean and Ethan A.H. Shepley University Professor,
      Washington University School of Law in St. Louis; Public
      Member, American Institute of Certified Public Accountants
      Professional Ethics Executive Committee........................   530
        Prepared statement...........................................   573
    John C. Coffee, Jr., Adolf A. Berle Professor of Law, Columbia
      University School of Law.......................................   534
        Prepared statement...........................................   582

                  Additional Material Supplied for the Record

    GAO Report, SEC Operations, Increased Workload Creates
      Challenges, dated March 2002...................................   594
    GAO Report, Highlights of GAO's Corporate Governance,
      Transparency and Accountability Forum, dated March 2002........   638
    Business Week article submitted by Senator Paul S. Sarbanes,
      dated March 11, 2002...........................................   653
    The Wall Street Journal article submitted by Senator Robert F.
      Bennett, dated February 25, 2002...............................   654
    Letter from GAO Comptroller General of the United States David M.
      Walker to Senator Paul S. Sarbanes, dated May 3, 2002..........   657
    Letter from John C. Coffee, Jr., Bevis Longstreth, and Joel
      Seligman to Senator Paul S. Sarbanes, dated July 1, 2002.......   670
    Letter from SEC Chairman Harvey L. Pitt to Senator Phil Gramm,
      dated July 3, 2002.............................................   674
    Letter from SEC Attorney General Eliot Spitzer to Senator Paul
      Sarbanes, dated June 5, 2002...................................   676

                                  ----------

                            WEDNESDAY, MARCH 6, 2002

    Opening statement of Chairman Sarbanes...........................   679

    Statement of Senator Gramm.......................................   680

                                   WITNESSES

    Shaun F. O'Malley, Chairman, 2000 Public Oversight Board Panel on
      Audit Effectiveness (O'Malley Commission); Former Chairman,
      Price Waterhouse; Past President, Financial Accounting
      Foundation.....................................................   681
        Prepared statement...........................................   716
    Lee J. Seidler, Deputy Chairman of the 1978 AICPA Commission on
      Auditors' Responsibilities; Managing Director Emeritus, Bear
      Stearns........................................................   685
        Prepared statement...........................................   725
    Arthur R. Wyatt, CPA, Former Chairman, American Institute of
      Certified Public Accountants' Accounting Standards Executive
      Committee; Former Chairman, International Accounting Standards
      Committee; Former Partner, Arthur Andersen & Co.; Professor of
      Accountancy Emeritus, University of Illinois...................   689
        Prepared statement...........................................   739
    Abraham J. Briloff, Emanuel Saxe Distinguished Professor
      Emeritus, Bernard M. Baruch College, CUNY......................   692
        Prepared statement...........................................   745
    Bevis Longstreth, Member of the O'Malley Commission; Former
      Commissioner of the Securities & Exchange Commission, 1981-
      1984; Retired Partner, Debevoise & Plimpton....................   696
        Prepared statement...........................................   793

                  Additional Material Supplied for the Record

    Letter from Chairman Paul S. Sarbanes to President George W.
      Bush, dated March 6, 2002......................................   802
    Letter from the National Association of State Boards of
      Accountancy to Chairman Paul S. Sarbanes and Members of the
      Banking Committee, dated March 22, 2002........................   804

                                  ----------

                            THURSDAY, MARCH 14, 2002

    Opening statement of Chairman Sarbanes...........................   809

    Opening statements, comments, or prepared statements of:
        Senator Bunning..............................................   811
        Senator Gramm................................................   811
        Senator Corzine..............................................   813
        Senator Enzi.................................................   813
        Senator Dodd.................................................   815
        Senator Bayh.................................................   816
        Senator Stabenow.............................................   817
            Prepared statement.......................................   860
        Senator Miller...............................................   817
        Senator Carper...............................................   842

                                   WITNESSES

    James G. Castellano, CPA, Chairman, Board of Directors, American
      Institute of Certified Public Accountants (AICPA); Managing
      Partner, Rubin, Brown, Gornstein & Company, LLP................   818
        Prepared statement...........................................   860
        Response to written question of Senator Miller...............   888
    James E. Copeland, Jr., CPA, Chief Executive Officer, Deloitte &
      Touche, LLP....................................................   820
        Prepared statement...........................................   862
    William E. Balhoff, CPA, CFE, Chairman, Executive Committee,
      AICPA Public Company Practice Section; Senior Audit Director,
      Postlethwaite & Netterville, A.P.A.C...........................   823
        Prepared statement...........................................   865
    Olivia F. Kirtley, CPA, Former Chairman, Board of Directors,
      AICPA (1998-1999); Retired Vice President and CFO, Vermont
      American Corporation...........................................   825
        Prepared statement...........................................   866
    James S. Gerson, CPA, Chairman, Auditing Standards Board, AICPA;
      Partner, PricewaterhouseCoopers, LLP...........................   827
        Prepared statement...........................................   868
    Robert E. Litan, Vice President and Director, Economic Studies
      Program, The Brookings Institution.............................   848
        Prepared statement...........................................   870
        Response to written question of:
            Senator Gramm............................................   889
            Senator Miller...........................................   890
    Peter J. Wallison, Resident Fellow and Co-Director, Project on
      Financial Market Deregulation, American Enterprise Institute...   853
        Prepared statement...........................................   879

                                  ----------

                            TUESDAY, MARCH 19, 2002

    Opening statement of Chairman Sarbanes...........................   893

    Opening statements, comments, or prepared statements of:
        Senator Gramm................................................   894
            Prepared statement.......................................   939
        Senator Corzine..............................................   894
        Senator Dodd.................................................   917
        Senator Carper...............................................   936
        Senator Akaka................................................   939

                                   WITNESSES

    Charles A. Bowsher, Chairman, Public Oversight Board; Former
      Comptroller General of the United States; accompanied by: Alan
      B. Levenson, Counsel to the Public Oversight Board.............   895
        Prepared statement...........................................   939
    Aulana L. Peters, Member, Public Oversight Board; Former
      Commissioner, U.S. Securities and Exchange Commission; Retired
      Partner, Gibson, Dunn & Crutcher...............................   902
        Prepared statement...........................................   963
    John C. Whitehead, Former Co-Chairman, Goldman Sachs & Co.;
      Former Deputy Secretary of State...............................   918
        Prepared statement...........................................   965
    L. William Seidman, Former Chairman, Federal Deposit Insurance
      Corporation; Former Chairman, Resolution Trust Corporation.....   921
        Prepared statement...........................................   967
    Michael Mayo, Managing Director, Prudential Securities, Inc......   925
        Prepared statement...........................................   969

                  Additional Material Supplied for the Record

    The Road to Reform, a White Paper from the Public Oversight
      Board, dated March 19, 2002....................................   973
    Letter from Harvey L. Pitt, Chairman, U.S. Securities and
      Exchange Commission to Charles A. Bowsher, Chairman, Public
      Oversight Board, dated January 22, 2002........................   994
    Fortune news article, The Price of Being Right, dated February 5,
      2001...........................................................   996

                                  ----------

                           WEDNESDAY, MARCH 20, 2002

    Opening statement of Chairman Sarbanes...........................  1003

    Opening statements, comments, or prepared statements of:
        Senator Akaka................................................  1004

                                   WITNESSES

    Senator Howard M. Metzenbaum (Ret.), Chairman, Consumer
      Federation of America..........................................  1004
        Prepared statement...........................................  1032
    Sarah Teslik, Executive Director, Council of Institutional
      Investors......................................................  1009
        Prepared statement...........................................  1040
        Response to written questions of Senator Akaka...............  1056
    Thomas A. Bowman, CFA, President and Chief Executive Officer,
      Association for Investment Management and Research.............  1012
        Prepared statement...........................................  1043
    Damon A. Silvers, Associate General Counsel, American Federation
      of Labor and Congress of Industrial Organizations..............  1016
        Prepared statement...........................................  1053

                                  ----------

                            THURSDAY, MARCH 21, 2002

    Opening statement of Chairman Sarbanes...........................  1059

    Opening statements, comments, or prepared statements of:
        Senator Dodd.................................................  1060
        Senator Bunning..............................................  1060
        Senator Corzine..............................................  1061
        Senator Enzi.................................................  1062
        Senator Gramm................................................  1064
        Senator Bennett..............................................  1084
        Senator Schumer..............................................  1087
        Senator Carper...............................................  1089
        Senator Johnson..............................................  1102

                                    WITNESS

    Harvey L. Pitt, Chairman, U.S. Securities and Exchange Commission  1065
        Prepared statement...........................................  1103

                  Additional Material Supplied for the Record

    The Washington Post article, submitted by Harvey L. Pitt,
      Chairman, U.S. Securities and Exchange Commission, dated
      November 15, 2000..............................................  1167
    Letter from Stephen M. Cutler, Director, Division of Enforcement,
      U.S. Securities and Exchange Commission, to Chairman Paul S.
      Sarbanes and Congressman Michael G. Oxley, dated July 23, 2002.  1168

                                  ----------

                                   VOLUME III

                                  ----------

                              MONDAY, JULY 8, 2002

    Senate Floor Debate in Regard to the Accounting Reform and
      Investor Protection Act of 2002 taken from the Congressional
      Record.........................................................  1171

                                  ----------

                             TUESDAY, JULY 9, 2002

    Senate Floor Debate in Regard to the Accounting Reform and
      Investor Protection Act of 2002 taken from the Congressional
      Record.........................................................  1225
    Continuation of the Senate Floor Debate in Regard to the
      Accounting Reform and Investor Protection Act of 2002 taken
      from the Congressional Record..................................  1247

                                  ----------

                            WEDNESDAY, JULY 10, 2002

    Senate Floor Debate in Regard to the Accounting Reform and
      Investor Protection Act of 2002 taken from the Congressional
      Record.........................................................  1261

                                  ----------

                             THURDAY, JULY 11, 2002

    Senate Floor Debate in Regard to the Accounting Reform and
      Investor Protection Act of 2002 taken from the Congressional
      Record.........................................................  1355
    Continuation of the Senate Floor Debate in Regard to the
      Accounting Reform and Investor Protection Act of 2002 taken
      from the Congressional Record..................................  1387

                                  ----------

                             FRIDAY, JULY 12, 2002

    Senate Floor Debate in Regard to the Accounting Reform and
      Investor Protection Act of 2002 taken from the Congressional
      Record.........................................................  1423
    Continuation of the Senate Floor Debate in Regard to the
      Accounting Reform and Investor Protection Act of 2002 taken
      from the Congressional Record..................................  1429

                                  ----------

                             MONDAY, JULY 15, 2002

    Senate Floor Debate in Regard to the Accounting Reform and
      Investor Protection Act of 2002 taken from the Congressional
      Record.........................................................  1463

                                  ----------

                            THURSDAY, JULY 25, 2002

    Senate Floor Debate in Regard to the Sarbanes-Oxley Act of 2002
      Conference Report taken from the Congressional Record..........  1613
                                  ----------

                                   VOLUME IV

                                  ----------
    Transcript of President Bush's remarks at the Signing Ceremony
      for the Sarbanes-Oxley Act of 2002 on July 30, 2002............  1653
    The Sarbanes-Oxley Act of 2002, Public Law 107-204 signed by
      President Bush on July 30, 2002. Text is identical to
      Conference Report on H.R. 3763 passed by the House of
      Representatives on July 25, 2002, by a vote of 423 Yeas to 3
      Nays and by the Senate by a vote of 99 Yeas to 0 Nays..........  1657

    H.R. 5118, Corporate Fraud Accountability Act of 2002, passed by
      the House of Representatives on July 16, 2002, by a vote of 391
      Yeas to 28 Nays................................................  1723

    S. 2673, Public Company Accounting Reform and Investor Protection
      Act of 2002, passed by the Senate on July 15, 2002, by a vote
      of 97 Yeas to 0 Nays. For procedural purposes, the bill is
      renamed H.R. 3763..............................................  1737

    Senate Committee on Banking, Housing, and Urban Affairs report on
      S. 2673, Public Company Accounting Reform and Investor
      Protection Act of 2002, filed by Chairman Sarbanes on June 26,
      2002...........................................................  1879

    S. 2673, Public Company Accounting Reform and Investor Protection
      Act of 2002, passed by the Senate Committee on Banking,
      Housing, and Urban Affairs on June 18, 2002, by a vote of 17
      Yeas to 4 Nays.................................................  1953

    Senate Committee on the Judiciary Report on S. 2010, Corporate
      and Criminal Fraud Accountability Act of 2002, filed by
      Chairman Leahy on May 6, 2002..................................  2071

    S. 2010, Corporate and Criminal Fraud Accountability Act of 2002,
      passed by the Senate Judiciary Committee on April 25, 2002, by
      a vote of 19 Yeas to 0 Nays....................................  2109

    H.R. 3763, Corporate and Auditing Accountability, Responsibility,
      and Transparency Act of 2002, passed by the House of
      Representatives on April 24, 2002, by a vote of 334 Yeas to 90
      Nays...........................................................  2135

    House Committee on Financial Services Report on H.R. 3763,
      Corporate and Auditing Accountability, Responsibility, and
      Transparency Act of 2002, dated April 22, 2002.................  2193

    H.R. 3763, Corporate and Auditing Accountability, Responsibility,
      and Transparency Act of 2002, passed by the House Committee on
      Financial Services on April 16, 2002, by a vote of 49 Yeas to
      12 Nays........................................................  2257

                            ACCOUNTING REFORM AND

                              INVESTOR PROTECTION

                                  ----------

                                  VOLUME III

                                  ----------

              VOLUME 148, MONDAY, JULY 8, 2002, NUMBER 90,
                          PAGES [S6327-S6347]

      Public Company Accounting Reform and Investor Protection Act of 2002

        The President pro tempore. Under the previous order, the
    Senate will now proceed to the consideration of S. 2673, which
    the clerk will report.
        The assistant legislative clerk read as follows:

        A bill (S. 2673) to improve quality and transparency in
    financial reporting and independent audits and accounting
    services for public companies, to create a Public Company
    Accounting Oversight Board, to enhance the standard setting
    process for accounting practices, to strengthen the
    independence of firms that audit public companies, to increase
    corporate responsibility and the usefulness of corporate
    financial disclosure, to protect the objectivity and
    independence of securities analysts, to improve Securities and
    Exchange Commission resources and oversight, and for other
    purposes.

        The President pro tempore. The Senator from Maryland, Mr.
    Sarbanes, the manager of the bill, is recognized.
        Mr. Sarbanes. I thank the Chair.
        Mr. President, today the Senate turns its attention to S.
    2673, the Public Company Accounting Reform and Investor
    Protection Act of 2002, which was reported from the Senate
    Committee on Banking, Housing, and Urban Affairs on June 18 on
    a strong 17-to-4 vote.
        A unanimous consent agreement was entered into with respect
    to this legislation prior to the Fourth of July recess, which
    provided that at 2 p.m. today, Monday, July 8, the Senate would
    proceed, for debate only, to the consideration of this
    legislation.
        I hope to take a fair amount of time to set out the process
    through which the committee worked and to discuss the
    provisions of this legislation.
        As I understand it, upon convening tomorrow and going back
    to this legislation, amendments will be in order. There are a
    couple of technical amendments that I am hopeful we can approve
    today by unanimous consent. I will be discussing that with the
    distinguished ranking Republican member of the committee in the
    course of the afternoon.
        Mr. President, I rise in very strong support of this
    legislation. This legislation is intended to address systemic
    and structural weaknesses that I think have been revealed in
    recent months and that show failures of audit effectiveness and
    a breakdown in corporate financial and broker-dealer
    responsibility. In fact, it is very clear that much of this has
    been happening over the last few years.
        Hopefully, we have experienced the brunt of it. Who can
    guarantee that, however, when every day you come to read in the
    morning paper yet another story, as witnessed this morning with
    respect to one of the most respected pharmaceutical companies
    in the country.
        I believe this bill is urgently needed. I hope my
    colleagues will agree with that and will support its swift
    passage.
        The House, earlier this year, passed legislation on this
    subject, but I think it is fair to say that the legislation we
    are bringing to the floor of the Senate is more comprehensive,
    more thorough, and, I believe, more effective. But, of course,
    once we complete our work here, we will have the challenge of
    going to conference with our colleagues on the other side of
    the Capitol to work out the differences between the two
    versions of the legislation.
        Let me discuss for a few minutes the backdrop against which
    this bill was crafted. Our financial markets have long been
    regarded as the fairest, the most transparent, and the most
    efficient in the world. In fact, I think it is fair to say--and
    many of us have said it time and time again--that the American
    capital markets are one of the great economic assets of this
    country and a very important source of our economic strength.
        It is becoming increasingly clear that something has gone
    wrong, seriously wrong, with respect to our capital markets. We
    confront an increasing crisis of confidence that is eroding the
    public's trust in those markets. I frankly believe that, if it
    continues, this erosion of trust poses a real threat to our
    economic health.
        Let me begin with one of the most obvious symptoms of this
    problem: the extraordinary increase in restatements of
    corporate earnings. The Wall Street Journal, citing a study
    last year by the research arm of Financial Executives
    International, the organization of the chief financial officers
    of corporations, reported that there were 157 financial
    restatements by companies in 2000, 207 in 1999, and 100 in
    1998. The 3-year total of 464 was higher than the previous 10
    years combined, during which the average number of restatements
    was 46 each year. This is a dramatic increase in the number of
    restatements.
        Last month's revelation by WorldCom is only one example of
    a problem that is becoming increasingly disturbing. In a recent
    article titled ``Tweaking Numbers To Meet Goals Comes Back To
    Haunt Executives,'' the New York Times described a series of
    recent corporate failures or near-failures that were
    characterized by accounting improprieties: Adelphia
    Communications, ``$3 billion in loans to its founding family''
    had been concealed; Computer Associates was investigated ``on
    suspicion of inflating sales and profits by booking revenue on
    contracts many years before it was paid''--you raise your
    revenues, there is no offsetting cost, you boost your profits.
    Global Crossing is being investigated ``on suspicion of
    inflating sales and profits by making sham transactions with
    other telecom companies''; Enron, ``hiding losses and loans
    with partnerships that were supposedly independent but were
    actually guaranteed by the company''--Enron filed for
    bankruptcy last December--Rite Aid had ``four former top
    executives indicted . . . in what regulators called a
    securities and accounting fraud that led to a $1.6 billion
    restatement of earnings''; Tyco International is under
    investigation ``on suspicion of hiding payments and loans to
    its top executives . . . and its ``shares have plunged 75
    percent this year as investigators question whether it inflated
    its earnings and cashflow''; WorldCom, under investigation for
    ``hiding $4 billion in expenses by wrongly classifying short-
    term costs as long-term investments.''
        Commentators have made much of the fact that while Enron
    had very complicated dealings, off-balance-sheet special
    entities and a host of other things, WorldCom simply took
    expenses that should have been treated as short-term costs and
    set them up as capital investments to be amortized over a
    period of time. Of course, that was a very substantial
    reduction in WorldCom's costs. As a consequence, its profits
    were boosted by $4 billion. The SEC asked them to come clean,
    and now we think there is probably another billion of faulty
    accounting with respect to their statement.
        Can you imagine--the company went from showing a
    substantial profit to actually having a loss. People are out in
    the marketplace making decisions about whether to purchase this
    stock. Pension plans are making decisions on behalf of their
    members. And they are making the decision in the belief that
    this company is making a good profit. Instead, it is losing
    money.
        I read one story where competitors of WorldCom were
    apparently debating within their own corporate ranks: How do
    they do it? How are these people producing this profit record?
    We can't do it. We are competing against them. We think we are
    doing everything we ought to be doing, and we just can't
    produce the same kind of performance. How are they doing it?
    What is the secret they have discovered?
        The secret they had discovered was to hide their expenses
    by wrongly classifying short-term costs as long-term
    investments.
        The Xerox Corporation, one of the pillars of our economic
    system, paid a $10 million fine to the SEC in April, the
    largest in an enforcement case. They reclassified $6.4 billion
    in revenue and restated financial results for the last 5 years.
    I could go on and on with other companies: Cendant,
    MicroStrategy, Waste Management.
        What has led to this increase in restatements? The practice
    of ``backing into'' the forecast earnings has certainly
    contributed. The New York Times described this practice as
    follows:

        Some companies do whatever they have to do to make sure
    they do not miss a consensus earnings estimate. They start with
    the profit that investors are expecting and manipulate their
    sales and expenses to make sure the numbers come out right.
    During the last decade's boom, as executive pay was
    increasingly based on how the company's stock performed,
    backing in became more widespread and more aggressive. Just how
    much so is only now becoming clear.

        The distinguished Columbia Law School Professor John
    Coffee, noted, in summarizing the trend:

        During the 1990s, the quality of financial reporting and
    analysis appears to have declined. While an earnings
    restatement is not necessarily proof of fraud, this increase
    strongly implies that auditors have deferred excessively to
    their clients.

        Jack Ehnes, the chief executive of the California State
    Teachers Retirement System, which oversees $100 billion in
    investments, put it this way:

        This looks like the year of the restatement. It's certainly
    disturbing for investors who expect financial statements to be
    accurate.

        Clearly, what is transpiring is having a very severe impact
    on hard-working American families. Corporate wrongdoing is
    being felt not just at the boardroom table, but it is now being
    felt at the kitchen table as well.
        First of all, there have been tremendous job losses. The
    Washington Post reported that WorldCom was laying off 17,000
    employees. The companies that are going into bankruptcy are
    shedding employees left and right. Enron laid off 7,000 people
    after it filed for bankruptcy. Global Crossing laid off 9,300
    employees in the last year. Employment at Xerox is down 13,000
    from 2 years ago. So there is a direct impact on many working
    families, simply through the layoffs, as the companies for
    which they work encounter difficult financial times.
        In other words, the company is crashing down, and the
    workers, amongst others, are paying the price.
        Second, the adverse impact on employees clearly extends to
    the impact of these corporate failures on employee pension
    funds, an impact that has led many workers to question the
    security of their retirement. A quick look at the numbers
    demonstrates how badly public pension funds have been hit.
        It is reported that 21 States have combined losses of just
    under $2 billion from their WorldCom investments. The
    California public retirement system reported a loss of $565
    million. And the numbers go on from there. I won't cite them
    all, but all across the country there are tremendous losses
    being incurred. It is said that the loss of value of both
    WorldCom and Enron has cost public State pension funds $2.7
    billion.
        Of course, in addition to their impact on workers and
    pension funds, these revelations have had a negative effect on
    shareholders generally. Average investors are watching their
    portfolios plummet and their retirement prospects decline.
    Worldcom's market capitalization has gone from $180 billion at
    its peak 3 years ago--this is just WorldCom--to $177 million
    last week. Tyco lost $90 billion in market capitalization
    between January 2001 and June 2002, and on and on.
        The bond markets have also been affected. WorldCom, for
    example, has $28 billion in outstanding bonds that are due
    between now and 2025. Investors, including banks and insurance
    companies, stand to lose much of this sum. So you are being hit
    not only if you have a direct connection with WorldCom, but
    also if you have an equity interest in a bank or insurance
    company that owns WorldCom bonds. The current market value of
    these bonds is 15 cents on the dollar.
        The same week that WorldCom's auditing irregularities
    became public, Morgan Stanley observed that the spread between
    corporate bonds and comparable Treasury bonds had widened by 15
    basis points. As the Wall Street Journal wrote on June 27:

        That is a dramatic move that will boost the borrowing costs
    for all kinds of companies.

        Now, the problems that I have described did not develop
    overnight. In many ways, they reflect failures on the part of
    every actor in our system of disclosure and oversight. Auditors
    who are supposed to be independent of the company whose books
    they are reviewing are too often compromised by the fact that
    they provide consulting services to their public company audit
    clients. Securities analysts are not in a position, according
    to observers, to warn investors or direct them to other
    investments.
        As the New York Times reported in an article earlier this
    year entitled ``A Bubble No One Wanted to Pop'':

        Eager to help their firms generate business selling
    securities to investors and reap their own rewards and bonuses,
    Wall Street analysts have made a habit of missing corporate
    misdeeds altogether.

        I will come back to these issues later. But for the moment
    I simply want to note that the problems leading to such
    dramatic lapses are widespread and seem to be built into the
    system of accounting and financial reporting. That is what this
    legislation seeks to address. Our committee did not engage in
    an exercise in finger-pointing and placing blame but we held a
    series of hearings--I will discuss them in a minute--directed
    toward the future; in other words, we focused on the changes we
    can make that will help to clear up this situation. It is
    serious.
        The Wall Street Journal, in a recent comment, said:

        The scope and scale of the corporate transgressions of the
    late 1990s now coming to light exceed anything the U.S. has
    witnessed since the years preceding the Great Depression.

        One can run through the figures and find some support for
    that. Between its peak in 1929 and 1931, the Dow fell 79
    percent. Over the same period since its peak in March 2000, the
    Nasdaq has
    fallen 73 percent. But rather than work through these figures,
    let me simply close this part of my statement with a comment
    from Benjamin Graham's classic textbook on ``security
    analysis'':

        Prior to the SEC legislation . . . it was by no means
    unusual to encounter semi-fraudulent distortions of corporate
    accounts . . . almost always for the purpose of making the
    results look better than they were, and it was generally
    associated with some scheme of stock-market manipulation in
    which the management was participating.

        He was writing about the year 1929. Regrettably, that
    description fits some of today's events. Now, I am certainly
    not suggesting that this is the practice of a majority of our
    business people. In fact, most of them, I think, try very hard
    to play by the rules, and to be honest and straightforward in
    their dealings, and they recognize how important trust is.
        But it is clear, from the number of departures we have
    witnessed from that standard, that what is involved is more
    than just a few bad apples. Those bad apples ought to be
    punished, and punished very severely. I certainly agree with
    the President when he makes that statement. But it seems to me
    we have to move beyond that in order to address the incredible
    loss of investor confidence that is now taking place.
        I have been reading the newspaper articles carefully, and
    sometimes the most apt comments come not from the experts but
    from ordinary citizens. My colleague from Texas knows that very
    well because we have a noted citizen of his State, Dicky Flatt,
    who is constantly cited.
        Karl Graf, a financial planner and accountant in Wayne, NJ,
    is quoted in the Bergen Record as saying:

        The integrity of the game is in question for now, and
    that's a much bigger thing than if the stock market does poorly
    for two years. You have to have faith in the numbers the
    companies are reporting, and if you don't or can't, it makes it
    seem more like gambling all the time. It makes me more cynical,
    and I'm very discouraged. It's going to take a lot to make
    people feel confident.

        Bob Friend, an aerospace engineer from Redondo Beach, CA, a
    stock investor for 20 years, was quoted in the L.A. Times as
    saying:

        There's a complete lack of trust in corporate leadership. I
    think the lack of ethical behavior has destroyed investor
    confidence.

        Morris Hollander, a specialist in financial disclosure
    accounting with a Miami firm, was quoted in the Miami Herald as
    saying:

        We always had the strongest financial markets in the world,
    and that was because of credible accounting standards. When you
    see that confidence eroding, it is not good. It is a real
    serious credibility crisis.

        A recent poll demonstrates that these views are not unique
    or unusual. When asked this question: ``when it comes to
    financial information the major stock brokerage firms and
    corporations provide to you, do you or do you not have
    confidence that the information is straightforward and an
    honest analysis,'' only 29 percent of Americans said they had
    confidence the information was straightforward and an honest
    analysis. A majority, 57 percent, did not have confidence in
    the basic information that undergirds our equities market.
        The Washington Post, on June 26, reported:

        According to economists and market analysts, these still-
    unfolding corporate and accounting scandals have begun to weigh
    heavily on the stock market, the dollar, and the U.S. economy.
    And the effects are likely to linger at least through the end
    of the year.

        The same article quoted the chief economist for one of Wall
    Street's major firms as saying:

        The economy and markets right now are in the midst of a
    full-blown corporate governance shock. . . . To presume somehow
    that it's over or that the worst is behind us is naive.

        Furthermore, it is not only American investors who are
    losing confidence in our markets. A recent New York Times
    article entitled ``U.S. Businesses Dim as Models for
    Foreigners'' quoted Wolfram Gerdes, the chief investment
    officer for global equities at Dresdner Investment Trust in
    Frankfurt, as saying:

        There is unanimous agreement that the United States is not
    the best place to invest anymore.

        According to the Federal Reserve Board, foreign direct
    investment in corporate equities has fallen by 45 percent from
    2001 to 2002. And according to a new OECD report, foreign
    inflows from cross-border mergers and acquisitions, which in
    2001 were greater than direct foreign investment into the
    United States, have fallen sharply in 2002.
        The Wall Street Journal said:

        The loss of faith by American and overseas investors in
    U.S. corporate books is churning global financial markets:
    Share prices are plunging in America and the dollar is losing
    value, setting off stock-market plunges in Asia, Europe and
    Latin America. If the flow of foreign capital to the United
    States is disrupted as a result, the world economy could be
    jeopardized, because the U.S. relies on overseas money to
    finance its huge current-account deficit, and Asia and Europe
    rely on America to buy imports.

        As I draw this preliminary overview of the context in which
    we are working to a close, I want to speak for a moment about
    the potential loss of world economic leadership for the United
    States. The Wall Street Journal had an article entitled ``U.S.
    Loses Sparkle as Icon of Marketplace.'' It says:

        The wave of scandals in corporate America is roiling world
    stock markets. But the controversy may have an even greater
    impact in the marketplace of ideas, where the U.S. economic
    model is coming under attack.

        One area of particular importance and now debate is
    adoption of accounting principles. The European Union--and I do
    not think many people yet in this country have focused on this
    matter--has indicated that the rules adopted by the
    International Accounting Standards Board will become mandatory
    for all companies throughout the European Union in 2005.
        Traditionally, the U.S. has been preeminent in the
    accounting field. We have by far the largest economy. We have a
    reputation for high standards for transparency. So generally
    the American argument on behalf of its standards carried great
    influence. Now we have the European Union, comparable in
    economic size to the United States, moving to adopt a uniform
    set of accounting standards, to be promulgated by the
    International Accounting Standards Board, for all of the
    European Union countries. So there is a potential for real
    challenge to American preeminence in this area, given what is
    happening over here.
        In fact, the New York Times reported on June 27:

        There is a groundswell among executives in Europe against
    the American system of corporate accounting--the so-called
    generally accepted accounting principles--that was supposed to
    be the gold standard in disclosure.
        Before Enron, Global Crossing and WorldCom, America had
    been winning the argument on accounting standards. But now, a
    growing number of Europeans are convinced that the American
    system is both too complex and too easy to manipulate.

        Regrettably, in my view, unless we come to grips with this
    current crisis in accounting and corporate governance, we run
    the risk of seriously undermining our long-term world economic
    leadership. Why do countries look to us? They look to our
    capital markets. They say: your capital markets are the most
    transparent; they have the greatest integrity; we can rely upon
    them; we can make rational business decisions using the
    information that is provided through your system. If that is no
    longer the case, we can expect growing difficulties as we
    continue to argue for our preeminence.
        The Wall Street Journal gave this summary of the problem,
    after which I will move onto the bill itself:

        The institutions that were created to check such abuses
    failed. The remnants of a professional ethos in accounting, law
    and securities analysis gave way to the maximum revenue per
    partner. The auditor's signature on a corporate report didn't
    testify that the report was an accurate snapshot, said
    [Treasury Secretary Paul] O'Neill. He says it too often meant
    only that a company had ``cooked the books to generally
    accepted standards.''

        I want to be very clear about this. I believe the vast
    majority of our business leaders and of those in the accounting
    industry are decent, hard-working, and honorable men and women.
    They are, in a sense, tarnished by the burden of these
    scandals. But trust in markets and in the quality of investor
    protection, once shaken, is not easily restored, and I believe
    that this body must act decisively to reaffirm the standards of
    honesty and industry that have made the American economy the
    most powerful in the world. That is what this legislation does,
    and that is why I urge its adoption by my colleagues.
        Let me now turn to the hearings and to the bill. I know
    others are waiting to speak, and I will try to summarize my
    remarks. We have been working on this for a long time, so
    obviously I could go on at some length.
        First, we sought to do a very thorough and careful job in
    developing this legislation. The committee held a total of 10
    substantive hearings and heard from a broad range of experts,
    as well as interested parties. I am not going to name all our
    witnesses, but, for example, we heard from five past Chairmen
    of the SEC; three former SEC chief accountants; former Federal
    Reserve Board Chairman, Paul Volcker; former Comptroller
    General and Chairman of the Public Oversight Board, Charles
    Bowsher; the present Comptroller General, David Walker; a
    number of distinguished academics who have been studying these
    issues throughout their careers; leaders of commissions that
    studied the accounting industry and corporate governance;
    representatives of the accounting industry; representatives of
    the public interest community; representatives of the corporate
    community, and SEC Chairman Pitt.
        It was a very thorough effort to gather the best thinking
    on these issues and to give all interested parties a chance to
    be heard. My colleagues on the committee, and the ranking
    member, Senator Gramm, participated in this effort seriously
    and with commitment. Senators Dodd and Corzine early on
    introduced a bill dealing with oversight of accounting and
    auditor independence. Many of that bill's provisions are
    reflected in this legislation. Senator Enzi, of course, took a
    particular interest. He is the only certified public accountant
    in the Senate. Many other Members made important contributions
    as we moved along the way.
        I will now turn to each title. Title I of the bill creates
    a strong independent board to oversee the auditors of public
    companies. Title II strengthens auditor independence from
    corporate management by limiting the scope of consulting
    services that auditors can offer their public company audit
    clients. This bill applies only to public companies that are
    required to report to the SEC. It says plainly that State
    regulatory authorities should make independent determinations
    of the proper standards and should not presume that the bill's
    standards apply to small- and medium-sized accounting firms
    that do not audit public companies.
        Titles III and IV of the bill enhance the responsibility of
    public company directors and senior managers for the quality of
    the financial reporting and disclosure made by their companies.
    Title V seeks to limit and expose to public view possible
    conflicts of interest affecting securities analysts. Title VI
    increases the SEC's annual authorization from $481 million to
    $776 million and extends the SEC's enforcement authority. Title
    VII of the bill mandates studies of accounting firm
    concentration and the role of credit rating agencies.
        It is my intention to go through the bill title by title in
    a summary fashion, but I will pause for a moment and ask my
    colleague whether he has any time pressures.
        Mr. Gramm. I don't have a time preference as such. My
    suggestion is whenever the Senator gets tired of talking and
    would like me to speak a while, I can speak, and then he can
    come back to it. But I have no objection if you want to go
    through your whole presentation. You certainly have that right.
    If you think it will work better doing it that way, that is
    fine. If you want to break at some point and have me speak,
    that would be fine.
        Mr. Sarbanes. Why don't I move ahead, and I will try to
    compress it a bit.
        Title I creates a public company accounting oversight
    board. This board is subject to SEC review and will establish
    auditing, quality control, ethics, and independence standards
    for public company auditors and will inspect accounting firms
    that conduct those audits. It will investigate potential
    violations of applicable rules and impose sanctions if those
    violations are established.
        Heretofore we have relied on self-policing of the audit
    process, private auditing and accounting standards setting,
    and, for the most part, private disciplinary measures. But
    questionable accounting practices and corporate failures have
    raised serious questions, obviously, about this private
    oversight system. Paul Volcker stated:

        Over the years there have also been repeated efforts to
    provide oversight by industry or industry/public member boards.
    By and large, I think we have to conclude that those efforts at
    self-regulation have been unsatisfactory.

        That is obviously one of the reasons we are moving, in this
    legislation, to an independent public company accounting
    oversight board. We heard extensive testimony in favor of such
    a board.
        The board would have five full-time members. Two of the
    members will have an accounting background. All will have to
    have a demonstrated commitment to the interests of investors,
    as well as an understanding of the financial disclosures
    required by our securities law. The board members would be
    appointed by the SEC after consultation with the Federal
    Reserve and the Department of the Treasury and would serve
    staggered 5-year terms. They could not engage in other business
    while they were doing this work.
        Of course, the board will have a staff. We would expect
    staff salaries to be fully competitive with comparable private-
    sector positions in order to ensure a high-quality staff.
        The bill requires that accounting firms that audit public
    companies must register with the board. Failure to register or
    loss of registration would render a firm unable to continue its
    public company audit practice. Upon registering, a company
    would consent to comply with requests by the board for
    documents or testimony made in the course of the board's
    operations.
        The board would possess plenary authority to establish or
    adopt auditing, quality control, ethics, and independence
    standards for the auditing of public companies. But this grant
    of authority is not intended to exclude accountants or other
    interested parties from participating in the standard-setting
    process. So the board may adopt rules that are proposed by
    professional groups of accountants or by one or more advisory
    groups created by the board.
        These provisions reflect an effort to respond to the
    argument that you need the experts to either set the standards
    or help to set the standards. The experts in the industry can
    make these proposals, but the board will have the authority to
    adopt or to modify such proposals or to act of its own
    volition.
        We provide for the inspection of registered accounting
    firms by the board. Firms that audit more than 100 public
    companies are to be inspected by staff of the board each year.
    Firms that audit less than that are inspected every 3 years,
    although the board has the power to adjust these inspection
    schedules.
        The board also has investigative and disciplinary
    authority. Former SEC Chairman Arthur Levitt told the
    committee:

        We need a truly independent oversight body that has the
    power not only to set the standards by which audits are
    performed but also to conduct timely investigations that cannot
    be deferred for any reason and to discipline accountants.

        If the board finds that a registered firm, or one or more
    of its associated persons, has violated the rules or standards,
    it will have the full range of sanctions available.
        The board also has the power to sanction a registered
    accounting firm for failure reasonably to supervise a partner
    or employee, but we allow an accounting firm to defend itself
    from any supervisory liability by showing that its quality
    control and related internal procedures were reasonable and
    were operating fully in the situation at issue. I am mentioning
    this item, even though it may not seem that important in the
    context of a bill this complex, to point again to the effort
    that was made in the committee to balance competing concerns.
        In effect, we say the firms have this supervisory
    responsibility. They should not duck this responsibility.
    Otherwise, how are we going to assure the people working for
    accounting firms are meeting high standards? On the other hand,
    we realize it is extremely difficult in large organizations to
    control right down to the last person. So we provided that if
    accounting firms have quality control and related internal
    procedures in place that are reasonable and that are operating
    fully, the operation of those procedures can serve as a
    defense.
        The bill applies to foreign public accounting firms that
    audit
    financial statements of companies that come under the U.S.
    securities laws. The board is subject to SEC oversight, which
    is important. Finally, we formalize the role of the Financial
    Accounting Standards Board in setting accounting standards
    accounting standards are different than auditing standards,
    which the new oversight board will set. The bill provides for
    guaranteed funding of the new oversight board and the FASB by
    public companies, something I think we all agree is extremely
    important.
        Some have asked, why do we need a statutory board? Why not
    let the SEC do something of this sort by regulation? But others
    have raised questions about the adequacy of the authority the
    SEC has to accomplish all of this by regulation alone. Clearly,
    a firmer base would be established, a stronger reference point,
    if the board were established by statute, and the potential of
    litigation that might arise with respect to some of these
    disciplinary and fee-imposing powers if they were created
    solely by the SEC by regulation would be avoided by a clear
    statutory underpinning.
        Furthermore, I believe, frankly, that we need to establish
    this oversight board in statute in order to provide an extra
    guarantee of its independence and its plenary authority to deal
    with this important situation.
        Let me turn to title II on auditor independence. This is a
    very important issue. Each of the country's Federal securities
    laws requires comprehensive financial statements. That is what
    is now required under the securities laws for public companies.
    They have to have comprehensive financial statements that must
    be prepared--and I now quote from the statute--``by an
    independent public or certified accountant.''
        The statutory requirement of an independent audit has two
    sides to it. It is a private franchise, and it is also a public
    trust.
        The franchise given to the Nation's public accountants is
    clear. Their services must be secured before an issuer of
    securities can go to market, have its securities listed on the
    Nation's stock exchanges, or comply with the reporting
    requirements of the securities law. In other words, the
    accountants have been handed by mandate a major piece of
    business because the statute says to these public companies
    that they must have comprehensive financial statements prepared
    by an independent public or certified accountant.
        So in effect we have directed to them a significant amount
    of business. But the franchise, in a way, is conditional. It
    comes in return for the certified public accountant's
    assumption of a public duty and obligation.
        The Supreme Court stated this well in a decision almost 20
    years ago:

        In certifying the public reports that collectively depict a
    corporation's financial status, the independent auditor assumes
    a public responsibility. . . . [That auditor] owes ultimate
    allegiance to the corporation's creditors and stockholders, as
    well as to the investing public. This public watchdog function
    demands that the accountant maintain total independence from
    the client at all times and requires complete fidelity to the
    public trust.

        Richard Breeden, Former Chairman of the SEC from 1989 to
    1993, under the previous President Bush, said in his testimony
    before the committee:

        While companies in the U.S. do not have to employ a law
    firm, an underwriter, or other types of professionals, Federal
    law requires a publicly-traded company to hire an independent
    accounting firm to perform an annual audit. In addition to this
    shared Federal monopoly, more than 100 million investors in the
    U.S. depend on audited financial statements to make investment
    decisions. That imbues accounting firms with a high level of
    public trust, and also explains why there is a strong Federal
    interest in how well the accounting system functions.

        What has happened in recent years is that a rapid growth in
    management consulting services offered by the major accounting
    firms has created a conflict in the independence that an
    auditor must bring to the audit function. According to the SEC,
    in 1988, 55 percent of the average revenue of the big five
    accounting firms came from accounting and auditing services; 22
    percent came from management consulting services.
        By 1999, 10 years later, these figures had fallen to 31
    percent for accounting and auditing services, and 50 percent
    for management consulting services.
        In fact, a number of experts argue that the growth in the
    non-audit consulting business done by the large accounting
    firms for their audit clients has so compromised the
    independence of audits that a complete prohibition on the
    provision of consulting services by accounting firms to their
    public audit clients is required--a complete prohibition.
    According to James E. Burton, the CEO of the California Public
    Employees' Retirement System, CalPERS, which manages pension
    and health benefits for more than 1.3 million members and has
    aggregate holdings of $150 billion:

        The inherent conflicts created when an external auditor is
    simultaneously receiving fees from a company for non-audit work
    cannot be remedied by anything less than a bright line ban. An
    accounting firm should be an auditor or a consultant, but not
    both to the same client.

        John Biggs, CEO of Teachers Insurance and Annuity
    Association--College Retirement Equities Fund, TIAA-CREF, the
    largest private pension system in the world, which manages
    approximately $275 billion in pension assets for over 2 million
    participants in the education and research communities, told
    the Committee:

        Because auditors owe their primary duty to the
    shareholders, questions about the primacy of that duty are
    raised if the audit firm provides other, potentially more
    lucrative, consulting services to the company. The board and
    the public auditor should both see to it that, in fact as well
    as in appearance, the auditor reports to the independent board
    audit committee and acts on behalf of shareholders. The key
    reason why awarding consulting contracts and other non-audit
    work to the audit firm is troubling is because it results in
    conflicting loyalties. While the board's audit committee is
    formally responsible for hiring and firing the outside auditor,
    management controls virtually all the other types of non-audit
    work the audit firm may do for the company. Those contracts
    with management blur the reporting relationship it is difficult
    to believe that auditors do not feel pressure for the overall
    success of their firm with the client. Even their own
    compensation packages may be tied to consulting and non-audit
    services being provided by their firm to the company. . . .
        By requiring public companies to use different accounting
    firms for their audit and consulting services, and by
    establishing an independent board with real authority to
    oversee the accounting profession you will be taking important
    steps toward reversing the crisis in confidence in financial
    markets that exists today.

        We looked at this carefully. We had testimony on the other
    side. In the end, we took the approach that is outlined in the
    bill. The bill contains a short list, nine items, of non-audit
    services that an accounting firm doing the audit of a public
    company cannot provide to that company. These include, for
    example, bookkeeping or other services related to the
    accounting records or financial statements of the audit client,
    financial information systems design, appraisal or valuation
    services, actuarial services, management functions or human
    resources, broker or dealer or investment adviser services, and
    legal services.
        The thinking behind drawing this line around a limited list
    of non-audit services, is that provision of those services to a
    public company audit client creates a fundamental conflict of
    interest for the accounting firm in carrying out its audit
    responsibility. If the accounting firm is not the auditor for
    the company, it can do any of these consulting services--it can
    do any consulting service it wants. But if it is the auditor--
    so there is a conflict of interest problem--then we take
    certain services and say: those services you can't do. And the
    reason is, first of all, in order to be independent, the
    auditor should not audit its own work, as it would do if it did
    financial information system design or appraisal evaluation
    services or actuarial services. It should not function as part
    of the management or as an employee of the audit company, as it
    would if it were doing human resources services, and it should
    not act as an advocate of the audit client, as it would do if
    it were providing legal and expert services. Nor should it be
    the promoter of the audit client's stock or other financial
    interest, as it would be if it were the broker-dealer or the
    investment adviser.
        They are the public company's auditors. They have a very
    defined responsibility as the auditors. The bill doesn't bar
    accounting firms from offering consulting services. It simply
    says that if a firm wants to audit the company, there are
    certain services it cannot perform. And even in that case, the
    bill provides the board authority to grant case-by-case
    exceptions, so if a case could be made why an auditor's
    performing a consulting service ought to be permitted, there is
    some flexibility to permit it.
        David Walker, the Comptroller General of the United States,
    in a statement on June 18 said:

        I believe that legislation that will provide a framework
    and guidance for the SEC to use in setting independence
    standards for public company audits is needed. History has
    shown that the AICPA and the SEC have failed to update their
    independence standards in a timely fashion and that past
    updates have not adequately protected the public's interests.
    In addition, the accounting profession has placed too much
    emphasis on growing non-audit fees and not enough emphasis on
    modernizing the auditing profession for the 21st century
    environment. Congress is the proper body to promulgate a
    framework [on this important issue].

        There are a lot of other auditing services, other than the
    nine I mentioned, that an auditor may want to provide and whose
    provision we did not preclude. In other words, the statutory
    system that we are establishing lists certain consulting
    services that, if you are the auditor, you cannot perform for
    the public company that is your audit client, unless you can
    get one of these case-by-case exemptions from the board. And
    those consulting services were the ones which, upon
    examination, seemed clearly to raise the most difficult
    conflict of interest questions that could result in undermining
    the auditor's fulfillment of his auditing responsibility.
        The public company auditor can provide other non-audit
    services; that is, any but those on the proscribed list, if it
    clears them with the audit committee of the public company's
    board of directors. We seek to strengthen the audit committee
    in very substantial ways, including, as I will mention later,
    that they should be the ones to hire and fire the auditors--
    that the auditors really work through the audit committee for
    the board of directors and that the auditors do not work for
    the management. I think it is very clear, to some extent, and
    in some instances, it is management working with the auditors
    that have done these clever schemes for which we are now paying
    the price.
        We had the issue of auditor rotation before us. Many
    witnesses thought the audit firm itself should have to rotate
    every 5 years, periodically. We did not go that far. We
    recommend here that the lead partner and the review partner on
    audits must rotate every 5 years--not the audit firm itself.
    But we do provide that audit firm rotation should be further
    studied and direct the General Accounting Office to undertake
    such a study with respect to the mandatory rotation of the
    audit firm.
        I will move more quickly and skip over some sections, but I
    can always, of course, come back to them if there are any
    questions.
        We were concerned about the movement of personnel from
    audit firms to the public company audit clients. There we put a
    1-year cooling off period with respect to the top positions in
    the company, so that you can't hold out to the audit team the
    immediate prospect of an important position in the company.
    Again, we are trying to protect the independence of the audit.
        The next two titles, III and IV, deal with corporate
    responsibility and enhanced financial disclosure. As I said, we
    provide for a strong public company audit committee that would
    be directly responsible for the appointment, compensation, and
    oversight of the work of the public company auditors, which
    makes it clear that the primary duty of the auditors is to the
    public company's board of
    directors and the investing public, and not to the managers. We
    provide that the audit committee members must be independent
    from company management.
        We require that the audit committee develop procedures for
    addressing complaints concerning auditing issues and also that
    they put in place procedures for employee whistleblowers to
    submit their concerns regarding accounting.
        Where does an employee go when he sees a problem and is
    fearful of taking it up with management because his perception
    is that management is involved with the problem? We
    specifically provide that they should be protected in going to
    the audit committee.
        We have a provision prohibiting the coercion of auditors.
    Some have asserted that officers and directors have sought to
    coerce their auditors or to fraudulently influence them to
    provide misleading information. Obviously, the auditors ought
    to be protected from that as well.
        We have a provision that the CEO and the CFO who make large
    profits by selling company stock or receiving company bonuses
    while management is misleading the public about the financial
    health of the company would have to forfeit their profits and
    bonuses realized after the publication of a misleading report.
        We also address the question of remedies against officers
    and directors who violate securities laws, something in which
    the SEC is very interested.
        We have a provision on insider trades during pension fund
    blackout periods. We prohibit the insider trades. So you can't
    have officers and directors free to sell their shares while the
    majority of the employees of the company are required to hold
    theirs--as, of course, has happened in some instances.
        On enhanced financial disclosures, we require that public
    companies must disclose all off-balance-sheet transactions and
    conflicts. We require that pro forma disclosures be done in a
    way that is not misleading and be reconciled with a
    presentation based on generally accepted accounting principles.
    More companies are doing these pro forma disclosures. They
    really are not accurately reflecting the financial conditions
    of the company.
        We require very prompt disclosure of insider trades--
    actually, to be reported by the second day following any
    transactions.
        We require the reporting of loans to insiders. There have
    been some enormous loans made. At a minimum, those need to be
    disclosed. Some argue they ought to be prohibited. We didn't go
    that far. Some testified there are some good reasons on
    occasion that a company ought to make a loan to one of its
    officers. But, at a minimum, they ought to be disclosed.
        This is a small item, but it may have a good benefit. We
    require public companies to disclose to the investors whether
    they have adopted a code of ethics for senior financial
    officers and whether their audit committee has among it a
    member who is a financial expert. We don't require them to have
    a code of ethics, although we think they should. We just
    require that they disclose whether they have one or not.
        Title V deals with analyst conflicts of interest. We have
    had this incredible situation that was brought to the public
    attention by the efforts of the Attorney General of the State
    of New York, Eliot Spitzer, in which research reports and stock
    trades of companies that were potential banking clients of a
    major broker-dealer were often distorted to assist the firm in
    obtaining investment banking business. There was one document
    that actually acknowledged the conflict and, as a result,
    stated:

        We are off base on how we rate stocks and how much we bend
    over backwards to accommodate banking.

        These analysts would recommend a buy rating on the stock
    essentially to help out the investment banking firm which was
    trying to get the company's investment banking business. So
    they get the analysts to say good things about the company,
    which will then lead the company to be far more favorably
    inclined and take on that firm in order to do their investment
    banking business.
        In some instances, they were actually recommending buys and
    then they were saying to one another what a turkey the company
    was, but the poor investor was being taken at the time.
        We set out a number of provisions in this regard. I will
    not go through all of them.
        We prevent investment banking staff from supervising
    research analysts or clearing their reports.
        We prohibit analysts from distributing research reports
    about a company they are underwriting.
        We have a provision to protect analysts from retaliation
    for making unfavorable stock recommendations.
        We heard moving testimony from someone who said: If you
    make an unfavorable recommendation, who knows what is going to
    happen to you?
        We also provide--the bill here focuses on disclosure
    instead of prohibition--that an analyst would have to disclose
    if he owned the company stock. If you are doing an analysis and
    if you are doing a report and a recommendation, you ought to
    disclose whether you own the company stocks or bonds, whether
    you have received compensation from the company, whether your
    firm has a client rel-
    ationship with the company, and whether you are receiving
    compensation based on investment banking revenues from the
    company. These are not prohibitions, they are just disclosures.
        The thought behind this is, if you are an investor and an
    analyst is making a recommendation and he puts up front in his
    analysis that he owns the company stock, or that he is
    receiving compensation from the company, or that his firm has a
    client relationship with the company, or that he is receiving
    compensation based on investment banking revenues received from
    the company, someone is going to look at this and say: wait a
    second. I have to take his recommendation in the context of his
    involvement.
        Finally, of major importance is the increase we have
    provided for the budget of the SEC to, No. 1, provide pay
    parity for SEC employees; No. 2, enhance information technology
    and security enhancement; and, No. 3, fund more professionals
    to help carry out the important investigative and disciplinary
    efforts of the SEC.
        We provide for two studies. One concerns the consolidation
    of public accounting firms. Senator Akaka was very interested
    in this. There has been a constant consolidation trend. We have
    asked the Comptroller General to do the study. And the other is
    by Senator Bunning directing the SEC to conduct a study of the
    role of credit rating agencies in the operation of the
    securities markets.
        In closing, there has been broad support for this
    legislation. Just a few days ago, the Business Roundtable came
    out in favor of it. The Financial Executives International
    early on in the process was supportive, as well as the Council
    of Institutional Investors.
        We have tried hard to listen to the concerns people raised.
        The procedure here was that before the Memorial Day
    recess--in fact, in early May, we put out a committee print. As
    we approached markup shortly before the Memorial Day recess, a
    number of amendments were proposed. It was urged that we put
    the markup over. We agreed to do that. We took all the
    amendments that had been put forward, and other suggestions
    that were being received with respect to the committee print,
    and went back and reworked it.
        I have to say to you that, in all candor, many of those
    suggestions were meritorious and in fact are now reflected in
    the legislation that is before the Senate.
        So we tried very hard to listen to people at every step of
    the way. We then reworked the print. We came back with another
    committee print. We went to markup on June 18. We made a
    limited number of amendments in markup and brought the bill out
    to the floor of the Senate by a 17-to-4 vote.
        I simply close by saying how strongly I believe that
    financial irresponsibility and deception of the sort that we
    have seen in all of the instances that keep appearing on the
    front pages of our newspapers are a real threat to our economic
    recovery. We cannot afford to wait for the next corporate
    deception, followed by the next round of layoffs, followed by
    the next collapse of a company's pension fund.
        We need to take action to restore public trust in our
    financial markets, and that really begins with restoring public
    confidence in the accuracy of financial information. That is
    what this legislation seeks to accomplish. I urge my colleagues
    to support this critical legislation.
        Mr. President, I yield the floor.
        The Presiding Officer (Mr. Bingaman). The Senator from
    Texas is recognized.
        Mr. Gramm. Mr. President, I begin by thanking Senator
    Sarbanes for working with me as we have considered this bill. I
    congratulate him on this day that we are considering the bill
    in the Senate.
        We had a series of hearings that I wish every Member of the
    Senate could have attended. I am not surprised that at the end
    of those hearings good people with the same facts, as Jefferson
    said so long ago, were prone to disagree.
        I find myself in a position where Senator Sarbanes and I
    agree on many of the key issues of this bill; we differ on
    others. It is not the first time in managing a bill that we
    have been on opposite sides.
        I reminded Senator Sarbanes this morning that it might very
    well be this will be the last bill we will ever manage
    together. Since I am leaving the Senate, and we have something
    like 40 legislative days left, I do not know whether, after
    this bill is dealt with, the Banking Committee will warrant any
    of those 40 days.
        But I would like to say for the record that no one can
    object to the hearings we had, the approach the Chairman has
    taken. Whether you agree with him or whether you do not, I
    think his approach has been reasoned and reasonable.
        It is clear this issue has attracted a great deal of
    attention. It is clear that there is a mind in the Congress, if
    not in the country--Congress is not always reflective of the
    thinking of the country--but there is a sort of collective mind
    that we need to do something, even if it is wrong.
        I lament, as we have gotten into this debate, that the
    media has decided that the tougher bill is the bill with more
    mandates; that if you decided to set up a stronger committee, a
    stronger board with broader powers so they might decide to go
    beyond the legislative mandates, that that is a weaker proposal
    than having
    Congress actually write auditing standards or conflict of
    interest standards.
        I would submit to my colleagues--and I guess I would have
    to say at this point, I do not know that we will follow this
    adage--but I suggest this is a very important bill. I urge my
    colleagues, as you look at this bill, to realize we are not
    just talking about accounting. If this bill were just about
    accounting, it could do some good, it could do some harm, but
    it could not do too much of either.
        But this bill is far more than just a bill about
    accounting. This is a bill that has profound effects on the
    American economy; therefore, I think it is very important that
    we try to look at the problem and that we try to come up with a
    solution that will be good not just for today, not just that
    will bring forth a positive editorial in a newspaper tomorrow,
    but I submit we want to try to find one that meets the front
    porch of the nursing home test. That is the test where, when we
    are all sitting around in rocking chairs in a nursing home, and
    we look back at what has happened under this bill, that we will
    be proud of what we did and how we did it.
        I want to touch on several things. I want to go through and
    make several points, some related to what the distinguished
    chairman said, some just because I want to say them. I want to
    talk about what I believe the problem is. And I want to make it
    clear that I do not know how to fix it. I do not know that this
    bill fixes it. I do not believe it does. I do not believe my
    substitute I offered fixes it either. But I think somebody
    needs to talk a little bit about it. Then I want to talk about
    the bill that we have before us, and where I agree with it and
    where I differ, and what those differences are.
        I think the good news is--from the point of view of if
    consensus is a good thing--there is a consensus, and has been
    from the very beginning, that we need to pass a law. What this
    President cannot do is provide an independent funding source
    and a legal foundation for this independent board.
        I personally believe the President's 10-point program was a
    good program. What the Chairman of the SEC cannot do is provide
    an independent funding source and provide a legislative
    foundation for the board. The Chairman and I agree on that.
        There have been people who have reached a conclusion that
    if you differed from Senator Sarbanes, you did not really want
    a bill. I believe those of us who have differed do want a bill.
    And the one thing that we agree on, which I think is at the
    heart of this whole debate, is a strong, independent board to
    make determinations about conflict of interest and about
    ethics.
        Now, let me touch on the things that I wanted to touch on.
        I personally thank Senator Sarbanes for the approach he
    took in focusing on the problem and on the future. Everybody
    knows this has now become a political issue. We know that
    people are either trying to go back and pin this problem on
    past Presidents or SEC Directors or they are trying to pin the
    problem on the current President and the current SEC Chairman.
    I think it is a testament to Senator Sarbanes' leadership that
    he has had nothing to do with that.
        The plain truth is we have had a succession of great SEC
    Chairmen. Arthur Levitt and I disagreed on many things, but I
    do not think anybody could argue that he was not an effective
    SEC Chairman. It is true that he had the ability, under
    existing law, to go back and change GAAP accounting to set up a
    board, to do anything he wanted to do, and he did not do it.
    But it is always so easy to see these things when you are
    looking with that wonderful hindsight.
        Anybody has to give Arthur Levitt credit that he was the
    first to raise an issue about auditor independence. Whether you
    agreed when he raised it or not that it was a problem, that it
    was proven, it is clear that he saw a problem which may or may
    not be the source of our problem today, but many people believe
    it is. You have to give him credit. And I don't believe anybody
    else in his position would have done a much better job than he
    did.
        Let me also say that I think Harvey Pitt has done an
    outstanding job in the short period of time he has been at the
    SEC. Much is made of the fact that he did legal work for
    accounting firms. I continue to be struck by this approach that
    somehow knowledge is corruption, that somehow the perfect
    regulator is a guy who just came in off a turnip truck and who
    knows absolutely nothing.
        It reminds me of Senator McCain was once telling a story
    about talking to a journalist who was covering the Vietnam War
    and asking the journalist if he had ever read this seminal work
    about the history of Vietnam. And the journalist said: No, he
    had never read it because he wanted to approach the subject
    with a totally unbiased mind.
        There is a big difference, I submit, between an open mind
    and an empty mind. We make a grave mistake when we discount
    knowledge. Everybody today, when they are criticizing Harvey
    Pitt, talks about the fact that he represented accounting firms
    and security firms. I guess if he were being more aggressive
    than is the public mood, people would remember that he was
    probably the most rigorous chief counsel at the SEC in its
    history and, in that process, brought cases against numerous
    major companies. They would be saying that that experience had
    tainted him for his current work.
        The point is, the man has broad experience as chief counsel
    to the SEC, where he prosecuted major firms, and he has vast
    experience as probably the Nation's premier security lawyer
    where he defended associations and businesses. And quite
    frankly, when in doubt, I will go with knowledge. When in
    doubt, I will take experience. I do not believe that experience
    taints you.
        Let me also say that there is this current mood that
    anything having anything to do with accountants is somehow bad.
    Having just praised Harvey Pitt, let me point out an area where
    I disagree with him. When he set up his board to oversee
    accounting ethics and to look at issues such as the
    independence issue, on ethics issues, he does not allow people
    with an accounting background to vote.
        Now I would have to say that I strongly disagree with that
    for two reasons: No. 1, since when is a person's background a
    source of corruption? I will address that a little more in a
    minute. Secondly, when you are looking at what is and what is
    not ethical practice, I am not saying it is absolutely
    essential, but it is helpful to have somebody who knows
    something about what practice is.
        I submit that in all of these approaches, from the SEC
    approach to the approach of this bill, we are probably going
    too far in putting people in positions where they are going to
    have massive unchecked authority and they have no real
    expertise in the subject area.
        Anybody who thinks this board is just going to slap around
    a few accountants does not understand this bill. This board is
    going to have massive power, unchecked power, by design. I
    would have to say the board that Senator Enzi and I set up in
    our bill has massive unchecked power as well. I mean, that is
    the nature of what we are trying to do here. I am not
    criticizing Senator Sarbanes. I am just reminding people that
    there are two edges of this sword. We are setting up a board
    with massive power that is going to make decisions that affect
    all accountants and everybody they work for, which directly or
    indirectly is every breathing person in the country. They are
    going to have massive unchecked powers.
        We need to give some more thought to who is going to be on
    this board and is it going to be something that is attractive
    enough to make people want to serve.
        In the proposal Senator Enzi and I put together, I thought
    we could enhance its prestige by making it a little more
    independent of the SEC. Under the committee bill, which is
    before us, the SEC would appoint the members of the board. I
    thought that given the broad nature of its power, which goes
    far beyond just accounting and far beyond just securities, it
    would be helpful to have the SEC appoint two members--Senator
    Enzi and I suggested that one have an accounting background and
    one not--have the Federal Reserve Board appoint two; have the
    CFTC appoint two; and then have the President appoint the
    chairman. I think that board would have a higher profile. With
    a Presidential appointee as chairman, it would raise the
    prestige of the board, and we would get better people to serve
    on the board.
        I urge my colleagues, think long and hard when you think
    about this board exerting tremendous, unbridled, unchecked
    power, about how many people you want on the board who know
    something about the subject matter. Today, in an environment
    where accountants are the evil people of the world, the enemies
    of the people, having no accountants on this board or
    relatively few and not letting them vote when ethics matters
    are being dealt with, I assert that kind of approach means you
    are not going to have first-rate people who are going to want
    to serve.
        Let me finally get it out of my system by saying: I don't
    know a whole bunch of accountants. I taught at a public
    university. About a third of my students in economics were
    accounting majors. I would have to say that I have a pretty
    high opinion of accountants. If I had to trust the safety and
    sanctity of my children and my wife today, after all these
    revelations about bad accounting, to a politician, a preacher,
    a lawyer, or an accountant drawn at random in America today,
    without any pause I would choose an
    accountant.
        I am not saying that there are not bad people in
    accounting. I am not saying there has not been abuse. But I
    think we have to separate people from professions.
        One of my concerns is, we have already had a decline in the
    number of people majoring in accounting. I am wondering, I
    don't care what kind of law you write, I don't care what kind
    of board you set up, if we don't attract smart young people
    into accounting, people who understand it is not talent, it is
    not personality, it is not cool, it is character that
    ultimately counts, then none of these systems are going to work
    very well.
        Now, I don't buy the idea that legislating something
    instead of setting up a reasoned system to make decisions is a
    tougher approach; and if it is, I don't want it. But what we
    have today is an approach that is largely taken in the media
    that the more mandates you have, that the more things chiseled
    inflexibly into law, that the more it is one-size-fits-all,
    whether it has any rhyme, reason, or responsibility, that that
    is tougher, and therefore it is
    better, that in today's environment is obviously appealing.
        I hope this doesn't happen, but it would not shock me if we
    have a series of amendments offered tomorrow when we start
    dealing with the bill, where people try to out-tough each
    other--maybe one to kill all the accountants and start all over
    and train new ones. Well, nobody would offer such an amendment,
    but I think we could very easily get into this oneupsmanship
    that we can end up regretting. I hope that will not happen. I
    want to discourage that.
        Let me give you an example of where Senator Sarbanes and I
    differ in our opinions. Who is right, I don't know. I think
    maybe being in this business for a while convinces you that
    nobody has a lock on wisdom and nobody knows in each and every
    case what is right and responsible, but I want you to
    understand the difference of our approach. Let me just go right
    to the heart of the matter.
        The substitute that I offered in committee with Senator
    Enzi has an independent board. I think it is better, but you
    can argue that the two boards are pretty similar. Ours is a
    little more independent of the SEC; though, in the end, to meet
    the constitutional test, the SEC has to have authority over it.
    We went a little further in terms of independence and
    appointing members, and I have already talked about that. But
    the whole heart of the difference--let's pick one issue--comes
    down to auditor independence. If you ask me today, should the
    same company that does an external audit for a firm be able to
    do internal audits--and I argue today I don't have the
    knowledge to say this--I would argue today that I really don't
    know enough about accounting practice and how the process
    works, not just at General Motors but at the smallest
    corporation in America, to make that decision. The bill before
    us sets out the law. It is written in the law that if you do an
    external audit, you cannot do any one of these nine different
    things. I don't know, it may well be that after a reasoned
    analysis a competent board would decide they ought to do those
    things. My guess is that if I had to decide today, and you
    forced me to make a decision that was going to be binding on
    the country, which is a little frightening to me, I might well
    agree with most, and in some cases all, of these things. But I
    don't believe we ought to be writing that into law. I don't
    think anything is gained by writing it into law, and I think a
    lot is lost by writing it into law.
        Having read editorials, I know this makes the bill tougher,
    but I don't think it makes it better. What I believe we should
    do is set up the best and strongest board we can, make it
    independent, give it independent funding, and put competent
    people on it. The way Senator Enzi and I did it, and there is
    nothing magic about it other than that we did it, we decided to
    have the SEC, the Fed, and the CFTC appoint two members, one
    with an accounting background and one without, and then have
    the President appoint the chairman, and he could decide.
        I personally think that having more accountants rather than
    fewer is a plus, not a minus. I don't think they all ought to
    have an accounting background. I don't necessarily say a
    majority have to have an accounting background, but I believe
    that day in and day out, 20 years from now when we have all
    left the Senate and we are not paying attention to these
    things, it would help to have people who know what they are
    doing. I don't buy the idea that people who don't know what
    they are doing are more moral, other things being the same,
    than people who do know what they are doing. In any case, I
    believe that rather than writing out these nine things by law
    that you cannot do while you are doing an external audit, we
    ought to set up the strongest board we can, and we ought to
    give them external funding and plenty of power, and we ought to
    say to them: you need to look at these nine things and do a
    reasoned analysis. You need to talk to lots of people, such as
    smart theorists who are accounting professors at our best
    universities, and you probably ought to talk to the bookkeeper
    in Muleshoe who is actually doing bookkeeping work, look at the
    practical, the theoretical, and make a determination.
        Should you be able to do an external audit and do any one
    of these nine things? You make a decision and set it out in
    regulation. Why is that better than writing it into law? It
    seems to me it is better for two reasons: One, if you are
    wrong, or if accounting practices change, or if your perception
    of the problem changes, you can go back and change it by
    regulation. The problem with writing it into law is that
    Congress then has to come back and change the law. As we know
    from Glass-Steagall, it took us 60 years to fix something that
    had it been written in regulation by the 1940s, it would have
    changed. But we didn't change it until 1999.
        The second reason, which I think is equally important, if
    not more important, is the way the bill is now written might
    very well make sense for General Motors. That is, it might make
    perfectly good sense to have a process whereby General Motors
    might have three or four different CPA firms--maybe more--but
    they are operating all over the country and all over the world.
    That is perfectly feasible. But the last time I looked--and I
    don't know, but some of these may have gone out of business
    and, God willing, maybe some new companies have come into
    business--the last time my trusty staff looked, there were
    16,254 publicly held companies in America. I don't care how
    smart you are, I don't care how good your intentions are, you
    cannot write a mandate, if you get too far in the detail, that
    fits General Motors and also fits the 16,254th largest company
    in America. It just doesn't work.
        One of the advantages of setting up an independent board,
    giving them a mandate to look at these areas, but not chiseling
    it into stone in legislation, is because they can then say,
    well, here is the principle and if you are General Motors, here
    is how it applies, but if you are XYZ Paint Company in Montana,
    or Wyoming, or wherever, you might only have one accounting
    firm operating in the town that you are domiciled in. I am not
    saying you cannot hire accountants to come from the Capital
    City, or wherever, to your town to do work for you, and maybe
    you ought not to be operating in a little town in a small
    State; but people choose that, and people who represent small
    States seem to like these companies being there. I am just
    saying that giving the board the ability to set a principle and
    apply it in one way to General Motors and in another way to a
    small company in a small town makes eminently good sense in
    practice.
        Now, I know it is not a mandate in the same sense as
    writing it into law, but I think the result would end up being
    better.
        One of the amendments that I will offer--and I thank
    Senator Sarbanes for trying--and one thing I have to say is
    that nobody on our committee can say that Senator Sarbanes did
    not listen. Nobody can say he failed to try to hear them out on
    their concerns and that, in many cases, he didn't change the
    bill to try to respond to their concerns.
        One of the changes that I support is giving the board, with
    the concurrence of the SEC, the ability to grant waivers to
    these rules and, in fact, to the law. The problem with waivers
    on an individual company basis is a practical problem, and that
    is, if 16,254 companies are trying to get waivers under their
    special conditions--they all come to Washington and hire
    lawyers and lobbyists; they all petition the board and the
    SEC--if that board has 16,254 petitions in 1 year, and it could
    have many times that if people are petitioning for different
    kinds of waivers, we are going to shut it down for any other
    purpose except waivers.
        What will happen, not because anybody wants it to happen
    but because of the very nature of Government, the people who
    will get the waivers will not in general be the most deserving
    people. They will be the people who hired the best lawyers, who
    had the best contacts, who knew how to go about it, and who had
    the money to spend getting the waiver.
        My guess is the smallest companies that need the waiver the
    most will not get them. Surely at some point we are going to
    fix the bill so that the accounting board, with the concurrence
    of the SEC, can say: OK, look, in applying this, if you fall
    into these categories, you have these circumstances, you have a
    waiver to do things in this way. Clearly, something like that
    has to make sense.
        One of the things we have to come to recognize, and I think
    we all recognize it, is that having a beautiful law in a law
    book does not make good law. It has to be practical, and it has
    to take into account the 1,001--in this case, the 16,254
    different circumstances that can apply.
        What is the problem? I guess there are as many theories
    about the problem as there are people. I have my own theory
    about the problem, and I will share it with my colleagues and
    anybody else who is interested.
        Why is all of this happening now? I believe it is happening
    because of the problems in GAAP accounting. There are other
    extenuating circumstances, and I want to touch on them, but
    here is the problem in GAAP accounting. Senator Sarbanes used a
    perfect example of it, and I will just take his example. He
    talked about how WorldCom saw its market capitalization fall
    from $100 billion to $100 million. How is that possible? I
    remember when Enron went bankrupt. People said: Where are the
    assets? When a company goes from $100 billion to $100 million,
    what happened to the
    assets?
        Here is the problem. Increasingly, the asset is a
    combination of know-how, credibility, and a belief by the
    public that you are carrying out your business in an efficient
    and ethical way. Increasingly, the modern corporation does not
    have 12 steel mills. They do not own massive physical assets.
    Many companies have tried, basically, to get out of the asset
    business into the information business. The value of WorldCom
    was a discounted present value of what the public believed its
    revenue stream was relative to its cost. It never had $100
    billion worth of physical assets, anything like it. That is
    what the value of the ideal was as the public perceived it in a

    period where our wise friend, Alan Greenspan, talked about
    irrational exuberance. That is what they thought that company
    was worth, but it never had assets that were anything near $100
    billion. What it had was know-how, knowledge of a market, and
    it had credibility.
        Enron was like a bank in the 19th century before FDIC
    insurance. Their reputation was the source of their value, and
    when they made stupid business decisions that called that
    reputation into question, they collapsed.
        I have a great sympathy for accounting because I used to be
    an economist, and in economics, we have something called
    ceteris parabis. It means ``other things being the same.'' So
    when we do not know what those other things are, we just utter
    this Latin phrase and pretend they do not exist--literally
    pretend they do not exist.
        That is valuable in physics where you talked about force
    equals mass times acceleration, or for every action there is
    equal but op-
    posite reaction. That is an assumption. That is a
    simplification because it leaves out friction, and it leaves
    out gravity. There is nothing wrong with it, but the problem
    is, accounting cannot do those things.
        I had a famous and great accounting professor named David
    McCord Wright. Nobody remembers him anymore. I can visualize
    him today easily defining WorldCom. He would have talked about
    the discounted stream of earnings, and he would have talked
    about the value of their equity or market capitalization and
    would have plotted out a projection of revenues and a
    projection of costs and integrating that area to add it up, and
    that is where the $100 million was.
        I doubt if WorldCom's physical assets ever totaled $50
    million, probably not $20 million. You are an accountant and
    you have the job with the directions that are available through
    GAAP, generally accepted accounting principles. You have the
    job of trying to model, for accounting purposes, what WorldCom
    looks like. You do not have the ability to utter a Latin phrase
    and wish away things you do not understand. Our problem today
    is that our GAAP accounting has not kept pace with the world in
    which we live.
        In this world where knowledge is power, in this world where
    know-how is wealth, it is very hard to model with GAAP
    accounting. In the decade of the 1990s, when this new model was
    used on a massive basis in the American economy, accountants
    had to figure up how much all this stuff was worth.
        GAAP accounting has not kept pace with our changing
    economy. Our accounting is based on the old steel mill of the
    1940s where you had how much you paid for the furnaces, and you
    had them a certain period of time, and you have depreciated
    them.
        How do you depreciate an idea? How do you book having
    brilliant young people who are committed to the future in your
    company because they own your stock? How do you put that down
    in value terms?
        So when we are pointing the finger at these people who call
    themselves accountants, when we are blaming them for every
    problem in the world, accountants did not put WorldCom into
    bankruptcy. Accountants did not put Enron into bankruptcy.
    Enron put Enron into bankruptcy by making bad business
    decisions. The accounting was a problem because it was slow to
    show it, but it was there. WorldCom's problems were there. The
    problem was not accounting. The problem was accounting did not
    show the problem soon enough.
        So if anyone is listening to this debate and thinks some
    investment is going to be more valuable because we have better
    accounting, in the long run that is true; in the short run, I
    am not sure that is true. In fact, I argue these companies
    would have gone broke anyway. Clearly, they would have gone
    broke, and they would have gone broke quicker had the
    accounting system been better. It should have been better. It
    needs to be better.
        The point I am trying to make is the following: When you
    are trying to model a company using GAAP accounting, it is
    hard. It is something nobody has ever done before.
        We are learning how to do this, and we will--using concepts
    like goodwill to try to be a proxy for things like intellectual
    capital and know-how. That is the source of our problems.
        I think the fact this came at the end of a financial bubble
    in the 1990s exacerbated the problem. The problem, in my
    opinion, is accounting was easier--maybe it was not easier
    initially. We figured out how to do it on the old model. We
    will figure out how to do it on the new model.
        There is some smart accountant, probably at Texas A&M right
    now, studying accounting, who will probably get an MBA, who
    will figure out how to get all this goodwill off our books--
    which is a silly concept in my opinion, but it is the only one
    we have--and come up with models of intellectual capital that
    will have meaning, just as that steel furnace in the 1940s and
    the write-down of it that made sense, but that is not the world
    in which we live. That has to be dealt with.
        Something the Chairman's bill does, something that I very
    much am in favor of, is it gives independent funding to FASB.
    The two things that have to be done and only Congress can do
    them effectively, in my opinion, are: No. 1, we have to have an
    independent, self-funded accounting standards board, FASB, and
    we have to have accountants setting accounting standards. No.
    2, we need to set up this board to oversee ethics in
    accounting.
        I do not think it matters whether it has a majority of
    accountants or not, but it needs to have a reasonable number of
    people who have a background in accounting so they know what
    they are doing and so they have an intellectual stake in it
    being done right. It is a dangerous thing when there are people
    with massive power who do not have any kind of intellectual
    stake in the application of that power, and it concerns me.
        So to conclude, let me say this: Senator Sarbanes and I,
    when we were at this point on the financial services
    modernization bill, were on opposite sides. I was for the bill.
    I saw it as the epitome of all wisdom. He was opposed to the
    bill and saw it in less glowing terms. By the time we got out
    of conference, it was our bill. We were together on it and 90
    Members of the Senate voted for it. It passed the Senate
    initially on a very close vote, a very narrow margin.
        I do not think that will be the case here. I think this
    bill will pass by a very large margin. I also think it is
    possible that by the time we have reconciled this bill with the
    House, that we can have a bill that will be very broadly
    supported. At that point, I hope I will be in a position of
    supporting it.
        There are many good things in the Sarbanes bill. There
    certainly has not been a bill, since I have been in the Senate,
    that was better intended than this bill. I do think it can be
    improved. I think it legislates too much. I think it does one-
    size-fits-all mandates. It takes them a little bit too far.
    That, to some guy outside government, does not sound very
    important, but it is very important when one starts talking
    about application. If we do this thing right, and if we build a
    consensus and it works well, that will be the final monument of
    the bill.
        I hope we can offer germane amendments. As of right now, I
    think there will probably be two amendments I will offer. One
    will have to do with this issue about granting waivers on a
    blanket basis so that rather than making every individual
    company that has specific kinds of problems come in and ask for
    an individual waiver, that the SEC and the board, when they
    agree, could simply issue a set of principles, and if you
    qualify you would get the waiver. If you do not, you do not.
    Pretty straightforward amendment.
        The second amendment I believe I will offer will have to do
    with appeals. Under British common law, we have always taken a
    very strong position in affecting the right of a person to earn
    a living. We have set very high standards when it comes to
    taking somebody's livelihood. I believe there are people who
    are practicing accounting, or veterinarians or economists or
    any profession, there is somebody in it who ought not to be in
    it. I think when this board, which is a private entity--and
    again this is not a problem with the Sarbanes bill. This is a
    problem of our substitute as well. It is a strange kind of
    entity. We want it to be private, but we want it to have
    governmental powers. We have tried to structure it in ways to
    try to accommodate this.
        The bottom line is, when this board is taking away
    somebody's livelihood and that person believes they have been
    wronged, they ought to have a right to go to the Federal
    district courthouse. They ought to have a right to say: I do
    not think that was right, and I want my day in court.
        They ought to have to pay for it, and at that point I think
    all the material involved has to be made public, but that is a
    right I think people have to have. Those two amendments are
    very narrowly drawn, and they go to the very heart of the bill.
    I know some of our colleagues are thinking about offering a
    whole bunch of other amendments. I submit that trying to work
    out a compromise with the House is going to be difficult. I
    think we will succeed at it, but I think if we get a whole
    bunch of other issues involved, we are making the mountain
    higher. I believe we are ready to legislate in this area, and I
    think if we can limit what we are doing to this area that we
    can pass this bill, we can go to conference, and we can come
    back and have a bill signed into law before we leave. I think
    if we get into a lot of other areas, I am not saying the world
    comes to an end if you put an amendment on here--having us
    write accounting standards with regard to stock options, for
    example, that is a tax issue. I would probably want to make the
    death tax permanent as a second-degree amendment, but I am not
    saying the world comes to an end if we do that.
        I am saying if we get off into those kind of issues, where
    you have strong feelings on both sides of the aisle--and that
    would not be any kind of partisan vote--I think it is harder
    for our chairman and for the members of this committee to get
    their job done. I hope we will have a limited number of
    amendments. I hope they will be germane to the bill.
        Finally, at some point we are going to take up Yucca
    Mountain. I am not up high enough in the pecking order to have
    gotten the word as to exactly when that is going to be. Other
    things being the same, I would rather finish this bill first
    and then go to Yucca Mountain than to stop in the middle of it.
    But it is a highly privileged motion. Any Member can make it.
    It is not debatable. I assume at some point sometime tomorrow
    that motion will be made. As I figure the time limit under that
    privileged motion, it would take about a day.
        I don't see any reason this bill should not be finished
    this week, and maybe much sooner if we can stay on the bill, if
    we don't drift on into these other areas. When people who are
    for the bill in its current form want to stay pretty close to
    the bill and people who are against it in its current form want
    to stay pretty close to the bill, we ought to stay pretty close
    to the bill.
        I thank my colleagues for their indulgence. I look forward
    to working on this issue. I yield the floor.
        The Presiding Officer (Mr. Dorgan). The Senator from
    Wyoming.
        Mr. Enzi. Mr. President, these are interesting times. I
    hope colleagues have been listening. The two presentations that
    preceded me were outstanding explanations of both the bill and
    the financial problems facing the world today. I don't think
    you can get a clearer explanation of the problems than those
    given by Senators Gramm and Sarbanes. They are very detailed
    and very much to the point and lay the groundwork for what we
    are about to do.
        Usually in this Chamber, we have a solution and we are
    looking for a problem. Today, we have a problem and we are
    looking for a solution. We have a problem before the Senate.
    The way this process works, is that we try to place the
    solution in the best possible form. Under our form of
    government, the Senate will work on its bill; the House works
    on another bill on the same topic. When those two bills have
    been completed, there will be a conference committee and we
    will work out the differences. Through every one of those
    processes, there will be changes to the legislation. We get 100
    different opinions from 100 different backgrounds on any piece
    of legislation. That is what makes our form of government work.
    At the other end of the building, there are 435 people from
    different backgrounds. They all lend their opinion issues that
    come before the House.
        It is sometimes a slow process, but it is the best process
    in the world. It will work on this problem for which we are
    looking for a solution.
        If the economy were different today, we would not have this
    problem. When there are changes in the economy, we realize
    accounting problems--or at least that is when the accounting
    problems become apparent. That is where we are today.
        I am the lone accountant in the Senate. There is a good
    reason for that. Accountants are out there doing very detailed
    work. When you listen to what is in this bill, you are going to
    hear details that you do not hear with other legislation. It is
    the nature of the occupation, of the profession of accounting.
    In the last 6 months, there has been an increased interest in
    the accounting profession. Kids in colleges have been asking
    the Deans about this phenomenon called accounting that nobody
    has talked about for a long time. It is a tremendous
    opportunity for accountants to finally explain what they do.
        Some of the kids are looking into accounting for the wrong
    reasons. They want to be one of the green eyeshade people
    bringing down huge corporations. That is not what it is about.
    It is an opportunity to make sure everyone understands business
    in America. Accountants are the people with the very basis who
    both know it and can explain it. That is their job.
        Somewhere along the line, it is possible for people to get
    distracted from that main goal. We are trying to bring them
    back to that main goal--providing a basis where everyone can
    understand the value of the companies in which they are
    investing.
        Today we are addressing accounting legislation that has
    been reported out of the Banking Committee. It has been through
    initial scrutiny. It has been through the process that leads us
    to the floor. I have talked about the floor process, but so far
    this has only been through the hearings process. We had 13
    hearings in the Banking Committee. They were on very diverse
    topics and a very diverse bunch of people who understood each
    of those topics testified. I commend Senator Sarbanes for the
    way he conducted the process of the hearings, and then the
    process of negotiations that led up to the committee vote. That
    happened over the last several months. On this issue, I can
    think of no other Chairman in either the House or Senate who
    did a more thorough job in conducting hearings. The Banking
    Committee stayed on the substance and did not allow enormous
    outside pressures on this issue to interfere with trying to get
    to the bottom of the real problem. The hearings were not
    finger-pointing. The hearings were an attempt to get valuable
    information to arrive at the best possible solution.
        In addition, the witnesses at the hearings presented
    objective views. Had it been my choice to call the witnesses, I
    would have chosen nearly every person who testified. That shows
    the care and concern that went into choosing the individuals
    who provided this basic information. The witnesses offered
    several different views, and they came from diverse
    backgrounds.
        I also thank the Chairman for the way he and his staff
    conducted themselves through the endless negotiations we had
    during that same timeframe.
        Right now, it seems as if everyone is writing an accounting
    bill--including myself. In fact, I got calls as soon as Enron
    occurred from some of the House Members who said they would
    really like to work on a bill with me. Of course, the first
    question I had to ask them was, What did you find really
    happened with Enron? Usually the answer was, we don't know yet.
    Their response was, but we want to get ahead of the curve.
        I am glad we had the patience to wait, to hold the
    hearings, and then to negotiate through a number of different
    bills to come up with the one before the Senate today. Those
    negotiations by Senator Sarbanes and his staff were both honest
    and fair. Although we were not able to agree on everything,
    which is the basis of negotiation, I believe all negotiations
    took place in good faith. I thank the Chairman for that. I do
    think we have a bill that is a good basis for finishing the
    process and going to conference.
        Enron, Global Crossing, WorldCom, and the other numerous
    restatements that are occurring have caused a ripple effect on
    the trust of corporate executives and their auditors by the
    public. These executives, the persons in whom shareholders put
    their trust, have stained the entire corporate community. A few
    bad apples have spoiled the bunch. As a result, the legislation
    we will be debating this week will restructure the way
    executives operate by increasing accountability and making it
    easier to discipline fraudulent behavior while at the same time
    increasing penalties for illegal activity.
        This legislation will force the management of companies to
    be accountable to their shareholders by requiring that they
    certify the accuracy of their financial statements. In
    addition, the legislation will require that members of
    corporate audit committees are independent directors. We
    provide the audit committee the ability to engage outside
    consultants and advisers and provide them the resources they
    need to determine whether the accounting techniques being used
    are in the best interests of the shareholders.
        In addition, all employees should be subject to the same
    rules when selling company stock. In this regard, the bill
    prevents officers and directors of a company from purchasing or
    selling stock when other employees are restricted. And when
    these officers or directors do sell stock in the companies in
    which they work, they should report the transaction on the next
    business day.
        However, the cornerstone of this legislation will be to
    change the way in which a company's auditors interact with
    their clients, and also to force them to be more accountable.
    While I believe that accountants have extremely high ethics and
    standards, I do believe the current environment has highlighted
    a number of problems inherent in the current oversight
    structure of the accounting industry.
        I do believe it is an awesome task to be the accountant
    trying to explain this to everybody else. I do need to explain
    a little bit why there are not more accountants in legislatures
    or in the Senate or in the House. That is because if you pick
    up experience in legislating, most of that is done during the
    tax season and we need the accountants during the tax season.
    And they need the business during the tax season. If they don't
    earn at least 70 percent of their revenue during that time,
    they are out of business, which precludes them from picking up
    legislative experience. There is no requirement that you have
    to have legislative experience before you come here. There is
    no requirement that you have any kind of experience. But that
    is why there are fewer accountants here than there are a number
    of other professions--it is a matter of timing.
        While I am hesitant to move forward with the number of
    changes included in the bill, I do believe the legislation is
    necessary given the current lack of faith in accountants.
        Make no mistake about it, this legislation is
    Federalization of the accounting industry. This bill places a
    Federal Government bureaucracy at the helm of accounting
    regulation. While the legislation doesn't prevent the State
    accountancy boards from continuing to regulate accountants
    registered in their States, it does establish an overlord
    regulator to oversee the firms which audit publicly traded
    companies. My hope is that this new oversight structure will
    renew the faith the public has in auditors and the financial
    statements which they help prepare.
        In addition to my own proposal, over the past several
    months I have seen a lot of different proposals. I have also
    spoken to and met with many of my colleagues about this issue.
    I have spoken with groups from different industries; I have
    talked to scholars, consumer advocates, and regulators. All the
    groups agree that steps need to be taken to enhance the
    oversight of accountants.
        I have examined several existing models of quasi-public
    regulators such as the New York Stock Exchange and the National
    Association of Securities Dealers. One point is clear: When
    these organizations were established, there was a desire to
    appoint the most informed individuals, those who actually deal
    with the industry on a day-to-day basis, as majority members of
    the boards that oversee the industry.
        For instance, the National Association of Securities
    Dealers, NASD, has a large board which must consist of anywhere
    between 17 and 27 members. Nowhere in the NASD rules does it
    state their board members may not serve if they have previously
    been involved in the securities industry. As such, the majority
    of the NASD board members have worked within the industry.
        Why should the accounting industry be treated so
    differently? Why would we create a board which oversees the
    accounting industry and then require that a minority of its
    members have ever practiced accounting? The NASD plays just as
    important a role in the protection of investors as the
    accounting oversight board will, so why shouldn't the persons
    who sit on this board have the best possible knowledge of the
    accounting industry?
        I do want to thank Senator Sarbanes for the change he made
    in the legislation. Originally it said there could be no more
    than two accountants on this five-person board. He made the
    change so that two will be accountants. It is a very
    significant change so that accountants are represented on the
    board. Previously it would have been possible to have no
    accountants regulating the accounting profession.
        Every piece of legislation has its handful of unintended
    consequences, despite how well-meaning Congress can be. I fear
    the way in which the accounting industry will change when a
    group of non-accountants set the standards which accountants
    must follow. Lawyers do not have non-lawyers setting ethical
    and professional standards which they must follow, yet I would
    argue that those standards are as important as accounting
    standards and ethics.
        I don't want my message to be misconstrued. I do believe
    that a board should be established to oversee the accounting
    industry. I also agree the board members should have all the
    tools necessary to effectively oversee the industry. I agree
    that the board members should be full-time and independent from
    the accounting firms. I agree that they should be appointed by
    government and not by industry. But I do not agree that the
    members of the board should be excluded just because they may
    have passed a CPA exam 25 years ago.
        To the contrary, because I believe this board should be as
    effective as possible, I believe the board members should know
    how an audit engagement works and they should know the
    pressures that are applied to an auditor from a client. I
    believe with this knowledge the board may in fact apply
    stricter standards than a board of non-accountants.
        As I said, I believe accounting firms should be subject to
    strict scrutiny. However, I do not believe this legislation
    should pave the road for the trial bar to open frivolous
    lawsuits against accounting firms. Arthur Andersen no longer
    exists. Can we really afford to lose another one or two of the
    final four firms? We used to call them the big five. Now we
    call them the final four.
        It was mentioned earlier that there are 16,254 SEC-filed
    corporations. That is 16,254 to be reviewed, primarily by four
    accounting firms. If the trial lawyers pick off one after
    another after another of the firms because the Board provides
    information and because they are handed that information, how
    will we have those 16,254 audited at all?
        I am hoping there are a lot of young people listening who
    are going into accounting who may start firms and grow the firm
    themselves so they can handle an audit of a Fortune 500
    company. But it doesn't happen overnight. And we have to make
    sure that there is auditing, and not just consulting, which
    some people will point out is where most of the money is these
    days.
        It makes me nervous to know that essentially only four
    accounting firms now have the resources and expertise to audit
    the world's largest companies. We rely on these firms to verify
    the books of diverse and complex companies because they are the
    only firms that can provide this service. If we subject them to
    the will of the trial bar, they will surely continue to be
    driven from existence, one firm at a time.
        Instead, we should punish the wrongdoers to the fullest
    extent possible and rely on good managers of companies to do
    their jobs effectively. In the end, we are going to end up
    making the audit committee members full-time employees, and
    then there will not be any independence--another problem about
    which we have to worry.
        Having said this, I do believe this legislation is needed
    at this time. Congress must produce a remedy to help restore
    investor confidence. We have seen that real penalties, or at
    least a threat of strong penalties, need to be hung over the
    heads of corporate executives to assure they maintain their
    obligations and responsibilities. The moral and ethical
    breakdown among some of those executives is disgraceful, and
    investors must know these executives will be punished severely
    when they make selfish judgments.
        A major concern, as we have gone through this legislation,
    trying to put the bill in its present form, has been the
    relationship to small business. As I mentioned 16,254 companies
    are the ones that are registered with the SEC. There are
    thousands of companies out there that are not SEC registered
    businesses. There are thousands of entities out there that hire
    auditors to give confidence in the financial statements they
    have that are not SEC filed.
        One of our concerns has been that we not change business so
    drastically that these small businesses will no longer be able
    to afford auditors. So we built in protections for the small
    businesses. Our intent with this bill is not to have the same
    principles that apply to the Fortune 500 companies apply to the
    mom-and-pop business. When they hire an auditor, they want that
    auditor to give them every bit of information they possibly can
    so the information they get improves their business and doesn't
    hide anything from investors. Mom and pop are the investors.
        We have taken a lot of care to be sure we are not cascading
    the provisions down into small business. We will look at
    additional ways, I am sure, to make sure that does not happen.
    This is not a license to States to do the same thing that we
    are doing on a Federal basis. There is recognition that on a
    Federal basis there is a bigger problem than on a State-by-
    State basis.
        I also want to point out there is also a responsibility by
    the individual investor. They have to learn to diversify and
    not to keep all of their eggs in one basket. I hope we can turn
    this situation into a chance to educate small investors as to
    how best to manage and invest their money. Nothing will bring
    back the billions of dollars employees of some of these
    companies have lost. But hopefully the collapse in confidence
    will ensure that individuals will never again lose their life
    savings because of a lack of diversification or knowledge of
    finance.
        What will this legislation provide? It will provide a
    strong oversight body to watch the accounting industry. It will
    provide a set of corporate governance laws that will require
    corporate executives to become accountable for their financial
    statements. It will provide assurances that corporate boards
    watch the management of the company with a more critical eye--
    no longer will board memberships be cushy jobs with no
    responsibility.
        It will also provide assurances to the American people that
    Congress will not allow these millionaire and billionaire
    executives to steamroll their obligations to the shareholders.
    It will also ensure that research analysts aren't being told
    what to say by the investment bankers.
        To a great extent, I believe the marketplace has made
    remarkable changes to address a number of the issues which were
    highlighted by these corporate failures. First and foremost,
    corporate boards and audit committees will no longer turn their
    head when management wants to engage in questionable ethical
    engagements. Also, credit rating agencies will impose much more
    scrutiny on the companies they rate to protect financial
    institutions and other lenders. Lenders themselves will require
    more information about the stability of the companies in which
    they invest. Research analysts will ask more questions about
    the company, and more importantly, they will demand more
    answers from executives. But perhaps, most important of all, is
    the fact that investors, both institutional and individual,
    will be more critical.
        Shareholders will wake up and learn about the power of
    their votes on corporate actions. We've already seen great
    strides from some institutional investors in that they plan to
    use their votes in shareholder meeting to keep executives
    honest and accountable. They also plan to use their votes to
    impact executive compensation packages. These private sector
    solutions will be more effective than any legislation which can
    be passed out of Washington.
        One of our country's greatest strengths rests in the
    dominance of our capital markets. But the strength of our
    markets is only as strong as the underlying confidence in the
    listed companies. When these companies build facades instead of
    standing on principle, it shatters the entire system. Congress
    and the SEC must find a middle ground where we allow the
    marketplace to continue to operate in the capital markets to
    the greatest extent possible but also assures investors, both
    domestic and internationally, that the U.S. capital markets
    will continue to be worthy of their investments. We must
    continue to convince investors, that at the core of the
    American capital markets, there must be a high level of
    integrity and ethics by all players.
        I want to reiterate another message that has been prevalent
    this afternoon.
        As we get into this bill, there are virtually no limits on
    what amendments can be put on--at least unless there is a
    cloture motion.
        I hope people will recognize the need to have something
    done, the need to get it done quickly, and not try and make
    this a vehicle for everything they ever thought needed to be
    done with corporations.
        The purpose of this bill is not to solve the international
    problems of business for everything that we ever thought of.
        I hope my colleagues will constrain their amendments, keep
    them to the corporate governance and accounting area we are
    working on, and help us to get this bill finished as quickly as
    possible.
        Again, I thank Chairman Sarbanes and Senator Gramm for
    their tremendous efforts and insight which they provided in the
    previous explanation of this, and for the hours of work they
    have put into the solution that is before us today. I hope we
    can keep it to a limited solution, take care of the problems
    that are recognizable, and reach agreement so we can get this
    to conference and get a bill to the President for his
    signature.
        Thank you, Mr. President. I yield the floor.
        The Presiding Officer. The Senator from Maryland.
        Mr. Sarbanes. Mr. President, I ask unanimous consent that
    it be in order to send an amendment to the desk and have it
    immediately considered. This amendment makes two simple changes
    to the bill. One is a technical change to conform to the budget
    rules, and a conforming change involving the definition of
    ``issuers.'' We have discussed this. It has been cleared. I
    would like to go ahead and take care of that business, if I
    could.
        The Presiding Officer. Is there objection?
        Mr. Gramm. Mr. President, there isn't any objection. I
    think this clarifies the bill. I think it is something that
    both sides are for, even though we had a previous agreement not
    to do any amendments today. It is simply so technical that I
    don't think anybody would have any concerns.
        The Presiding Officer. Without objection, it is so ordered.

                               AMENDMENT NO. 4173

        The Presiding Officer. The clerk will report.
        The assistant legislative clerk read as follows:

        The Senator from Maryland [Mr. Sarbanes] proposes an
    amendment numbered 4173.

        Mr. Sarbanes. Mr. President, I ask unanimous consent that
    reading of the amendment be dispensed with.
        The Presiding Officer. Without objection, it is so ordered.
        The amendment is as follows:

    (Purpose: To make technical and conforming amendments)

        On page 65, line 11, strike ``All'' and insert ``Subject to
    the availability in advance in an appropriations Act, and
    notwithstanding subsection (h), all''.
        On page 76, between lines 16 and 17, insert the following:
        (d) Conforming Amendment.--Section 10A(f) of the Securities
    Exchange Act of 1934 (15 U.S.C. 78k(f)) is amended--
        (1) by striking ``Definition'' and inserting
    ``Definitions''; and
        (2) by adding at the end the following: ``As used in this
    section, the term `issuer' means an issuer (as defined in
    section 3), the securities of which are registered under
    section 12, or that is required to file reports pursuant to
    section 15(d), or that will be required to file such reports at
    the end of a fiscal year of the issuer in which a registration
    statement filed by such issuer has become effective pursuant to
    the Securities Act of 1933 (15 U.S.C. 77a et. seq.), unless its
    securities are registered under section 12 of this title on or
    before the end of such fiscal year.''.

        The Presiding Officer. If there is no further debate,
    without objection, the amendment is agreed to.
        The amendment (No. 4173) was agreed to.
        Mr. Sarbanes. Mr. President, I move to reconsider the vote,
    and I move to lay that motion on the table.
        The motion to lay on the table was agreed to.
        Mr. Sarbanes. Mr. President, I suggest the absence of a
    quorum.
        The Presiding Officer. The clerk will call the roll.
        The assistant legislative clerk proceeded to call the roll.
        Mr. Reid. Mr. President, I ask unanimous consent that the
    order for the quorum call be rescinded.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Reid. Mr. President, I first want to extend my
    appreciation to the Senator from Maryland for this bill. It is
    really well timed and well done.
        I received a letter today from the Secretary of State of
    the State of Nevada, a Republican.
        By the way--the Senator from Connecticut is in the
    Chamber--the Secretary of State worked very closely with the
    Senator from Connecticut. As the Senator will recall, he is a
    very fine man. I wish he were a member of the Democratic Party.
    He is not. But he is an outstanding public servant.
        He wrote me a letter, which said:

        Dear Senator Reid: Investor confidence in the integrity of
    U.S. securities markets has been badly shaken as a result of
    Enron, Global Crossing, WorldCom, and other alleged wrongdoing.
    The failure of several large corporations to police themselves
    cries out for reform before the negative impact on our markets
    damages our national economy.
        The Senate is to begin consideration of S. 2673, The Public
    Company Accounting Reform and Investor Protection Act of 2002,
    on Monday, July 8. I fully support
    S. 2673 and oppose any efforts to weaken its provisions.

        If I could have the attention of the Senator from Maryland,
    the manager of this bill, I have here a letter from the
    Secretary of State of the State of Nevada, who says:

        I fully support S. 2673 and oppose any efforts to weaken
    its provisions.

        I say to the Senator, one of the things the Secretary of
    State of Nevada is worried about is someone attempting to
    weaken the bill that you have brought forward to prevent State
    securities agencies from looking at wrongdoings in the State of
    Nevada.
        As the Senator from Maryland knows, the Attorney General
    from New York, who has been here, is very concerned about this.
    It is my understanding this bill does nothing to weaken that;
    is that true?
        Mr. Sarbanes. If the Senator would yield.
        Mr. Reid. I would be happy to yield.
        Mr. Sarbanes. That is correct. At one point there was talk
    of an amendment floating around but----
        Mr. Reid. But the point is, it is not in the bill?
        Mr. Sarbanes. No, it is not in the bill.
        Mr. Reid. On behalf of the Secretary of State of Nevada,
    who I indicated earlier worked closely with the Senator from
    Connecticut in bringing forward a very good election reform
    bill--he is very progressive, and a fine Secretary of State--
    throughout this letter, he acknowledges how important this
    legislation is. I wanted this to be spread on the Record before
    my friend's attention was diverted.
        Mr. Sarbanes. I appreciate the Senator's comments.
        Mr. Reid. My friend, Secretary of state Heller, goes on to
    say:

        As Nevada's chief securities regulator, I believe there is
    an immediate need to restore investor confidence in our
    securities markets.
        I stand with my fellow State securities regulators in
    endorsing Title V, Analyst Conflicts of Interest, in its
    current form and strongly oppose any amendment to this title
    that would reduce our ability to investigate wrongdoing and
    take appropriate enforcement actions against securities
    analysts. However, an industry amendment has been circulated
    that would prohibit state securities regulators from imposing
    remedies upon firms that commit fraud if it involves securities
    analysts and perhaps even broker-dealers that serve individual
    investors. If Nevada's investigative and enforcement authority
    in this area are weakened, so too will the confidence of Nevada
    investors.

        He certainly opposes this.
        Mr. President, I ask unanimous consent that the letter from
    our Secretary of State be printed in the Record.
        There being no objection, the letter was ordered to be
    printed in the Record, as follows:

                              Office of the Secretary of State,

                                                          July 8, 2002.

    Hon. Harry Reid,
    U.S. Senator, Hart Senate Office Building, Washington, DC

        Dear Senator Reid: Investor confidence in the integrity of U.S.
    securities markets has been badly shaken as a result of Enron, Global
    Crossing, WorldCom, and other alleged wrongdoing. The failure of
    several large corporations to police themselves cries out for reform
    before the negative impact on our markets damages our national economy.
        The Senate is to begin consideration of S. 2673, The Public Company
    Accounting Reform and Investor Protection Act of 2002, on Monday, July
    8. I fully support S. 2673 and oppose any efforts to weaken its
    provisions. As Nevada's chief securities regulator, I believe there is
    an immediate need to restore investor confidence in our securities
    markets.
        I stand with my fellow state securities regulators in endorsing
    Title V, Analyst Conflicts of Interest, in its current form and
    strongly oppose any amendment to this title that would reduce our
    ability to investigate wrongdoing and take appropriate enforcement
    actions against securities analysts. However, an industry amendment has
    been circulated that will prohibit state securities regulators from
    imposing remedies upon firms that commit fraud if it involves
    securities analysts and perhaps even broker-dealers that serve
    individual investors. If Nevada's investigative and enforcement
    authority in this area are weakened, so too will the confidence of
    Nevada investors.
        An amendment may be offered on the Senate floor under the guise of
    creating national uniform standards for securities analysts. Its real
    intent, I fear, is to eliminate remedies that state securities
    regulators may impose on firms should fraudulent activity be unearthed
    in an investigation. This approach is clearly ill-advised in today's
    climate of investor uncertainty.
        As Nevada's Secretary of State, my office is charged with
    administering the Nevada Uniform Securities Act. My office is in
    current negotiations with Merrill Lynch regarding a possible settlement
    of analyst conflicts discovered in a lengthy investigation by the New
    York Attorney General's office. My staff is also participating in a
    task force investigation of UBS Paine Webber/UBS Warburg. This
    amendment would greatly hamper our ability to investigate analyst
    conflicts and would have a detrimental effect on Nevada investors.
        I urge you to support S. 2673 and to vote against any amendment to
    weaken the enforcement powers of state securities regulators. The
    result of an amendment such as this could be that virtually every one
    of the thousands of actions brought by state securities regulators
    every year would be preempted, as well as all civil suits and
    arbitrations under state law. In light of the recent Enron and WorldCom
    debacles, it simply does not make sense to limit or preempt the state's
    ability to bring enforcement actions against analysts who lie to Nevada
    investors. The public is looking for elected officials to help them
    regain their confidence in corporate America.
        As Nevada's Secretary of State, I have a duty to protect our
    state's investors. Any measure that dilutes my authority as the state's
    chief securities regulator is counter to the mission of my office and
    to state securities regulators nationwide. Accordingly, I again urge
    you to vote against any amendment to S. 2673 that would weaken the
    enforcement powers of state securities regulators.
        Please call me at (775) 684-5709 if you have any questions or need
    additional information
                Sincerely,
                                                   Dean Heller,
                                                    Secretary of State.

        Mr. Reid. Mr. President, our Nation is experiencing a
    crisis in confidence among the investing public. Americans hear
    on the news and read in the papers every day more and more
    cases of corporate executives bilking employees and investors,
    and of auditors who looked the other way, of boards of
    directors failing to provide the oversight expected of them,
    and of well-connected investors buying and selling stock based
    on insider information. Investors do not know who they can
    trust.
        We have been in a mad rush the last many years to make sure
    that the quarter you are involved in has a good financial
    statement. People go to whatever ends they can to make sure
    that that quarterly statement looks good to keep the stock
    price up. That is all that matters. It does not matter whether
    the company is losing money. It does not matter if their
    employees are being laid off. It does not matter, as long as
    they do everything they can to do what can be done to make sure
    that stock price stays the same or goes up.
        I have spoken previously on efforts of Senators to secure
    the future for American families. In fact, Senate Democrats are
    using that as a theme: to secure the future for all American
    families. Securing our future means not only making sure our
    borders are safe but also securing educational opportunities
    for all our children and access to affordable prescription
    drugs and affordable health care.
        We must also provide pension protection for American
    families. In part, that means extending pension coverage. There
    will be an opportunity, before this legislative year ends,
    where we can have a good debate.
        The vast majority of workers in Nevada have no pensions. As
    a consequence, they face their retirement years with inadequate
    resources. Senator Bingaman, chairman of a task force, has
    raised awareness of the lack of pension coverage for American
    workers and is working on legislation to address that problem.
        My colleagues have also led the way with other legislative
    initiatives to restore investor confidence and provide
    safeguards to secure Americans' investments, pensions, and
    retirement savings.
        Chairman Sarbanes has introduced important legislation that
    will create a strong, independent oversight board to oversee
    the conduct of auditors of public companies, and he has done
    this on a bipartisan basis. That bill was reported out of
    committee, as I recall, by a vote of 17-to-4, with overwhelming
    bipartisan support.
        This legislation would establish guidelines and procedures
    to assure that auditors of public companies do not engage in
    activities that could undermine the integrity of the audit. It
    ensures greater corporate responsibility by setting standards
    for audit committees and for corporate executives, but it
    would, we would hope, impose penalties when standards are
    violated. It would establish additional criteria for financial
    statements and require enhanced disclosures regarding conflicts
    of interest.
        This legislation also directs the Securities and Exchange
    Commission to adopt rules to improve the independence or
    research and disclose potential conflicts of interest. It also
    would provide a significant boost in funding for the SEC, the
    Securities and Exchange Commission, to help it carry out its
    responsibilities in a fashion that would help restore
    investors' confidence in the markets.
        This legislation goes a tremendous distance in addressing
    some of the major concerns I have heard from people in Nevada.
    And I am pleased this bill has gained, as I have indicated,
    bipartisan support.
        Indeed, it seems that after staying silent for so long, and
    after allowing a permissive atmosphere where businesses could
    do no wrong, the President, our President, and Republicans in
    Congress, quite frankly, are now reversing course. Some are
    falling all over themselves to jump on the bandwagon and
    support this legislation. They have done it after hearing from
    an outraged public. And that is good.
        Tomorrow I will be eager to hear what the President has to
    say in New York. I hope that he does not say we are going to
    have to enforce the law that we have, because the law we have
    has not been enforced, especially by the people who surround
    this President and his Administration.
        For him to go to New York and say we need to enforce the
    law more strongly will not do the trick. He needs to jump on
    the bandwagon with this legislation. We need additional
    legislation.
        The President ran a campaign based on themes such as
    responsibility and accountability, but recent news reports
    suggest that both have been lacking in his explanations of his
    past dealings in the business world.
        Prior to holding public office, our President has parlayed
    his connections as a member of a wealthy and powerful family to
    arrange a number of, some would call, sweetheart deals. In
    editorials they have been referred to that way for the past
    several days. Despite a string of business failures, our
    President always seemed to land on his feet and seemed to
    profit.
        Now there are disturbing indicators that he has played fast
    and loose with some of the rules that he is now being asked,
    through his Administration, to enforce. When asked about his
    business dealings, the President has not accepted personal
    responsibility, instead shifting blame to accountants and
    lawyers or implying that he was just doing business as usual.
        I would have to say there are questions not only about the
    Harken business dealings but about the business and accounting
    practices of Halliburton, where Vice President Cheney enriched
    himself, walking away with tens of millions of dollars.
        So the problems we have heard go far beyond Enron and the
    President's friend, as he referred to him, ``Kenny boy,'' Kenny
    Lay. They are not limited to the handful of companies getting
    most of the media coverage in recent weeks. Instead, there are
    fundamental and systematic problems that have to be corrected.
    That is what this legislation is all about.
        I applaud the chairman and the committee for reporting out
    this bipartisan legislation.
        I hope, I repeat, that the President will join in
    supporting this legislation. We need to make sure that those
    who serve as corporate executives and on boards accept the
    responsibility of their roles when they sign their name on a
    financial report. The American people need to be able to trust
    corporate leaders.
        Likewise, the President, and those in his administration
    who came to office from the corporate world, need to show more
    transparency in letting the American people know how they are
    making policy decisions, who has access to them, who is
    influencing them, who is meeting with them.
        I joined in an amicus brief with the General Accounting
    Office to have the Vice President disclose who he met with to
    come up with energy policy that this Administration enumerated.
    We need to know with whom he met, when he met with them, and
    why he met with them. They refused to give us that information.
    That is why I joined in that litigation.
        This administration must set aside what I believe and agree
    with some--again, it is replete in the editorials of the last
    few days--is their arrogance and secrecy and instead be open
    and forthcoming public servants.
        This legislation is timely. The Banking Committee jumped
    right on it. Most of us thought the Enron thing was something
    that was a rare dealing in corporate America. We have come to
    find out it is not a rare dealing in corporate America. It has
    happened since then time and time again. We have only seen the
    beginning of it, I am sure.
        The Banking Committee is to be applauded for moving this
    legislation forward on a bipartisan basis. By a vote of 17-to-
    4, it was reported out of committee. I would hope we can get
    this bill out of the Senate as quickly as possible. It is good
    legislation. It is legislation that the American people need to
    reestablish confidence in corporate America and those people
    they rely on so that they feel better about having their
    pensions supplemented with investments made in the stock
    market.
        The stock market is an indication, as far as I am
    concerned, of how people feel about what is going on in
    business. As we know from recent days, people have not felt
    very good about it. We have had tremendous losses. I heard the
    chairman of the committee, Senator Sarbanes, speak about the
    Nasdaq losing some 74 percent of its value. That is a
    significant loss to our country.
        I know the Members of the Senate understand the importance
    of this legislation. I hope that they understand why it is
    important to move it as quickly as possible. We have a few
    short weeks to complete lots of extremely important legislation
    prior to the August recess. As I have said on four separate
    occasions, this legislation is as important as anything we
    could do, and it is very timely.
        The Presiding Officer. The Senator from Connecticut.
        Mr. Dodd. Mr. President, let me begin my remarks by
    commending the distinguished chairman of the Banking Committee.
    I have said on other occasions and in other places that for
    students of the Congress who wish to find a good example of how
    to prepare a committee and ultimately the Chamber for a moment
    such as this, a good model to use would be the hearings
    conducted by the chairman of the committee on this very
    question.
        There were 10 hearings--there may have been more, certainly
    10 full hearings--to which were invited virtually everyone from
    across the spectrum on this question. This was hardly a set of
    hearings where we heard from one side. We literally invited the
    best experts in the country; they came and shared with us their
    views and thoughts on what sort of steps we should be taking to
    reform the accounting profession, to reform the rules affecting
    the accounting profession.
        I begin by extending my compliments to the chairman and his
    staff for the tremendous job done to lay the groundwork.
    Oftentimes we will see, particularly in light of a crisis that
    occurs, there is a rush to judgment. We will come very quickly
    to the floor with a sort of a cut-and-paste job with the
    legislation. I am not suggesting intentions are not good, but
    that is oftentimes how we react.
        This set of hearings did, very deliberately, with a great
    deal of patience and thought, lay out the foundation for the
    legislation now before the Senate.
        Certainly, while there will be ideas offered to improve the
    legislation, we think the committee has produced a very fine
    product. The best evidence of that is the fact that 17 of us in
    the committee found this proposal to be worthy of our support.
    There were four dissenters. I think even among dissenters,
    there was a sense that we were heading in the right direction.
    Some may have fundamentally disagreed, but if there were one in
    the four, I don't know which one it would have been. Most
    thought we were doing the right thing, either that we went a
    little too far or didn't go far enough possibly, but this is a
    very balanced approach.
        I urge our colleagues to be careful of two potential
    actions in the coming days. One would be to dilute this product
    in some way. We are not suggesting we have written perfection
    here, but we think this is a well-balanced proposal.
        Senator Sarbanes has worked closely with our colleague from
    Wyoming, Senator Enzi, who is the only Member of this body who
    is actually a former member of the accounting profession. He
    brings a wealth of personal knowledge and awareness to the
    issue. He worked very closely with him and other members of the
    minority, as well as with those of us on the majority side, to
    finally bring this product to the Chamber. It already has
    involved some compromise.
        At this hour, when investor confidence is going to be
    absolutely critical and the steps that we take and the language
    we use will in no small measure contribute to the restoration
    of confidence, it can just as easily do the opposite, if we are
    not careful. This is a critical moment in the economic history
    of our country.
        The steps taken by those who are in significant positions
    to affect the outcome of the course we are on are going to be
    critically important.
        The second caution I express is that we don't try to also
    overburden this bill to say that this is the only opportunity
    for us to deal with every other issue affecting corporate
    business life in America. I am not suggesting the ideas Members
    will want to bring to the table are bad. But we can so load
    down a good bill that we can sink this effort if we are not
    careful. I urge my colleagues as well to be restrained in the
    temptation to bring up every other idea and incorporate it as
    part of an accounting reform proposal. Those are the two
    cautionary notes I have.
        Let me also add my voice to those who have expressed theirs
    earlier today. Tomorrow I know the President of the United
    States is going to give a very important speech on Wall Street
    in New York, the financial capital of our country. I commend
    him for doing so. I think it is extremely important that he
    actually go to Wall Street to share his views.
        My hope would be that this evening, as he makes the final
    preparations for his remarks, he would come out four square and
    endorse this proposal that we have brought out of our committee
    by a vote of 17 to 4. I can't think of anything more the
    President could do in the next 24 hours, aside from the
    rhetoric he will offer, than to endorse this bill and to say
    this was a good effort and to talk about the laborious hearings
    we have held to learn exactly what was necessary to incorporate
    in this legislation.
        Lastly, I would hope we would get this bill done fairly
    soon and not let this go on too long. We would love to be able
    to not only finish our work here but to go to conference with
    the House, which has another proposal. It is a weaker proposal,
    in my view, but nonetheless we will have to work with them to
    resolve our differences and to send a bill to the President for
    his signature.
        I would hope that before we leave for our August break less
    than 3 weeks from today we would actually be able to give to
    the President a bill for his signature and not let it drag on
    over into September and October. It is important we act in a
    timely fashion.
        With those background thoughts, I would like to share some
    general comments about the bill itself. The importance of this
    issue cannot be overstated. Anyone who has read a paper or
    turned on the news or flipped on their computer is aware of the
    crisis in our financial markets and, in fact, beyond that, in
    our Nation. No rule or regulation is enough to address this
    fundamental problem.
        The issue causing all of this turmoil is about the simple
    word of ``trust.'' The question that the world is asking is not
    whether our companies or corporations or the workers who toil
    in them or the products and services are competitive, but
    simply whether we are telling the truth. Are we telling the
    truth?
        The reason people of the world so often have come here and
    invested their hard-earned resources is not because there is a
    better deal to be made financially speaking. It is because
    there is a sense that our structures are sound, transparent,
    and they are fair. You may end up losing your investment; you
    may make money on your investment. That is always a risk when
    you make a financial investment. But the one thing you could
    always say about the United States, as opposed to almost any
    other place around the globe, is that when you come to America
    and invest your money, there is a sense of fairness and trust
    and soundness to our financial institutions and the structures
    that we created to protect them.
        That trust has been fractured by the events that have
    occurred over the last 9 months, And it continues to be
    fractured with daily reports. So it is vitally important that
    we respond in an appropriate and thoughtful manner as the
    Congress of the United States. We have done so, in my view,
    with the proposal the chairman has brought to our attention.
    The very integrity of our markets is being questioned, and the
    Congress must respond cautiously, prudently, and also
    expeditiously.
        Enron's collapse in December was, of course, an enormous
    shock to all of us. Seven or eight months later, we have seen
    that Enron was not an isolated incident. There have been a
    whole host of corporate accounting scandals and collapses--
    names such as WorldCom, Global Crossing, Tyco, Adelphia, the
    list goes on and on. I fear, as my colleagues do, that the
    latest corporate accounting scandal with WorldCom will not be
    the last. I hope it will be, but my fear is it will not be.
        The Congress should address the critical issue of
    accounting reforms as quickly as we can. America's financial
    engine does not need a tuneup, it needs an overhaul. We must
    disassemble it in some ways, examine every nut, bolt, and
    working part, and reassemble it to reflect the days in which we
    live.
        The fact is, if we fail to act on serious reforms, America
    will see a continuation of the dangerous and discredited
    corporate accounting practices that have, in the past 7 months
    alone, cost American shareholders and workers billions of
    dollars in their savings and pensions. This has deeply shaken
    investor confidence, and that serves as a cornerstone of our
    economic system.
        It is important to note that in the dozens of hearings
    surrounding Enron's collapse, no committee has engaged in a
    more nonpartisan examination, focused not just on what went
    wrong with Enron but, far more important, what Congress can do
    to prevent future Enrons from occurring in the days ahead.
        On March 8 of this year, Senator Jon Corzine and I
    introduced legislation, S. 2004, that addressed what we thought
    were some of the tough issues on improving regulatory oversight
    of the accounting profession and restoring investor confidence.
    I worked closely with the chairman, as did Senator Corzine, to
    incorporate some of the language and spirit of S. 2004 in the
    legislation before us today.
        I thank the chairman for including in the product before us
    much of what we wrote in S. 2004. I thank his staff, and I also
    thank my colleague from Wyoming.
        Congress must act quickly. If nothing else, we must address
    the most prominent cause of the recent corporate scandals, the
    practices inherent and common to the accounting profession, and
    particularly the ability to audit a company's books while
    simultaneously providing other services to that same
    corporation. We saw this with Enron and Andersen. Now we see it
    with WorldCom and the pending investigations that have greatly
    contributed to the public's loss of confidence in our financial
    marketplace.
        Since the beginning of the year, while our economy has been
    rebounding from last year's economic downturn and most economic
    indicators point to a bull market, the Nasdaq is down more than
    20 percent, the Dow is down more than 3 percent, and trading
    volume has declined. One reason may be investor skepticism that
    companies are not as financially healthy as they have said they
    were. More restatements on corporate earnings have been filed
    in the past 7 months than in the last 10 years combined. Most
    of these restatements dramatically downgrade the financial
    health of the companies in question.
        Not surprisingly, the public is quickly losing trust in
    disclosed corporate financial information. Although the
    investing public may be reacting to the bad behavior of a few,
    the possibility of conflicts of interest between accounting
    firms and the companies they audit creates a perception that
    this aggressive accounting is commonplace, even when it may not
    be. This perception, which takes on its own sense of reality,
    has led to a very dangerous, least-common-denominator thinking
    in which the estimated worth of all public companies may become
    undervalued because some are proven to be seriously overvalued.
        The fact is, a few key reforms included in this bill can go
    a very long way toward shoring up the public's confidence in
    the integrity of America's financial marketplace.
        Most importantly, to enhance auditor independence, the
    legislation restricts the ability of accounting firms to audit
    a company's books while simultaneously providing other
    services. It also addresses the revolving door through which
    executives from one firm leave to work for the companies they
    audit.
        This reform legislation includes the creation of an
    independent body to oversee the accounting profession, with
    substantial authority to ensure auditor discipline and improve
    audit quality. The Securities and Exchange Commission will also
    be given the resources to hire more accounting ``cops'' to
    handle increasingly complex oversight responsibilities and
    improve the agency's investigative and disciplinary
    capabilities. The Government must be able to assure the public
    that audits meet the high standards of independence and
    objectivity that have been the hallmark of America's accounting
    profession.
        The accounting profession is a great profession. There are
    thousands of highly qualified, talented, ethical people in the
    accounting profession. I feel for them at this hour. Because of
    the malfeasance and fraud committed by some, the many who work
    in this profession feel tainted by it. I regret that. The best
    way I know to recover the confidence people have in this
    profession is to provide some regulatory framework that would
    allow for auditor independence and for professionalism to be
    restored at a time when it has been so badly damaged.
        Investors are depending upon us to act on this issue and
    set aside partisan conflicts. As I said, we should not dilute
    this legislation and make it far less important, less
    meaningful, or overburden it by trying to add too much to the
    bill. It is not an easy path to walk down. I urge my colleagues
    to listen to those of us who worked on this bill, particularly
    the chairman, as we try to balance the particular needs of our
    members and the desire to come up with a good, competent,
    bipartisan piece of legislation. This is not an easy path to
    walk down, but it is critically important if we are going to
    contribute to the restoration of investor confidence as part of
    our responsibilities as members of this historic Chamber.
        The purpose of the original securities laws of the 1930s
    was to increase public trust in America's financial markets,
    the reliability of disclosed corporate financial information.
    The resulting openness and accuracy of corporate disclosures to
    the investing public paved the very way for America's rise as
    the unrivaled economic superpower that we had achieved. The
    collapses of Enron, WorldCom, and other corporations, and the
    accounting scandals have ended any question about whether these
    laws need reexamination. They do. We know that reforms are
    mostly needed to protect and strengthen the public trust in
    America's financial markets, and the time to enact them is now.
    I am confident and hopeful that we will do just that in the
    ensuing days.
        I yield the floor.
        The Presiding Officer. The Senator from Maryland is
    recognized.
        Mr. Sarbanes. Mr. President, I thank the very able Senator
    from Connecticut for his kind remarks about our work together
    on the committee as we tried to move this legislation forward.
    I particularly want to underscore the very substantial and
    significant contribution that the Senator from Connecticut and
    his colleague from New Jersey, Senator Corzine, made when they
    came forward fairly early on in the process with S. 2004.
        Much of that legislation is included in this legislation,
    and it was a seminal contribution early on in our consideration
    and it helped us to move ahead. I am grateful to him for that
    and for his efforts and support throughout this process as we
    have tried to move this legislation forward.
        The Senator from Connecticut, of course, is a chairman of
    one of our subcommittees and has been enormously effective
    within the committee in his efforts on this legislation, and I
    appreciate that. I am very hopeful that we are going to get a
    good product at the end of the path--of course, we are not
    there yet--which the President will sign and which will make a
    substantial difference.
        It is a tragedy, in a sense. The founder of the accounting
    firm Arthur Andersen was a man of great rectitude and very high
    principles. He had the slogan ``think straight and talk
    straight'' to guide him.
        His successor, Leonard Spacek, also was a man of very high
    principle. For that company with those origins, in that
    tradition, to in effect have happen what has happened to it is
    a tragedy, there is no question about it.
        We are anxious to reassure accountants all across the
    country that we think this legislation will help bring the
    profession back to the standards that marked it at an earlier
    time and which standards more thoughtful and more responsible
    members hope will mark it once again.
        The point the Senator from Connecticut made in that regard
    is an interesting and important one.
        Mr. Dodd. I thank the chairman.
        Mr. Sarbanes. Mr. President, I suggest the absence of a
    quorum.
        The Presiding Officer. The clerk will call the roll.
        The assistant legislative clerk proceeded to call the roll.
        Mr. Dorgan. Mr. President, I ask unanimous consent that the
    order for the quorum call be rescinded.
        The Presiding Officer (Mr. Dodd). Without objection, it is
    so ordered. The Senator from North Dakota.
        Mr. Dorgan. Mr. President, I begin by saying the Senator
    from Maryland has done this Senate and this country a great
    service, along with his colleagues, including the Presiding
    Officer, by writing legislation that addresses a critically
    important topic at a very important time in this country.
        As much as I appreciate the work done on this bill, I would
    still like to speak about a few ways in which we can strengthen
    it. I listened with some attention in the last hour or so as I
    presided in the Senate to the suggestion that we ought not
    change it much. I do not disagree with that assessment, but we
    ought to change it some, in my judgment. There are some areas
    we can strengthen, and I hope we can strengthen this
    legislation and send it on to the President and have the
    expectation the President will sign it.
        This Chamber has long been the site of debates about
    excesses and abuses, especially in America's poverty programs.
    We have heard over a couple of decades, and appropriately so,
    anecdotal stories about the Cadillac welfare queen who spends
    food stamp money to buy cigarettes. Congress has clamped down
    on all of that and said: Shame on you, you cannot do that, that
    is abusing the public trust. And it is. So we have taken
    aggressive action as we have seen these abuses.
        Today this discussion is not about the abuse of the poverty
    program or the abuse at the bottom, this is about fraud in the
    boardroom; it is about abuse at the top. It is important for
    all of us to understand that accountability and responsibility
    do not just apply to poor people in this country,
    accountability and responsibility apply to everyone, and that
    includes the people at the top of the corporate structure.
        I wish to talk about fraud in the boardroom, about
    deceiving investors, about cooking the books, about accounting
    firms that cannot account, about law firms that turn a blind
    eye. I wish to talk about the situations the country has seen
    in recent weeks and months that we have not seen for many
    decades in this country.
        The victims, of course, are the people in this country who
    have invested in stocks, who believed in the certification of
    financial statements by some of the biggest accounting firms in
    the country that these were good corporations, that they had
    good income, that they were moving in the right direction,
    taking steps so that the funds in corporations were accounted
    for properly. And now we discover that was not necessarily the
    case in all too many instances.
        Of course, there are a lot of wonderful corporations in
    this country, wonderful companies with terrific top executive
    officers who do the right thing, always do the right thing.
    Yes, they take some risks, but they do it in anticipation of
    gain for the stockholders. We ought not tarnish with the same
    brush all American corporations, but we ought to determine what
    is happening within some of these corporations that has caused
    the collapse and the devastation of a lifetime of savings for
    many Americans.
        Let me use Enron as an example. We spent a fair amount of
    time with Enron hearings in the Commerce Committee. We had top
    executives of that company who had been cashing out prior to
    Enron going bankrupt. I have a chart that shows the way in
    which the top management of Enron made fortunes on the sale of
    Enron stock, from 1998 to the present, at the same time that
    they were driving their company into the ground.
        Contrast this with a call I received from a fellow in North
    Dakota one day who said: I worked for Enron for a good number
    of years. I had a retirement plan, and all my retirement plan
    was in Enron stock. Mr. Lay and others repeatedly encouraged us
    to do that. My retirement plan was in Enron stock. It was worth
    $330,000. Now it is worth $1,700. He said: That is what
    happened to my life savings--$330,000 to $1,700.
        What happened to the folks at the top of the ladder in
    Enron? Mr. Lay, the chairman of Enron, from 1998 to the
    present, sold $101 million worth of stock. That is what he
    received. Mr. Rice, $72.7 million; Mr. Skilling, $66.9 million;
    Mr. Fastow, $30 million.
        Mr. Fastow was able to have an equity role in the special
    purpose entities, the off-the-books partnerships, and in one of
    them he actually invested $25,000 of his own money. He invested
    $25,000, and 2 months later paid himself $4.5 million. I do not
    know anybody who gets returns like that anywhere in America,
    except by cheating.
        In the year 2001 in American corporations, the average pay
    for top CEOs increased by 7 percent, despite falling profits
    and stock values. Is there a relationship at the top between
    people who run the companies and the performance of the
    companies themselves? It does not look like it, does it?
        In 1981, the average executive compensation of the top 10
    highest paid CEOs was $3.5 million. In the year 2001, the
    average was $155 million. So we can see what has happened in
    this country at the top in the boardroom.
        Let's look at the number of times that CEO pay exceeds
    average worker pay: In 1980, they made 42 times the pay of the
    average worker in the company. In 1990, they made 85 times the
    pay of the average worker in the company. But in the year 2000,
    it was 531 times. So forty-twofold to five hundred and thirty-
    onefold. That is what has happened to executive compensation at
    the top of the corporate ladder.
        We have seen story after story about what is happening in
    some of the boardrooms. There are a lot of wonderful companies,
    and I do not think this ought to tarnish all American
    corporations, but we ought to be very concerned about what is
    happening inside some publicly traded corporations and why the
    safeguards have not been able to provide early warning to
    investors and others.
        Adelphia: The drop in their stock value is 99 percent. The
    question is whether it failed to properly disclose $3.1 billion
    in loans and guarantees to the family of the founder.
        Dynegy: Whether the Project Alpha transactions served
    primarily to cut taxes and artificially increase cashflow, 67
    percent of their value lost.
        Enron lost 99.8 percent of its value. In fact, as I have
    mentioned before, the Enron board of directors commissioned a
    report called the Powers Report which looked at only three
    partnerships, and they described what was happening inside this
    company was ``appalling.'' The board of directors of the
    company itself said what was happening inside the company was
    appalling. They said that in one year they reported $1 billion
    of income they did not have.
        Global Crossing: Whether it sold its telecom capacity in a
    way that artificially boosted 2001 cash revenue, 99.8 percent
    loss in value.
        Halliburton: Whether it improperly recorded revenue from
    cost overruns on big construction jobs.
        The list, of course, goes on.
        Qwest: Whether it inflated revenue for 2000 and 2001
    through capacity swaps and equipment sales.
        On the weekend talk shows, I heard a panel discussion about
    this, and one of the panelists who is kind of an academician
    said the market is just adjusting. That is an antiseptic way,
    by an economist I suppose, to ignore the fact that families are
    losing their life savings.
        Sure, the market is adjusting, but it means families are
    losing everything they have. It means investors with 401(k)s
    see that 401(k) shrink so their life savings are disappearing
    right before their eyes.
        The question with all of these issues is: What has changed?
    Why, with big accounting firms taking a look at what is going
    on--and today there is a hearing on WorldCom in the House of
    Representatives--why, with big accounting firms looking over
    their shoulder, has this sort of thing occurred?
        With Arthur Andersen and Enron, they had a $25 million
    relationship by which Arthur Andersen audited the Enron
    Corporation, and Arthur Andersen was also paid $27 million by
    the Enron Corporation for consulting services. That is one of
    the things that is at the root of this bill: Is that not a
    clear conflict of interest? Is there not enormous pressure on
    the accounting firm then to become an enabler for that
    corporation? The answer clearly is yes, and that is why this
    legislation takes action to deal with some of those issues.
        I was driving in the car over the weekend in North Dakota
    and saw that the Xerox Corporation had a substantial
    restatement of earnings. It indicated that the SEC had
    previously taken a look at it and fined Xerox $10 million,
    which seems to me like pretty much a slap on the wrist when you
    consider the billions of dollars involved in the restatement.
    Then we hear this big story this weekend about yet another
    restatement. So what we have is a restatement, and then a
    restatement of the restatement of earnings.
        What is the cause of all of this, and what is enabling it?
    With Enron, for example, it was an accounting firm that became
    an enabler; it was a law firm that became an enabler; it was
    CEOs who became greedy, officers of the corporation who did not
    pay much attention, who also, incidentally, were making a great
    deal of money selling stock, board members selling stock. It
    all became a carnival of greed.
        I indicated, after having spent a lot of time looking at
    Enron, that there was a culture of corruption inside that
    corporation. The CEO of Enron took great exception to that, but
    it is clear every passing day, with more and more evidence of
    what happened inside that company, that there was in fact a
    culture of corruption.
        How do we respond to that, and how do we deal with that? I
    think that, first of all, the rules have to be changed some,
    and that is what this legislation attempts to do. Second, even
    if there are changes in the rules, there must be an effective
    referee, a regulator. In this system of ours, we have to have
    effective regulation. And frankly, that has been lacking.
        Mr. Pitt, who is the head of the SEC, I know has taken
    great exception to statements that have been made by my
    colleagues and myself. But the fact is that a system like this
    cannot work unless there is effective oversight and regulation,
    and that has been lacking.
        Consider some of the statements that Mr. Pitt has made.
    This is Mr. Pitt speaking at the AICPA, which represents the
    accounting industry:

        For the past two decades, I have been privileged to
    represent this fine organization and each of the big five
    accounting firms that are among its members. Somewhere along
    the way, accountants became afraid to talk to the SEC. Those
    days are ended.

        That was to the American Institute of Certified Public
    Accountants.
        Then Mr. Pitt, who is, again, the head of the SEC, said:

        The agency I am privileged to lead has not, of late, always
    been a kinder and gentler place for accountants; and the audit
    profession, in turn, has not always had nice things to say
    about it.

        So Mr. Pitt was concerned about ensuring a ``kinder and
    gentler'' SEC.
        The New York Times did a story as a result of the initial
    speeches Mr. Pitt gave when coming to the SEC. It noted that
    Pitt ``spoke favorably of pro forma earnings reports in ways
    that no doubt heartened accountants who have worked so hard to
    find ways to make even the worst profit figures look pretty.''
        It also noted that ``A major embarrassment for accountants
    is having the SEC force a client to restate its numbers. Mr.
    Pitt and his chief accountant, Robert Herdman, are sending
    signals that fewer such demands will be made.''
        We can change the law, but if we do not have a tough, no-
    nonsense regulator, then it will not work.
        We all watch basketball games, and we see referees. They
    are the ones who enforce the rules in basketball. We see a game
    from time to time where it is quite clear right at the start
    the referees are not going to call them close, and then pretty
    much it is ``Katy bar the door,'' and things get out of hand.
    Then we see other games in which it is quite clear they are
    going to call up close, and nothing gets out of hand. The same
    is true with the attitude and mindset of Federal regulators. We
    have regulatory agencies for a purpose. That purpose is to
    enforce the rules. Fairly, yes, but also aggressively.
        If someone who comes from that industry and says, I
    represented all of you, and suggests it will be a kinder and
    gentler place, I wonder whether that is the regulator we ought
    to have.
        No matter who is heading the SEC, I want that person to be
    a fierce advocate on behalf of the rules that protect
    investors. I want someone that can make this system work and
    require everyone to own up to their responsibilities. So people
    who never enter a corporate office or know nothing about a
    corporation but who want to invest in American business, can
    buy a share of stock, having never met an officer of the
    company, having never visited the company, and can have
    confidence that what the accounting firm has said about that
    company, what the financial statements represent about that
    company, are absolutely fair and accurate.
        That is the only way in which the American people can
    participate in the raising of capital for America's business.
    If we do not do that and do that quickly, we undermine the
    entire system by which we raise capital in this country. We
    undermine the entire system. That is why this piece of
    legislation is important and timely.
        There are several amendments I would like to have
    considered, some I hope will be accepted, and some, perhaps, we
    will discuss at some length, and I may or may not prevail.
    There are some amendments that can strengthen and improve this
    legislation.
        One of the provisions in the legislation calls for CEOs to
    return profits and bonuses they wrongfully reaped in the 12
    months following a published earnings report that require a
    restatement. I would propose that this provision apply when a
    company goes bankrupt, as well. This idea has been endorsed by
    former SEC Chairman Richard Breeden, Goldman Sach CEO Henry
    Paulson, and others.
        There also ought to be some provision with respect to loans
    to CEOs by corporate boards of directors. I don't know what
    that limit ought to be, but I mentioned one corporation where
    over $3 billion was loaned to one family of the founder. This
    is a publicly traded corporation. I believe we ought to discuss
    that.
        I may offer a provision dealing with something called
    inversion, a mechanism whereby some American corporations have
    decided they want to renounce their American citizenship and
    move their official headquarters to another country--Bermuda,
    for example. I want to be certain that CEOs of such companies
    cannot escape the requirement of this bill that they certify
    the accuracy of their financial statements. I do not think
    that, in addition to avoiding their fair share of U.S. taxes,
    these companies ought to be held to a lesser standard of
    reporting accuracy than U.S.-based firms. So I will offer an
    amendment, if needed, and visit with the chairman and the
    ranking member about that subject.
        Another issue, one requiring disciplinary proceedings to be
    open to the public was discussed in committee. Transparency and
    having those hearings open to the public are important. I hope
    we can consider an amendment on that.
        The other issue that was discussed in the committee at
    great length: What is the definition of the division of
    responsibilities between auditing and consulting? That
    definition, determined by the SEC or the Congress, is critical
    to determining whether there is a conflict.
        Having said all that, let me say to the Senator from
    Maryland, we are in the Senate the first week after the Fourth
    of July. I listened to the Senators from Texas and Wyoming and
    Connecticut and others speak about this bill. This is a good
    start. If this legislation passed without one word changed, it
    would make a magnificent contribution to a problem we face, a
    gripping problem in this country.
        Having said that, I do not subscribe to those on the
    committee who say not to change anything. That is not what the
    chairman said. There are some suggestions that will come from
    other parts of the Senate that can strengthen and improve this
    legislation, a couple of which I suggested. When it goes to
    conference with the House, we will have something we can be
    proud of.
        The most important thing is to show to the investors in
    this country who have lost, in many cases, their life savings,
    that we are taking action to respond to the conditions that
    caused this to happen.
        When we talk about the people at the top getting rich and
    the people at the bottom losing their life savings, the
    American people have every right to ask: By whose authority can
    this happen in this kind of economy? It cannot happen if the
    rules are fair. It cannot happen if the rules are enforced.
        The American people have a right to expect the regulators,
    the SEC, and the Congress to take action now to address these
    issues.
        I yield the floor.
        The Presiding Officer (Mr. Wellstone). The Senator from
    Missouri is recognized.
        Mr. Bond. Mr. President, I initially came to the floor to
    talk about this bill and another issue. The Water and Power
    Subcommittee of the Energy and Natural Resources Committee is
    holding a hearing on Wednesday, and I asked to testify about
    the views of Missouri on the Missouri River issue. Initially,
    the staff said I was not going to be able to testify, and I was
    going to therefore have to share my testimony with the entire
    body. However, I have now been advised by the chairman of the
    committee I will have an opportunity to testify, so I will save
    my comments for the committee hearing.
        I thank the chairman for giving me that opportunity.
        Mr. Dorgan. Will the Senator yield?
        Mr. Bond. I am happy to yield.
        Mr. Dorgan. Let me explain to the Senator what my hope was.
    The Senator asked to testify, quite properly. The Missouri
    River manual issue is a highly controversial issue. The Senator
    has been involved with it for some long while. We are having a
    hearings. The Corps of Engineers and many others are
    testifying. My hope had been we could hold a hearing with all
    of those groups, then have a separate meeting, hearing from all
    Members of Congress who want to testify. It appears that that
    will not be the case.
        We will hear from Senators at the front end of that
    hearing. I assume it will take some time. As the Senator from
    Missouri knows, having indicated, yes, we would entertain his
    testimony, there are a number of other Senators who have
    already gotten in line saying, if that is the case, please hear
    my statement, as well. Of course we will.
        It was never a case where we would not hear testimony. The
    question was whether we would have a separate hearing and hear
    Members of the Senate. I understand the Senator's concern.
    Senators Daschle, Johnson, Conrad, Carnahan, and many, many
    other Senators have great concerns about this issue.
        I will lose some sleep Tuesday night with great
    anticipation hearing your testimony on Wednesday morning.
        Mr. Bond. I thank my good friend from North Dakota and
    assure him I hope to be brief and to the point. I am somewhat
    disappointed I will not share all that testimony with my
    colleagues, but there will be another opportunity.
        I thank the chairman of the subcommittee for his kind
    indulgence.
        Today I rise to join in expressing my concern about recent
    accounting practices in publicly held companies and their
    auditors. As a former State auditor, I have an interest in that
    profession being performed properly. Obviously, something is
    seriously broken. We hear about Enron, Global Crossing,
    WorldCom, and Arthur Andersen. The people of America are very
    concerned. We have seen millions of families with their
    investments diminished or even wiped out. That is not
    acceptable. The vast majority of investments were not in the
    volatile sectors, or not what we thought were the volatile
    sectors of the stock market. They were invested in the so-
    called blue chip companies. The families who made those
    investments on their strong belief in the integrity of our
    financial markets and accounting industry now find that because
    of corporate shams, accounting gimmicks, and inadequate
    auditing, they have lost significantly the investments they
    planned for education or retirement--for their families.
        As far as we know, overall the overwhelming majority of
    publicly traded companies are in full compliance with corporate
    accounting standards. But the fact that there has been a
    significant deception by a handful of companies raises
    suspicions of all companies. In addition, we don't know how
    many others will come forward in coming weeks.
        We must restore the public's confidence in the market.
    Without this, the economic recovery which should be beginning
    will remain elusive.
        While much of the focus in the debate here and in the news
    media is on the auditing problems of the big conglomerate
    companies, unfortunately little attention has been paid in this
    bill to how the impact will fall on small publicly traded
    companies and small auditing firms. As the ranking member on
    the Committee on Small Business and Entrepreneurship, I have
    some concerns, after reviewing this bill, that we may be
    pushing ahead without considering the serious effect and the
    unintended consequences the bill could have on smaller firms--
    both small auditing firms and small publicly traded companies.
        The bill is clearly targeted towards abuses in extremely
    large businesses, which we all think should be dealt with. I
    personally hope it will result in prison sentences for people
    who are proven to have committed criminal acts in their
    accounting activities.
        But the SEC is not even aware of how many small auditing
    firms there are auditing small, publicly traded companies.
    There are some 2,500 small companies, and we believe many of
    them are audited by small- and medium-size auditing firms. For
    small auditors, the bill will require many new elements
    including registration, annual filing requirements, as well as
    partnership rotation of lead auditors. In addition, the bill
    would codify a list of banned services or nonauditing services
    that an auditing company might conduct for a company that it
    audits.
        While some of these elements clearly are necessary to
    restore confidence, and I think are going to be dealt with by
    regulatory action and maybe even by the industry itself, no one
    knows how these requirements will affect the small firms. It
    has been argued that the bill allows for a case-by-case
    exemption, but that exemption process itself could be extremely
    costly and untimely for small firms and lead to inconsistent
    results.
        I fear that some of these small auditing firms will not
    have the resources to implement these requirements and will
    stop auditing services or just go out of business. The result
    may be that small, publicly traded companies may not be able to
    obtain auditing services at reasonable cost. As a result, the
    bill might be setting up a hurdle for small companies to reach
    the public markets, one that is too expensive and too great to
    overcome.
        Clearly, when we deal with the major problems we ought not
    cause significant problems for the smaller, growing
    entrepreneurial sector of our country.
        As for publicly traded companies, the bill also places new
    requirements for auditing committees and for corporate
    responsibility. Again, many of these may be necessary. However,
    we need to look at how these requirements will affect the
    small, publicly traded companies.
        The entrepreneurial spirit of our country is really the
    envy of the world. People know that entrepreneurship works in
    America. That is where we get the new ideas. That is where we
    get the growth. That is where we get the new services and the
    products. We should be careful as we adopt reforms not to put a
    disproportionate burden on these companies, dampening the
    entrepreneurial spirit or impeding access to the public
    markets.
        I fully support accounting reform and the taking of steps
    necessary to restore investor confidence in the market. I think
    we should pass a balanced bill that will not overburden small
    firms and not create additional hurdles that will impede them
    from growing. We don't want an incidental consequence of this
    bill to be a monopoly of large accounting firms when it comes
    to corporate audits.
        I agree with the other speakers that the American public is
    looking to us for answers. I intend to work to see that the
    needs of the small businesses, publicly traded small companies,
    and small auditing firms are protected. I am committed, and I
    think we all are committed, to restoring the public's
    confidence in the markets so families can feel safe once again
    in investing in America and in America's future.
        I look forward to working with my colleagues to secure a
    balanced bill which will do that without bringing unnecessary
    hardship on the entrepreneurial sector of our economy.
        I thank my colleague from Wyoming for the courtesy in
    allowing me to go ahead. I yield the floor.
        Mr. Enzi. Mr. President, I suggest the absence of a quorum.
        The Presiding Officer. The clerk will call the roll.
        The legislative clerk proceeded to call the roll.
        Mr. Specter. Mr. President, during the course of the Fourth
    of July recess, I traveled through Pennsylvania holding some 16
    town meetings, and I found many concerns among my constituents:
    The issue of prescription drugs; the concern about what is
    happening with respect to Iraq; the issue of terrorism, which
    confronts the United States; the concern about what might
    happen on July 4; concern about the suicide bombers from the
    Palestinians terrorizing Israel.
        But high on the list of public concern was what has
    happened with Enron, WorldCom, and many other companies on the
    stock exchange, where so many of my constituents in
    Pennsylvania--like tens of millions of Americans, really, and
    even more--have had their savings decimated in their retirement
    accounts of a variety of sorts. The issue that was raised
    consistently was: What happens next?
        I think it is very good that the Senate is now considering
    legislation to deal with the fraudulent conduct that has
    plagued so many companies in corporate America. There is no
    doubt that there is a clear-cut conflict of interest for an
    accounting firm to be both an adviser and an auditor. An
    adviser has a close relationship with a company--call it cozy,
    or intimate, or friendly--but that is very different from the
    function of an auditor, which ought to be at arm's length,
    scrutinizing what the company has done. That kind of a conflict
    should certainly be prohibited in the future. If the accounting
    firms do not have enough understanding of the ethics, then laws
    have to be enacted, with very tough penalties to follow. When
    you find companies having so much debt off the books,
    subsidiary corporations, that is a matter of fraud. Fraud is a
    misrepresentation of a fact where someone relies to their
    detriment, and that is a crime. When you have companies putting
    expenses in, say, a capital account that shows billions of
    dollars in additional income or assets of the corporation, that
    too is fraud.
        A good part of my career has been as an assistant DA and
    then as district attorney. I believe this kind of white-collar
    crime is certainly susceptible of deterrence, providing that
    standards are established and penalties are provided for a
    breach. It is my hope that from the Senate's current
    consideration, some very tough legislation will follow.
        (Mr. Dayton assumed the Chair.)

             VOLUME 148, TUESDAY, JULY 9, 2002, NUMBER 91,
                          PAGES [S6436-S6444]

      Public Company Accounting Reform and Investor Protection Act of 2002

        The Presiding Officer. Under the previous order, the Senate
    will resume consideration of S. 2673, which the clerk will
    report.
        The assistant legislative clerk read as follows:

        A bill (S. 2673) to improve quality and transparency in
    financial reporting and independent audits and accounting
    services for public companies, to create a Public Company
    Accounting Oversight Board, to enhance the standard setting
    process for accounting practices, to strengthen the
    independence of firms that audit public companies, to increase
    corporate responsibility and the usefulness of corporate
    financial disclosure, to protect the objectivity and
    independence of securities analysts, to improve Securities and
    Exchange Commission resources and oversight, and for other
    purposes.

        The Presiding Officer. The majority leader is recognized.

                               amendment no. 4174

    (Purpose: To provide for criminal prosecution of persons who alter or
        destroy evidence in Federal investigations or defraud investors of
        publicly traded securities, and for other purposes)

        Mr. Daschle. Madam President, I have an amendment at the
    desk.
        The Presiding Officer. The clerk will report.
        The assistant legislative clerk read as follows:

        The Senator from North Dakota [Mr. Daschle], for Mr. Leahy,
    for himself, Mr. McCain, Mr. Daschle, Mr. Durbin, Mr. Harkin,
    Mr. Cleland, Mr. Levin, Mr. Kennedy, Mr. Biden, Mr. Feingold,
    Mr. Miller, Mr. Edwards, Mrs. Boxer, Mr. Corzine, and Mr.
    Kerry, proposes an amendment numbered 4174.

        (The amendment is printed in today's Record under ``Text of
    Amendments.'')
        Mr. Daschle. Madam President, on behalf of Senator Leahy
    and others, I offer this amendment which is identical to the
    Corporate and Criminal Fraud Accountability Act, S. 2010,
    passed unanimously by the Judiciary Committee some time ago.
        I view the Leahy amendment as a necessary complement to the
    Sarbanes bill. In fact, I think of them as two parts of a vital
    whole--one element guarantees the truth and honesty of
    corporate accounting. The other is a deterrent. It says that
    corporate misrepresentation will be forcefully punished--with
    jail time.
        We need both. We need to improve oversight and independence
    of the accounting profession and hold corporate wrongdoers
    accountable for their actions.
        We need to act comprehensively to fulfill our promise to
    the American people that integrity, honesty, and accountability
    will be restored to our markets.
        Last week Senator Leahy and I wrote to the President
    requesting his views on this bill and the Sarbanes accounting
    reform bill.
        Unfortunately, the President has not answered our letter
    yet. But I hope to hear today--and I think we need to hear
    today--that he supports and will sign both.
        We welcome the President's apparent new enthusiasm for
    reforming our corporate culture, and we look forward to working
    with him.
        The Administration needs to understand that the time for
    half measures has long passed. The American people expect and
    deserve comprehensive reform.
        Combining the Leahy bill and the Sarbanes bill accomplishes
    just that. The Sarbanes bill revamps the regulatory structure
    that protects our markets. There will be better rules and a new
    oversight body to send corporations and accountants a clear
    message that they must tell the truth on their balance sheets.
        The Leahy bill is every bit as vital. Let me summarize a
    few of its provisions very quickly. The amendment has three
    aims: punishing criminals; preserving evidence; and protecting
    victims.
        The Leahy amendment punishes criminals by creating a tough
    new 10-year felony for securities fraud. It provides
    prosecutors with a new tool that is flexible enough to keep up
    with the most complex new fraud schemes and tough enough to
    deter violations on the front end. It also provides a mechanism
    to raise the fraud sentences that are already on the books.
        The amendment also preserves evidence of fraud. It creates
    two new criminal anti-shredding provisions in Federal law. As
    we say in the Arthur Andersen case, even the most straight-
    forward obstruction of justice cases can be difficult to prove
    under current law.
        Senator Leahy's bill closes the loopholes and makes
    document destruction in fraud cases an unambiguous crime.
        The amendment does not just protect ``paper evidence,'' it
    also protects valuable testimony from people. For the first
    time, the Leahy bill creates Federal protection for
    whistleblowers. People like Sherron Watkins of Enron will be
    protected from reprisal for the first time under Federal law.
    This bill is going to help prosecutors gain important insider
    testimony on fraud and put a permanent dent in the ``corporate
    code of silence.''
        Finally, the amendment will protect victims of fraud. By
    extending the time period during which victims can bring cases
    to recoup their losses, the Leahy bill removes the reward for
    those fraud artists who are especially gifted at concealing
    what they've done for lengthy periods of time.
        Cases where victims have lost their entire life savings
    should be decided on the merits, not based on procedural
    hurdles that may now be used to throw legitimate victims out of
    court.
        The Leahy bill also prevents fraud artists from declaring
    bankruptcy to shut out their victims. The amendment would
    accomplish this by making security fraud debts nondischargeable
    in bankruptcy.
        Again, the Leahy provisions enjoyed broad bipartisan
    support in the Judiciary Committee when passed unanimously in
    April. They are needed now more than ever, as the number and
    magnitude of corporate misstatements continues to pile up and
    the lost jobs, lost pensions, and ruined lives continue to
    mount.
        We must act to punish criminals, no matter what color their
    collar. I hope all Senators will support this amendment.
        Madam President, the country will be listening intently to
    what the President says this morning. A crucial test will be
    whether he explicitly supports--and pledges to sign--the
    Sarbanes bill with the Leahy legislation attached. We cannot
    restore confidence in the integrity of our markets with
    anything else.
        Senator Leahy is on the floor.
        Mr. Leahy. Will the majority leader yield?
        Mr. Daschle. Yes.
        The Presiding Officer. The Senator from Vermont is
    recognized.
        Mr. Leahy. Madam President, I very much appreciate what my
    good friend, the distinguished majority leader, has said. I
    also
    compliment him for his leadership on corporate accountability.
    Sometime ago, he asked the Chairs of the various committees
    with possible jurisdiction in this area to get together and
    craft comprehensive legislation. I recall that meeting very
    well. I recall the majority leader--back at the time of Enron,
    before WorldCom and these other business scandals came
    forward--expressing his concern that not only is this a blight
    on the business community, it is a blight on our system of
    doing things. He also spoke about how terrible it was for those
    people, not only workers who had their pensions tied up in the
    fortunes of the companies they are working with and are relying
    on for truthfulness--what they assumed is the truthfulness--of
    the accounting statements of those companies, but also many
    other people who invest, whether it is a farmer in South Dakota
    or a merchant in a small town in Vermont who is putting savings
    in and hoping this will be part of his retirement.
        The majority leader made it very clear to all of us that we
    were to set politics aside, we were to set any kind of special
    interests aside, and we were to bring up the best legislation
    possible for the people of America. That was what Senator
    Daschle charged us to do, and that is what I am trying to do
    with this amendment.
        We have excellent accounting reform legislation, S. 2673,
    crafted by Chairman Sarbanes and the Senate Banking Committee.
    I commend Senator Sarbanes and the other members of the Banking
    Committee--for their bipartisan leadership. Senator Sarbanes
    had people on both sides of the aisle come out with this
    legislation, and I am proud to cosponsor it.
        My amendment is to add to Senator Sarbanes' legislation,
    not to detract from it. As he knows, I offered to add a
    criminal penalty and other provisions that are within the
    jurisdiction of the Judiciary Committee.
        My amendment is cosponsored by Senator McCain and the
    majority leader, Senators Durbin, Harkin, Cleland, Levin,
    Kennedy, Biden, Feingold, Miller, Edwards, Boxer, Corzine,
    Kerry, Schumer and Brownback. Our amendment is identical to S.
    2010, the Corporate and Criminal Fraud Accountability Act that
    was reported unanimously by both Republicans and Democrats in
    the Judiciary Committee on April 25.
        Again, following the very clear direction the distinguished
    majority leader gave us when he said we have to protect the
    people of this country, we have to make sure corporate America
    can do its best to help our economy, this would create tough
    new penalties for securities fraud and would preserve evidence
    of fraud to make sure there is accountability for crimes that
    not only cheat investors but rob the markets themselves of the
    public trust. The markets have stolen the public's trust.
        According to press reports, President Bush has changed his
    mind on corporate reform and may support new penalties for
    corporate fraud, and I welcome the President's change of heart.
    The Corporate and Criminal Fraud Accountability Act creates
    tough, new, criminal penalties for corporate fraud, and Senator
    Daschle and I have written to the President asking for his
    support.
        The time for watching and hand-wringing is over. We have to
    take action to start the slow but critical process of restoring
    confidence in the books of our publicly traded companies.
        The collapse of Enron has become a symbol of a corporate
    culture where greed has been inflated and accountability
    devalued. Unfortunately, Enron is no longer alone. Joined by
    Arthur Andersen, Global Crossing, Tyco, Xerox, and, most
    recently, WorldCom, the misrepresentations about the financial
    health of our Nation's largest companies have shaken confidence
    in our financial markets.
        If we do nothing to learn and apply the repeated lessons of
    the last months, we are only going to compound the problem.
    That was obviously the belief of the unanimous Judiciary
    Committee vote when the Committee approved S. 2010. Innocent
    consumers, investors, and employees depend on stock investments
    for their children's college funds, for their retirement nest
    eggs, and for their savings. Every week brings news of a new
    financial scandal. Just look at the effect on the stock market.
    It has been devastating. This has repercussions not just for
    companies that depend on our capital markets to grow their
    businesses and our economy, but certainly also for the average
    American family. More than one in every two Americans invest in
    our financial markets, and they are watching what we do here.
    They deserve action.
        Those who defraud investors should be held accountable for
    their crimes. The Leahy-McCain amendment, the Corporate and
    Criminal Fraud Accountability Act, is all about accountability
    and transparency--two bedrocks of our market.
        The Presiding Officer. The Chair states that the majority
    leader has yielded for a question only while retaining the
    floor. Is that the intent of the majority leader?
        Mr. Daschle. Madam President, it was my intention to yield
    for a question, but I thank the distinguished Chair of the
    Judiciary Committee for his extraordinary leadership and the
    effort he has made to bring this legislation to the floor.
        This is the Leahy amendment and, as I noted, it passed
    unanimously in large measure because I think he was able to
    work with our colleagues on both sides of the aisle.
        I am happy to yield the floor so he and others may seek
    recognition.
        Mr. Leahy. My question would be this to the majority
    leader: Would he agree, in his experience, that nothing would
    focus the attention more of those executives who have defrauded
    their own companies and investors than the idea that they would
    actually go to jail for it, and not walk off with hundreds of
    millions of dollars?
        Mr. Daschle. Madam President, it is for that reason that I
    believe this package ought to be viewed in its entirety. The
    Sarbanes bill lays out the framework. The Leahy bill lays out
    the penalties for violating that framework. So I don't know
    that you can have one without the other and not have a complete
    package.
        So I appreciate very much the work of the Judiciary
    Committee, and the Chair of the Judiciary Committee especially,
    for the work in allowing this package to come to the floor. I
    thank him again for the contributions he made.
        Several Senators addressed the Chair.
        Mr. Leahy. Madam President, I seek recognition in my own
    right.
        The Presiding Officer. The Senator from Texas is
    recognized.

                    AMENDMENT NO. 4175 TO AMENDMENT NO. 4174

        Mr. Gramm. Madam President, I send an amendment to the
    desk.
        The Presiding Officer. The clerk will report.
        Mr. Leahy. Madam President, parliamentary inquiry.
        The Presiding Officer. The Senator from Vermont.
        Mr. Leahy. What is the rule on recognition? Is it not the
    Senator who seeks recognition first?
        The Presiding Officer. The Chair understands that the
    managers of the amendment are entitled to be recognized.
        Mr. Leahy. On my amendment? May I be recognized on my own
    amendment which is pending before the Chair? Is that correct?
        The Presiding Officer. The managers of the legislation have
    priority.
        Mr. Leahy addressed the Chair.
        The Presiding Officer. The Senator from Texas, the manager
    of the underlying bill.
        Mr. Leahy. Would the managers of the amendment include the
    distinguished senior Senator from Kentucky? Is he one of the
    managers?
        The Presiding Officer. The managers of the legislation are
    the Senator from Maryland and the Senator from Texas.
        Mr. Leahy. The distinguished Presiding Officer has
    recognized, however, the Senator from Kentucky.
        The Presiding Officer. The Chair has recognized the Senator
    from Texas. The clerk will report the amendment.
        The assistant legislative clerk read as follows:

        The Senator from Texas [Mr. Gramm], for Mr. McConnell,
    proposes an amendment numbered 4175 to amendment No. 4174.

        Mr. Gramm. Madam President, I ask unanimous consent that
    the reading of the amendment be dispensed with.
        The Presiding Officer. Is there objection?
        Mr. Leahy. I object.
        The Presiding Officer. Objection is heard. The clerk will
    continue.
        The assistant legislative clerk continued with the reading
    of the amendment.
        The Presiding Officer. The Senator from Vermont.
        Mr. Leahy. Madam President, I want to make sure people
    understand what the Leahy-McCain amendment is. I realize there
    may be those who want to amend it to make life easier.
        The Presiding Officer. Will the Senator from Vermont
    suspend? The regular order is the reading of the amendment.
        Mr. Leahy. I ask unanimous consent that the reading of the
    amendment be dispensed with.
        The Presiding Officer. Is there objection to calling off
    the reading of the amendment? Without objection, it is so
    ordered.
        The amendment is as follows:

    (Purpose: To provide for certification of financial reports by labor
        organizations and to improve quality and transparency in financial
        reporting and independent audits and accounting services for labor
        organizations)

        At the end of the amendment add the following:

    SEC. 302. CORPORATE AND LABOR ORGANIZATION RESPONSIBILITY FOR FINANCIAL
                        REPORTS AND DISCLOSURE REQUIREMENTS.

        (a) Financial Reports.--
        (1) Certification of reports.--
        (A) Certification of periodic reports.--Each periodic
    report containing financial statements filed by an issuer with
    the Commission pursuant to section 13(a) or 15(d) of the
    Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d))
    shall be accompanied by a written statement by the chief
    executive officer and chief financial officer (or the
    equivalent thereof) of the issuer.
        (B) Certification of financial reports by labor
    organizations.--
        (i) In general.--Each financial report filed by a labor
    organization with the Secretary of Labor pursuant to section
    201(b) of the Labor-Management Reporting and Disclosure Act of
    1959 (29 U.S.C. 431(b)) shall be accompanied by a written
    statement by the president and secretary-treasurer (or the
    equivalent thereof) of the labor organization.
        (ii) Definition.--In this subparagraph, the term ``labor
    organization'' has the meaning given the term in section 3 of
    the Labor-Management Reporting and Disclosure Act of 1959 (29
    U.S.C. 402).
        (2) Content.--The statement required by paragraph (1) shall
    certify the appropriateness of the financial statements and
    disclosures contained in the periodic report or financial
    report, and that those financial statements and disclosures
    fairly present, in all material respects, the operations and
    financial condition of the issuer or labor organization.
        (3) Conforming amendment.--Section 201(b) of the Labor-
    Management Reporting and Disclosure Act of 1959 is amended, in
    the matter preceding paragraph (1), by inserting ``(and
    accompanied by the statement described in section 302(a)(1)(B)
    of the Public Company Accounting Reform and Investor Protection
    Act of 2002)'' after ``officers''.
        (b) Reporting Requirements.--
        (1) Financial reporting for labor organizations equivalent
    to required reporting of public companies.--Section 201 of the
    Labor-Management Reporting and Disclosure Act of 1959 (29
    U.S.C. 431) is amended by adding at the end the following:
        ``(d)(1) In the case of a labor organization with gross
    annual receipts for the fiscal year in an amount equal to
    $200,000 or more, the information required under this section
    shall be reported using financial reporting procedures
    comparable to procedures required for periodic and annual
    reports of public companies pursuant to sections 12(g), 13, and
    15 of the Securities and Exchange Act of 1934 (15 U.S.C.
    78l(g), 78m, and 78o).
        ``(2)(A) Such information shall be reviewed by a certified
    public accountant using generally accepted auditing standards
    applicable to reporting companies under the Securities and
    Exchange Act of 1934.
        ``(B) Such audit shall be conducted subject to requirements
    comparable to the
    requirements under section 10A of the Securities Exchange Act
    of 1934 (15 U.S.C. 78j-1).
        ``(3) Such information shall be reported using generally
    accepted accounting procedures comparable to the procedures
    required for public companies under sections 12(g), 13, and 15
    of the Securities and Exchange Act of 1934 (15 U.S.C. 78l(g),
    78m, and 78o).
        ``(4) The authority provided under this subsection shall be
    in addition to the authority provided under subsection (b) and
    section 208, regarding reporting procedures and review of
    information required under this section.''.
        (2) Remedies and penalties for violations of reporting
    requirements.--Section 210 of the Labor-Management Reporting
    and Disclosure Act of 1959 (29 U.S.C. 440) is amended--
        (A) by striking ``Whenever'' and inserting ``(a)
    Whenever''; and
        (B) by adding at the end the following:
        ``(b)(1) If the Secretary finds, on the record after notice
    and opportunity for hearing, that any person has willfully
    violated any provision of section 201(d), the Secretary may
    impose a civil monetary penalty in an amount not to exceed the
    amount for any comparable violation under section 21B(b) of the
    Securities Exchange Act of 1934 (15 U.S.C. 78u-2).
        ``(2) In the case of a violation of an auditing requirement
    under section 201(d)(2) by a public accountant, the Secretary
    may impose a civil monetary penalty in the same manner as
    penalties are imposed under section 10A(d) of the Securities
    Exchange Act of 1934 (15 U.S.C. 78j-1(d)).
        ``(3) For purposes of any action brought by the Secretary
    under paragraph (1), any person who knowingly provides
    substantial assistance to another person in violation of a
    provision of section 201(d), or of any rule or regulation
    issued under such section (including aiding, abetting,
    counseling, commanding, or inducing such violation) shall be
    deemed to be in violation of such provision to the same extent
    as the person to whom such assistance is provided.
        ``(c)(1) Any person who makes or causes to be made any
    statement in any report or document required to be filed under
    section 201(d) which statement was at the time, and in the
    light of the circumstances under which it was made, false or
    misleading with respect to any material fact, shall be liable
    to any person (not knowing that such statement was false or
    misleading) who relied upon such statement. A person seeking to
    enforce such liability may sue at law or in equity in any court
    of competent jurisdiction.
        ``(2) In any such suit the court may, in its discretion,
    require an undertaking for the payment of the costs of such
    suit, and assess reasonable costs, including reasonable
    attorneys' fees, against either party litigant.
        ``(3) The recovery and statute of limitation provisions of
    subsections (b) and (c) of section 18 of the Securities
    Exchange Act of 1934 (15 U.S.C. 78r) shall apply for purposes
    of any action under this subsection.
        ``(d) In any action arising under subsection (c) or (d) or
    in connection with any provision of section 201(d), the
    provisions of section 27(c) of the Securities Act of 1933 (15
    U.S.C. 77z-1(c)) regarding abusive litigation shall apply.''.
        (3) Regulations.--Not later than 1 year after the date of
    enactment of this Act, the Secretary of Labor, shall promulgate
    such regulations as the Secretary determines necessary to carry
    out the provisions and purposes of this subsection (including
    the amendments made by this subsection) and to ensure the
    provisions of this subsection are carried out in a manner
    comparable to the manner any similar provisions are carried out
    by the Securities and Exchange Commission.

        The Presiding Officer. The Senator from Vermont.
        Mr. Leahy. Madam President, so people understand what the
    Leahy-McCain amendment is, it is the Corporate and Criminal
    Accountability Act. It is about accountability, and it is about
    transparency. I think everybody--investors, corporate managers,
    or anybody else--will tell you that accountability and
    transparency are the bedrock of our economy, of our markets.
        If one is going to invest in a company, one wants to know
    what the company does and what the books say. One wants to be
    able to rely upon their reports.
        Transparency will instill confidence, and accountability
    helps enforce transparency and forthright financial decisions.
    We do not just rely on the better angels of our nature; we rely
    on the fact that somebody is going to be there to enforce it.
        We cannot stop greed, but we can stop greed from
    succeeding. This bipartisan amendment is going to send
    wrongdoers to jail and save documents from the shredder, and
    that sends a powerful and clear message to potential
    wrongdoers: Don't do it.
        The measure enjoys wide support. The amendment is supported
    by law enforcement officials, regulators, and numerous
    whistleblowers, and consumer protection advocates. I have
    letters of support from these advocates, and I will, at the end
    of my statement, ask consent to print them in the Record.
        Let me summarize some of the provisions. This bipartisan
    amendment has three prongs to restore accountability: punishing
    and preventing fraud, preserving the evidence of fraud, and
    protecting victims of fraud.
        S. 2010, as unanimously reported, accomplishes these goals
    in a number of ways. It is going to create a tough new Federal
    felony for securities fraud for a 10-year maximum penalty. The
    idea of 10 years in the slammer is going to focus the attention
    of those who are more interested in taking their money and
    hiding it in offshore bank accounts.
        As one who was a prosecutor, I was surprised to learn that
    unlike bank fraud, health care fraud, and even bankruptcy
    fraud, there is no specific Federal crime of securities fraud
    to protect victims of fraud related to publicly traded
    companies.
        Can you imagine, Madam President, while all this talk has
    been going on, it turns out there is no specific crime of
    securities fraud. This bill would create such a felony with a
    tough 10-year jail sentence.
        The amendment provides for a review of the existing
    sentencing guidelines for fraud cases and for organizational
    misconduct to make them tougher as well.
        The new crimes and enhanced criminal penalties in this bill
    were worked out among Senators Hatch, Schumer, and me, and
    unanimously supported by the Judiciary Committee, and I thank
    Senators Hatch and Schumer for their support.
        The Leahy-McCain amendment also creates two new anti-
    shredding penalties which set clear requirements for preserving
    financial audit guides and close loopholes in current anti-
    shredding laws.
        These provisions close loopholes in current laws and set a
    clear requirement that corporate audit documents must be saved
    for 5 years. We, incidentally, picked that time period because
    that is the statute of limitation for most Federal crimes.
        These provisions are crucial in preventing recurrences of
    what happened at Arthur Andersen.
        These provisions will preserve evidence that helps law
    enforcement officers and prosecutors focus immediately on the
    evidence. It takes a few minutes to warm up the shredder, but
    it can take years for prosecutors and victims to put together a
    case without key documents.
        The amendment protects corporate whistleblowers. Senator
    Grassley and I worked out these bipartisan measures in the
    Judiciary Committee. I thank the Senator from Iowa for his
    assistance and his constant leadership over the years on
    whistleblower rights.
        When sophisticated corporations set up complex fraud
    schemes, corporate insiders are often the only ones who can
    disclose what happened and why.
        Unfortunately, the Enron case also demonstrates the
    vulnerability of corporate whistleblowers to retaliation under
    current law. This is a memo from outside counsel to Enron
    management. They were afraid there might be a whistleblower. It
    said:

        You also asked that I include in this communication a
    summary of the possible risks associated with discharging (or
    constructively discharging) employees who report allegations of
    improper accounting practices.

        Then he goes on to give them the good news:

        Texas law does not currently protect corporate
    whistleblowers. The supreme court has twice declined to create
    a cause of action for whistleblowers who are dis-
    charged. . . .

        In other words, if they dare tell about corporate misdeeds,
    fire them, it is not going to hurt.
        After this high-level employee of Enron reported improper
    accounting practices, the Enron executives were not thinking
    about firing the accountants who were doing wrong; they wanted
    to fire the whistleblower, their own employee. Why? Because
    they were pocketing the money. They were getting that money out
    to their bank accounts as fast as they could, and they did not
    want anybody to say so.
        The bipartisan whistleblower protections are supported by
    the national Whistleblower Center, the Government
    Accountability Project, and Taxpayers Against Fraud. They call
    S. 2010 ``the single most effective measure possible to prevent
    further recur-
    rences. . . . ''
        The measure lengthens the statute of limitation by
    extending it from the earlier of 1 year from discovery or 3
    years from the fraud to 2 years from discovery or 5 years from
    the fraud.
        Senators Feinstein and Cantwell worked hard to craft a fair
    compromise on this provision in the Judiciary Committee.
        Indeed, the last two SEC Chairmen from both parties, Arthur
    Levitt and Richard Breeden, both agreed that the current short
    statute of limitations is unfair to fraud victims.
        Attorney General Christine Gregoire testified before the
    Judiciary Committee in the Enron State pension fund litigation
    that the current short statute has forced some States to forego
    claims against Enron.
        In Washington State alone, the short statute of limitations
    could cost hard-working State employees--firefighters and
    police officers--nearly $50 million in lost Enron investments.
        Last week, Xerox announced it was restating its revenue
    back 5 years by $6.4 billion. Madam President, as a law
    student, I remember sitting in the gallery listening to the
    distinguished Senator from Illinois, Mr. Dirksen, give his
    well-known speech: ``A billion here and a billion there, and
    soon you're talking about real money.''
        Imagine a corporation claiming they made a mistake in their
    revenue of $6.4 billion for the past 5 years. The disclosures
    raise the specter of innocent investors who, through no fault
    of their own, will be barred from recouping losses.
        We make the debt from security law violations
    nondischargeable in bankruptcy. We protect fraud victims by
    amending the bankruptcy code to make judgments and settlements
    based upon security law violations nondischargeable. Corporate
    leaders should not be allowed to take the money, run, file
    bankruptcy, and keep from ever paying any securities fraud
    judgment. The State security regulators strongly support this
    change. You cannot have one set of rules which say if you steal
    $500 from a store, you can go to jail. But if you steal $50
    million from the corporate boardroom, keep the money. That
    makes no sense. Everywhere I went in the State of Vermont last
    week, people were saying: If I committed an act, if I stole
    something, if I cash a bad check for $100, I run the risk of
    going to jail.
        But what do you do if you get $50 million or $100 million?
    You are home free.
        Criminal conduct deserves criminal penalties. Corporate
    CEOs who rob their company, who rob the pension funds of their
    employees, who rob the trust of the American people, are
    criminals. They ought to go to jail.
        The steel bars, maybe that will give a conscience to some
    of these people like Kenneth Lay and others who obviously do
    not have one. This gives prosecutors, the investigators, and
    victims the tools to hold corporate wrongdoers accountable.
        The people who are involved in such massive criminal
    activity ought to pay. The American people ought to know they
    will have to pay. If they don't, there will be a whole lot more
    fraud.
        I ask unanimous consent to have a number of letters printed
    in the Record.
        There being no objection, the letters were ordered to be
    printed in the Record, as follows:

                                       Taxpayers Against Fraud,
                                                        Washington, DC.
                             Government Accountability Project,
                                          Washington, DC, July 5, 2002.
        Dear Senator: The Government Accountability Project (GAP) and the
    Taxpayers Against Fraud (TAF) reaffirm our support for the Leahy
    Corporate and Criminal Fraud Accountability amendment to S. 2673, the
    Public Company Accounting Reform and Investor Protection Act of 2002.
        Initially introduced as S. 2010, the Corporate and Criminal Fraud
    Accountability Act, was unanimously reported by the Senate Judiciary
    Committee on May 6, 2002. This amendment is a landmark proposal. It
    promises to make whistleblower protection the rule rather than the
    exception for those challenging betrayals of corporate fiduciary duty
    enforced by the Securities and Exchange Commission. It would be the
    single most effective measure to prevent recurrences of the Enron and
    Worldcom debacles as well as similar threats to the Nation's financial
    markets, shareholders and pension holders.
        GAP is a nonprofit, nonpartisan public interest law firm dedicate
    since 1976 to helping whistleblowers, those employees who exercise
    freedom of speech to bear witness against betrayals of public trust
    that they discover on the job. GAP has led the campaign for passage of
    nearly all Federal whistleblower laws over the last two decades. TAF is
    a nonprofit, nonpartisan public interest organization dedicated to
    combating fraud against the Federal Government through promotion and
    use of the Federal False Claims Act and its qui tam whistleblower
    provisions. TAF supports effective anti-fraud legislation at the
    Federal and state level.
        The Leahy amendment to S. 2673 is outstanding good government
    legislation. It closes the loopholes that have meant whistleblowers
    proceed at their own risk when warning Congress, shareholders, and
    their own management's Board Audit Committees of financial misconduct
    threatening the health of their own company, investor confidence and
    the Nation's economy. We hope we can count on your support to add this
    state of the art whistleblower protection system in S. 2673. If you
    have any questions regarding the Leahy amendment, please call Tom
    Devine at GAP (202-408-0034 ext. 124), or Doug Hartnett (ext. 136).
                Sincerely,
                                                   Jim Moorman,
                                               Executive Director, TAF.
                                                    Tom Devine,
                                                   Legal Director, GAP.
                                   ----------
        North American Securities Administrators Associations,
                                                          Inc.,
                                          Washington, DC, July 5, 2002.
    Hon. Patrick Leahy,
    Washington, DC.

        Dear Senator Leahy: NASAA supports S. 2673, The Public Company
    Accounting Reform and Investor Protection Act of 2002, and opposes
    efforts to weaken its provisions. State securities regulators believe
    there is an immediate need to restore investor confidence in our
    securities markets.
        Passage of the Leahy amendment, which incorporates S. 2010, the
    Corporate and Criminal Fraud and Accountability Act of 2002, into the
    accounting reform bill would send a strong deterrent message to
    potential securities violators by providing prosecutors with new and
    better tools to punish those who defraud our Nation's investors. Our
    focus is on Section 4, which would prevent the discharge of certain
    debts in bankruptcy proceedings. At the present time, the bankruptcy
    code enables defendants who are guilty of fraud and other securities
    violations to thwart enforcement of the judgments and other awards that
    are issued in these cases.
        We support passage of the Leahy amendment because it strengthens
    the ability of regulators and individual investors to prevent the
    discharge of certain debts and hold defendants financially responsible
    for violations of securities laws. This issue is of great interest to
    State securities regulators, and we hope you'll support it on the
    Senate floor.
        In addition, State securities regulators enclose Title V of S.
    2673--Analyst Conflicts of Interest--in its current form and strongly
    oppose any amendment to this title that would reduce our ability to
    investigate wrongdoing and take appropriate enforcement actions against
    securities analysts. An amendment drafted by Morgan Stanley was
    circulated that, we believe, would have prohibited State securities
    regulators from imposing remedies upon firms that committed fraud, if
    it involved securities analysts and perhaps even broker-dealers that
    deal with individual investors. Clearly this approach is ill-advised,
    especially in today's climate. What message would be sent to Main
    Street investors if the States' investigative and enforcement authority
    were weakened? (Additional information on this proposal was delivered
    to your office last week.)
        Please vote for passage of S. 2673, for the Leahy amendment, and
    against any amendments to curtail State securities enforcement actions.
                Sincerely,
                                                Joseph P. Borg,
                          NASAA President, Alabama Securities Director.
                                           Christine A. Bruenn,
                 NASAA President-elect, Maine Securities Administrator.
                                   ----------
                       American Federation of Labor and
                           Congress of Industrial Organization,
                                        Washington, DC, April 17, 2002.
    Hon. Patrick Leahy,
    Senate Judiciary Committee, Washington, DC.
    Legislative Alert!

        Dear Senator Leahy: The sudden and spectacular collapse of Enron
    has jeopardized the retirement security of millions of hardworking
    Americans and exposed systemic failures of our securities laws. If we
    are to prevent future Enrons and restore the credibility of America's
    capital markets, aggressive reform is required. This week the Judiciary
    Committee will markup S. 2010, the Corporate and Criminal Fraud
    Accountability Act of 2002, which is an important part of this effort
    and deserves your support.
        The measures embodied in S. 2010 will help protect working families
    and their retirement funds from future Enrons by strengthening the
    penalties for securities and accounting fraud, and destruction of audit
    papers. The bill provides strong civil and criminal penalties for
    conduct such as document shredding by auditors and conspiracies to
    defraud investors; and bars those who commit securities fraud from
    using the bankruptcy system to avoid compensating the victims of such
    fraud. It also lengthens the statute of limitations for civil lawsuits
    by the victims of securities fraud, making it more difficult for those
    who commit these crimes to escape having to compensate their victims.
        S. 2010 is an important part of the comprehensive reforms Congress
    needs to enact in response to the conflicts in the capital markets
    exposed by the collapse of Enron. The AFL-CIO urges you to support S.
    2010 at this week's Judiciary Committee markup.
                Sincerely,
                                                 William Samuel
                                   Director, Department of Legislation.
                                   ----------
                                               Consumers Union,
                                                        Washington, DC.
    Re Support for S. 2010, the Corporate and Criminal Fraud Accountability
            Act of 2002
                                Consumer Federation of America,
                                        Washington, DC, April 16, 2002.
        Dear Senator: Consumers Union and the Consumer Federation of
    America urge your support for S. 2010, the Corporate and Criminal Fraud
    Accountability Act of 2002, sponsored by Senator Patrick Leahy, when it
    comes before the Judiciary Committee for markup on Thursday. This
    proposal adds important provisions to the civil and criminal laws,
    which will both, deter and when necessary, punish securities fraud.
            enhancing enforcement and sanctions for securities fraud
        S. 2010 takes the following important steps to strengthen
    enforcement and penalties for securities fraud:
        It creates a new felony for the act of defrauding shareholders of
    publicly traded companies.
        It creates a new felony for destruction of evidence or creation of
    evidence with intent to obstruct a Federal agency or criminal
    investigation.
        It provides whistleblower protection to employees of publicly
    traded companies when they act lawfully to disclose information about
    fraudulent activities within their company.
        It enhances the ability of State attorneys general and the SEC to
    use civil RICO to enforce existing law; currently only the U.S.
    Attorney General has such authority currently under RICO.
                  adopting a realistic statute of limitations
        S. 2010 also increases the ability of defrauded investors to
    recover their losses by lengthening the statute of limitations. The
    bill would set the statute of limitations to the earlier of 5 years
    after the date of the fraud or 3 years after the fraud was discovered.
        The current statute of limitations, the result of a 5-4 vote in a
    1991 Supreme Court decision, sets up an unrealistically short timetable
    for bringing private suits and needs to be corrected. Former President
    Bush's SEC Chairman Richard Breeden, former President Clinton's SEC
    Chairman Arthur Levitt, and State securities regulators have all
    supported an extension of the statute of limitations.
        Suits by defrauded investors have long been recognized by
    securities regulators, including former SEC Chairman Levitt, as an
    important deterrent against fraud. Moreover, securities fraud is often
    well-concealed and not readily apparent to investors until, in some
    cases, years after the fraud has been committed. As Chairman Levitt
    testified in 1995 before the Senate Banking Committee, ``Extending the
    statute of limitations is warranted because many securities frauds are
    inherently complex, and the law should not reward the perpetrator of a
    fraud who successfully conceals its existence for more than 3 years.''
        Justices O'Connor and Kennedy, in their vigorous dissent in the
    1991 Supreme Court case, also supported a longer statute of
    limitations. Justice Kennedy wrote, ``The most extensive and corrupt
    schemes may not be discovered within the time allowed for bringing an
    express cause of action under the 1934 Act. Ponzi schemes, for example,
    can maintain the illusion of a profit-making enterprise for years, and
    sophisticated investors may not be able to discover the fraud until
    long after its perpetration . . . By adoption of a 3 year period of
    response, the Court makes a 10(b) action all but a dead letter for many
    injured investors who by no conceivable standard of fairness or
    practicality can be expected to file suit within 3 years after the
    violation occurred. In so doing, the Court also turns its back on the
    almost uniform rule rejecting short periods of response for fraud-based
    actions.''
        Indeed, some States' pension funds may have to forego claims
    against Enron for securities fraud that occurred in the late 1990s
    because of this short statute of limitations. Washington State's
    Attorney General discussed this problem when she testified before your
    Committee in February of this year. ``In fact, for Washington State,
    our claim in the [Enron] case is for approximately $50 million, when in
    fact our losses are in excess of $100 million. But because of the
    statute of limitations, we're not able to make that claim.''
    (underlining added).
        The current statute of limitations rewards those who are able to
    conceal their fraud for a relatively short time with immunity from
    private liability. It also includes a limit of 1 year from the time of
    discovery, which encourages a rush to the courthouse.
        The criminal conduct surrounding the collapse of Enron, and the
    fact that many claims for fraud will be time-barred by the current
    short statute of limitations, have drawn attention to the need for
    reform. S. 2010 includes important investor pro-
    tection measures. We urge your support for this bill in the Judiciary
    Committee April 18.
                Sincerely,
                                               Sally Greenberg,
                                                        Senior Counsel.
                                               Travis Plunkett,
                                                  Legislative Director.
                                   ----------
                           U.S. Public Interest Research Group,
                                        Washington, DC, April 17, 2002.
    No More Enrons--Support S. 2010, the Corporate and Criminal Fraud
            Accountability Act of 2002

        Dear Member of the Senate Judiciary Committee: We are writing on
    behalf of the members of State Public Interest Research Groups to urge
    your strong support for S. 2010, the Corporate and Criminal Fraud
    Accountability Act of 2002, sponsored by Senator Patrick Leahy, when it
    comes before the Judiciary Committee for markup on Tuesday. This
    proposal adds important provisions to the civil and criminal law to
    both deter and, when necessary, punish securities fraud. Please oppose
    weakening amendments.
        S. 2010 takes the following important steps to strengthen
    enforcement and penalties for securities fraud:
        It creates a new felony for the act of defrauding shareholders of
    publicly traded companies.
        It creates a new felony for destruction of evidence or creation of
    evidence with intent to obstruct a Federal agency or criminal
    investigation.
        It provides whistleblower protection to employees of publicly
    traded companies when they act lawfully to disclose information about
    fraudulent activities within their company.
        It enhances the ability of State attorneys general and the SEC to
    use civil RICO to enforce existing law; currently only the U.S.
    Attorney General has such authority currently under RICO.
        Importantly, S. 2010 also increases the ability of defrauded
    investors to recover their losses by lengthening the statute of
    limitations. The bill would reasonably and sensibly set the statute of
    limitations to the earlier of 5 years after the date the fraud occurred
    or 3 years after the fraud was discovered. A securities law violation
    is often a complex, multi-year enterprise. Indeed, Enron's recent
    accounting restatements went back 5 years. Under the fraudster-friendly
    current law, some state pension fund claims against Enron may be time-
    barred.
        S. 2010 includes numerous important investor protection measures to
    assist whistleblowers, fraud victims, and law enforcement agencies. We
    urge your strong support for this bill to help restore investor
    confidence in the Judiciary Committee April 18. Please oppose weakening
    amendments. For more information about the full State PIRG platform to
    protect employees, investors and taxpayers from future Enron/Andersen
    debacles, please visit http://www.enronwatchdog.org. Please contact me
    with questions at either 202-546-9707x314 or ed@pirg.org.
                Sincerely,
                                            Edmund Mierzwinski,
                                             Consumer Program Director.
                                   ----------
                                 National Whistleblower Center,
                                        Washington, DC, April 17, 2002.
    Hon. Maria Cantwell,
    Senate Judiciary Committee, Washington, DC.

        Dear Senator Cantwell: The National Whistleblower Center strongly
    supports S. 2010, the Corporate and Criminal Fraud Accountability Act
    of 2002. This law would protect employees who disclose Enron-related
    fraud to the appropriate authorities.
        One of the most notorious loopholes in current whistleblower
    protection law exists under the securities laws, in which employees who
    report fraud against stockholders have no protection under Federal law.
    It is truly tragic that employees who are wrongfully discharged merely
    for reporting violations of law, which may threaten the integrity of
    pension funds or education-based savings accounts, have no Federal
    protection.
        This point was made abundantly clear by the recently released
    internal memorandum from attorneys for Enron. According to Enron's own
    counsel, employees who were blowing the whistle on Enron's misconduct
    were not protected under Federal law, and could be subject to
    termination. Unfortunately, the Enron attorney was correct.
        It is imperative that the next time a company like Enron seeks
    advice from counsel as to whether they can fire an employee, like
    Sharon Watkins (who merely disclosed potential fraud on shareholders),
    the answer must be a resounding ``no.'' That can only happen if the
    Corporate and Criminal Fraud Accountability Act is enacted into law.
                Respectfully submitted,
                                              Kris J. Kolesnik,
                                                    Executive Director.
                                   ----------
                     National Association of Attorneys General,
                                          Washington, DC, July 3, 2002.
        Dear Senator: It has come to my attention that the substance of S.
    2010, the Corporation and Criminal Fraud Accountability Act of 2002,
    will be offered as an amendment to S. 2673, the Public Company
    Accounting Reform and Investor Protection Act of 2002, as early as next
    week.
        I have attached a letter to Senator Leahy from seven Attorneys
    General written last April in support of the substance of S. 2010, in
    order to make these views known as you consider this legislation.
        If you have any questions or concerns, please feel free to call
    Blair Tinkle, NAAG's Legislative Director at 202-326-6258.
                Sincerely,
                                                    Lynne Ross,
                                                    Executive Director.
                                   ----------
                     National Association of Attorneys General,
                                        Washington, DC, April 17, 2002.
    Hon. Patrick Leahy,
    Chairman, Senate Judiciary Committee, U.S. Senate, Washington, DC.

        Dear Chairman Leahy: We would like to take this opportunity to
    express our support for your bill, S. 2010, the Corporate and Criminal
    Fraud Accountability Act of 2002, which is pending before the Senate.
        As you know, the proposal would allow state Attorney's General to
    seek to enjoin racketeering activities under the Federal RICO statute.
    Such added authority would enhance the ability of Attorneys General to
    protect their citizens from unlawful activities by organizations both
    within and outside the borders of our individual states.
        In addition, to restore accountability, S. 2010 provides
    prosecutors new and better tools to effectively prosecute and punish
    criminals who defraud investors by:
        Creating a new, 10-year felony specifically aimed at securities
    fraud.
        Enhancing fraud and obstruction of justice statutes where evidence
    is destroyed and in fraud cases, where there are many victims or where
    any victim is financially devastated.
        Creating two new document destruction felonies establishing a new
    felony shredding crime and requiring the preservation of audit
    documents for 5 years.
        Creating new protections for corporate whistleblowers.
        Finally, the bill protects victims' rights by:
        Protecting securities fraud victims from discharge of their debts
    in bankruptcy.
        Extending the statute of limitations in securities fraud cases.
        We appreciate your efforts to enact this important legislation.
    Please feel free to contact us if we can provide further assistance in
    this effort.
                Sincerely,

        Carla J. Stovall, Attorney General of Kansas, President of NAAG;
                Hardyress, Attorney General of Oregon, Chairman, Enron
                Bankruptcy Working Group; Christine Gregsire, Attorney
                General of Washington; William H. Sorrell, Attorney General
                of Vermont; Ms. Edmonds, Attorney General of Oklahoma,
                President-Elect of NAAG; Thurbert E. Baker, Attorney
                General of Georgia; Betty D. Montgomery, Attorney General
                of Ohio.

        Mr. Leahy. I appreciate the distinguished majority leader
    introducing this amendment and yielding to me.
        I yield the floor.
        The Presiding Officer. The Senator from Georgia.
        Mr. Miller. I was going to send an amendment to the desk
    but I understand there is one pending. I ask unanimous consent
    I have up to 8 minutes to discuss this amendment now, which I
    will send later.
        Mr. McConnell. Reserving the right to object, and I
    probably will not, I hoped for an opportunity to briefly
    explain the second-degree amendment that is pending at the
    desk. If the Senator thinks it might be helpful just to
    determine the order of discussion, perhaps it is more
    appropriate to discuss the amendment that is pending over one
    that might have been pending.
        Mr. Miller. The Senator from Kentucky is correct. I would
    like to get in the queue somewhere along the line.
        Mr. Reid. I ask the question of the Senator from Kentucky,
    How long does the Senator from Kentucky wish to speak?
        Mr. McConnell. I will be happy to wrap up in 5 or 6
    minutes. I want to summarize what the amendment is about.
        Mr. Sarbanes. Madam President, I ask unanimous consent the
    Senator from Kentucky be recognized for 5 minutes to speak to
    the second-degree amendment that has been offered, that is
    pending, and that be followed by the Senator from Georgia to
    speak for 8 minutes.
        Mr. Murkowski. Madam President, I wonder if I may be
    recognized after the sequence that has been discussed for about
    1 minute.
        Mr. Reid. I object.
        The Presiding Officer. Is there an objection to the
    original request of the Senator from Maryland?
        Mr. Reid. I do not object to the original 13 minutes.
        The Presiding Officer. Without objection, it is so ordered.
        The Senator from Kentucky will proceed.
        Mr. McConnell. I thank my friend from Georgia. I will
    briefly discuss the second-degree amendment. I expect to vote
    for the underlying bill, but we ought to, in the name of
    equity, apply the same principles in the underlying bill we are
    seeking to apply to corporations to labor unions.
        The amendment I sent to the desk requires union financial
    statements to be audited by an independent accountant using
    procedures that mirror those of public companies under Federal
    securities laws. It imposes civil penalties for violations of
    these new
    auditing requirements that mirror those imposed on the Security
    Exchange Act of 1934. Third, it requires that the Union
    President and Secretary-Treasurer certify the accuracy of
    financial reports, mirroring a similar requirement for CEOs and
    CFOs in the Sarbanes bill.
        We are debating how to better oversee and enforce the audit
    requirements for large corporations that were first established
    under the Securities Act of 1933. It may shock many to learn
    that labor unions are not even required to have independent
    audits of the financial statements they file with the
    Department of Labor--or should I say that they are required to
    file. Many unions apparently thumb their nose at the
    requirement. A study by the Office of Labor Management
    Standards found that 34 percent of all unions filed late
    financial reports or no reports at all.
        If we are serious about protecting the investing public
    from the financial fraud of corporations and accountants, we
    should be equally serious about protecting the day-to-day
    American worker--the plumbers, the machinists, the
    longshoremen, and the steelworkers--from the financial fraud of
    union officials.
        One prominent union official recently said that:

        Over the coming months you will no doubt hear more about
    the Enron scandal and the many thousands of people who have
    lost their pensions because of corporate greed.

        I agree with that. What we do not hear enough of are the
    stories of union greed. It is only fair to share some of them
    today. I have a rather long list I will discuss later in the
    debate, but let me cover a few of them in my allotted time. We
    have heard of Arthur Andersen, but has anyone heard of Thomas
    Havey? That is the accounting firm where a partner confessed to
    helping a bookkeeper conceal the embezzlement of hundreds of
    thousands of dollars from a worker training fund of the
    International Association of Ironworkers. And in an eerie
    parallel to the Enron scandal, the Havey accountants revealed
    startling information--10 years ago, the then General Counsel
    for the Ironworkers Union said that if the accounting firm
    refused to assist in the union scheme to conceal financial
    mismanagement, the accounting firm should be fired. Sadly, the
    accounting firm complied.
        We have all heard of Global Crossing, but has anyone heard
    of ULLICO? That is the multibillion-dollar insurance company
    owned primarily by unions and their members' pension funds that
    invested $7.6 million in Global Crossing. Apparently, ULLICO
    directors received a sweetheart investment deal that allowed
    them to make millions on the sale of stock. The union pension
    funds, however, dried up with Global Crossing's demise.
        There is much more. An accountant within the National
    Association of Letter Carriers embezzled more than $3.2 million
    from union funds over an 8 year period to buy 8 cars, 2 boats,
    3 jet skis, a riding mower, and 105 collectable dolls. A former
    official of the Laborers' Union District Council in Oregon,
    Idaho, and Wyoming is in jail for accepting hundreds of
    thousands of dollars in kickbacks for directing money into a
    ponzi-like investment scheme that defrauded Oregon labor unions
    of $355 million.
        I have a number of additional examples that I wish to get
    to later, but I do want to say in summary, again, what my
    amendment is about, just so everyone will understand as we move
    subsequently to a vote. It first requires union financial
    statements to be audited by an independent accountant using
    procedures that mirror those of public companies under the
    Federal securities laws; second, it imposes civil penalties for
    violations of these new auditing requirements that mirror those
    imposed under the Securities Exchange Act of 1934; and, third
    and finally, it requires that the Union President and
    Secretary-Treasurer certify the accuracy of their financial
    reports, which mirrors a similar requirement for CEOs and CFOs
    in the Sarbanes bill.
        I yield the floor.
        Mr. Sarbanes. Will the Senator yield for a question?
        Mr. McConnell. Yes.
        Mr. Sarbanes. Of course, there is a special statutory
    arrangement that governs labor organizations. I take it this
    proposal--has this come to us from the Department of Labor?
        Mr. McConnell. I say to the Senator from Maryland, it did
    not come from the Department of Labor. It came from my office.
    This is something we have been looking at over the last week or
    10 days, thinking that, since the very worthwhile requirements
    of corporations and accounting firms, under the bill of the
    Senator from Maryland, make sense if we are looking to protect
    investors, we should also protect union members from similar
    kinds of casual exploitation.
        Mr. Sarbanes. But under the Labor Management Reporting and
    Disclosure Act, the Department has certain authorities it can
    invoke in dealing with the kind of problems the Senator has
    outlined. At least that is my understanding under the current
    state of the law. Is that correct?
        Mr. McConnell. I don't know what the position of the
    Department of Labor is on the amendment I am offering. But it
    is my belief that if the amendment were not necessary, we would
    not be offering it here today. This is something I am sure we
    are going to discuss further as we move along.
        Mr. Sarbanes. I am sure the Senator would be able to find
    out from the Secretary.
        Mr. McConnell. I expect I could find out from the Secretary
    of Labor, but I chose not to do that.
        Mr. Gramm. I don't know whether you could or not.
        Mr. McConnell. She has her job and I have mine.

                               AMENDMENT NO. 4176

        The Presiding Officer. The Senator from Georgia is
    recognized under the previous order.
        Mr. Miller. Madam President, I ask unanimous consent the
    pending amendment be temporarily set aside so I be allowed to
    offer an amendment.
        The Presiding Officer. Is there objection to the request?
    Without objection, it is so ordered.
        The clerk will report.
        The bill clerk read as follows:

        The Senator from Georgia [Mr. Miller] proposes an amendment
    numbered 4176.

        Mr. Miller. Madam President, I ask unanimous consent the
    reading of the amendment be dispensed with.
        The Presiding Officer. Without objection, it is so ordered.
        The amendment is as follows:

    (Purpose: To amend the Internal Revenue Code of 1986 to require the
        signing of corporate tax returns by the chief executive officer of
        the corporation)

        At the end add the following new title:

                       TITLE VIII--CORPORATE TAX RETURNS

    SEC. 801. SIGNING OF CORPORATE TAX RETURNS BY CHIEF EXECUTIVE OFFICER.

        (a) In General.--Section 6062 of the Internal Revenue Code
    of 1986 (relating to signing of corporation returns) is amended
    by striking the first sentence and inserting the following new
    sentence: ``The return of a corporation with respect to income
    shall be signed by the chief executive officer of such
    corporation.''.
        (b) Executive Date.--The amendment made by this section
    shall apply to returns filed after the date of the enactment of
    this Act.

        Mr. Gramm. Will the Senator yield?
        There is a little bit of confusion. I want to be sure he is
    setting aside the entire amendment, the Leahy and the McConnell
    amendment, and he is offering a first-degree amendment? That is
    what I understood when I talked to the Senator and to what I
    had agreed.
        The Presiding Officer. That is the Chair's understanding.
        Mr. Sarbanes. No. What was the request? I thought the
    unanimous consent request was to set aside the McConnell
    amendment and offer the Miller amendment to the Leahy
    amendment.
        Mr. Gramm. It was the pending amendment.
        Madam President, I wanted to be sure that we set aside both
    Leahy and McConnell. This is a new issue, a first-degree
    amendment. That was the basis that I understood it on and on
    the basis of that I had no objection to it.
        The Presiding Officer. The Chair understands the Senator
    from Georgia was going to offer an amendment that would be
    considered at a different time, an independent first-degree
    amendment, to be spoken about now and considered at a later
    time. Is that the understanding of the Senator from Vermont?
        Mr. Leahy. Reserving the right to object, I want to make
    sure I fully understand. What is the request?
        The Presiding Officer. There is no request pending.
        Mr. Leahy. I am sorry. I thought there was a request to lay
    aside my amendment.
        The Presiding Officer. That request has been granted.
        Mr. Leahy. But then my--what is the parliamentary situation
    with my amendment? Maybe that is the best way to ask it.
        The Presiding Officer. The Senator from Georgia obtained
    the consent to set aside the pending amendment in order to
    offer a first-degree amendment.
        Mr. Leahy. I understand.
        Mr. Sarbanes. Would the call for the regular order at the
    completion of the statement of the Senator from Georgia, or
    disposition of his amendment, bring back before the body the
    Leahy amendment?
        The Presiding Officer. Yes, it would.
        Mr. Leahy. The Senator from Georgia spoke to me earlier. I
    do not want in any way to interfere with that. I do want to
    accommodate him. I just wanted to make sure, also for my own
    schedule, where we stood.
        I thank the distinguished Presiding Officer and I thank the
    distinguished Chairman of the Committee and of course I thank
    the distinguished Senator from Georgia.
        Mr. Miller. I thank the Senator from Vermont and the
    Senator from Texas.
        Madam President, there is a good old boy from down in
    Georgia named Jerry Reed, who went to Nashville several years
    ago and made it big as a tremendous guitar picker, singer, and
    songwriter. He had a big hit a while back. Maybe some of you
    remember it. It was called ``She Got the Gold Mine and I Got
    the Shaft.''
        I thought about that song of Jerry Reed's as I watched what
    has happened lately on the corporate scene. The big shots of
    Enron and WorldCom and others, they got the gold mine while the
    poor employees and the innocent stockholders got the shaft.
        If a picture is worth a thousand words, take a look at this
    gold mine. It was built partly on the backs of those Georgia
    schoolteachers who, each month, put their hard-earned money
    into the Georgia teachers' retirement fund. The fund in Georgia
    lost $78 million from Enron and another $6 million from
    WorldCom. Think how many monthly contributions by how many
    struggling teachers that represents. And think about those
    other thousands of employees who have lost their life savings,
    not even to mention the thousands of employees who have lost
    their jobs--at least 450 jobs were wiped out in Georgia alone
    so far.
        Yes, a few big shots got the gold mine and a lot of little
    folks got the shaft.
        I am as probusiness as anyone in this body. I yield to no
    officeholder when it comes to supporting business issues. As
    Governor and Senator, I have worked to give tax cuts and tax
    incentives and pay for the training of their employees--all to
    provide a probusiness environment in which the entrepreneurial
    spirit can thrive and prosper and create jobs. But, folks,
    there comes a time when so much greed and so many lies become
    so bad--even if it is only by a few--that something meaningful
    has to be done. We must act quickly to protect the investor,
    provide some security for the worker, and restore confidence in
    the marketplace because, make no mistake about it, today we
    have a crisis in the integrity of corporate America.
        That is why I have worked with Senator Sarbanes in
    perfecting his bill, and I strongly support it. I am pleased
    that it is before us this week. I also commend President Bush
    for making the strong recommendations he is going to be making
    in New York.
        But I think we need to do at least one other thing, so I
    have a simple amendment. It is only two short paragraphs in
    length, but it goes to the very essence of fairness. It simply
    says that, when the taxman cometh, we all--workers and high-
    dollar bosses alike--must face him just alike, without any go-
    betweens or liability firewalls or corporate veils.
        This is how it would work. There is a standard tax form
    called 1040. I know there are more sophisticated ones for big
    business, but the principle I am getting at is the same. This
    is what it says:

        Under penalties of perjury, I declare that I have examined
    this return and accompanying schedules and statements, and to
    the best of my knowledge and belief they are true, correct and
    complete.

        And then it is signed here by Joe Sixpack. Joe Sixpack of
    America signs those kinds of forms. There were more than 14
    million of those forms filed in April. If Joe Sixpack is
    required to sign this oath for his family, why shouldn't
    Josepheus Chardonnay be required to sign that same oath for his
    corporation?
        So my little amendment simply requires that henceforth the
    chief executive officer of all publicly owned and publicly
    traded corporations must sign the corporation's annual Federal
    tax return.
        Currently, there is an IRS rule that corporations can
    designate any corporate officer to sign their tax return. That
    will not get it. Let's be specific. Let's put it into law: The
    CEO is the one who is to sign the tax return and must be
    accountable for it.
        Where I come from it is expected that those being paid ``to
    mind the store'' should at least know whether the store is
    losing or making money.
        Harry Truman had a sign on his desk in the Oval Office that
    said, ``The Buck Stops Here.'' For Truman, it meant that he was
    accountable.
        He took the blame. He suffered the consequences when things
    went bad.
        For some of today's CEOs, it is just the opposite. They
    want no accountability. They shift the blame to others. They
    hide behind that corporate veil. And, it seems, they rarely if
    ever pay the consequences.
        Their former workers cancel plans for their children to go
    to college while they sip from champagne flutes in their
    mansions in Boca and Aspen.
        For these CEOs, Truman's famous sign has changed from ``The
    Buck Stops Here'' to ``The Bucks Go Here.''
        Our system of collecting taxes is based upon the premise
    that individual taxpayers will take all steps necessary to
    ensure that the financial information in the tax return is
    accurate.
        If Joe Sixpack fudges the numbers, he doesn't get a pass
    from paying penalties or going to jail. I find it outrageous
    that the same is not a part of the mind set for those in the
    corporate culture.
        If any CEO is not willing to sign the company tax return--
    if they are not willing to take steps to satisfy themselves
    that their corporation is accurately reporting financial
    information--then those CEOs have no right to the prestige and
    respect that goes with the position they hold.
        What is good for the goose is good for the gander. So I
    urge my colleagues to simply hold our CEOs to the same standard
    that we now impose upon our average wage earners.
        Treat them the same, ``Treat 'em'' the same. That is the
    American way. That is what the voters out there want us to do
    and that is what they expect us to do. ``Treat 'em'' the same.
        And you can take that back home this summer and explain it.
    Some of these other reforms, I fear, will be more difficult to
    explain.
        Treat 'em the same.
        I yield the floor.
        The Presiding Officer. The Senator from Alaska.

             VOLUME 148, TUESDAY, JULY 9, 2002, NUMBER 91,
                          PAGES [S6491-S6496]

     Public Company Accounting Reform and Investor Protection Act of 2002--
                                   Continued

        The Presiding Officer. The clerk will report the pending
    business.
        The assistant legislative clerk read as follows:

        A bill (S. 2673) to improve quality and transparency in
    financial reporting and independent audits and accounting
    services for public companies, to create a Public Company
    Accounting Oversight Board, to enhance the standard setting
    process for accounting practices, to strengthen the
    independence of firms that audit public companies, to increase
    corporate responsibility and the usefulness of corporate
    financial disclosure, to protect the objectivity and
    independence of securities analysts, to improve Securities and
    Exchange Commission resources and oversight, and for other
    purposes.

        Mr. Sarbanes. What is now pending before the Senate?
        The Presiding Officer. The Miller amendment, No. 4176.
        Mr. Sarbanes. I ask for the regular order.
        Mr. Gramm. May we have order, Madam President.
        The Presiding Officer. Members will take their
    conversations off the floor of the Senate.
        Mr. Sarbanes. There is a procedural question following the
    Miller amendment. We have been discussing that. We may be able
    to resolve it, but we need to do that overnight.
        I call for the regular order which, as I understand it,
    would take us back to the Leahy amendment, with the McConnell
    amendment pending to Leahy?
        The Presiding Officer. The Senator is correct.
        Mr. Sarbanes. I call for the regular order.

                               amendment no. 4175

        The Presiding Officer. The amendment is now pending. The
    Senator from Massachusetts.
        Mr. Leahy. Will the Senator yield for a question? We are
    on, am I correct, the Leahy amendment which was pending to it
    the McConnell amendment?
        The Presiding Officer. That is correct.
        Mr. Leahy. I thank the Senator from Massachusetts.
        The Presiding Officer. The Senator from Massachusetts.
        Mr. Kennedy. As I understand it, the matter before the
    Senate now is the McConnell amendment; am I correct?
        The Presiding Officer. That is correct.
        Mr. Kennedy. Madam President, this amendment of the Senator
    from Kentucky is what we call around here and everywhere a
    poison pill amendment intended to prevent serious action on
    corporate accountability. Just as a few Republicans sought to
    stop campaign finance reform with similar amendments, now they
    are trying to block action to make executives accountable. The
    lack of corporate responsibility in the United States has
    undermined the credibility of our markets and devastated the
    retirement savings of millions of Americans.
        This widespread abuse of corporate power has jeopardized
    our Nation's economic recovery and hurt the legitimacy of our
    fundamental institutions. We must not call for the
    obstructionism of Senate Republicans. Instead, we must heed the
    call of the American people and insist on bold action this week
    to ensure that corporations are made accountable and that
    workers and investors are protected against these abuses.
        The Leahy amendment, which my Republican colleagues seek to
    block, was unanimously approved by the Judiciary Committee in
    April. It includes critical measures to strengthen the ability
    of Federal prosecutors to detect, prevent, and prosecute
    corporate fraud. It makes acts of document shredding and
    corporate fraud punishable by 10 years in prison. It lengthens
    the statute of limitations for victims of security fraud.
        Finally, the bill directs the U.S. Sentencing Commission to
    review criminal penalties for obstruction of justice and
    corporate fraud.
        Today, Americans are outraged by the endless corporate
    scandals, and Congress must act to hold corporate crooks fully
    accountable and to restore confidence in our markets.
        Defeating the ``poison pill'' amendment offered by Senator
    McConnell is the first step toward that goal. Senator
    McConnell's amendment would put America's workers in double
    jeopardy. The amendment puts new requirements on workers'
    representatives, despite the fact that these officials
    currently face disclosure and reporting requirements which
    surpass those of public companies.
        This amendment would subject small local unions with annual
    receipts of only $200,000, which are already subject to labor
    reporting requirements, to the same SEC reporting requirements
    as large public companies which typically have resources in the
    millions.
        The reality is that union finances are already more heavily
    regulated than those of most public companies. The Department
    of Labor under current law can investigate and audit union
    financial records at any time, including conducting random
    audits. There is no comparable requirement for public companies
    today.
        There are many other examples of current labor laws
    requiring much stricter disclosure by unions than the SEC
    requires of publicly traded companies. Unions have to list
    every employee who receives more than $10,000. But the SEC does
    not require this of companies. Unions have to provide more
    detailed information regarding their loans than do public
    companies under SEC requirements. Unions have to provide more
    detailed lists of their investment today than do public
    companies under the SEC requirements.
        The list goes on and on and on.
        For over 40 years under labor laws, union officials have
    been required to certify the annual financial reporting of
    their unions under penalty of perjury.
        The McConnell amendment certification requirement ignores
    the safeguards that already exist under our labor laws. Union
    officials are already subject to criminal penalties, which
    include jail time for willfully failing to file reports, or
    knowingly making false statements, or willfully concealing
    documents. Union officials who violate these provisions are
    subject to jail time as well as substantial fines.
        It is misguided to apply SEC requirements and penalties
    which were designed for publicly traded companies to not-for-
    profit groups such as unions. Even the Department of Labor
    recognizes this.
        Don Todd, Deputy Assistant Secretary in charge of the
    Department's Union Reporting Office, wrote last August
    regarding SEC requirements that the Department of Labor does
    not have the expertise to provide more than a very general
    overview of this complex area of law. Why in the world would we
    want to force the labor unions to comply with SEC filing
    requirements when the relevant oversight agency doesn't
    understand this area of the law?
        The bottom line here is that the Republicans fear corporate
    responsibility. They know the American people are outraged by
    the endless series of corporate scandals that are hurting
    workers, retirees, and our economic recovery. Rather than admit
    the scope of corporate corruption and the urgency of criminal
    penalties for corrupt executives proposed by Senator Leahy, the
    Republicans are seeking to poison the well. If we allow this,
    the American people will never forgive us for passing up this
    unique opportunity to bring accountability to corporate
    executives. Corporate criminals must be made to pay for their
    misdeeds.
        I urge my colleagues to vote against the McConnell
    amendment.
        The Presiding Officer. The Senator from Texas.
        Mr. Gramm. Madam President, first of all, let me point out
    something. Senator McConnell's amendment changes nothing in the
    Leahy amendment. The adoption of Senator McConnell's amendment
    does nothing to change the Leahy amendment. I understand that
    Senator McConnell tomorrow is going to come over and speak at
    great length on his amendment. But I don't want anyone to be
    deceived as to what the amendment is about.
        The amendment has nothing to do with the Leahy amendment in
    terms of its adoption in any way delaying or changing the Leahy
    amendment.
        The Senator from Kentucky has proposed a simple proposition
    that I believe is unassailable logically. That proposition is
    we are going to put penalties on filing false reports by
    corporations, and we are going to in the process send people to
    prison for it. I support that provision. I think there are
    probably 100 Members of the Senate who support that part of
    Senator Leahy's amendment.
        The Senator from Kentucky simply asks the question: Why
    don't we require that labor unions, when they submit financial
    statements once a year, have them audited by CPAs? Second, why
    don't we have them sign those reports and be accountable for
    their accuracy?
        I am sure that people who do not want unions subjected to
    transparency and to accountability are going to say: Well, this
    is an effort to circumvent requirements on corporate America.
    Nothing could be further from the truth. This amendment does
    not strike the Leahy amendment. It simply adds a simple
    provision to it that applies parallel standards to unions.
        Senator Kennedy says this neglects existing law. The point
    is that the existing law is not very strong. Many unions don't
    even submit these reports. You could argue on the corporate
    side that we already have a body of law; why are we writing new
    laws? We are writing new laws because we need stronger and
    better laws. We have a bipartisan consensus that we do it.
        Also, Senator Kennedy says the veracity of these reports
    should follow under another jurisdiction. We are talking about
    accounting. We are talking about accuracy in reporting. We are
    talking about transparency. We are talking about
    accountability. Surely union members, in reading a report,
    should have the same confidence that it is valid, that a
    certified public accountant who is subject to high ethical
    standards wrote the report, and that the president of the
    unions certifies it, and that the president is going to be held
    accountable if it doesn't meet the standards we are setting.
        Let me just summarize, since we are going to debate this
    amendment tomorrow, by saying:
        No. 1, this amendment does not change the Leahy amendment.
    If you are for the Leahy amendment, that is fine.
        The question the Senator from Kentucky poses is, should
    similar parallel requirements be imposed on unions that issue a
    financial statement annually, and should they have to be
    certified by a certified public accountant? And should the
    president of the union have to sign the report as the president
    of a corporation does? Should they be held liable if the report
    is not accurate and if they knowingly file an inaccurate
    report?
        That is the question.
        No. 2, it seems to me it is perfectly reasonable. You might
    be for it, and you might be against it, but you can't say it
    has anything to do with trying to undo the Leahy amendment.
        It seems to me that if you are against it, you have to
    explain why unions should not be required to meet high
    standards in filing
    reports.
        I haven't spoken on the Leahy amendment. It is my
    understanding we are going to be debating it tomorrow. I would
    like to simply outline what is in the amendment that I am for
    and what is in the amendment that I am against. I can do it
    very briefly.
        If people knowingly and willfully violate the law, I
    support putting them in prison. The President has proposed
    doubling the sentence. I am for that. I hope at some point the
    administration will give us legislative language to implement
    the changes the President proposed today. I am hopeful that on
    a bipartisan basis we can adopt it on the floor of the Senate
    as part of this bill.
        If we do not have time to do it, I have every reason to
    believe there will be bipartisan support to make those changes
    and those additions, those strengthening amendments in
    conference.
        There is only one part of the Leahy amendment to which I
    object. Unfortunately, it is a very important part of the
    amendment that no one is focusing on when they are talking
    about the Leahy amendment. In fact, I would move that we simply
    accept the Leahy amendment except for this small but important
    provision.
        I remind my colleagues that in 1995, on a bipartisan basis,
    we adopted the Private Securities Litigation Reform Act,
    legislation that basically amended securities laws to deal with
    the whole issue of predatory strike suits where one law firm
    was filing 80 percent of the lawsuits against corporate America
    and we had a reform of corporate liability. That bill was
    adopted on a bipartisan vote. It is the only bill that we
    overrode President Clinton's veto on in 8 years in office.
        One of the reforms was to set statute of limitations
    requirements that basically paralleled the securities acts from
    the 1930s. What we said is, if you want to file a lawsuit, you
    have to do it within a year of when you know there was a
    violation or within 3 years of when the violation occurred.
        The whole point of statute of limitations is, that beyond
    some point it is very difficult to maintain records. You do not
    know what happened. People's memories fade. People die. This
    was part of this important reform.
        The Leahy amendment effectively throws out the 1 year and
    the 3 year statute of limitations and adopts a 5 year
    limitation. Now, he claims it is a 2 year and 5 year, but the 2
    year applies only if you can prove that the person who filed
    the lawsuit knew that the violation occurred outside of the 2
    years. I would assert that is virtually impossible to prove.
        It is interesting, in statute of limitations, where you are
    saying you have to act on a timely basis because people do not
    have knowledge after periods of time expire, under this, you
    have to have enough knowledge to prove that they knew, which I
    think is a standard that could not possibly work. No one really
    believes it could work.
        So the reality is, we are striking the 1-year and the 3-
    year statute of limitations in the securities litigation reform
    bill, and we are substituting a 5-year statute of limitations
    for it. That is a provision that I oppose. Every other part of
    the Leahy amendment I support. I personally would be willing to
    see it accepted by unanimous consent save that one provision in
    the bill. I think it is an important provision.
        But I want people to know, as we go into the debate, that
    my support for the McConnell amendment has nothing to do with
    the Leahy amendment; it simply has to do with having been
    convinced that there is logic to the McConnell position.
        If we are trying to get transparency in financial
    reporting, if we are trying to hold people accountable, if we
    want honest numbers, it seems to me the logical place would be
    to start with Government, which we have not done. But the
    second point, it seems to me, is to apply the same standard to
    business and to labor. That is what McConnell has done.
        Tomorrow we will have the debate on it, but I wanted to
    outline what the amendment did and did not do and my position
    on the Leahy amendment.
        The Presiding Officer. The Senator from Maryland.
        Mr. Sarbanes. Madam President, I am prompted to enter this
    debate by the comments of my colleague from Texas. You cannot
    evaluate the parallelism of the McConnell amendment without
    evaluating the requirements that are now imposed upon labor
    unions under the Labor-Management Reporting and Disclosure Act
    of 1959. The argument that this is logical is only if you drop
    out of the picture or the context the fact that the unions are
    now under extensive reporting requirements in the law,
    requirements that significantly exceed, in many respects,
    anything that is required of corporations.
        Now, the Department of Labor has the authority to conduct
    audits of labor unions.
        Mr. Kennedy. Will the Senator yield on that point?
        Mr. Sarbanes. Yes.
        Mr. Kennedy. According to the statute, it can conduct those
    audits randomly, as I understand. Does the Senator agree with
    me that these audits can be done randomly? According to the
    statute, it says right here, in section 601(a):

        The Secretary shall have power when he believes it
    necessary in order to determine whether any person has violated
    . . . any provision of [the legislation] . . . to make an
    investigation and in connection therewith. . . .

        And they may enter such places to inspect such records and
    accounts in question.
        Does the current underlying legislation permit the SEC to
    conduct random auditing of public entities?
        Mr. Sarbanes. The auditing is done by the independent
    public accountants.
        Mr. Kennedy. The point I am making is, at the current time,
    the Department of Labor can conduct an independent audit at any
    particular time on any occasion, according to the Labor-
    Management Reporting Act.
        Beyond that, it has the provision:

        Every labor organization shall file annually with the
    Secretary a financial report signed by its president and
    treasurer or corresponding principal officers containing the
    following information. . . .

        And it lists all of that information. It already exists.
        Mr. Sarbanes. Will the Senator yield on that point?
        Mr. Kennedy. Yes.
        Mr. Sarbanes. The Senator from Kentucky says they are not
    filing these reports. What are the Secretary of Labor and the
    Department of Labor doing, because they have the power to make
    them file their reports. In fact, they can impose penalties, as
    I understand it, including not only fines but also imprisonment
    for the failure of union officials to meet the requirements
    under the statute.
        My dear colleague from Texas says, well, look, this thing
    is on all fours. This is what we are doing to the corporations.
    And all the McConnell amendment does is it does it to the
    unions. Now, who could be against that?
        But let's look at what is already being done to the unions.
    Let's look at the requirements under which they already have to
    function. Let's look at the powers that the Department of Labor
    and the Secretary of Labor have with respect to this matter.
        Mr. Gramm. Will the Senator yield?
        Mr. Sarbanes. Certainly.
        Mr. Gramm. You can make the same argument the SEC has the
    power to audit any company in America today. Any exchange they
    are a member of has the power to audit them today. We are
    saying we need better, stronger, more powerful laws. We need
    better reporting. People need better information.
        All the Senator from Kentucky is saying is, why don't we
    apply the same thing to the reports that are filed by labor
    unions.
        Mr. Sarbanes. Will the Senator yield?
        Mr. Gramm. Yes. You have the floor.
        Mr. Sarbanes. Has the Senator examined, with any care, the
    reporting requirements and the other matters that govern labor
    union reporting under the Labor-Management Reporting and
    Disclosure Act?
        Mr. Gramm. Only to the degree that I can say that all the
    arguments that are being made, saying we do not need to improve
    reporting, are arguments that someone could make with regard to
    corporate America. They are already subject to random audits by
    the SEC. They are already subject to random audits by
    exchanges. I am not making that argument because I do not
    believe it.
        Mr. Sarbanes. What about the requirement on unions that
    they list the employees whose total of salaries and other
    disbursements exceed $10,000, including position, gross salary,
    allowances, and disbursements? What about that requirement that
    is imposed on the unions to make that kind of disclosure? Where
    is a comparable disclosure in that regard with respect to
    corporations?
        Mr. Gramm. Will the Senator yield?
        Mr. Sarbanes. Certainly.
        Mr. Gramm. I say, if the Senator wanted to offer an
    amendment to impose that, he certainly could. And I will stop
    asking him to yield, but let me make this point.
        Mr. Sarbanes. To impose it on corporations, you support
    that?
        Mr. Gramm. If you offer that amendment, I would have to
    read it. I probably wouldn't.
        Mr. Sarbanes. All right.
        Mr. Gramm. But the point I am making is, we are talking
    about two things. One thing that you have to have is a CPA do
    the audit, and, two, the president of the union and the
    president of the company has to sign the report. They are
    liable if they knowingly are misleading people. Those are the
    only two things the McConnell amendment does.
        I just can't see what is wrong with it and why it doesn't
    make sense. Not that there is anything wrong with that part of
    the Leahy amendment; I support that part of the Leahy
    amendment. I just don't understand why this does violence to
    organized labor. It seems to me it makes perfectly good sense.
        Mr. Sarbanes. I simply say that a statutory structure has
    been worked out for labor which is quite extensive and exceeds
    in many respects anything that applies to corporations. You
    can't make a judgment about whether you should do anything
    additional to the unions until you examine carefully what is
    already required from them under the existing statutory scheme.
    That is not happening here.
        Mr. Dodd. Will my colleague yield for a question?
        Mr. Sarbanes. I yield.
        Mr. Dodd. It occurs to me as well, in this bill, we are not
    requiring for all businesses these requirements. These are for
    businesses that have to file with the SEC.
        Mr. Sarbanes. That is right, which is a limited universe.
        Mr. Dodd. It is a limited universe. My point is, we are not
    talking about every entity that conducts business for profit.
    We excluded the overwhelming majority of businesses that are
    private entities, that have no filing requirements with the
    SEC. Our colleague from Wyoming felt very strongly about this
    point, that we only deal with public companies, the 16,000
    public companies.
        Let me ask my colleague this question: Is a labor union a
    for-profit business or are they a different kind of an entity?
    I have always understood a labor union was not a business and
    therefore to require of the labor union that which we require
    of a for-profit company that is required to file with the SEC
    seems to be mixing apples and oranges. There is no parallelism
    here at all.
        Mr. Sarbanes. The Senator is absolutely correct. The unions
    ought to have reporting requirements and they ought to file.
        Mr. Dodd. Correct.
        Mr. Sarbanes. Those have been put into law. There are
    extensive authorities in the Secretary of Labor and the
    Department with respect to the unions--quite extensive
    authorities, I might add.
        We have established one statutory framework to control the
    reporting requirements and disclosure on the part of unions,
    which is a completely separate universe from what we are trying
    to address in this legislation.
        The Senator is absolutely right. It is in a sense apples
    and oranges. You are dealing with two different universes, and
    you have established two different statutory frameworks within
    which to address that.
        Mr. Dodd. If the Senator from Texas were interested in
    creating a sense of uniformity, I could see him offering an
    amendment--I wouldn't agree with it--which would require that
    all businesses that are conducting their operations for profit
    be subjected to an accounting standard that was equal. Again,
    my friend from Wyoming would strenuously object to such an
    amendment. I would as well because of the reasons that smaller
    companies just could not possibly afford the costs associated
    with that. But to suggest somehow that a nonprofit organization
    ought to be subjected to the same rules as a for-profit public
    company where shareholders and so forth are involved is
    stretching logic.
        I appreciate my colleague yielding.
        Mr. Sarbanes. It is obvious that one of the distinctions we
    sought to make in the underlying bill that is before us is that
    when a company becomes public, you then have an investor
    interest that has to be protected. Otherwise, manipulation
    destroys investor confidence and affects the confidence in our
    capital markets. That is the issue we are confronting now and
    the impact it is having on the economy.
        That was the universe we tried to deal with in this
    legislation. We were very careful that the legislation does not
    apply to most businesses in America and doesn't apply to most
    accountants in America, since most of them don't audit public
    companies.
        Mr. Gramm. Will the Senator yield?
        The Presiding Officer (Mr. Dayton). The Senator from Texas.
        Mr. Gramm. I remind my colleagues that in some 40 States in
    the Union, you can't work unless you are a member of a union.
    If unions are not public organizations, when you have mandatory
    requirements, I can't work in Maryland in an area that is
    unionized without either joining the union or paying union
    dues. To suggest that unions are somehow private when you have
    mandatory membership I think won't hold water.
        Mr. Sarbanes. If the Senator would yield, you don't have
    mandatory membership. You may have a requirement that you pay a
    union fee, but the union then has an obligation, if you are in
    a union shop, to represent you in the collective bargaining
    efforts
    and with grievances, and so forth and so on. So the union has
    to, in effect, provide you a service for the fact that you get
    charged that fee.
        Mr. Gramm. I am not saying you are not getting anything for
    it. I am just saying that it is mandatory, and I don't see how
    you cannot say that unions are public institutions.
        Secondly, why do we require CPAs to do audits of companies?
    We can't audit every company in America. We don't have enough
    resources. So you try to get a system where the auditor has
    some degree of responsibility for helping to enforce the
    standards. I don't see why you wouldn't have CPAs required to
    do the audits of unions.
        I was handed this by Senator McConnell's staff. I am sorry
    he had an appointment tonight, but the OLMS, which does the
    compliance audits, did a high of 1,583 audits in 1984. Last
    year, that was only 238. So I don't know why you wouldn't want
    a union that has mandatory membership to have its reports done
    by CPAs who we are holding to a high standard in this bill.
    That is all I am saying.
        Mr. Sarbanes. What is the explanation by the Department of
    Labor for this rather stunning drop in the number of audits?
    Was it from 1,500 to 200 in 1 year's time or 2 years' time?
        Mr. Gramm. It is from 1984 to 2001.
        I would say on that issue, if the Senator will yield, that
    the President's 2003 budget asked for an additional $3.4
    million for 40 full-time positions. It will be very interesting
    to see if we provide the money for them to have it.
        Mr. Sarbanes. That is the way to go at this problem;
    otherwise, it seems to me that the Department of Labor needs to
    do the job that it has been charged to do. I think that is what
    those figures amply demonstrate.
        I am gratified that the Administration's budget is seeking
    more money in order to meet these responsibilities, but that is
    where it ought to be done.
        Mr. Gramm. My final point--and I appreciate the generosity
    of the chairman--it seems to me the most fundamental
    requirement is if you are going to make a public report and you
    have mandatory membership so you are a public institution, you
    ought to have a certified public accountant do that report and
    sign that they have done it.
        We have decided--I think it is one of the best things in
    our bill; whatever bill is adopted will have it--to require the
    heads of companies to sign these reports. I don't know why you
    wouldn't want the head of the union to sign these reports.
        Mr. Sarbanes. Would the Senator support a provision that
    required all companies with annual receipts of $200,000 or more
    to meet all of these auditing requirements?
        Mr. Gramm. I would if the companies were companies that
    people had to do business with. If we had anything equivalent
    in the marketplace to a provision that said you have to buy
    things from this company or you can't buy them, which in
    essence we do in States that don't have right-to-work laws; we
    say that you have to pay the union dues in order to work--you
    don't have to join, but you have to pay the dues--I think when
    you have that mandatory element, having to report publicly is
    logical.
        Mr. Sarbanes. They do have to report publicly. They are now
    required to report publicly under the legislation that governs
    reporting and disclosure. The Senator is speaking as though
    there are no such requirements.
        The fact of it is that there is an elaborately developed
    framework. Now, the Department of Labor may not be carrying it
    out fully, as the statute would require. They may be falling
    short in that regard, but if that is the case, the way to
    remedy the situation is to provide the resources to the
    Department of Labor and call upon them to do their job.
        Mr. Gramm. Mr. President, this is Mr. McConnell's
    amendment, and I will let him debate it. But the whole purpose
    of having CPAs, the whole purpose of having licensing and the
    taking of oaths is we cannot audit every company by the
    Government. I am pleased to say that nobody has proposed to
    have the Government take over the auditing function. We have
    proposed to strengthen the CPA process and impose higher
    standards because that is really our fundamental line of
    defense.
        I just don't understand. It seems to me this would be a
    logical amendment to take. It only says two things: When unions
    file a report, it has to be done by a CPA. You have a mandatory
    membership of unions in some 40 States, and they are public
    institutions. Secondly, the president of the union, as the
    president of the company, ought to have to verify the veracity
    of the statement and be liable if he knowingly is certifying it
    when he knows it is not valid. I mean you are not holding him
    accountable if somebody has not told him the truth.
        Senator McConnell is going to present case and verse of all
    of the problems. I don't know the problems, but it seems to me
    that when we are trying to improve reporting and improve
    transparency and improve accountability, the simple proposal
    that when unions file their annual report, as corporations do,
    a CPA should prepare the report--I just cannot imagine not
    requiring that.
        Secondly, the president of the union ought to have to sign
    the report and be accountable if he knowingly is saying
    something that is not true.
        Finally, the argument that there are other requirements--
    well, there are more requirements on corporate America. We just
    concluded there were not enough. So Senator McConnell is simply
    saying while you are improving one, improve both. If I were a
    member of a union, I would like having certified by a CPA a
    report showing how my money was spent. I think it would give me
    more confidence. I would think if the rank-and-file union
    members in my State would vote on this, there would be an
    overwhelming vote for it. I don't even know why we are debating
    this. This is sort of a no-brainer, in my opinion. But my
    opinion may not be the majority opinion.
        I yield the floor.
        The Presiding Officer. The Senator from Illinois is
    recognized.
        Mr. Durbin. Mr. President, I agree with the Senator from
    Texas, this is a no-brainer amendment because I cannot quite
    understand why we would be establishing a standard here for
    labor unions. It reminds me of when I was raising my kids and
    my wife and I had to give one of our children medicine that
    they didn't want. My daughter would say: I would feel a lot
    better if my brother had to take it, too. That is what we are
    having here--businesses faced with corporate corruption.
    Frankly, we have people on the Senate floor saying, as painful
    as it is for us to make more disclosures, we would feel better
    if you could also hurt the labor unions while you are at it. Is
    that what this is about--to try to find a parity of pain
    between business and labor? I didn't think so.
        The point made by the Senator from Maryland is that labor
    unions already face extraordinary reporting requirements in a
    law that has been in place for 43 years--requirements not made
    of many businesses. In the McConnell-Gramm amendment, it
    suggests that if your labor union has receipts of $200,000 a
    year, they are going to add a new burden to the labor unions--
    even beyond this 43-year-old law.
        I listened closely as the Senator from Maryland explained
    the bill before us. He has worked closely with the Senator from
    Wyoming to make sure it just applies to public corporations,
    where there is public investment in stockholders and where
    there is an item of public trust involved. That is
    understandable.
        So if I would stand before the Members here and say, if you

    really believe in transparency and disclosure, you ought to
    apply these requirements to every business in America, many
    people would say that is an onerous and unnecessary burden; it
    goes beyond the issue of public trust; now you are going after
    every business, large and small. That is what the McConnell-
    Gramm amendment does when it comes to labor unions. They say if
    a labor union has receipts of $200,000, they have a brandnew
    set of requirements. The Senator from Texas says these unions
    are public institutions, they should not be treated as if they
    are private. Well, they are not. They are subject to the 1959
    Labor-Management Reporting and Disclosure Act.
        The thing that also concerns me is that many requirements
    of the labor unions under current law are far stricter than
    what is required under the SEC for public corporations. I
    cannot understand why we would want to increase the burden on
    labor unions when the issue appears to be, at Enron, not a
    union problem but a business problem. The issue at Enron had to
    do with members of the board of directors being paid--according
    to the Governmental Affairs recent report--$350,000 a year to
    serve on the board and, frankly, missing it completely, or
    didn't report it when things were being done that defrauded
    stockholders, pensioners, and ultimately cost employees their
    jobs.
        That, I thought, was what this debate was about. Instead,
    we are talking about right-to-work and labor unions. I am
    sorry, but I don't think people across America believe the
    problems of Enron and WorldCom and Global Crossing had anything
    to do with labor unions. They didn't. They had to do with
    corporate greed and corruption.
        I commend Senators Sarbanes and Enzi for bringing to the
    floor a bill that addresses this in a straightforward manner.
    The McConnell-Gramm amendment wants to get us on another track
    to discuss other things. I find this interesting. There is no
    proposal that this new requirement be applied to any other
    organization than labor unions. I don't hear anybody coming
    before us and suggesting that the Boy Scouts of America should
    be subject to SEC filing. That is a large organization. They
    certainly have receipts beyond $200,000. I don't hear the
    suggestion that associations and organizations like the Boy
    Scouts of America, or the American Legion--I don't want to go
    too far with this--or the Federalist Society should have more
    transparency and disclosure and, therefore, should be subject
    to SEC filings. Nobody brought that up. Is that part of the
    problem in America, the lack of confidence in our economy? Not
    at all.
        The problem relates to corporations and businesses that
    have gone too far and lied to the stockholders and the American
    people. If we get off the track here and decide we are going to
    go after other battles to be fought, whether labor unions or
    other organizations, we have missed the point. I think this
    amendment misses the point.
        Let me also say that the McConnell amendment holds labor
    unions to standards to which not even businesses are being
    held. In 1995, I happened to be a Member of the House when the
    so-called Newt Gingrich ``Contract on America'' came through.
    One of the things we did there, I am afraid, turned out to be a
    precursor to what we are going through today in what was known
    then as securities litigation reform. We basically said we
    think some of these plaintiff lawyers, class action lawyers,
    have gone too far and therefore we are going to protect many
    corporations from liability when it comes to securities
    transactions. I was 1 of 99 in the House of Representatives who
    voted against that bill and wanted to sustain President
    Clinton's veto. We did not prevail. We lost in the House and in
    the Senate.
        It really, sadly, set the stage for where we are today.
    Another watchdog was gone. Corporations such as Enron and
    WorldCom didn't have to worry about somebody bringing an action
    against them for securities misdeeds.
        One of the things that was included in the 1995 law was to
    take away liability for aiding and abetting, in terms of rights
    of action, causes of action involving corporate fraud. We
    exempted a whole category of people who, up until that time,
    had been liable for aiding and abetting fraud. We said in the
    name of securities litigation reform, we would exempt this
    category of individuals.
        Senator McConnell comes up with this amendment and says: We
    want to reinstate that aiding and abetting liability, not for
    businesses, but we want to put it on labor unions. What is
    wrong with this picture? We are not imposing it on corporations
    despite all the scandals we have read about; instead, we are
    going to impose this new obligation on labor unions.
        I am afraid, frankly, that is not a matter of public
    policy, it is a matter of retribution. I also think we should
    take a look at how many labor unions could be liable for this
    audit that is required. There are 70 national and international
    unions, but the McConnell-Gramm amendment would apply to 5,000
    different unions, large and small, across America. It goes way
    too far.
        The amendment certification requirements are also
    redundant. For more than 40 years, union officers have been
    required to sign annual financial reports, under penalty of
    perjury, attesting that the report's information accurately
    describes the union's financial condition and operations. That
    is a pretty reasonable standard for labor unions under current
    law.
        We are trying to impose similar standards on corporations
    so when they file their accounting audit statements, someone
    puts their name on it and accepts responsibility for the truth
    and accuracy of the statement.
        Frankly, I think Senator McConnell and Senator Gramm have
    this totally upside down. The problems we face--the corporate
    corruption, the lack of confidence in the economy, which even
    the President spoke about today--have nothing to do with labor
    unions. They really have to do with corporations that have an
    obligation to the public.
        I believe the vast majority of businesses and corporations
    in America are run by honest people, working hard to make a
    profit to provide goods, services, and jobs to make America a
    better place. I do believe that. But there are some who have
    violated the public trust. The underlying bill addresses that.
    To bring in an argument now about imposing new obligations on
    labor unions not only misses the point completely as to why we
    are here this evening but misses the point about why we are
    facing this crisis in America.
        I stand in opposition to the McConnell-Gramm amendment, and
    I hope all of my colleagues will join me in remembering why
    this debate got started.
        Mr. President, I yield the floor.
        The Presiding Officer. The Senator from New Jersey.
        Mr. Corzine. Mr. President, I, too, wish to verbalize my
    opposition to this amendment that tries to draw in a completely
    extraneous item which has not been debated in the context of
    this bill in the 10 Committee hearings we had with regard to
    putting together the Corporate Corruption and Investor
    Protection Act.
        It has not been involved in any of the President's
    discussions about corporate abuse or fraud that we have heard
    discussed. It is not in any way related to the group of
    organizations with which we are attempting to deal, which are
    large, publicly traded corporations, and really ignores the
    fact that there is already a body of law that deals with union
    organizations and union officers with regard to their
    responsibility to their memberships and for their reporting
    requirements.
        For a whole host of reasons, I do not understand how this
    even relates to the issue that is the fundamental part of the
    underlying bill, and there certainly is not any evidence in the
    marketplace of ideas and activities across America that would
    justify pulling labor unions by their actions into the fish net
    about which we are talking. This is about corporate corruption.
    It is about investor protection. It is about making sure
    corporate fraud is properly dealt with in the legal system, one
    that puts everyone on notice that they have serious
    responsibilities to certify that what is reported is real, and
    if it is not real, then people are held accountable.
        We are off on the wrong track, and if we end up having too
    many of these diversionary tactics away from the underlying
    principles of what we are trying to accomplish, which is to
    have measured, reasonable, and thoughtful progress with regard
    to corporate responsibility, corporate accountability,
    accounting reform, and investor protection, public protection,
    then I think we are going to miss the opportunity to secure our
    economy, to secure the steps that are necessary for most people
    to restart this engine of investment that drives our economy.
    This is completely off point.
        I hope my colleagues in the Senate will recognize it for
    what it is and move on, turn this down, and get on with the
    underlying amendment that Senator Leahy has so appropriately
    brought to bear in this case.
        I yield the floor.
        Mr. Sarbanes. Mr. President, I suggest the absence of a
    quorum.
        The Presiding Officer. The clerk will call the roll.
        The assistant legislative clerk proceeded to call the roll.
        Mr. Sarbanes. Mr. President, I ask unanimous consent that
    the order for the quorum call be rescinded.
        The Presiding Officer. Without objection, it is so ordered.

            VOLUME 148, WEDNESDAY, JULY 10, 2002, NUMBER 92,
                          PAGES [S6524-S6560]

      Public Company Accounting Reform and Investor Protection Act of 2002

        The Presiding Officer. Under the previous order, the Senate
    will resume consideration of S. 2673, which the clerk will
    report by title.
        The assistant legislative clerk read as follows:

        A bill (S. 2673) to improve quality and transparency in
    financial reporting and independent audits and accounting
    services for public companies, to create a Public Company
    Accounting Oversight Board, to enhance the standard setting
    process for accounting practices, to strengthen the
    independence of firms that audit public companies, to increase
    corporate responsibility and the usefulness of corporate
    financial disclosure, to protect the objectivity and
    independence of securities analysts, to improve Securities and
    Exchange Commission resources and oversight, and for other
    purposes.

        Pending:

        Daschle (for Leahy) amendment No. 4174, to provide for
    criminal prosecution of persons who alter or destroy evidence
    in certain Federal investigations or defraud investors of
    publicly traded securities.
        Gramm (for McConnell) amendment No. 4175 (to amendment No.
    4174), to provide for certification of financial reports by
    labor organizations to improve quality and transparency in
    financial reporting and independent audits and accounting
    services for labor organizations.
        Miller amendment 4176, to amend the Internal Revenue Code
    of 1986 to require the signing of corporate tax returns by the
    chief executive officer of the corporation.

        The Presiding Officer. The Senator from Minnesota.
        Mr. Wellstone. Mr. President, I ask unanimous consent to be
    added as a cosponsor of the Leahy amendment.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Wellstone. Mr. President, I wanted to come out here on
    the floor and thank Senator Sarbanes for his leadership in
    putting together a piece of legislation that deals with
    structural reform of corporate governance and auditing
    independence.
        I also think what the Chairman didn't do is very important.
    Senator Sarbanes didn't just call for a roundup of the usual
    suspects but for the prosecution of the worst offenders who
    deliberately have enriched themselves at the expense of the
    employees, investors, and creditors, and then try to claim that
    it is the end of the matter. This bill does hold bad actors
    accountable for their fraud and deception. And it is probably
    going to be stronger by the time it leaves the Senate Chamber.
        The legislation goes much further, and it should because
    the problem goes much deeper. We are faced with much more than
    just the wrongdoing of individual executives. We are faced with
    a crisis in confidence in America's capital markets and in
    American business.
        These corporate insider scandals are threatening the
    economic security of families all across Minnesota, North
    Dakota, New Jersey, Maryland, and all across the country. It is
    heartbreaking. You have people who have taken their savings and
    put them into stock. This is what was going to be their
    resources to help send their
    kids to college or to meet other family needs. The value of
    that has eroded.
        Other people have 401(k) plans and are counting on that for
    retirement security. The value of that has eroded.
        But I think the other big issue is really important, which
    is above and beyond hundreds of billions of dollars wiped out.
    That is what has happened already. You do not have investor
    confidence. Without investor confidence, we will not have the
    economic recovery that we need. Jobs aren't being created.
    Frankly, this affects all of us.
        It is this last problem on which I want to focus. I see my
    colleague from New Jersey who knows much more about finance
    than I do.
        There is a business cycle. Some years are good and some
    years are bad. Sometimes companies do well and sometimes
    companies don't do well. Sometimes people invest more and
    sometimes they invest less. That is the risk they take.
        If the only problem was that executives at Enron were
    corrupt and their business failed--all of which is true--or
    WorldCom officers were fudging the books and the company really
    wasn't all that profitable--which is true--and that a lot of
    businesses, such as Global Crossing--what they were doing, to
    be blunt, was just fake--which is true--even with all of that,
    I don't think we would be out here on the floor with this
    legislation.
        In other words, if the story was only that a bunch of
    companies did badly, lost money, went bankrupt, and a whole lot
    of other people were hurt, frankly, I still don't think we
    would feel this sense of urgency. But that is not the end of
    the story.
        The reason we need this legislation goes way beyond Enron
    and WorldCom. It is not just because of Global Crossing. It is
    not just because of MicroStrategy. We need this legislation,
    and it ought not be cluttered with extraneous amendments, or
    with delay, because the American investing public has lost its
    confidence in this corporate system.
        I want to emphasize this point because I think some
    colleagues--some, not all of my colleagues--on the other side
    of the aisle don't seem to get it. I hate to say it, but I
    don't think the President or the Administration gets what this
    is really about.
        Again, the President yesterday basically focused on a
    handful of corporate executives who deliberately misled
    investors. He talked about a few bad apples. It goes much
    deeper than that.
        Listen to the words of some other Members of the
    Administration, such as Donald Evans, Secretary of Commerce,
    who 2 days ago said:

        The system has not failed us, but a few have failed the
    system.

        The President said the same thing yesterday.
        Treasury Secretary O'Neil said last year that Enron's
    collapse was ``capitalism working.'' Now, if these individuals
    didn't have substantial responsibility for the economy, then
    their comments would be comical. I guess if we asked these guys
    about Watergate, they would say it was just a burglary. But we
    are dealing with more structural and deeper issues.
        The crisis is a crisis in faith. Investors who thought that
    if a corporation was doing badly and making poor decisions it
    would show up on their financial reports now have found out
    that is not the case. By the way, we should not be shocked by
    this. In fact, this should be old news to us.
        Almost 2 years ago, the then-Chairman of the SEC, Arthur
    Levitt, approached many of us--I remember the discussion with
    him in my office--and he said: ``Paul, we are on the brink of a
    crisis in accounting.''
        What Levitt was saying is, I want to put into effect a rule
    which is basically going to say that the Andersens of this
    world cannot be pulling in all these luxurious contracts and
    money for their internal auditing and all the rest, because
    once they get all the money, they are going to be reluctant to
    bite the hand that feeds them. Secondly, they will be put in a
    position of auditing their own auditing. That is a conflict of
    interest, and the consequences of it could be tragic for a lot
    of innocent people.
        Arthur Levitt was right. Of the decisions I have made in
    the Senate, one of the best decisions I ever made was 2 years
    ago in writing a strong letter of support for the then-Chair of
    the SEC for what he was trying to do. The auditors haven't done
    a good job because they have been too close to the firms that
    they were supposed to be auditing. That is what Arthur Levitt
    was talking about. He fought for greater auditor independence.
    His solution looked a lot like what is in this bill.
        I am glad I supported his reform. That was a pretty lonely
    position back then for Chairman Levitt. I am glad the Sarbanes
    bill is going to get a lot more support. I believe it is going
    to pass overwhelmingly.
        The Sarbanes bill does a number of different things. No. 1,
    at the core of this crisis is the need to have auditor
    independence. That is part of what the Sarbanes bill is all
    about. One hundred years ago, we had politicians and business
    leaders who were willing to take on entrenched corporate
    interests that were stifling competition--sound familiar--that
    were bilking customers and bilking consumers and that basically
    were enslaving their workers. We are dealing with similar kinds
    of issues now.
        We are now in a new century. This is going to be a real
    interesting case study--I was a political science teacher--as
    to whether or not the Senate and the Congress and this
    Administration will, in fact, be there for strong reform.
        The other part of this legislation which is also important
    is to hold the corporate insiders accountable for their abusive
    actions. That is why I am so supportive of the Leahy amendment.
        If you ask people in any coffee shop in Minnesota, should
    there be criminal penalties for altering the documents, such as
    a 10-year felony, they will say, absolutely. If you ask people
    in Minnesota, should there be whistleblower protection for
    employees of public companies who actually blow the whistle on
    these kinds of abuses of power and corruption, people in
    Minnesota say, absolutely. If you ask, should there be criminal
    penalties for securities fraud, create a new 10-year felony for
    defrauding shareholders of a publicly traded company, people in
    Minnesota will answer, absolutely.
        The President spoke yesterday, and the problem is, he did
    not call for enough resources. He has a lot of tough rhetoric,
    but then when you look at what is behind the rhetoric you don't
    see the resources the SEC needs for the oversight. You don't
    see an oversight board that is set up, as the Sarbanes bill
    does, with authority and independence. Most importantly, from
    the President we don't get any proposals that insist on auditor
    independence.
        If we have learned one thing, it is that Chairman Levitt
    was right. Two years ago, Arthur Levitt tried to warn all of
    us. All of these big companies, accounting companies and all
    these other people who are tied into this finance, some of the
    biggest investors, frankly, in politics in the country--I know
    of no other way to say it--all lobbied hard. Arthur Levitt was
    clobbered by a whole bunch of people, but he was right. Now we
    have a chance to do the right thing.
        If you were to go back over the last decade, we have passed
    too much legislation that has taken away some of the individual
    investor rights, that has made it harder for us to have
    Government oversight, that refused to look at these blatant
    conflict of interest situations. As a result of that, we have
    these corporate insider scandals.
        I will say one more time, it is heartbreaking, hundreds of
    billions of dollars have been lost. It is heartbreaking to see
    what this has done to people's savings who invested in stock.
    It is heartbreaking to see what it has done to 401(k) plans,
    heartbreaking to see the ways in which families are terrified
    in Minnesota and around the country. Most fundamental of all
    is, we don't have investor confidence any longer.
        I say to my colleague from Maryland, the best thing he did,
    above and beyond this bill, is he didn't just say, let's go
    after a few bad apples. He didn't just say that. That would be
    the end of it. He has dealt with the underlying structural
    issues so we can prevent this from happening again.
        I am extremely proud to support this bill. I can think of
    some zinger amendments. When I think of these guys who got the
    golden parachutes, I am amazed. Look at WorldCom.
        Mr. Sarbanes. Will the Senator yield for a moment?
        Mr. Wellstone. I will just finish one quick point.
        With WorldCom, you are looking at a situation where at the
    very time--the same old story--they are getting employees to do
    away with defined benefit packages and then they put their
    employees in 401(k)s, cheerleading the 401(k)s, while they are
    doing that, they are dumping their stock. They got out with
    golden parachutes, all this money. It is outrageous what has
    happened at the individual abuse level.
        It is much deeper than the wrongdoing of these individual
    corporate chieftains and governance. It gets to the structural
    issues. That is what is so important about this bill.
        Mr. Sarbanes. If the Senator will yield, I thank him for
    that observation because he is absolutely on point. The bad
    apples ought to be punished. There is no question about it.
    They ought to be punished severely. But it is very clear, as
    this issue has unfolded, that we need to make structural
    changes. We need to change the system so that the so-called
    gatekeepers are doing the job they are supposed to be doing.
    That has not been happening. That is why we need to remove
    these conflicts of interest on the part of auditors who are
    also consultants for the same company, collecting huge fees.
    And they are supposed to come in as outside auditors and be
    very tough on the company, which at the same time is giving
    them large fees for consultancy.
        The Senator is absolutely on point. We have to put in place
    a framework, a system which tightens up and begins to screen
    out these things.
        Furthermore, if you go after the bad apples, fine; but the
    damage has already been done, as the Senator just observed, for
    instance, WorldCom and the collapse of the whole pension
    program and pension provisions.
        Punishing a bad apple may have something of a deterrent
    effect, but there is nothing like putting a system into place
    that gives a heightened assurance that you are going to be
    accountable. That is what investors are looking for.
        Mr. Wellstone. One more minute. What I said earlier, the
    problem with rounding up the usual suspects is quite often you
    then say that is the end of the matter. That is why the
    President's proposals yesterday come in for strong constructive
    criticism.
        The story in the Post today in the business section is
    another outrageous example of what happened. WorldCom swallows
    MCI and tells the MCI employees they don't have a defined
    benefit any longer and puts them on the 401(k), cheerleads them
    on to put the investment into the company, cooks the books, and
    doesn't give them any accurate information on what happened to
    them. Now what happens to all these MCI employees? They don't
    have any of the savings any longer.
        So do you know what. We have to hold these people
    accountable, absolutely, but at the same time don't let
    anybody--people in Minnesota--get away with saying it is a few
    bad apples and that is all we are going to deal with. No. We
    are going to deal with the conflict of interest and we are
    going to have structural reforms. We are going to have
    oversight. We are going to protect consumers, the little
    people, and give the business community more confidence so they
    do the investing in the economy. That is what is at stake with
    this legislation.
        I yield the floor.
        Mr. Sarbanes. Mr. President, I ask unanimous consent that
    following Senator McCain, who will speak later, Senator Corzine
    be recognized to speak for up to 15 minutes.
        The Presiding Officer. Is there objection?
        Without objection, it is so ordered.

                               amendment no. 4175

        The Presiding Officer (Mr. Reed). Under the previous order,
    the Senator from Kentucky is recognized for up to 30 minutes.
        Mr. McConnell. Mr. President, I wish to take the
    opportunity now to describe in detail the amendment currently
    pending before us, that which I was unable to do yesterday.
        There are two fundamental points to the amendment. What it
    seeks to do is require independent audits of union funds which,
    of course, are raised from union members in the vast majority
    of our States. You don't have a choice; you must belong to a
    union, and those dues are taken. So we have mandatory auditing
    of those funds to ensure they are being accurately accounted
    for, civil penalties for violating those auditing requirements,
    and, third--this is all the amendment is about, these three
    points--the president and the secretary of the union must
    certify as to the accuracy of the audit.
        We are talking about guaranteeing the integrity of the
    funds raised from union members. The reason we require
    corporations to file financial statements is so corporate
    shareholders know how their money is being spent. As a second
    layer of protection for shareholders, we also require those
    financial statements to be independently audited. Why? So
    investors know that information filed is actually correct, so
    they know it is not just the creative writing of a crooked
    bookkeeper or a corrupt executive.
        We take this independent audit requirement, or this second
    layer, very seriously--so seriously, in fact, that we are
    creating a third layer in the Sarbanes bill, an entirely new
    audit oversight board to better police these required audits
    for the benefit of corporate shareholders.
        This third layer is a good idea, especially given today's
    stories of corporate fraud, deception, and outright theft that
    we all cite as the real motivation behind the underlying bill.
    My colleagues have cited the well-publicized financial failures
    and the endless corporate scandals and the need to hold
    corporate crooks accountable. I could not agree more. But we
    also have union corruption, union greed, union scandals.
        My amendment will give American workers the assurances that
    their labor unions' books have been independently audited--the
    same second layer of protection we have given to corporate
    shareholders since 1933.
        Unions already have to file financial statements. They do
    so with the Department of Labor on a form called the LM-2. Why?
    For the same reason corporations do: So American workers, the
    card-carrying, dues-paying union workers can see where their
    money goes. But we don't currently require independent audits
    of union financial statements. Unlike the corporate
    shareholder, the rank-and-file American worker has no earthly
    idea if the financial information they rely on is correct--no
    idea at all. So why shouldn't the American steelworker or
    longshoreman be entitled to the same assurances as the
    corporate shareholder who has recklessly overinvested in a
    bundle of Internet stocks? Isn't the workers' money just as
    hard earned and deserving of protection--maybe even more so?
        I cannot imagine that anyone in this body would argue that
    American workers do not suffer from the same type of greed and
    corruption that plagues our corporate and accounting culture,
    nor can I imagine that as a result of these scandals anybody in
    this body believes that American workers do not deserve the
    very same assurances that their unions' financial statements
    are correct.
        But just in case, let me read for my colleagues a few
    recent accounts of union corruption. I am going to read quite a
    few, and I will do so for a specific reason--so nobody can
    stand up and say that greed and corruption only affects
    corporate shareholders, so no one can say the only stories here
    are Enron and WorldCom, and so no one can stand up and say we
    are wasting time by trying to protect the American workers from
    being cheated out of their money.
        We have all heard of Arthur Andersen, but has anybody heard
    of Thomas Havey? That is the accounting firm where a partner
    confessed last month to helping a bookkeeper conceal her
    embezzlement of hundreds of thousands of dollars from a worker
    training fund of the International Association of Iron Workers.
        Yesterday, a colleague of mine said that the problem at
    Global Crossing had nothing to do with labor unions. Maybe he
    hasn't heard of ULLICO. That is the multibillion-dollar
    insurance company owned primarily by unions and their members'
    pension funds that invested $7.6 million in Global Crossing.
    Apparently, ULLICO directors received a sweetheart stock
    investment deal that allowed them to make millions on the sale
    of the stock. All the while, union pension funds, however,
    suffered the fate of Global Crossing.
        There is plenty more, beginning with a couple of stories I
    briefly mentioned yesterday. An accountant with the National
    Association of Letter Carriers embezzled more than $3.2 million
    from union funds over an 8-year period to buy 8 cars, 2 boats,
    3 jet skis, a riding mower, and 105 collectible dolls.
        A former official of the Laborers' Union District Council
    in Oregon, Idaho, and Wyoming is in jail for accepting hundreds
    of thousands of dollars in kickbacks for directing money into a
    Ponzi-like investment scheme that defrauded Oregon labor unions
    of $355 million.
        A former business manager and financial secretary of the
    International Association of Heat and Frost Insulators and
    Asbestos Workers Local 87 was indicted by the U.S. attorney for
    the Western District of Texas for embezzling tens of thousands
    of dollars in union funds.
        Mr. President, a comptroller of the American Federation of
    State, County and Municipal Employees, Council 71 of New
    Jersey, was sentenced to 13 months in prison and fined for
    embezzling tens of thousands of dollars from the union.
        A trustee of Glass, Molders, Pottery, Plastics & Allied
    Workers International Union Local 63B, headquartered in
    Minneapolis, was charged with forgery and embezzlement in
    connection with the theft of thousands of dollars from the
    union.
        Fourteen officers and members of Local 91 of the Laborers
    International Union in Niagara Falls were arrested on charges
    of labor racketeering, extortion, assault, vandalism, and
    bombing a dissenting union member's home and stabbing a worker.
        A former business manager of IBEW Local 16 in Evansville,
    IN, was indicted for diverting union dues checks to his
    personal bank account.
        A Federal grand jury recently indicted an ex-business
    manager of the United Association of Plumbers and Pipefitters
    Local 15 in Minneapolis in connection with the theft of tens of
    thousands of dollars from the union.
        A former officer of United Food and Commercial Workers
    Local 1288, in Fresno, CA, was sentenced to 18 months in prison
    for embezzling almost $300,000 from the union's credit union.
        An ex-business manager and financial secretary of the
    United Union of Roofers, Waterproofers and Allied Workers Local
    86, in Columbus, OH, was sentenced to 21 months in prison for
    embezzling $130,000 from the union to pay his gambling debts.
        An ex-president of the American Postal Workers Union Local
    1616, in Roanoke Rapids, NC, was indicted for embezzling
    thousands in union funds and making false entries in union
    records.
        Laborers International Union of North America Local 2, in
    Chicago, which recently came out of Federal trusteeship imposed
    because of its close ties to organized crime, failed an
    oversight audit and is again having significant accounting and
    bookkeeping problems.
        An ex-secretary-treasurer of the American Postal Workers
    Union Local 761 in Las Vegas and ex-treasurer of the Postal
    Workers Nevada State Association pled guilty to embezzling
    $200,000 in union funds.
        Two former officers of Steelworkers Local 9339 in Virginia
    and a former administrator of the local union's disaster relief
    fund were indicted for conspiracy to embezzle union funds and
    make false recordkeeping entries.
        A grand jury is investigating claims that a local United
    Auto Workers Union ended an 87-day strike against General
    Motors only after union officials received phony overtime
    payments and jobs for their relatives. Union members have also
    filed civil suits to recover over half a billion dollars--half
    a billion dollars--from alleged self-dealers.
        My good friend, the senior Senator from Texas, always says
    you cannot argue about facts. Facts are a powerful thing. These
    are the cold hard facts of union corruption. Just like Enron,
    just like WorldCom, just like Global Crossing, these are the
    cold hard facts, and there are plenty more of these facts.
        I have a stack of papers filled with what is called a union
    corruption update. If you look at this stack, this is just for
    the year 2002. This stack is just for the year 2002--this whole
    stack--and 2002 is only half over. It is compiled by the
    National Legal Policy Center. The Department of Labor's Office
    of Labor Management Standards reports 12 new indictments and 11
    convictions of union fraud per month over the last 4 years.
        Let's go over that one more time. DOL's Office of Labor
    Management Standards reports 12 new indictments and 11
    convictions of union fraud per month over the last 4 years.
    This is a serious problem, and the Senate should not let
    whatever allegiance some Members may have to the leaders of
    organized labor affect their concern about the workers
    themselves, and that is what this amendment is about: Providing
    the same protection for union members that we insist on
    providing for investors in corporations.
        We have a choice before us. Who should bear the cost of
    union corruption against the rank-and-file, dues-paying
    American workers? The unions, the perpetrators of much of this
    fraud, by bearing an incremental cost of an audit that will
    help prevent future workers from being cheated out of their
    money? Or the workers, whose money will continue to be
    embezzled, concealed? And if we do not provide them with
    minimal assurances of an independent audit, it will go on and
    on.
        To me, this choice is identical--absolutely identical--to
    the choice in the Sarbanes bill. Who should bear the cost of
    the corporate and accounting corruption against shareholders,
    the corporations and accountants, obviously, through improved
    oversight, enforcement, and corporate responsibility or the
    investing public whose stock holdings will continue to be
    embezzled, concealed, if we do not provide them a new
    accounting oversight board?
        Choosing the unions over the workers in this case is no
    different than siding with the accountants and corporate
    executives who quietly oppose the Sarbanes bill.
        Mr. President, about the complaints I have heard of the
    burdens and costs associated with this bill. It would not
    surprise me if the leaders of organized labor have been on the
    phone calling particularly our Democratic colleagues over the
    last 24 hours concerned about the burdens and costs associated
    with this bill.
        First of all, I find it absolutely astounding, given the
    pervasiveness of union corruption, that some of our colleagues
    are worried about the incremental cost of stopping that
    corruption, the cost of giving union workers the same quality
    assurance answers that we are prepared to give corporate
    shareholders in the underlying bill.
        I do not hear any complaints about the cost of a new
    accounting oversight board or the cost of corporate
    responsibility or enhanced disclosure requirements in the
    Sarbanes bill. Why not? Because the accountants and executives
    are the ones responsible for the fraud and deception of
    investors. But for some reason, when it comes to unions, some
    of our colleagues speak less about the cost to the workers
    being ripped off and more about the burdens this amendment will
    place on unions whose officials are responsible for the greed
    and corruption documented in the binder I just held up a few
    minutes ago which represented only half of the year 2002.
        We hear that unions are saddled with too many requirements
    on their financial statements. I am not concerned with the
    quantity of disclosure requirements. I am only concerned about
    the quality of that disclosure, specifically whether the
    information is accurate and certified as such for the benefit
    of the dues-paying American union workers.
        We hear that we do not need audits. Some have said we do
    not need audits because the Department of Labor can conduct
    enforcement audits, if necessary. Well, let's play with that
    logic a little. If that is the case, we do not need public
    corporations to be audited either. Let's get the SEC to conduct
    enforcement audits. Could you imagine the uproar if someone
    suggested that? And no one has.
        Think about the message this would send to American workers
    that it is not worth requiring your union to assure you that
    your money is going where they say it is; just take a number
    and hope the Department conducts an audit of your union.
        At any rate, the Department, as most Federal agencies,
    needs more money to conduct the few enforcement audits that
    they conduct. The Deputy Secretary of the Department of Labor
    testified recently that the number of departmental audits has
    fallen from 1,583 in 1984 to a mere 238 last year, and the
    President has requested an additional $3.4 million and 40 new
    staff positions to combat union fraud.
        We hear that audits will be too expensive. Here is an easy
    tip for union officials to save money: Stop stealing it. That
    is a good way to save money. My amendment only requires audits
    to any union that already bears the cost of filing financial
    disclosure statements. In other words, this would apply only to
    unions that already have to file financial disclosure
    statements. That is unions with
    receipts topping $200,000 annually. It goes to my original
    point. If you have to file an annual report, it ought to be
    verified as accurate.
        We hear that smaller unions will be hit hardest by having
    to conduct an audit. Well, there is no national one-rate plan
    for audits of which I am aware. As any professional service,
    the rates are proportional to the size and scope of the client.
    Obviously, a union with $500,000 is not going to pay in audit
    fees what a $60 million corporation pays for an audit.
        Let me close this part of my remarks with a simple
    suggestion for my colleagues who have been tricked into
    worrying about the cost this amendment would impose on unions.
    Just imagine this: The cost to American workers of not
    requiring audits. Let us think about the cost to American
    workers of not requiring audits: More embezzlement, more
    crooked bookkeeping, more abuse and concealment of workers'
    hard-earned money.
        We do not need more embezzlement, more crooked bookkeeping,
    and more concealment of workers' hard-earned money. We have a
    choice. We can extend to American workers the same financial
    protection afforded corporate shareholders, or we can extend to
    unions the ability to continue to pilfer and profit off the
    workers' money. That is the choice.
        How much time do I have remaining?
        The Presiding Officer. The Senator from Kentucky has 8
    minutes 30 seconds remaining.
        Mr. McConnell. I know the Senator from Arizona has been
    waiting patiently. I would like to reserve my 8 minutes because
    I am not clear how long this debate is going to go on. We do
    not have a time agreement yet for a vote. Is that correct? I
    guess I am asking my friend from Maryland what his plans are
    for the disposition of the McConnell amendment.
        Mr. Sarbanes. If the Senator will yield, we have people
    lined up to speak once the Senator has concluded, Senator
    McCain and then Senator Corzine. After that, I anticipate then
    dealing with the McConnell amendment.
        Mr. McConnell. So is it the plan of the Senator from
    Maryland to have a vote sometime in the next hour or so?
        Mr. Sarbanes. I would anticipate a vote in relation to the
    McConnell amendment--well, we have 30 minutes.
        Mr. McConnell. Could we do this, then? I ask unanimous
    consent that I have 2 minutes prior to the vote to sum up what
    I think this amendment is about.
        Mr. Sarbanes. I certainly think that could be done. I
    intend to speak to it for a few minutes.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. McConnell. Therefore, I yield the floor.

                               amendment no. 4174

        The Presiding Officer. Under the previous order, the
    Senator from Arizona is recognized for up to 15 minutes.
        The Senator from Arizona.
        Mr. McCain. Mr. President, for the benefit of the managers,
    I do not intend to consume all 15 minutes.
        I rise in strong support of the underlying Leahy amendment,
    and I hope we can dispose of that amendment within a reasonable
    length of time and move on to other changes that need to be
    made to this very important legislation.
        Our publicly owned companies are an essential component to
    the economic health of our country. As we have seen over the
    past few months, the continued lapses of our corporate leaders,
    whether they are ethical, criminal or just plain ignorant, have
    a significant, sometimes crippling, effect on the welfare of
    our Nation. We must make some fundamental changes in the
    current system of corporate oversight to protect Americans from
    avarice, greed, ignorance and criminal behavior. Now is the
    time for Congress to restore investor confidence and take the
    necessary action to protect the interests of the public
    shareholders and place those interests above the personal
    interests of those entrusted with managing and advising those
    companies. The deterioration of the checks and balances that
    safeguard the public against corporate abuses must be reversed.
        We have to address the shortcomings in Federal law and send
    the message that prosecutors now have the tools to incarcerate
    persons who defraud investors or alter or destroy evidence in
    certain Federal investigations. This amendment is a step in the
    right direction. It creates two new criminal states that would
    clarify current criminal laws relating to the destruction or
    fabrication of evidence and the preservation of financial and
    audit records. The Enron debacle clearly indicated that there
    were gaping holes in the current framework. There will be a 10
    year criminal penalty for the destruction or creation of
    evidence with the intent to obstruct a Federal investigation.
    There will be a new 5 year criminal penalty for the willful
    failure to preserve, for a minimum of five years, audit papers
    of companies that issue securities.
        The amendment also provides for the review and enhancement
    of criminal penalties in cases involving obstruction of justice
    and serious fraud cases. All of these actions are necessary to
    deter future criminal action. Until somebody responsible goes
    to jail for a significant amount of time, I am not sure that
    these people are going to get the message. Defrauding the
    shareholder has to carry a meaningful penalty. Corporate
    decision-makers can make millions, tens of millions, even
    hundreds of millions of dollars by cheating investors. A
    relatively small fine or short prison term is not a deterrent;
    it's a slap on the wrist. The threat of real time in jail is a
    deterrent that will make people pay attention.
        This amendment also creates a new securities fraud offense.
    The provision makes it easier, in a limited class of cases, to
    prove securities fraud. Currently prosecutors are forced to
    resort to a patchwork of technical offenses and regulations
    that criminalize particular violations of securities law, or to
    treat the cases as generic mail or wire fraud that results in a
    five-year maximum penalty. This new provision would criminalize
    any scheme or artifice to defraud persons in connection with
    securities of publicly traded companies or to obtain their
    money or property. This new ten-year felony is comparable to
    existing bank and health care fraud statutes. To those who
    would say that it's hard to define a scheme or artifice to
    defraud, I would say that full and honest disclosure of
    material dealings and accounting treatments is the best way for
    the officers who run America's corporations to protect
    themselves and those who invest in their companies. There are
    plenty of felony laws on the books that provide long prison
    terms for crimes that cause less damage than the losses to
    shareholders in Enron or WorldCom.
        It is important to emphasize that when criminal charges are
    pursued, it is not necessarily the firm that should be charged
    but the individuals at the helm of the corporate ship who
    should be prosecuted. If they are the ones making the decisions
    out of self-interest, they are the ones that should be held
    accountable. I also believe that we must protect the
    ``corporate whistleblower'' from being punished for having the
    moral courage to break the corporate code of silence. This
    amendment does that.
        This amendment also extends the current statute of
    limitations for matters concerning securities fraud, deceit or
    manipulation. The current statute of limitations for securities
    fraud cases is short given the complexity of many of these
    matters, and defrauded investors may be wrongly stopped short
    in their attempts to recoup their losses under current law. The
    existing statute of limitations for most securities fraud cases
    is one year after the fraud was discovered but no more than
    three years from the date of the fraud regardless of when it
    was discovered. Because this statute of limitations is so
    short, the worst offenders may avoid accountability and be
    rewarded if they can successfully cover up their misconduct for
    merely three years. The more complex the case, the easier it
    will be for these wrongdoers to get away with fraud. According
    to at least one state Attorney General, the current short
    statute of limitations has forced some states to forgo claims
    against Enron based on alleged securities fraud in 1997 and
    1998.
        This situation essentially encourages offenders to attempt
    to cover up their misdeeds however they can, including by using
    questionable accounting procedures and financial shell games.
    Furthermore, in some cases, the facts of a case simply do not
    come to light until years after the fraud. If a person does not
    and cannot know they have been defrauded, it is unfair to bar
    them from the courthouse. We need to recognize the
    sophistication and complexity of modern-day schemes designed to
    defraud investors. The Leahy amendment does this.
        Finally, this provision amends the Federal bankruptcy code
    to prevent the corporate wrongdoer, the CEO or CFO, from
    sheltering their assets under the umbrella of bankruptcy and
    protecting them from judgments and settlements arising from
    Federal and state securities law violations. Too many of these
    highly paid corporate officers are using bankruptcy laws to
    protect their assets while maintaining their high-rise
    penthouses and ski chalets. It is time to force accountability
    and punish the person, not the institution, who is not willing
    to abide by the moral and legal codes that accompany leadership
    and public trust.
        I hope we will have an early and overwhelming vote in favor
    of the Leahy amendment.
        I yield the floor.
        Mr. Sarbanes. Mr. President, so Members may have a sense of
    what the program is in the short term, I will propound a
    unanimous consent request and I hope it will be accepted and
    then we can move forward.
        I ask unanimous consent that following Senator Corzine,
    there be 15 minutes allotted to Senator Gramm, 5 minutes
    allotted to Senator McConnell, 10 minutes to myself as the
    manager of the bill--or up to these amounts of time; hopefully,
    they won't all be used--and at the conclusion thereof, there be
    a vote on or in relation to the McConnell amendment.
        The Presiding Officer. Without objection, it is so ordered.
        Under the previous order, the Senator from New Jersey is
    recognized for up to 10 minutes.
        Mr. Corzine. Mr. President, today I rise to speak on both
    the amendment proposed by Senator Leahy and also to the
    underlying bill which I feel quite strongly about.
        I am quite pleased to support Senator Leahy's amendment. It
    creates tough new securities fraud penalties and punishes
    corporate wrongdoers we have just heard the Senator from
    Arizona speak to. It is a meaningful and appropriate response
    to the kind of corruption we have seen and makes sure that
    punishment meets the nature of the act. It also protects
    corporate whistleblowers, prohibits corporate executives who
    violate securities laws from hiding behind the bankruptcy code.
        In summary, this is more than mere lip service with regard
    to enforcement and punishment of corporate fraud. It is real
    reform. It is real response as a methodology to deter criminal
    conduct. It will go a long way toward providing incentives that
    are necessary to protect investors and pensioners and others
    who operate in the marketplace, in contrast to strong rhetoric
    from some with regard to what we need to do about punishment
    but not putting reality into place to deal with the issues. I
    am proud to cosponsor the Leahy amendment, and I urge all
    colleagues to do so as well.
        Mr. President, we need to speak clearly and directly in the
    Senate about restoring and sustaining the trust in America's
    capital markets, trust in America's economic security going
    forward. For several days leading up to yesterday morning's
    Presidential speech on Wall Street, there was a buzz of
    anticipation that we would see a real embracing of change. Some
    went so far as to suggest the President's speech might lead to
    a Roosevelt moment, an embrace, a change in policy, a change in
    direction, maybe counterintuitive to the history of the man
    because it was in the Nation's best interests.
        In retrospect, it is safe to say, while the President's
    speech was good with respect to rhetoric, it was hardly
    Rooseveltian or a Ruthian moment in the home of the New York
    Yankees. Unfortunately, it was far from a home run, in my view,
    and did emphasize rhetoric as a substitute for reform. Its lack
    of specifics or detail I found unfortunate.
        It is not to say that the President's speech did not
    include some important themes, or, by the way, embrace an
    initiative that is quite important; that is, the corporate
    fraud task force in the Justice Department which will be a
    strong step in carrying out pursuit of wrongdoers.
        However, stating the commitment of his Administration
    pursuing these folks, while an important message, needs to be
    more substantive. We need specific undertakings to protect
    investors and shareholders. It was what the President did not
    say in terms of offering specifics, particularly specifics with
    regard to structural changes that will solve the problems, deal
    with the problems, provide checks and balances to the problems
    that we have seen from the Enrons, WorldComs, Global Crossings,
    et cetera. That is why the speech fell short of what many
    expected.
        The best way, in my view, the President could have
    accomplished that simple important message would have been to
    acknowledge the comprehensive structural reform that needs to
    be put in place and is expressed most clearly, most
    effectively, by the legislation we are considering on this
    floor right now, the Public Company Accounting Reform and
    Investor Protection Act.
        The Sarbanes bill, the bill we are talking about on this
    floor, comprehensively reforms our accounting profession. It is
    detailed, it is specific, and it is quite a strong element with
    regard to accounting professionals' responsibilities. It
    enhances corporate accountability, improves transparency of
    corporate financial statements, truly strengthens the ability
    of the SEC to operate as an enforcement agency, and as a
    regulatory agency to a significant degree. In combination, all
    those factors together will go a long way to restore investor
    confidence in American capital markets and, more importantly,
    restore faith in our economic system.
        I think this is the direction it should take. But before I
    discuss the merits of the legislation in specific, I take a
    moment to pay tribute to the leadership of the distinguished
    Chairman of the Banking Committee, Senator Sarbanes. In
    shepherding this bipartisan legislation to the floor of the
    Senate, he has really done an outstanding job of bringing
    together a lot of disparate views on a very difficult and
    complex problem, synthesized into a terrific response to a real
    problem.
        I see Senator Enzi in the Chamber. I also congratulate him
    for his help in making sure we have a bipartisan effort in this
    process. His contributions have been enormous. There are a
    number of people on staff who I think have done a terrific job
    to make sure this happens.
        But Paul Sarbanes, Chairman of the Banking Committee, has
    done an incredible job, a thorough job, making sure we have
    measured, balanced, deliberate steps to be taken to meet a
    crisis of confidence. I think the American people will be
    grateful that we have responded in a proper way. It has been a
    privilege for me to work with all my colleagues in the Banking
    Committee, but particularly the Chairman. Particularly as a
    freshman, I learned so much of how this legislative process
    works.
        I must say, after 30 years in business, working my way up,
    the 10 days of hearings we had with respect to this particular
    subject, with exhaustive testimony, thoughtful testimony
    provided from a large range of perspectives, was one of the
    best graduate seminars I have ever had in business. I hope
    actually somebody will take the time to try to publish these,
    and they will be used as an example both of how the legislative
    process should work but also how the structure and nature of
    public policy debates with regard to business policy will
    occur. It is extraordinary. I think it forms an enormously
    positive foundation for the kind of thoughtful legislation the
    Chairman has brought to bear.
        With that as backdrop, we all know that there are serious
    problems in our system. The list of companies involved is way
    too long and way too important--many of them supposed models of
    the new economy. But I want to move a little bit away from just
    some of the simple concepts we talk about, the most headlined,
    the name concepts or companies, to focus on the fact that we
    are going to have almost 300 restatements of earnings this
    year, this year in our economy--300 restatements. There have
    been almost 1,100 restatements since 1997 of company earnings
    reports. This is a problem.
        It is not just the individual headline companies, it is the
    fact that this is going on every day in our marketplace. It is
    no wonder that investors--institutional, retail, foreign,
    pensioners--do not have a sense of where we should be or how
    they should make their commitments to markets. That is because
    they cannot trust the numbers. There have been broken
    retirement dreams, lost jobs, and companies shut down. This
    really needs to change.
        Roughly 10 percent of major companies--of the 12,000
    actively traded companies, almost 10 percent of them have had
    statements of change in the last 4 years. That is just bad.
    That is why investors worldwide have developed some skepticism
    about our markets. Some might even say that is why our dollar
    has depreciated as sharply as it has in the last 2 or 3 months.
    Confidence is shaken--it is real.
        American financial markets have been a tremendous engine
    for economic growth. We have had a highly efficient capital
    market, and that has fueled our economy. We need to act.
        While the depth and breadth of efficiency of our markets is
    still substantial, if we continue to have this kind of erosion
    of confidence, we are going to be missing one of the important
    drivers of America's great success in leadership in the world.
    While I will not go through every detail of this bill, if we do
    not come up with a strong oversight of our accounting industry,
    make sure the information that people make their decisions and
    take their decisions to the marketplace with is sound and
    secure, then we will not have those strong capital markets and
    strong economy. I think we can all agree upon that, in the
    nature of a bipartisan initiative, to make sure we are moving
    in the right direction.
        I hope we can focus on the reality that some of the
    conflicts of interest that exist in our practices in the
    accounting world have been part of the cause and the focus.
    Some of the conflicts of interest in the investment banking
    business, the world I came from, with regard to our analysts,
    have undermined our security with regard to how people analyze
    and understand where companies fit.
        Other issues that need to be dealt with are the ``revolving
    doors''--executives from accounting firms going to companies
    they worked for--and the lack of independence of audit
    committees. All of these factors underlie a growing public
    distrust in the corporate financial information. It really
    needs to be acted upon.
        While these things are real, I think we need structural
    response. We cannot just identify a few bad apples. This is
    more than that. Remember: 1,100 corporate restatements in the
    last 4 years. There is a structural problem, a systemic problem
    that is undermining the health security of our economy. I hope
    people will realize that in the context of the kind of debates
    we are going to have with regard to this bill--but maybe even
    more important, when we get into a conference and try to put it
    together with the House response, and get it to the President.
        Unfortunately, I think the other elements of proposals on
    the table just do not meet the kind of standards that the
    Sarbanes proposal, the Banking Committee proposal, brings to
    bear. I hope we will be able to deal with that going forward.
        I would be happy to talk about the specifics as we go
    forward. I know others need to get into this aspect. Other than
    we need to have a real reform of the accounting industry, we
    need a strong oversight board. We need to really deal with the
    corporate accountability issues, which I think the Leahy
    amendment goes a long way to strengthen in this bill. There are
    many elements inside it.
        We need to give the SEC the kinds of resources so it can
    actually do the job it is expected to do. The President talked
    about giving them $100 million additional resources. Even the
    House has talked about $300 million increments. We do not
    provide for pay parity. There are just so many weaknesses in
    some of the proposals that are watered down relative to what we
    have on the table before the Senate.
        I can only say I hope we can keep this bipartisan effort
    together because I think what we need is a final product that
    will deal with the reality of the undermining of confidence we
    have across the board, in a whole host of ways with regard to
    our financial markets, with regard to our accounting statements
    and with regard to the economy itself. This is too important to
    make a political issue. This is one to make sure we move
    forward in a way that we secure America's economic future.
        The continued vitality of America's markets is at stake. We
    need to make this a priority. We need to move quickly. We need
    to understand it is systemic, it is not just anecdotal, it is
    not just a few bad apples. I think the bill we have on this
    floor will go a long way. Some of the amendments that are
    brought forward can strengthen it.
        We need real reform. We need it now. We do not need
    rhetoric. We need to be able to restore the confidence the
    American people want to see, move away from the era of Enron
    and WorldCom, and get to an era where we have markets that are
    balanced and fair, where they have the checks and balances in
    them to give people the confidence that when they make an
    investment, that investment is what they thought it was when
    they entered into it.
        I thank the Chairman for an extraordinary effort in
    bringing together an exceptional bill. I am proud to be part of
    this effort. I look forward to continued debate and hopefully
    bringing it to the President's desk as soon as possible.
        The Presiding Officer. The Senator's time has expired.
        Mr. Sarbanes. Mr. President, I ask unanimous consent to
    speak for 30 seconds.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Sarbanes. Mr. President, I thank the able Senator for
    his very kind comments.
        I underscore, as I said last night on the floor when
    Senator Dodd was here, my deep appreciation for the very
    positive and constructive contribution which Senator Dodd and
    Senator Corzine have made to this legislation. Early on, they
    introduced S. 2004, the Dodd-Corzine bill that formed the basis
    of a great deal of what is now before the Senate. I really
    appreciate the tremendous effort on the part of the two
    Senators.
        I think it is very important that I make it very clear how
    much I appreciate the Senator's continuing, very strong
    contributions in the committee and now as we consider this
    legislation.
        The Presiding Officer. Who yields time?
        Mr. Sarbanes. Mr. President, I think under the agreement
    there are 15 minutes allotted to Senator Gramm, 5 minutes to
    Senator McConnell, and I have reserved 10 minutes before we go
    to a vote on or in relation to the McConnell amendment.
        Mr. Leahy. Mr. President, I ask unanimous consent to
    proceed for 30 seconds without taking the time reserved for my
    colleagues.
        The Presiding Officer. Is there objection?
        Without objection, it is so ordered.
        The Senator from Vermont is recognized.
        Mr. Leahy. Mr. President, I thank the distinguished Senator
    from Arizona, Mr. McCain, for his kind words earlier this
    morning. He is the supporter of the Leahy-McCain-Daschle, et
    al, amendment pending before the body. I will speak further at
    an appropriate time when I am not imposing on the time reserved
    by our colleagues. I wanted to thank Senator McCain for his
    support of the amendment and for his kind remarks.
        I yield the floor.
        The Presiding Officer. Who yields time?
        The Senator from Kentucky.
        Mr. McConnell. Mr. President, I believe the Senator from
    Texas is on the way. He is not here yet, so I will go ahead
    with my closing remarks.
        Let me describe again what the McConnell amendment does. It
    is really quite simple. I think the first thing to remember is
    that it doesn't change in any way the Leahy proposal. It
    doesn't change in any way the Sarbanes proposal. It does not
    alter either of those. This is an addition to the underlying
    Sarbanes bill, and to the Leahy amendment, which I assume is
    going to be adopted sometime today. This doesn't in any way
    detract from the efforts underway to get greater accountability
    in corporate America.
        The McConnell amendment is about adding to that union
    accountability so that rank-and-file union members can be
    assured--just as shareholders will now be assured in the
    underlying bill--that independent audits are being done. They
    can be assured that there will be civil penalties for violating
    these new auditing standards. They will be further assured by
    the fact that the president and the secretary-treasurers of the
    unions will have to certify as to the accuracy of the financial
    reports for unions just as we are requiring that for corporate
    CEOs and CFOs for publicly traded corporations.
        We are simply completing the circle of protection for
    Americans, whether they be investors in corporations or union
    members whose dues are being paid every payday and who have a
    right to expect that those funds are going to be treated
    carefully and correctly.
        It has been suggested--I expect it will be suggested
    again--that this is going to be expensive for the unions. My
    amendment has been carefully crafted to ensure that it does not
    impose any egregious new costs, especially on labor. And it
    only applies to unions with annual receipts over $200,000.
        Why did I pick that number for unions that already file
    financial information with the Department of Labor? They are
    already having to file. This amendment simply requires that
    labor organizations with over $200,000 in annual receipts incur
    the incremental costs of running their financial statement and
    pass an independent audit, and abide by generally accepted
    accounting principles. This is a cost borne by any public
    company with as little as $1 million in total assets.
        The additional costs here only apply to the larger unions
    that already have to file with the Department of Labor in any
    event.
        I want to say again that this is the union corruption
    update. This massive stack is just for the first half of 2002.
    There are numerous examples of the problems about which I have
    been talking. This stack here represents just the first half of
    2002.
        Some will suggest that the examples I have given show how
    well DOL is catching and prosecuting union fraud.
    Unfortunately, that is not the case. The Department of Labor
    auditing of unions accounts for just 9 percent of all
    embezzlement cases. The other 91 percent of embezzlement comes
    from other sources. Without a required audit, union officials
    do not have to contend with the threat of an annual independent
    audit hanging over their heads.
        The stories speak for themselves. Union corruption is
    rampant. It is absolutely rampant on the local, national, and
    pension fund levels all across our country. In the last 2
    years, there has been a union embezzlement or closely related
    case in 40 out of our 50 States. This is a huge problem.
        With regard to the financial information already required
    to be filed, it is not verified by an independent auditor. The
    current union filings are not verified by an independent
    auditor. The independent audits required in the McConnell
    amendment will help verify that the information is indeed
    accurate. Unions in many instances have not been complying with
    the filing requirement.
        The Presiding Officer. The Senator has used 5 minutes.
        Mr. McConnell. I ask unanimous consent for a couple of more
    minutes of Senator Gramm's time.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. McConnell. Unions have not been complying with the
    filing requirements. Up to 40 percent of unions required to
    file LM-2 reports filed late or not at all. The Department of
    Labor, under current law, can't even fine these organizations
    for noncompliance. My amendment would at least give them the
    ability to fine these organizations for noncompliance.
        Let me summarize what this is about. We have decided in the
    Sarbanes bill and in the Leahy amendment that we want
    accountability in corporate America. We want to hold the CEOs
    and the CFOs responsible. We want the auditing done accurately.
    If it is not done accurately, somebody needs to be held
    responsible.
        Why are we doing that? We are doing that because we want to
    reassure the shareholders that somebody is not cooking the
    books, that we don't have more WorldComs and Enrons and Global
    Crossings and the like.
        The McConnell amendment seeks to provide those very same
    protections to rank-and-file citizens who may or may not be big
    enough to invest in the market. But they are investing their
    dues every week in the majority of our States where they do not
    have a choice to not pay their dues. And they have every right
    to expect independent audits of their funds to make sure they
    are not being stolen and not being misused. They have every
    right to expect the presidents of those unions and the
    secretary-treasurers of those unions to certify as to the
    accuracy of those audits.
        That is what this amendment is about. It is about providing
    the same fairness to the union member as we provide to the
    shareholder. Simple justice. I urge that the McConnell
    amendment be adopted.
        I yield the floor.
        The Presiding Officer (Mr. Johnson). Who yields time?
        The Senator from Texas.
        Mr. Gramm. Mr. President, how much time do I have?
        The Presiding Officer. Thirteen minutes.
        Mr. Gramm. Mr. President, first, I thank Senator McConnell.
    I do not think anybody who listened to Senator McConnell is
    going to believe the assertion that somehow this amendment has
    nothing to do with the logic of this bill. You can take a view
    that business is for real and that standards should apply
    there, but organized labor is a different kind of institution
    and they should not apply there; but if you are making that
    argument, you have to argue it on the basis of politics. You
    cannot argue it on the basis of logic. You cannot argue it on
    the basis of justice or fairness.
        What Senator McConnell has done, it seems to me--and I
    think it is a service to the process that he has done it--is
    that his amendment in no way changes Senator Leahy's amendment.
    So whether you are for or against the Leahy amendment is not a
    relevant factor in whether you are for or against Senator
    McConnell's amendment because he does not change the Leahy
    amendment. He simply says, at that moment in history where we
    are trying to enhance the quality of financial reporting in
    corporate America, to protect the investor and to strengthen
    the economy, that we should make the same changes with regard
    to financial reporting by labor unions.
        There have been several arguments made against this
    amendment, but I do not believe any of them hold water, at
    least in terms of my ability to understand the amendment and
    the arguments.
        The first argument that has been made is: There are already
    requirements that apply to unions, that they have this vast
    array of reporting requirements.
        The same thing is true with corporate America. If you
    accept that argument that there already is a body of law, and
    if that means that it should not be improved or strengthened,
    then what are we doing here?
        There are differences over this bill, differences about how
    the board should be structured, differences about what the
    board should decide and what Congress should decide, but there
    is no difference over the issue that we need higher standards
    in accounting. There is no difference over the issue that
    people who knowingly violate the law ought to be held
    accountable.
        So to say that unions are subject to requirements is not an
    argument that we should not have better requirements, because
    if it were an argument, that would be an argument against the
    bill; and not one Member of the Senate has bought that argument
    or made it or believes it.
        The fact that there are requirements today does not mean,
    in a time when we are enhancing transparency and efficiency and
    honesty in reporting, that we should not improve it for both
    corporate America and for organized labor.
        The second argument that is made is: Companies are public
    and unions are private. Not only is that argument invalid, but
    unions are more public than private investments, more public
    than public companies. Nobody made anybody invest in WorldCom.
    Nobody made them do that. But in some 40 States of the Union
    you have to pay union dues in order to work.
        I do not think that is right. I think that is fundamentally
    wrong. I thank God every day that in Texas we have right-to-
    work laws that say I do not have to join a union to earn a
    livelihood. But in some 40 States you do.
        I think the case is even stronger than the Senator from
    Kentucky made because nobody made anybody buy WorldCom, but in
    some 40 States you have to pay union dues. Surely, there is a
    public interest, in a mandatory institution, in seeing that it
    keeps straight books.
        So this argument that we are talking about, public
    companies and private unions, what is private about a union
    that I have to join in order to have a job? Nothing is private
    about that union. It is as public as something can be public.
        It seems to me--and Senator McConnell made the point--
    nobody made people invest in WorldCom, but people are forced
    every day to pay union dues. Every day they are forced to pay
    them. So they are as public as public companies are, I would
    argue more public, and we have a stronger interest in
    protecting that money which was involuntarily taken, it seems
    to me, or just as strong an interest in protecting that money
    that was involuntarily taken versus money that was voluntarily
    invested.
        The strongest argument of this amendment--and something
    that is absolutely breathtaking to me--is that the annual
    report that is required of unions does not have to be certified
    and prepared by a CPA.
        We are going to great lengths in every bill that has been
    proposed to set up an independent body to proctor high
    standards in accounting for CPAs. Shouldn't a union that is
    handling my money that they took from me involuntarily have its
    books audited by a CPA?
        Why is that important? In fact, why do we care about
    accounting ethics? We care about them because there is no way
    the Government has enough resources to spot audit every company
    in America. So we have to rely on the integrity of the CPA. And
    it is the problem we have with that today that brings us to the
    floor of the Senate.
        While we are enhancing that integrity through this
    oversight board, shouldn't we require organized labor that is
    taking people's money involuntarily to have their annual report
    certified and prepared by a certified public accountant? How
    can anybody--how can anybody--argue against requiring a CPA to
    do these audits?
        You could say the Labor Department ought to go out and
    audit every one of these unions. Clearly, they do not have the
    resources to do it. The President has asked for more money to
    do it. I would guess this Congress will not provide that money.
    I will be watching the appropriations to see if they do. But
    even if they provide it, it is not enough money to audit every
    union in America.
        What we have to do to bring honesty to union financial
    reports, as we bring honesty to corporate reports, is to
    require a CPA to do the audit. I can see no logic whatsoever to
    opposing requiring a CPA to certify.
        Finally, we have gone to great lengths--and I think
    appropriately--to require the guy who is drawing the big check,
    the head man or head woman, to sign this annual financial
    statement to put their credibility on the line and give them
    nobody to hide behind. Should we not require the president of
    the union sign this audited report? And shouldn't the annual
    report be done by a certified public accountant?
        Now, it is astounding to me--and, boy, it shows you the
    different level of enforcement of the law. If anybody does not
    believe that politics play a part in law enforcement in
    America, look at the fact that was given to us by the Senator
    from Kentucky, that 34 percent of unions are out of compliance
    in terms of filing these reports. Some of them just don't file
    the report.
        It seems to me if 34 percent of the companies in America
    didn't file reports, we would be outraged, and rightly so. In
    fact, you couldn't trade your stock on the New York Stock
    Exchange or the American Stock Exchange or the Nasdaq because
    of the enforcement that exists in private entities.
        The McConnell requirement that the reports be filed is
    straightforward and reasonable.
        I reserve the remainder of my time by simply saying, what
    harm can come from requiring unions to have CPAs do these
    reports? I see good can come. I can see no possible harm that
    could come.
        Secondly, why not have the union president certify the
    veracity of that report just as the corporate president does?
    Some people say this is punitive. Some people say this is
    political. If this were being used to try to kill the Leahy
    amendment, you might be able to make that argument. But this
    amendment in no way takes away any part of the Leahy amendment.
    It simply adds to it that the high standards we set for
    corporate America should apply likewise to unions.
        I reserve the remainder of my time.
        The Presiding Officer. Who yields time? The Senator from
    Maryland.
        Mr. Sarbanes. Could I ask what the time situation is?
        The Presiding Officer. The Senator from Maryland has 10
    minutes.
        Mr. Sarbanes. And how much time is left to the Senator from
    Texas?
        The Presiding Officer. The Senator from Texas has a minute
    and a half.
        Mr. Sarbanes. Mr. President, it is important, in
    considering this amendment, to realize there exists now, under
    the labor management reporting and disclosure procedure,
    extensive and intensive provisions for reporting by labor
    organizations, officers, and employees of labor organizations.
        If all of these provisions are not being carried out fully,
    the responsibility rests with the Secretary of Labor. The
    Secretary of Labor ought to be doing her job. If the Congress
    is not providing sufficient resources for that, that is an
    issue for the Congress. We ought to address that issue.
        This supposed parallelism that is being argued completely
    misses the mark in the sense that there is already an existing
    statutory scheme covering reporting and disclosure by labor
    organizations.
        I want to go through some of those provisions so Members
    appreciate how extensive they are and the amount of review and
    oversight that now exists.
        I am now reading from the statute:

        Every labor organization shall file annually with the
    secretary a financial report signed by its president and
    treasurer--

        So much for this argument about they ought to sign, put
    their signature on the report--

    or corresponding principal officers containing the following
    information in such detail as may be necessary accurately to
    disclose its financial condition and operations for its
    preceding fiscal year.

        Listen to what they have to set out: Assets and liabilities
    at the beginning and end of the fiscal year; receipts of any
    kind and the sources thereof; salaries, allowances, and other
    direct or indirect disbursements, including reimbursed expenses
    to each officer and also to each employee who, during the
    fiscal year, received more than $10,000 in the aggregate from
    such labor organization and any other labor organization.
        Ten thousand dollars? Ken Lay of Enron got $177 million.
    Twenty executives of Enron got over $3 million in salary. Here
    we are talking about a $10,000 figure which they have to
    report.
        I am reading from the statute that governs labor
    organizations on their reporting and disclosure: Direct and
    indirect loans made to any officer, employee, or member which
    aggregated more than $250 during the fiscal year, together with
    a statement of the purpose, security, if any, and arrangement
    for repayment. A $250 loan, $250. Bernard Ebbers of WorldCom
    got a $366 million loan. This is just to underscore in a sense
    the tightness of this framework governing the labor
    organizations--a $250 loan. WorldCom executive Ebbers, $366
    million? The Adelphia situation with the Rigas family, $3
    billion in loans.
        Let's look at the power of the Secretary of Labor to
    enforce these requirements: Any person who willfully violates
    this subchapter shall be fined not more than $10,000 or
    imprisoned for not more than 1 year. Any person who makes a
    false statement or representation of a material fact or who
    knowingly fails to disclose a material fact in any document,
    report required under the provisions of this subchapter shall
    be fined not more than $10,000 or imprisoned for not more than
    1 year. Any person who makes a false entry or willfully
    conceals, withholds or destroys books, records, reports shall
    be fined not more than $10,000 or imprisoned for not more than
    1 year.
        ``Personal responsibility of individuals required to sign
    report,'' I earlier said the president and the treasurer of the
    labor organization had to sign the reports. Listen to this:

        Each individual required to sign reports under sections 431
    and 433 of this title shall be personally responsible for the
    filing of such reports and for any statement contained therein
    which he knows to be false.

        Of course, we have just noted from the previous provisions,
    that is a fine and possible imprisonment for up to 1 year. So
    we have a statutory scheme in place to control the labor
    organizations. If it is not fully adequate, it needs to be
    addressed in that context. But clearly, it goes well beyond
    many of the provisions that apply to corporate officers. It has
    been carefully worked out over the years. The Labor-Management
    Reporting and Disclosure Act dates from 1959 originally, with
    subsequent modifications and adjustments, as we have proceeded.
        There is a system in place to govern labor organizations.
    It has been asserted: Well, the Labor Department has not been
    able to do everything it needs to do. That burden is on the
    Labor Department. In a sense, what has been raised represents a
    challenge to the Secretary of Labor.
        If, in fact, the Congress hasn't given her adequate
    resources, that point needs to be made to the Congress and we
    need to address that.
        But we have established a well-thought-out, comprehensive
    scheme with respect to the reporting and disclosure of the
    labor organizations, and if they are falling short of the
    statutory requirements, that needs to be addressed in the
    context of the statute.
        The Labor Department has enormous authority over the labor
    organizations. Make no mistake about it, the powers and the
    authorities that reside in the Secretary of Labor and the
    Department are quite extensive to deal with the labor
    organizations. I mentioned only some of them, including these
    imprisonment for 1-year provisions.
        So I am in opposition to the amendment. I think any
    shortcomings that one might perceive need to be addressed in
    the context of the reporting and disclosure provisions
    applicable to labor organizations; and I must say to you--and
    the Senator from Kentucky has outlined some of the problems--
    the Department needs to come to grips with them and come to the
    Congress, if it deems that necessary, to seek an appropriate
    congressional response in order to deal with them.
        I very much hope my colleagues, when the time comes, will
    not be supportive of this amendment. When all time is used, I
    am prepared to make a motion with respect to the amendment.
        Mr. Specter. Mr. President, I am voting against the
    McConnell amendment because existing law already accomplishes
    what he seeks to do. There exists now under the Labor
    Management Reporting and Disclosure Act of 1959 extensive and
    intensive provisions for reporting by the President and
    Treasurer of labor organizations.
        Furthermore, the audit requirements of this amendment,
    which apply to union filers with receipts of $200,000 or more,
    impose under regulation of small entities. Public corporations
    subject to the SEC typically have many more assets with initial
    public offerings are customarily in the range of $40 million.
    The annual costs of compliance might exceed the annual receipts
    of many filers who would be subjected to these requirements. To
    require audits of all unions regardless of size or complexity
    of financial reports would cause an unreasonable burden on many
    smaller locals who already must file LM-2 reports. Unions with
    annual receipts of $200,000 or more covered by the McConnell
    amendment come in an extremely wide range of types, sizes, and
    of performing services. Of the more than 5,000 labor
    organizations that currently meet this criterion and file LM-2
    reports, only about 70 are national or international unions.
    The rest are locals--largely voluntary organizations, many with
    no or few full-time employees. The current Department of Labor
    reporting requirements take this ``no one-size-fits-all''
    approach into account and build in some flexibility that the
    McConnell amendment does not allow. For example, many smaller
    locals do not need to retain outside CPAs because their
    financial statements are very simple and consistent from year
    to year.
        The amendment's certification requirements are also
    redundant. For more than 40 years, union officers have been
    required to sign annual financial reports under penalty of
    perjury, attesting that the report's information accurately
    describes the union's financial condition and operations.
        The Presiding Officer. The Senator from Texas is
    recognized.
        Mr. Gramm. Mr. President, let me paraphrase our colleague
    from Maryland. The SEC already has power. Let them do their
    job. We are not saying that. We are saying they need more power
    and they need help doing their job because the job is not
    getting done.
        The same is true for unions. The Senator from Maryland said
    there is already a regulatory scheme. There is already a
    regulatory scheme for corporate America, but we are saying it
    is not good enough, not tough enough, it is not working, and we
    need to improve it.
        The same is true for unions. The president of a corporation
    already has to sign an annual report. We are trying to expand
    that in this bill. Why not require the president--not other
    officers, but the president--to sign the report? I submit that
    illegality, whether it is $100 million or $10,000, is still
    theft. The President has asked us to bar loans.
        The issue here is, should we have the same integrity
    standards for unions? I believe the answer is yes.
        I yield the remainder of my time.
        The Presiding Officer. The Senator from Texas has 17
    seconds and the Senator from Maryland has 50 seconds.
        Mr. McConnell. Mr. President, it is true that unions file a
    lot of papers. The problem is that accuracy is not required.
    This requires certified records--certified by a CPA--and it
    requires the presidents and secretaries of their treasuries to
    certify that the records are accurate.
        Union corruption is a serious problem. This will help
    correct it. I urge colleagues to support the amendment.
        Mr. Sarbanes. Mr. President, I only observe that if they
    file a false statement of representation, they can be fined and
    sent to jail for up to 1 year. That is a pretty heavy remedy if
    you stop and think about it.
        Mr. President, I yield back the remainder of my time.
        Mr. Gramm. Mr. President, is any time remaining?
        The Presiding Officer. No time remains.
        Mr. Sarbanes. Mr. President, I move to table the McConnell
    amendment, and I ask for the yeas and nays.
        The Presiding Officer. Is there a sufficient second?
        There is a sufficient second.
        The question is on agreeing to the motion. The clerk will
    call the roll.
        The assistant legislative clerk called the roll.
        Mr. Nickles. I announce that the Senator from North
    Carolina (Mr. Helms) and the Senator from Ohio (Mr. Voinovich),
    are necessarily absent.
        I further announce that if present and voting the Senator
    from North Carolina (Mr. Helms) would vote ``nay.''
        The Presiding Officer. Are there any other Senators in the
    Chamber desiring to vote?
        The result was announced--yeas 55, nays 43, as follows:
                          [Rollcall Vote No. 168 Leg.]
        Yeas--55: Akaka, Baucus, Bayh, Biden, Bingaman, Boxer, Breaux,
    Byrd, Cantwell, Carnahan, Carper, Chafee, Cleland, Clinton, Conrad,
    Corzine, Daschle, Dayton, Dodd, Dorgan, Durbin, Edwards, Feingold,
    Feinstein, Graham, Harkin, Hollings, Inouye, Jeffords, Johnson,
    Kennedy, Kerry, Kohl, Landrieu, Leahy, Levin, Lieberman, Lincoln,
    Mikulski, Miller, Murkowski, Murray, Nelson (FL), Nelson (NE), Reed,
    Reid, Rockefeller, Sarbanes, Schumer, Smith (OR), Specter, Stabenow,
    Torricelli, Wellstone, Wyden,
        Nays--43: Allard, Allen, Bennett, Bond, Brownback, Bunning, Burns,
    Campbell, Cochran, Collins, Craig, Crapo, DeWine, Domenici, Ensign,
    Enzi, Fitzgerald, Frist, Gramm, Grassley, Gregg, Hagel, Hatch,
    Hutchinson, Hutchison, Inhofe, Kyl, Lott, Lugar, McCain, McConnell,
    Nickles, Roberts, Santorum, Sessions, Shelby, Smith (NH), Snowe,
    Stevens, Thomas, Thompson, Thurmond, Warner
        Not Voting--2: Helms, Voinovich

        The motion was agreed to.
        Mr. Sarbanes. I move to reconsider the vote.
        Mr. Gramm. I move to lay that motion on the table.
        The motion to lay on the table was agreed to.

                           DIVISION OF AMENDMENT 4174

        Mr. Gramm. Mr. President, I ask for a division of the
    amendment with sections 801, 802, and 803 in division 1,
    section 804 in division 2, and the remainder of the amendment
    in division 3.
        The Presiding Officer (Mrs. Carnahan). The amendment is
    divisible and is so divided.
        Mr. Gramm. I suggest the absence of a quorum.
        The Presiding Officer. The clerk will call the roll.
        The assistant legislative clerk proceeded to call the roll.
        Mr. Sarbanes. Madam President, I ask unanimous consent that
    the order for the quorum call be rescinded.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Sarbanes. Madam President, I would like to put forward
    a couple of inquiries. Could the Senator outline what his
    division of the amendment does?
        Mr. Gramm. The amendment was divisible, and my division
    divided it into three amendments. The amendment having to do
    with statute of limitations in filing a lawsuit is now division
    2. So division 1 would be the pending business, as I understand
    it. Then division 2, and then division 3, seriatim, unless
    there was some other agreement that took us to another order or
    other amendments.
        Mr. Sarbanes. What does division 3 provide for?
        Mr. Gramm. I sent the division to the desk. Basically,
    division 1 was everything up to section 804. Then division 2 is
    804. And then division 3 is 805 through the end of the bill.
        Mr. Sarbanes. Did the Senator consider dividing it only for
    section 804?
        Mr. Gramm. The way it was done, the easiest division was to
    do it in three parts.
        Mr. Sarbanes. It is that division you want a separate vote
    on, I take it?
        Mr. Gramm. It is that division on which I want an
    opportunity for the Senate to work its will, as well as the
    others.
        Mr. Leahy. Madam President, if the Senator will yield,
    there is another way, of course, for the Senate to work its
    will. The reason I mention it, this is a critical part of the
    legislation. It is nice to say, and we should say, my cosponsor
    of the Sarbanes bill, which I think is superb--we should say we
    should have better accounting methods, we should say we should
    have more accountability, but we have a lot of these executives
    who have proven by their past behavior they are not going to do
    squat unless they think they are going to go to jail for what
    they do.
        The Leahy-McCain, et al, amendment makes it very clear that
    these people are going to face jail terms if they loot the
    pension funds, if they defraud their investors, if they defraud
    the people of their own company. And I might suggest if the
    Senator from Texas agrees, there ought to be real penalties;
    let's vote on Leahy-McCain. Let's vote on it, not divide it up.
    If he believes there is something he may want to do better--
    such as shield some of these people with a shorter statute of
    limitations or with a more restrictive statute of limitations--
    he has every right to do whatever he wants to shield these
    people. But bring it up as a separate amendment and let the
    Senate vote up or down on that.
        When I look at places such as Washington State alone where
    the pension funds of firefighters and police lost $50 million
    because of the fraud of the leaders of Enron, I don't feel too
    sympathetic. We already have a very short statute of
    limitations in here anyway. We ought to at least have that so
    people might be able to recover some of the money they have
    lost, if it is at all possible, instead of just a few
    executives going up and building their $50 million mansions and
    hiding it there.
        There ought to be some way for the people who lost their
    pensions, lost their life savings, to get it back. We ought to
    have criminal penalties for those who did this in the first
    place so they end up in the slammer.
        The Presiding Officer. The Senator from Texas.
        Mr. Gramm. Madam President, a wonderful speech, and it
    might be appropriate for another occasion, but what has
    happened is that a comprehensive bill has been offered as an
    amendment to the pending bill. All I asked for, which every
    Senator has the right to ask for, was a division of the
    question so that the Senate could work its will on individual
    parts.
        I know of no living person, at least anyone who is in the
    Senate or the executive branch of Government--I don't know
    about the judicial branch of Government--who is not for the
    provision related to putting people in jail for knowing and
    willful behavior where they violate the law.
        This bill which has been offered, however, has many
    different sections. The part I am concerned about has to do
    with statute of limitations and the security reform legislation
    we adopted in 1995.
        I remind my colleagues that in 1995 we had these massive
    strike lawsuits. One firm filed 80 percent of them. Almost all
    were settled out of court. It created an abuse that generated a
    bipartisan consensus that something should be done about it.
        We passed a law, and then, incredibly, with Democratic
    support, we overrode President Clinton's veto of the bill. The
    only veto override of the Clinton Administration was on this
    issue.
        One of the reforms had to do with shortening the statute of
    limitations. I remind my colleagues, this has nothing to do
    with the SEC or the Justice Department. We are not shortening
    their statute of limitations. In 1995, when we passed this bill
    with a strong bipartisan vote, we said: If I want to sue
    Senator Sarbanes, I have to file the suit within a year of
    discovering that I believe I have been wronged, or I have to
    file it within 3 years of when I was wronged. That was the
    decision we made then.
        Now, hidden away in this bill, which has been offered as an
    amendment, is a provision that effectively extends that to 5
    years.
        All my division of the amendment did was to say this ought
    to be dealt with separately so that those who are for mandatory
    prison sentences for knowing and willful behavior that violates
    the law can be for that without being for repealing our Private
    Securities Litigation Reform Act. The reason behind the rules
    of the Senate that give Members the ability to divide bills
    goes to exactly the heart of this point; that is, if someone
    could take a bill--if someone could take----
        Mr. Sarbanes. Will the Senator yield on that point?
        Mr. Gramm. Let me just finish my point and I will be happy
    to yield, as I try to always do.
        Someone could take the securities bill of 1933 and they
    could put in it all kinds of things that the vast majority of
    Members of the Senate are for, and then they could put one
    little provision in one line in that virtually nobody is for,
    and they could send it as an amendment to the desk and then we
    would have no recourse except to vote against all the things
    that we are for in order to vote against the one little thing
    that we are against.
        It seems to me there is nothing worse in public life than
    to have someone attack you for voting against a great big old
    bill and say: Well, you were against. It says here motherhood
    and the flag and Christmas and Easter--you were against that
    because you voted against a bill that busted the budget and
    bankrupt the public.
        So in writing the rules of the Senate, we wrote the rules
    in such a way that when someone offered such a bill as an
    amendment that had different parts, any Member could ask for a
    division so it could be dealt with separately. All I have done
    is exercise that right.
        We now have three amendments pending before the Senate--I
    guess four, counting the Miller amendment--but that is all I
    have done. Two of these amendments I am supportive of, one of
    them I am not supportive of, but that is where we are.
        The Presiding Officer. The Senator from Maryland.
        Mr. Sarbanes. Madam President, let me say, first of all,
    the Senator is obviously within his rights to divide the
    amendment. The Senator could have offered an amendment striking
    section 804, which is the section to which he objects. As I
    understand it, he approves of the remainder of the bill. By
    dividing it, he gains a one-vote advantage because if he moved
    to strike and we had a tie vote, he would lose. By dividing the
    bill, if there is a tie vote on section 804 the proponents of
    that provision lose. So by the division the Senator from Texas
    has gained a one-vote step up. I recognize that. That is
    permitted under the rules. I am not complaining about it.
        I think it is inaccurate to use an example of the whole
    bill and say I either have to vote for all of the amendment or
    none of it because certainly he hasn't been in that position.
        He could have offered an amendment to strike the section--
    am I right; 804 is the section on which the Senator is focused?
        I make the following suggestion in order to try to move
    matters forward, if I could have the attention of my colleague.
        Why don't we proceed and adopt the two divisions other than
    804 right now and get those taken care of. Then we can address
    804, which is the division to which the Senator objects. We can
    have an appropriate debate with respect to that division.
        The Presiding Officer. The Senator from Texas.
        Mr. Gramm. Madam President, we do have someone who wishes
    to speak. I am not sure whether it is on one of these sections
    or not. I am not ready to do that right now. We may reach a
    point where I will be ready to do that, but I am not ready to
    do that at this point.
        The Presiding Officer. The Senator from Maryland.
        Mr. Sarbanes. Madam President, given that the Senator has
    indicated he is supportive of the Leahy amendment--I think he
    said that on more than one occasion--except for section 804,
    what is it that would have to transpire?
        Mr. Leahy. Madam President, if I might step in for just a
    moment, if the Senator from Maryland will not mind?
        The Presiding Officer. The Senator from Vermont.
        Mr. Leahy. I keep hearing this discussion by the senior
    Senator from Texas that my bill somehow changed the Securities
    Litigation Reform Act. It does not. It does not do that at all.
    It changes no provision in it at all.
        The PSLRA did not establish the current statute of
    limitations. It did not deal with that issue at all. The Leahy
    bill does not impact on these provisions. It was a 5-to-4
    Supreme Court case that overturned years of established law to
    set the current limitation periods in Lampf v. Gilbertson.
        In fact, interestingly enough, former Secretary General
    Kenneth Starr and I take the same position on these statutes of
    limitations. In the dissent in that case, two of the
    dissenters, Justices Kennedy and O'Connor, said the one in
    three statute of limitation makes the possibility of injured
    investors recovering basically a dead letter.
        Here are some numbers. Florida lost $335 million because of
    Enron; the University of California, $144 million--all the way
    down to Vermont; we lost millions of dollars. These are people
    who would like, in these kinds of cases, at least to have a
    statute of limitations such that we can go after them.
        We are not suggesting changing in any way--I want everybody
    to be clear on this--we are not suggesting changing the basic
    standards of the law on a statute of limitation. We are talking
    about extending the time. We are talking about extending the
    time so it will not be, as the Supreme Court said, with a short
    statute of limitations, a dead letter. We are saying we want
    enough of a statute of limitation--still very short but a long
    enough one so people can recover. We are perfectly willing to
    have exactly the same words as the law says now, with the
    exception the statute is slightly longer.
        I cannot speak for an activist Supreme Court that seems to
    be meddling in most of our laws, but their case law, their
    stare decisis impacts on every single Federal court in this
    country--district level, court of appeals level. So there, with
    the exact same law, the stare decisis is Lampf v. Gilbertson.
    That would be controlling except it would be a longer statute
    of limitations.
        The Senator from Texas, or anybody else, if they think that
    statute of limitations is too long, fine, vote against it. But
    I am here to try to protect people and give them an
    opportunity--when there has been such enormous fraud and all
    the pension funds have been lost, and all the people who have
    lost their life savings--give them at least some chance to
    recover something, especially as the executives of these
    companies walk off with tens of millions of dollars. We go two-
    five instead of one-three.
        It makes sense to me. That was negotiated and voted on in
    the Judiciary Committee, and the final bill was passed
    unanimously.
        The Presiding Officer. The Senator from Maryland.
        Mr. Sarbanes. Madam President, I want to resume my
    discussion with the Senator from Texas. I am not going to
    engage in a substantive debate with respect to section 804 of
    the Leahy amendment, which is division 1 of the divisions the
    Senator has made.
        I want to go back to the prospects of getting division 1
    and division 3 accepted, to which the Senator has repeatedly
    indicated he has no objection. In fact, as I understand it, he
    is supportive of it.
        I renew my inquiry as to whether we could move ahead and
    accomplish that, since in our previous discussions the Senator
    has indicated concurrence with the notion that we need to move
    this legislation along. I don't understand what the objection
    would be to doing that. The Senator has divided the amendments.
    He has improved his holding position by doing so with respect
    to section 804. He has accomplished that objective under the
    rules. But as I understood it, he does not object to all of the
    matters in division 1 and division 3. I think it would help
    move the work along if we could adopt those two divisions, and
    then we could address divi-
    sion 2.
        The Presiding Officer. The Senator from Texas.
        Mr. Gramm. Madam President, first of all, let me say as the
    ranking member of the committee that I have yet to have an
    opportunity to offer an amendment. I only have two amendments I
    want to offer. No one is more eager to get this bill to
    conference where we might come up with something for which
    there would be virtually unanimous support. But I assume at
    some point during the deliberations we will have votes on
    division 1 and division 3. But I would like to have an
    opportunity to offer amendments myself.
        All I want to do is follow the rules of the Senate.
        Let me say that I am concerned, as I listen to colleagues
    on both sides of the aisle, that we are going to have a literal
    blizzard of amendments not directly related to this bill. I
    continue to believe that at some point, in order to finish the
    bill, we are going to have to file cloture.
        I intend, as I said at the beginning of the debate, to
    support that cloture motion. I think someone would have a hard
    time portraying me as someone who is slowing down the process
    when I am ready to vote to bring debate on this bill to an end
    and force amendments to be germane to the bill itself.
        My proposal is that we simply go on with the business of
    the Senate. I am ready to offer an amendment. I am ready to
    deal with the amendment of the Senator from Georgia. That
    amendment is amendable. All of these amendments are amendable.
    I suggest we simply proceed, let Members be recognized, and
    have those Members move forward.
        In light of that, I send an amendment to the desk in the
    form of a second-degree amendment to division 1. It is a very
    short amendment. I think the best thing to do is to have it
    read.
        Madam President, I suggest the absence of a quorum.
        The Presiding Officer. The clerk will call the roll.
        The legislative clerk proceeded to call the roll.
        Mr. Reid. Madam President, I ask unanimous consent that the
    order for the quorum call be rescinded.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Reid. Madam President, I have spoken to the manager of
    the bill. He has indicated he has no problem with someone
    speaking on the bill as long as there is no effort to do
    anything in a parliamentary fashion because there are
    negotiations pending at the present time. We understand that. I
    ask unanimous consent that the Senator from Illinois be
    recognized to speak for purposes of debate only.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Reid. Following his remarks, the quorum call will be
    reinstituted.
        The Presiding Officer. Without objection, it is so ordered.
        The Senator from Illinois.
        Mr. Durbin. I thank my colleague from Nevada as well as the
    Senator from Wyoming for allowing me to speak to the bill.
        I am happy to be an original cosponsor of this amendment
    with Senators Leahy and Daschle. The Public Company Accounting
    Reform and Investor Protection Act is a long title, but what it
    basically seeks to do is to address what most Americans view as
    one of the most dangerous developments in our Nation's economy
    in the last several years, if not longer.
        When you ask the average American what they think of all
    this corporate corruption, all of the disclosures about
    corporations that have literally lied to the public, to their
    shareholders, to their employees, and to pensioners, people
    across America say it does not give them much hope for recovery
    for our economy. It does not give them much confidence in terms
    of investing in the stock market. And it makes them feel very
    sad and worried about their own pension and retirement.
        We were proud to announce several years ago that almost
    half of Americans owned stock. We had developed to that point
    where the average person thought owning stock was a normal
    thing to do.
        I grew up in a family with a mother and father who never
    once purchased a share of stock until my mother in her later
    years decided ``to gamble,'' as she called it. But it was
    unthinkable in their working years to buy stock. They were
    working people. They worked for a railroad. Workers didn't buy
    stock.
        That has changed. More and more people across America buy
    mutual funds and stocks, 401(k)s, retirement plans. And why
    wouldn't they? Look at what happened over the last 10 years. If
    you were smart enough to buy yourself a dart board and put the
    Wall Street Journal up on it and throw the dart, just about any
    stock you hit was going to give you more money.
        People came to realize that. They bought their mutual funds
    and stocks and sat back and relaxed and said: This is easy. I
    will be able to retire a lot sooner than I ever dreamed, and we
    have more financial security in our family than ever before.
        Boy, have things changed in the last 2 or 3 years. We have
    seen a recession, the economy slow down, and then we watch as
    day after painful day reports come of the Dow Jones and the
    Nasdaq, all the rest of them, hitting new lows every single
    day.
        It has to do with the state of the economy, the recession,
    but it has to do as much with consumer confidence, the belief
    that you just can't trust the corporate big boys.
        There are too many instances where they decided to cash in
    with big stock options and walk away with millions--sometimes
    hundreds of millions--of dollars and leave a floundering
    corporation. They call it ``restatement.'' When I went to grade
    school, if I tried to tell the nuns I wanted to restate
    something I had said, I never got by with it. I got slapped on
    the back of the hand with a ruler. They knew it was an
    admission that you lied, misrepresented something. Now that is
    commonplace when you deal with corporations across America.
    Every week, there is some new disclosure.
        Senator Leahy, Senator Daschle, and I sat down to say we
    have to get to the heart of this issue and try to resolve it,
    in terms of making certain there are penalties in place for
    those who are deceitful, misleading, lying to the American
    people about the status of corporations. From Wall Street to
    Main Street, confidence has been shaken. It started off with
    Enron, the poster child of runaway corporate greed. Isn't it
    curious that today, as we debate corporate corruption, and
    isn't it an oddity that there is an actress in Hollywood who is
    facing possible jail time for shoplifting and she is facing
    more time in jail than any officer of the Enron Corporation?
    What is wrong with this picture? Somebody who shoplifts might
    go to jail, but not the first person has been indicted at
    Enron, the seventh largest corporation in America, which goes
    bankrupt.
        We had a series of hearings, and everybody on Capitol Hill
    was wringing their hands and calling in the cameras, saying we
    have to do something about it. Yet the Department of Justice
    has yet to indict the first person at Enron.
        So what we are saying with this amendment is that we want
    to establish standards and practices so that those who violate
    the law, who are guilty of corporate corruption, will pay a
    price for it, not just a fine that may be ignored or paid off
    by the corporation but more.
        In our criminal code, we establish mandatory minimum
    sentences for people who are caught with a thimbleful of
    cocaine. We will put them in jail, and we won't give the judge
    any flexibility. They go to jail for x number of years, no ifs,
    ands, or buts. But if a person is engaged in ripping off
    stockholders of a major corporation, lying about their books,
    causing tens of thousands of people to lose their jobs,
    jeopardizing the retirement plans of millions of Americans,
    then, frankly, we say to them that yours is going to be a much
    easier punishment.
        What is wrong with this picture? Where are the scales of
    justice? We should have known, when you have executives and
    board members who stand to gain millions of dollars from acting
    on insider information in the corporations they serve, that
    many would be tempted to do exactly that--especially when they
    knew there weren't any cops on the beat to keep an eye on
    them--no auditors, accountants, or government agencies.
        In the Gingrich revolution that occurred a few years ago,
    we passed something called the ``Contract on America.'' One of
    its provisions said, we are going to take away the power of
    individuals to sue corporations when there has been securities
    fraud. The argument was made that there were too many litigious
    people and greedy lawyers who were meddling in the corporate
    business and that we had to really close the door to that
    opportunity. Well, that law was enacted. I voted against it
    because it took away one more safeguard, one more protection
    for the public.
        Isn't it coincidental that now we stand here and talk about
    the disintegration of corporate confidence? There were fewer
    people watching then, and some of these corporate leaders were
    reaching into the cookie jar and pulling out with both hands.
    It happened over and over again. We should have known that when
    you condition the salary of executives on potential gains from
    how the company's stock prices will rise--known as options--
    that would be a temptation to raise the stock prices
    artificially, especially when those on the inside knew that, as
    the prices would fall, they would already have their money.
        We should have known that when you have auditors and
    accountants shifting numbers to come up with the right set of
    bottom-line figures they need to produce for Wall Street, they
    would be tempted to do that even when the audited numbers
    didn't add up. We should have known that when you have the
    smartest lawyers and bankers in the country scheming all night
    to come up with borderline legal ways to avoid paying taxes
    through a maze of fictitious straw companies, they would be
    tempted to do just that, especially when they knew Congress
    wrote the laws with plenty of loopholes for which their
    lobbyists paid.
        We stand in the Senate and reflect upon the sad state of
    business in America, and we have to wonder who is really at
    fault.
        Let me add that the vast majority of business leaders in
    America are honest, hard-working people who have taken a risk
    in our free enterprise system to produce goods and services of
    value to our country and to the world, to create jobs and
    wealth. They deserve our admiration and respect. But, clearly,
    day after day, week after week, month after month, we read on
    the front pages of our major newspapers about the exceptions to
    what I just said.
        Is it the executives who are responsible as the bad actors,
    or their accountants, their auditors, their bankers? The answer
    is all of the above. Every one of these must face up to their
    responsibilities.
        In due course, I hope we will enact stricter rules for
    these corporate players. But we have to accept our
    responsibility; Government and Congress has a responsibility.
        I salute Senator Sarbanes of Maryland for what he has done
    with Senator Enzi in bringing this bill to the floor. There is
    an effort to divide up this bill in the hopes of changing a
    statute of limitations.
        Why is a statute of limitations of importance in this
    debate? It really defines the reach of the law. If you tell me
    there is a statute of limitations that limits the liability of
    these corporate bad actors, I can tell you some people are
    going to get off the hook. The Leahy amendment to Senator
    Sarbanes' bill broadens the statute of limitations so that more
    wrongdoers will be held accountable; those who have lied,
    cheated, and stolen will be held accountable.
        The opponents of this approach are now suggesting we need
    to shorten the statute of limitations, limit the inquiry and
    investigation of the Government, and limit the liability of the
    bad actors. This is an answer to the prayers of many corporate
    big wigs who have ripped off their stockholders, employees, and
    pensioners across America.
        This suggestion that we would lessen and shorten the
    statute of limitations is what they want to hear. Some will now
    be able to retire to their mansions, and they will be able to
    live in the lap of luxury with the hundreds of millions of
    dollars they have taken from these corporations and never be
    called to answer for their violations of the law. That is what
    happens when you shorten a statute of limitations. It is an
    answer to the prayer of the corporate big wigs' defense
    attorneys. Why in the world would we be doing that?
        Why do we want to insulate from liability the very people
    who are guilty of wrongdoing? Why would we not support Senator
    Leahy's amendment to say that those who have violated the
    public trust, those who have lied, misled, and been deceitful
    should be held accountable both on a criminal and civil
    standard?
        So I certainly hope that at the end of this debate the
    Senate, on a bipartisan basis, will stand by Senator Sarbanes
    and his bill. I also hope that when it is all said and done,
    the underlying amendment I have offered with Senator Leahy and
    Senator Daschle will be accepted.
        Let me tell you what the amendment does, in brief. It
    punishes corporate criminals and creates a 10-year securities
    fraud felony for any ``scheme or artifice'' to defraud
    shareholders, and directs the U.S. Sentencing Commission to
    raise penalties in obstruction of justice cases.
        Two, it preserves evidence of fraud, establishes a new
    felony for destroying evidence when records are under subpoena.
    It requires key financial audit documents to be retained for 5
    years, and it creates a new 5-year felony for intentional
    destruction of documents.
        Do you know what happened? As soon as Enron got in trouble,
    they called some of their buddies at Arthur Andersen, and the
    next thing you know, the documents are being shredded, evidence
    is disappearing. This underlying amendment, the Leahy-Daschle-
    Durbin amendment, addresses that specifically.
        The third thing is that it protects victims. It creates
    protections for corporate whistleblowers. We need them. If
    insiders don't come forward, many times you don't know what is
    happening in large corporations. It lengthens the statute of
    limitations to 5 years from the date of fraud and 2 years from
    the date of discovery for victims to bring claims against the
    corporations. It prevents securities laws violators from using
    bankruptcy to shield debts based on fraud judgments.
        What they are trying to do--I see Senator Leahy in the
    Chamber; he is the major sponsor of this amendment--is to gut
    the provision that extends the statute of limitations and say
    that these people will not have to be held accountable for
    their wrongdoing.
        I urge my colleagues in the Senate to resist this effort.
    We have to hold these corporate wrongdoers accountable. We
    should not be party to any kind of effort to reduce their
    liability; otherwise, what message are we sending? Mandatory
    minimum sentences for a thimbleful of cocaine, but allowing
    those guilty of corporate wrongdoing to get off the hook. What
    is wrong with this picture of justice?
        I urge my colleagues to resist the change in the statute of
    limitations, and I yield the floor.
        Mr. Gramm addressed the Chair.
        The Presiding Officer. The Senator from Texas.
        Mr. Sarbanes. Madam President, I suggest the absence of a
    quorum.
        Mr. Gramm. Madam President, was I recognized?
        The Presiding Officer. The Senator from Texas was
    recognized.
        Mr. Gramm. Madam President, let me answer what has just
    been said and straighten out the facts. In 1995, we had a major
    problem in America in that we had strike lawsuits being filed
    against high-tech industries where one firm filed 80 percent of
    the cases and settled almost all the cases out of court.
        We had a bipartisan consensus that this represented abuse.
    So under the leadership of Senator Dodd, Senator Domenici, and
    others, we passed a bill which President Clinton vetoed. We
    then overrode the veto. An important part of that reform was to
    say--and let me make it clear, this does not have anything to
    do with committing a crime where you can be put in jail. It has
    nothing to do with the SEC's jurisdiction. It has nothing to do
    with the Justice Department's jurisdiction. It simply has to do
    with my right to file a lawsuit against you and anybody else's
    right to file a lawsuit against anybody else.
        We had a lot of reforms in that bill. You had to actually
    have a client. The lawyer who was the lead lawyer in 80 percent
    of these cases said he loved these type lawsuits because he did
    not have to fool with a client. In essence, he was suing on
    behalf of himself. Virtually a huge percent of the money went
    to the lawyer filing the suit, not to the people who supposedly
    had been harmed.
        Part of the reform was to set a statute of limitation that
    if you believe I have done something wrong, and you want to sue
    me for it, you have 1 year from the time you find it out, or 3
    years from when it happens to file a lawsuit.
        When the Senator was talking about letting people off the
    hook, surely everybody understands that our system has no ex
    post facto laws. So if the provision raising that statute of
    limitation to 5 years became law, it would have no effect on
    anybody who has committed one of these violations about which
    we are talking.

             AMENDMENT NO. 4184 TO DIVISION 1 OF AMENDMENT NO. 4174

        Mr. Gramm. Mr. President, having straightened that out,
    that is not even the subject about which we are talking. We now
    have three amendments pending, and I send a second-degree
    amendment to the first amendment and ask for its immediate
    consideration.
        This is a very short amendment and I ask it be read because
    the language of it is so clear that a lot of times we have an
    amendment, and what we say does not have much to do with the
    amendment. I want people to read the language.
        The Presiding Officer (Mr. Carper). The clerk will report.
        The legislative clerk read as follows:

        The Senator from Texas [Mr. Gramm], for himself and Mr.
    Santorum, proposes an amendment numbered 4184 to division 1 of
    amendment No. 4174:
    (Purpose: To provide the Board with appropriate flexibility in applying
        non-audit services restrictions to small businesses)

        At the end of the division, insert the following new section:

    ``SEC. . EXEMPTION AUTHORITY.

        ``(1) Case-by-Case Waivers.--Notwithstanding section 201(b)
    of this Act. The Board may, on a case by case basis, exempt any
    person, issuer, public accounting firm, or transaction from the
    prohibition on the provision of services under section 10A(g)
    of the Securities Exchange Act of 1934 (as added by this
    section), to the extent that such exemption is necessary or
    appropriate in the public interest and is consistent with the
    protection of investors, and subject to review by the
    Commission in the same manner as for rules of the Board under
    section 107.
        ``(2) Small Business Exemption.--The Board may, by rule
    exempt any person, issuer or public accounting firm (or classes
    of such persons, issuers or public accounting firms) from the
    prohibition on the provision of services under section 10A(g)
    of the Securities Exchange Act of 1934 (as added by this
    section), based upon the small business nature of such person,
    issuer or public accounting firm, taking into consideration
    applicable factors such as total asset size, availability and
    cost of retaining multiple service providers, number of public
    company audits performed, and such other factors and conditions
    as the Board deems appropriate consistent with the purposes of
    this Act.''.

        The Presiding Officer. The Senator from Nevada.
        Mr. Reid. Mr. President, I ask unanimous consent that I be
    allowed to yield to the Senator from Georgia.
        The Presiding Officer. Without objection, it is so ordered.
    The Senator from Georgia.

                          AMENDMENT NO. 4176 WITHDRAWN

        Mr. Miller. Mr. President, I ask unanimous consent that the
    Miller amendment be withdrawn.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Reid. I suggest the absence of a quorum.
        The Presiding Officer. The clerk will call the roll.
        The senior assistant bill clerk proceeded to call the roll.
        Mr. Daschle. Mr. President, I ask unanimous consent that
    the order for the quorum call be rescinded.
        The Presiding Officer. Without objection, it is so ordered.

                   DIVISION 1 OF AMENDMENT NO. 4174 WITHDRAWN

        Mr. Daschle. Mr. President, I withdraw Division 1 of the
    amendment.
        The Presiding Officer. The division is withdrawn.

                   DIVISION 2 OF AMENDMENT NO. 4174 WITHDRAWN

        Mr. Daschle. I withdraw Division 2 of the amendment.
        The Presiding Officer. The division is withdrawn.

                   DIVISION 3 OF AMENDMENT NO. 4174 WITHDRAWN

        Mr. Daschle. I withdraw Division 3 of the amendment.
        The Presiding Officer. The division is withdrawn.

                               AMENDMENT NO. 4185

    (Purpose: To provide for criminal prosecution of persons who alter or
        destroy evidence in certain Federal investigations or defraud
        investors of publicly traded securities, and for other purposes.)

        Mr. Daschle. Mr. President, I send an amendment to the
    desk.
        The Presiding Officer. The clerk will report.
        The legislative clerk read as follows:

        The Senator from South Dakota [Mr. Daschle], for Mr. Leahy,
    for himself, Mr. McCain, Mr. Daschle, Mr. Durbin, Mr. Harkin,
    Mr. Cleland, Mr. Levin, Mr. Kennedy, Mr. Biden, Mr. Feingold,
    Mr. Miller, Mr. Edwards, Mrs. Boxer, Mr. Corzine, and Mr.
    Kerry, proposes an amendment numbered 4185.

        Mr. Daschle. Mr. President, I ask unanimous consent that
    the reading of the amendment be dispensed with.
        The Presiding Officer. Without objection, it is so ordered.
        (The amendment is printed in today's Record under ``Text of
    Amendments.'')
        Mr. Daschle. I suggest the absence of a quorum.
        The Presiding Officer. The clerk will call the roll.
        The legislative clerk proceeded to call the roll.
        Mr. Daschle. Mr. President, I ask unanimous consent the
    order for the quorum call be rescinded.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Daschle. Mr. President, first, let me say that we have
    had a very productive period over the last several minutes, and
    I think we now are in a position to move to a vote on the Leahy
    amendment.
        Mr. President, I ask unanimous consent that a vote occur on
    the Leahy amendment at 3:15 this afternoon, and that there be
    no amendments offered prior to the vote.
        The Presiding Officer. Is there objection?
        The Chair hears none, and it is so ordered.
        Mr. Daschle. I thank the Chair.
        Mr. Leahy. Mr. President, I ask for the yeas and nays.
        The Presiding Officer. Is there a sufficient second?
        There appears to be.
        The yeas and nays were ordered.
        The Presiding Officer. The Senator from Texas.
        Mr. Gramm. Mr. President, first, let me say, I am pleased
    we have reached an agreement on the Leahy amendment. This is
    one of these little technical things that does not mean much to
    many people, and it is one where, in fact, there is a dispute,
    but we have reached an agreement that will allow the Leahy
    amendment to go forward with certainty on our part that the 2-
    year statute of limitation is a real statute of limitation,
    that we simply change the number and that in the process, by
    the way we do it, we do not do anything that would challenge
    the current court ruling.
        Mr. Reid. Will my friend yield for a unanimous consent
    request?
        Mr. Gramm. I am happy to yield.
        Mr. Reid. Mr. President, I ask unanimous consent that the
    time from now until 3:15 be divided equally between the two
    managers of the bill.
        The Presiding Officer. Is there objection?
        The Chair hears none, and it is so ordered.
        Mr. Gramm. Mr. President, I thank the majority leader for
    helping us work this out. I think this will give us the ability
    now to move forward. As part of this agreement, we will have
    cloture filed on the bill. While that cloture is ripening, we
    will continue to consider amendments.
        I think this agreement guarantees we will have an
    opportunity, if not to finish the bill this week, the
    opportunity to assure that it would be finished early next
    week.
        Let me also say, for the record, I would not object to a
    unanimous consent request to have the cloture vote today or
    tomorrow. From my point of view, we do not need to wait until
    Friday to have the cloture vote. I would be willing to ask
    unanimous consent that it be moved up, if that were
    appropriate. I think that is up to the majority leader,
    obviously. But from my point of view, we are ready to move and
    head to conference with this bill.
        This one small part of the Leahy amendment I do not think
    is prudent policy, but there is greater certainty about what it
    means in terms of the statute of limitations. So I am more
    satisfied at least in terms of certainty.
        I thank Senator Leahy for working this out. There is no
    doubt about the fact that he had the votes if we could have
    brought it all to a vote, but I think what we are doing, by
    working out this simple compromise, is guaranteeing that we are
    going to pass this bill in short order.
        I am hopeful in conference we will be able to bring in the
    changes the President has proposed. I understand the Republican
    leader will offer them as an amendment. I will support them. I
    hope they are adopted unanimously.
        But in any case, I think this agreement paves the way to
    guarantee we will pass this bill, hopefully, this week if not
    early next week.
        Let me say to my colleagues on the Republican side of the
    aisle, I intend to vote for cloture. I think this is an
    important piece of legislation. I would do important parts of
    it differently than Senator Sarbanes, but he is Chairman and I
    am ranking member; and we have been in the different positions.
    There is a difference between the two, but we cannot get a bill
    which I want unless we go to conference.
        The House bill is very different. I think we have an
    opportunity to work out a compromise, just as we did on
    financial services modernization. Senator Sarbanes opposed it
    when we dealt with it on the floor of the Senate, but by the
    time we came back from conference, we got 90 votes. My guess
    is, we will do as well or better on this bill after going to
    conference.
        So I think we have taken a major step toward moving on. I
    think it is important. I think the American people want this
    bill passed. If we were willing to move up the cloture vote,
    which I am willing to do, we could pass it this week. If not,
    we will pass it next week.
        The Presiding Officer. Who yields time?
        Mr. Leahy. Mr. President, would the distinguished senior
    Senator from Maryland yield me, say, 5 minutes?
        Mr. Sarbanes. Would the Senator mind if I made a very short
    statement?
        Mr. Leahy. I would be delighted if the distinguished
    Chairman did.
        Mr. Sarbanes. Mr. President, I rise to commend the
    distinguished Senator from Vermont for the excellent work that
    he and the Committee on the Judiciary did with respect to the
    amendment that is now pending at the desk.
        This amendment will create tough new penalties to punish
    corporate fraud. It has very important provisions to protect
    corporate whistleblowers. Previously, they have been acting
    under wire and mail fraud provisions. And those are not
    adequate to deal with securities fraud. The committee
    recognized that and dealt directly with that question.
        The President is talking about doubling the penalties for
    wire and mail fraud, as I understand it, but did not have a
    proposal to actually have a securities fraud offense. And that
    is very important because it would have been very difficult
    under those other statutes because they are not directly
    focused on securities fraud.
        I think the committee has stepped into what was clearly a
    vacuum and has filled it in an exceedingly effective and
    craftsmanlike way.
        There are also important provisions in this amendment to
    prohibit individuals from destroying documents or falsifying
    records with the intent to obstruct or influence a Federal
    investigation or a matter in bankruptcy. That is also very
    important. We have some provisions of that sort but, once
    again, they are not fully developed or fully focused. The
    committee, again, has applied itself in order to do that and
    obviously made a very substantial contribution in that regard.
        I also want to touch, very briefly, on the provisions for
    whistleblower protection for employees of public companies. The
    legislation, as reported out of the Banking Committee, requires
    audit committees to have in place procedures to receive and
    address complaints regarding accounting and internal control or
    auditing issues and to establish procedures for employees'
    anonymous submissions of concerns regarding accounting or
    auditing matters. That was a provision championed by Senator
    Stabenow. We were very pleased to adopt it.
        But Senator Leahy and his colleagues on the Judiciary
    Committee have moved ahead to provide additional protections
    and remedies for corporate whistleblowers that I think will
    help to ensure that employees will not be punished for taking
    steps to prevent corporate malfeasance.
        There are a number of other very important provisions in
    this legislation of which I am very strongly supportive, but I,
    in deference to the limitation on time, will withhold with
    respect to those.
        But, again, I thank the able Chairman of the Judiciary
    Committee and his colleagues for this very important
    contribution to the legislation we are trying to develop.
        Let me simply say it is a pleasure, once again, as we did
    back in the fall when we did money laundering, to be able to
    work closely with the committee in furthering the public
    interest.
        I yield the remainder of my time to the Senator from
    Vermont.
        The Presiding Officer. Thirteen minutes remain for the
    majority. The Senator from Vermont.
        Mr. Leahy. I thank the distinguished Senator from Maryland.
    I appreciate his comments also about last fall after the
    tragedies of September 11. He and I and our committees worked
    closely on the terrorism legislation. Realizing it was more
    than simply having a penalty against terrorism, we had to have
    the tools against terrorism, and the distinguished senior
    Senator from Maryland was very helpful in putting together the
    money-laundering legislation so we could come out with a
    counterterrorism package on which the Senate could vote for 99-
    1.
        That is what we are trying to do today. I am a proud
    cosponsor of Senator Sarbanes' legislation before the body.
    After years of experience in this body, I know how helpful it
    is if you have bills where the jurisdiction of various aspects
    may be in different committees. And considering having turf
    battles, when you work together, as we have in the Banking and
    Judiciary Committees, and others worked, you usually end up
    with a better package for the Senate.
        The final product becomes better and more complete because
    of our joint work. Having served here for a quarter of a
    century with the Senator from Maryland, I know such things can
    be done.
        With the members of his committee, he has had to craft a
    very complex, worthwhile bill on the issue of how do you
    account, how do you keep records, of all the various things to
    come under the SEC, to come under the jurisdiction of his
    committee.
        What I am concerned about, from the Judiciary Committee,
    is, if you get these people, you get them; that if you have
    somebody who has gone and spent all their efforts to defraud
    their own company and the pension holders in their company and
    the investors in their company, that they not walk off scot-
    free with their mansions in protected States and their offshore
    money.
        When you look at what has happened, when you look at the
    out-and-out fraud of some of these executives as they have
    ruined their own company, actually damaged their own country as
    well, at the same time lining their pockets as if anybody could
    even have pockets as huge as the amounts of money they have put
    in, and they walk away scot-free and they say: This is such a
    tragedy. I hate to see my company collapse like that and tens
    of thousands of people out of work and all those pensioners
    gone and all those States defrauded. And I am just going to
    have to comfort myself for the rest of my life with my $100 or
    $200 or $300 million I have absconded with.
        Their comfort might be a little bit less if they find that
    those same pension holders and stockholders have the ability to
    go after the money they are walking away with, and their
    comfort might be a little bit less if instead of a very large
    mansion they are in a 12-by-12 cell behind steel doors. Instead
    of a complacent board of directors, they may have to be dealing
    with their fellow inmates who may not take very kindly to them.
        Why do we have to have that kind of a tough law, and why do
    we have to have the statute of limitations? Just take a look at
    this chart. This is what Enron did. Does this look like a
    company that wants to be transparent in their dealings? Does
    this look like a company that wants to be on the up and up?
    These are their off-the-book transactions, hidden debt, fake
    profits, inflated stock.
        What were some of the companies they were hiding this
    behind? Here is one named Ponderosa. If you look at that, you
    do not know it belongs to Enron. Or Jedi Capital or Big Doe--
    that is not D-O-U-G-H--or Sundance or Little River or Yosemite
    or OB-1 Holdings or Peregrine or Kenobe. I guess Kenobe is a
    different company than OB-1. And we have Braveheart and Mojave
    and Chewco and Condor. It seems the only time they had free
    between trying to hide the money was going to movies, when you
    look at some of the secret partnerships they created here, Jedi
    II, OB-1, Kenobe.
        My point is, do you think if anybody stumbled across one of
    these companies they would think for even 1 minute that it
    belonged to Enron? Of course not. If you were the person who
    was to protect the pension rights of the employees, do you
    think if you found Ospry or Zenith or Egret or Cactus or Big
    River or Raptor you would think the money that was being tucked
    away and hidden in there could actually belong to the employees
    of Enron?
        But Kenneth Lay comes up here, sidles up to the table where
    he is going to be called to testify and says: I wish you could
    know the whole story, but not from me. I am taking the fifth.
        Well, he has that constitutional right. But he doesn't have
    a constitutional right to steal and defraud, and other people
    like him don't have the constitutional right to steal and
    defraud and hide the money.
        This isn't a question of whether they walk away with only
    $100 million instead of $200 million. It is a question of a
    middle-age couple reaching retirement time and having virtually
    all their retirement save Social Security tied up in a pension
    fund such as this and seeing it wiped out that day. They are
    not facing a question of whether they will have $200 million or
    $100 million. They are going to face the question of whether
    they can even keep their home, whether they will have the money
    to visit their grandchildren, or have the money to take care of
    their medical needs in their old age. That is what we are
    talking about. Or the people who work so hard, show up for work
    every single day, help make the fortune for the Ken Lays of the
    world, but they suddenly find they can't make the mortgage
    payment, they can't make the car payment, they can't pay for
    their children's braces. They can't do any of these other
    things because the big guys have walked off with all the money.
        That is why I wrote the legislation I did. I wrote
    legislation that is going to punish criminals. I wrote
    legislation that will preserve the evidence of fraud and
    protect victims.
        As one who has prosecuted people, I know nothing focuses
    their attention more than knowing they will not go to jail.
    Suddenly that overlooked ethics course when they were getting
    their MBA, or that overlooked ethics course in the accounting
    school or law school, they are going to start looking at it
    again. If they think, because they can walk away from this,
    they will go to jail, they are going to go to jail. It is not
    going to be a complacent board of directors they will deal
    with. It will be a criminal in the cell next door. That is what
    they have to worry about.
        These people deserve to go to jail. They have ruined the
    lives of thousands of people, good people, hard-working people,
    honest
    people. They have destroyed much of the confidence in Wall
    Street. They have destroyed the confidence in people who should
    be investing.
        I am proud to be an American and proud to be in a country
    such as ours where you can invest, where people can grow
    companies, where they can make money if they do the right
    thing. But I am not proud of these kinds of people who destroy
    that sort of American dream.
        The President says he is outraged. I suspect he is. But I
    am also outraged. I would hope the President's outrage will go
    to the point of supporting this kind of legislation, this kind
    of legislation which doesn't just say it is wrong for you to do
    that, but if you do it, you are going to go to jail. Those iron
    bars are going to close.
        We have worked hard on this legislation. That is why I
    compliment the distinguished senior Senator from Maryland. He
    and the members of his committee worked very hard. The people
    of my staff, including Ed Pagano, Steve Dettelbach, Jessica
    Berry, and Bruce Cohen worked so hard. They brought in people
    from across the political spectrum, Republicans and Democrats
    alike, to join us. I think all of those who joined it joined in
    one basic thing. They set aside their philosophical or partisan
    differences. They set aside their feelings of party and said
    they were overwhelmed with feelings of outrage.
        Even in my own little State of Vermont, pension funds were
    damaged because of the excesses of Enron. And then we see
    WorldCom and Tyco and Xerox, and we say we had better look back
    5 years.
        That is not the American way. That is the way of some of
    the most arrogant, self-centered, spoiled criminals. That is
    what they are; they are criminals. They cooked the books in
    California during an energy crisis, so millions of people in
    California paid more for their electricity. Their arrogance was
    such that they did not care because all of those offshore
    corporations were hiding the money. Lord knows how much money
    is still there. You are not going to find out from these
    executives because they will take the fifth. They have the
    constitutional right to do that, and I will defend that right,
    as I will the rights of everybody else. But let us not shed
    tears for them. Just as Democrats and Republicans will join in
    voting for this, I call on the President and the Attorney
    General to step forward and say they support it. And I call on
    our Justice Department to go forward and find some of these
    people not just to say maybe we will find a corporation guilty
    of a crime; let's send some of these people to jail for what
    they have done. Let's send them to jail, and let's do
    everything we can to let the people defrauded by them recover
    some of their ill-gotten gains.
        I see the Senator from Michigan has taken over the chair.
    Madam President, I reserve the remainder of my time.
        The Presiding Officer. The Senator's time has expired.
        Mr. Leahy. I note that the Senator from Michigan is a
    cosponsor of this amendment.
        The Presiding Officer. The Senator from Texas is
    recognized.
        Mr. Gramm. Madam President, I think all time has expired on
    the majority side. I think I have about 13 minutes. I have said
    all I intended to say. I think we have cleared the way for this
    bill to be passed. I want to reiterate that when cloture is
    filed in a few minutes, I will be supportive of having that
    cloture vote earlier than Friday, which would be the normal
    time it would ripen. Maybe others would not be supportive of
    having the vote, and they are perfectly within their rights. I
    think the agreement we worked out has guaranteed we are going
    to pass this bill either this week or very early next week.
        The net result is that we can go to conference with the
    House, and we will have an opportunity, I believe, to come back
    with a strong bipartisan bill. I have to say that I think we
    have sort of reached the point where a lot of debate on this
    issue is more about the next election than it is about
    corporate integrity. I wonder if the debate has not reached the
    point where we are hurting equity values by making people fear
    not only the disease, but the absurd prescription of the doctor
    that might come from the Government.
        I think the sooner we can finish this bill and go to
    conference and come out with a final product so that people
    know with certainty what the new rules are and how we are going
    to go about them, everybody will benefit. I think the only
    thing that will be lost by invoking cloture is that we will
    have fewer speeches, we will have fewer opportunities to
    denounce evil, however we define it, and we will be less likely
    to get on the 6 o'clock news; but we will also be less likely
    to spook the markets and more likely to get our job done; we
    will be more likely to produce a good bill we can all be proud
    of, not just when we read the editorial in the Washington Post,
    but when we submit it all to the front-porch-of-the-nursing-
    home test, as to how we feel about it someday when we are
    sitting on the front porch of the nursing home.
        Mr. Harkin. Mr. President, our economic system is based on
    transparency. Investors need accurate financial information
    about a company so that they can make informed investment
    decisions. They need information they can trust. Getting honest
    information requires accountability and honesty from three
    entities: corporate executives, stock brokers, and public
    auditors. Clearly, we are seeing breakdowns, if not outright
    criminality, at all three levels. And it requires additional
    accountability at all three levels in order to restore investor
    confidence.
        First, we must expect that corporations present an honest
    portrait of the companies economic health and well-being.
    Corporate executives who cooks the books are no different than
    used car salesmen who roll back the car odometers, both are
    engaged in a fraud. They must be held accountable for their
    actions and severely punished.
        Second, we must expect brokers provide their investors with
    honest, accurate, and unbiased advice. I stress unbiased.
    Unfortunately, many brokerage firms have a conflict of interest
    because they bring in businesses and increase their own profits
    by pushing bad stocks. One recent report indicated that 94
    percent of Wall Street firms continued to recommend stocks for
    companies that went bankrupt this year up to the very day that
    companies filed for Chapter 11.
        Third, we have to expect that public accounting firms are
    acting as watchdogs over corporate financial statements. Yet
    many of the auditing firms, not just Arthur Andersen, have had
    major failures.
        Accounting firms gave a clean bill of health to over 93
    percent of publicly traded companies that were subsequently
    involved in
    accounting problems within the year. And 42 percent of publicly
    traded companies that filed for bankruptcy were given a clean
    bill of health. Clearly, we need fundamental reform at all
    three levels to restore investor confidence and punish criminal
    behavior. Some say may say that Enron, Worldcom and the others
    are a few bad apples. That ignores the much wider, systemic
    problems that now plague corporate America.
        Advocating half measures or saying that we do not need to
    strengthen the law is like saying that bank robbery should not
    be severely punished and banks should not have vaults because
    most people do not rob banks. Well, some people do rob banks.
    And some corporate executives rip off investors. But they are
    both criminals and both should be punished accordingly.
        I commend Chairman Sarbanes for his accounting reform bill,

    S. 2673, which is an excellent start at providing for stronger
    rules regarding accounting procedures. I am also pleased to be
    an original cosponsor of Senator Leahy's ``Corporate and
    Criminal Fraud Accountability Act,'' that is now being offered
    as an amendment. Will some key executives go to jail if this
    amendment passes? If they are guilty of fraud or destroying
    evidence of wrong doing, I certainly hope so.
        First, the amendment creates a new crime for security fraud
    and helps prosecutors punish corporate criminality. This
    amendment is a lot like the ``Go to Jail'' card in the board
    game ``Monopoly.'' It says to corporate criminals ``go to jail,
    do not pass go and do not collect $200.'' The amendment also
    increases penalties for obstruction of justice. The people who
    would shred documents to cover up criminal behavior are not
    better than the ``wheel man'' in a robbery. They may not have
    pulled the robbery, but the crook cannot getaway without them.
    This amendment would make sure the shredders are held
    accountable as well.
        Incidentally, the amendment also lengthens the statute of
    limitations on these crimes and protects corporate
    whistleblowers. Corporate criminals should not be allowed to
    run out the clock and avoid prosecution. And workers who
    discover corporate fraud should be protected just as we protect
    government whistleblowers. I believe this amendment will go a
    long way toward preventing corporate crime and prosecuting
    those who would rip off their stock holders and employees.
    Restoring confidence and punishing criminal behavior is in
    everyone's best interest--honest corporate executives, their
    employees, investors, and the public at large. I urge adoption
    of the amendment and look forward to seeing it become law.
        I suggest the absence of a quorum.
        The Presiding Officer. The clerk will call the roll.
        The legislative clerk proceeded to call the roll.
        Mr. Sarbanes. Madam President, I ask unanimous consent that
    the order for the quorum call be rescinded.
        The Presiding Officer (Ms. Stabenow). Without objection, it
    is so ordered.
        Under the previous order, the question is on agreeing to
    amendment No. 4185. The yeas and nays have been ordered. The
    clerk will call the roll.
        The legislative clerk called the roll.
        Mr. Nickles. I announce that the Senator from North
    Carolina (Mr. Helms), the Senator from Ohio (Mr. Voinovich),
    and the Senator from Idaho (Mr. Crapo), are necessarily absent.
        I further announce that if present and voting the Senator
    from North Carolina (Mr. Helms) would vote ``yea.''
        The Presiding Officer. Are there any other Senators in the
    Chamber desiring to vote?
        The result was announced--yeas 97, nays 0, as follows:
                          [Rollcall Vote No. 169 Leg.]
        Yeas--97: Akaka, Allard, Allen, Baucus, Bayh, Bennett, Biden,
    Bingaman, Bond, Boxer, Breaux, Brownback, Bunning, Burns, Byrd,
    Campbell, Cantwell, Carnahan, Carper, Chafee, Cleland, Clinton,
    Cochran, Collins, Conrad, Corzine, Craig, Daschle, Dayton, DeWine,
    Dodd, Domenici, Dorgan, Durbin, Edwards, Ensign, Enzi, Feingold,
    Feinstein, Fitzgerald, Frist, Graham, Gramm, Grassley, Gregg, Hagel,
    Harkin, Hatch, Hollings, Hutchinson, Hutchison, Inhofe, Inouye,
    Jeffords, Johnson, Kennedy, Kerry, Kohl, Kyl, Landrieu, Leahy, Levin,
    Lieberman, Lincoln, Lott, Lugar, McCain, McConnell, Mikulski, Miller,
    Murkowski, Murray, Nelson (FL), Nelson (NE), Nickles, Reed, Reid,
    Roberts, Rockefeller, Santorum, Sarbanes, Schumer, Sessions, Shelby,
    Smith (NH), Smith (OR), Snowe, Specter, Stabenow, Stevens, Thomas,
    Thompson, Thurmond, Torricelli, Warner, Wellstone, Wyden
        Not Voting--3: Crapo, Helms, Voinovich

        The amendment (No. 4185) was agreed to.
        Mr. Daschle. Madam President, I move to reconsider the
    vote.
        Mr. Sarbanes. I move to lay that motion on the table.
        The motion to lay on the table was agreed to.

                               AMENDMENT NO. 4186

        Mr. Daschle. Madam President, I send an amendment to the
    desk.
        The Presiding Officer. The clerk will report.
        The legislative clerk read as follows:

        The Senator from South Dakota [Mr. Daschle], for Mr. Biden
    and Mr. Hatch, proposes an amendment numbered 4186.

        Mr. Daschle. Madam President, I ask unanimous consent that
    reading of the amendment be dispensed with.
        The Presiding Officer. Without objection, it is so ordered.
        The amendment is as follows:

    (Purpose: To increase criminal penalties relating to conspiracy, mail
        fraud, wire fraud, and certain ERISA violations, and for other
        purposes)

        At the end, add the following:

              TITLE VIII--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS

    SEC. 801 SHORT TITLE.

        This title may be cited as the ``White-Collar Crime Penalty
    Enhancement Act of 2002''.

    SEC. 802. CRIMINAL PENALTIES FOR CONSPIRACY TO COMMIT OFFENSE OR TO
                        DEFRAUD THE UNITED STATES.

        Section 371 of title 18, United States Code, is amended by
    striking ``If two or more'' and all that follows through ``If,
    however,'' and inserting the following:
        ``(a) In General.--If 2 or more persons--
        ``(1) conspire to commit any offense against the United
    States, in any manner or for any purpose, and 1 or more of such
    persons do any act to effect the object of the conspiracy, each
    person shall be fined or imprisoned, or both, as set forth in
    the specific substantive offense which was the object of the
    conspiracy; or
        ``(2) conspire to defraud the United States, or any agency
    thereof in any manner or for any purpose, and 1 or more of such
    persons do any act to effect the object of the conspiracy, each
    person shall be fined under this title, or imprisoned not more
    than 10 years, or both.
        ``(b) Misdemeanor Offense.--If, however,''.

    SEC. 803. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.

        (a) Mail Fraud.--Section 1341 of title 18, United States
    Code, is amended by striking ``five years'' and inserting ``10
    years''.
        (b) Wire Fraud.--Section 1343 of title 18, United States
    Code, is amended by striking ``five years'' and inserting ``10
    years''.

    SEC. 804. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE RETIREMENT
                        INCOME SECURITY ACT OF 1974.

        Section 501 of the Employee Retirement Income Security Act
    of 1974 (29 U.S.C. 1131) is amended--
        (1) by striking ``$5,000'' and inserting ``$100,000'';
        (2) by striking ``one year'' and inserting ``10 years'';
    and
        (3) by striking ``$100,000'' and inserting ``$500,000''.

    SEC. 805. AMENDMENT TO SENTENCING GUIDELINES RELATING TO CERTAIN WHITE-
                        COLLAR OFFENSES.

        (a) Directive to the United States Sentencing Commission.--
    Pursuant to its authority under section 994(p) of title 18,
    United States Code, and in accordance with this section, the
    United States Sentencing Commission shall review and, as
    appropriate, amend the Federal Sentencing Guidelines and
    related policy statements to implement the provisions of this
    title.
        (b) Requirements.--In carrying out this section, the
    Sentencing Commission shall--
        (1) ensure that the sentencing guidelines and policy
    statements reflect the serious nature of the offenses and the
    penalties set forth in this title, the growing incidence of
    serious fraud offenses which are identified above, and the need
    to modify the sentencing guidelines and policy statements to
    deter, prevent, and punish such offenses;
        (2) consider the extent to which the guidelines and policy
    statements adequately address--
        (A) whether the guideline offense levels and enhancements
    for violations of the sections amended by this title are
    sufficient to deter and punish such offenses, and specifically,
    are adequate in view of the statutory increases in penalties
    contained in this title; and
        (B) whether a specific offense characteristic should be
    added in United States Sentencing Guideline section 2B1.1 in
    order to provide for stronger penalties for fraud when the
    crime is committed by a corporate officer or director;
        (3) assure reasonable consistency with other relevant
    directives and sentencing guidelines;
        (4) account for any additional aggravating or mitigating
    circumstances that might justify exceptions to the generally
    applicable sentencing ranges;
        (5) make any necessary conforming changes to the sentencing
    guidelines; and
        (6) assure that the guidelines adequately meet the purposes
    of sentencing as set forth in section 3553(a)(2) of title 18,
    United States Code.

    SEC. 806. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.

        (a) In General.--Chapter 63 of title 18, United States
    Code, is amended by adding at the end the following:

    ``Sec. 1348. Failure of corporate officers to certify financial reports

        ``(a) Certification of Periodic Financial Reports.--Each periodic
    report containing financial statements filed by an issuer with the
    Securities Exchange Commission pursuant to section 13(a) or 15(d) of
    the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) shall
    be accompanied by a written statement by the Chairman of the board,
    chief executive officer, and chief financial officer (or equivalent
    thereof) of the issuer.
        ``(b) Content.--The statement required under subsection (a) shall
    certify the appropriateness of the financial statements and disclosures
    contained in the periodic report or financial report, and that those
    financial statements and disclosures fairly present, in all material
    respects, the operations and financial condition of the issuer.
        ``(c) Criminal Penalties.--Notwithstanding any other provision of
    law--
        ``(1) any person who recklessly violates any provision of this
    section shall upon conviction be fined not more than $500,000, or
    imprisoned not more than 5 years, or both; or
        ``(2) any person who willfully violates any provision of this
    section shall upon conviction be fined not more than $1,000,000, or
    imprisoned not more than 10 years, or both.''.
        (b) Technical and Conforming Amendment.--The section analysis for
    chapter 63 of title 18, United States Code, is amended by adding at the
    end the following:

     ``1348. Failure of corporate officers to certify financial reports.''.

        Mr. Daschle. Madam President, I know there are a number of
    Senators who wish to be recognized to offer amendments. I think
    Senator Lott would like very much to offer an amendment as
    well. What I would like to do is to propound a unanimous
    consent request involving a number of Senators who have
    amendments to be offered so they will know the sequence. I know
    Senator Edwards has been waiting a long time to offer an
    amendment, as well as Senator Levin, Senator Schumer, Senator
    Gramm, and Senator McCain. Perhaps in the next couple of
    minutes we can put together a unanimous consent request which
    will sequence these amendments so Senators will know they are
    protected and have the opportunity to then have their
    amendments called up. I ask that all of our colleagues work
    with us over the course of the next few minutes.
        I yield the floor to accommodate Senator Lott's interest in
    offering his amendment. We will lay aside the Biden amendment
    temporarily as that amendment is considered as well.
        The Presiding Officer. The Republican leader.
        Mr. Lott. Madam President, first, I thank Senators
    Sarbanes, Gramm, and Leahy for the work they have put into
    moving through the amendment on which we just voted. That
    allows us to move on to other germane or important amendments
    that will be offered.

                               AMENDMENT NO. 4188

        Madam President, I understand the Biden amendment will be
    set aside. So I send to the desk my amendment.
        The Presiding Officer. Without objection, the pending
    amendment is set aside, and the clerk will report.
        The legislative clerk read as follows:

        The Senator from Mississippi [Mr. Lott] proposes an
    amendment numbered 4188.

        Mr. Lott. Madam President, I ask unanimous consent that
    reading of the amendment be dispensed with.
        The Presiding Officer. Without objection, it is so ordered.
        The amendment is as follows:

    (Purpose: To deter fraud and abuse by corporate executives)

        At the appropriate place, insert the following:

    SEC. . HIGHER MAXIMUM PENALTIES FOR MAIL AND WIRE FRAUD.

        (a) Mail Fraud.--Section 1341 is amended by striking
    ``five'' and inserting ``ten''.
        (b) Wire Fraud.--Section 1343 is amended by striking
    ``five'' and inserting ``ten''.

    SEC. . TAMPERING WITH A RECORD OR OTHERWISE IMPEDING AN OFFICIAL
                        PROCEEDING.

        Section 1512 of title 18, United States Code is amended--
        (a) by re-designating subsections (c), (d), (e), (f), (g),
    (h), and (i) as subsections (d), (e), (f), (g), (h), (i) and
    (j);
        (b) by inserting after subsection (b) the following new
    subsection:
        ``(c) Whoever corruptly--
        ``(1) alters, destroys, mutilates or conceals a record,
    document or other object, or attempts to do so, with the intent
    to impair the object's integrity or availability for use in an
    official proceeding; or
        ``(2) otherwise obstructs, influences, or impedes any
    official proceeding, or attempts to do so;
        ``shall be fined under this title or imprisoned not more
    than ten years, or both.''

    SEC. . TEMPORARY FREEZE AUTHORITY FOR THE SECURITIES AND EXCHANGE
                        COMMISSION.

        (a) In General.--The Securities Exchange Act of 1934 is
    amended by inserting after section 21C(c)(2) (15 U.S.C. 78u-
    3(c)(2)) the following:
        ``(3) Temporary freeze.--
        ``(A) Whenever during the course of a lawful investigation
    involving possible violations of the Federal securities laws by
    an issuer of publicly traded securities or any of its
    directors, officers, partners, controlling persons, agents or
    employees, it shall appear to the Commission that it is likely
    that the issuer will make extraordinary payments (whether
    compensation or otherwise) to any of the foregoing persons, the
    Commission may petition a Federal district court for a
    temporary order requiring the issuer to escrow, subject to
    court supervision, those payments in an interest-bearing
    account for 45 days. Such an order shall be entered, if the
    court finds that the issuer is likely to make such
    extraordinary payments, only after notice and opportunity for a
    hearing, unless the court determines that notice and hearing
    prior to entry of the order would be impracticable or contrary
    to the public interest. A temporary order shall become
    effective immediately and shall be served upon the parties
    subject to it and, unless set aside, limited or suspended by
    court of competent jurisdiction, shall remain effective and
    enforceable for 45 days. The period of the order may be
    extended by the court upon good cause shown for not longer than
    45 days, provided that the combined period of the order not
    exceed 90 days.
        ``(B) If the individual affected by such order is charged
    with violations of the Federal securities laws by the
    expiration of the 45 days (or the expiration of any extended
    period), the escrow would continue, subject to court approval,
    until the conclusion of any legal proceedings. The issuer and
    the affected director, officer, partner, controlling person,
    agent or employee would have the right to petition the court
    for review of the order. If the individual affected by such
    order is not charged, the escrow will terminate at the
    expiration of the 45 days (or the expiration of any extended
    period), and the payments (with accrued interest) returned to
    the issuer.
        (b) Technical Amendment.--Section 21C(c)(2) of the
    Securities Exchange Act of 1934 (15 U.S.C. 78u-3(c)(2)) is
    amended by striking ``This'' and inserting ``Paragraph (1) of
    this''.

    SEC. . AMENDMENT TO THE FEDERAL SENTENCING GUIDELINES.

        (a) Request for Immediate Consideration by the United
    States Sentencing Commission.--Pursuant to its authority under
    section 994(p) of title 28, United States Code, and in
    accordance with this section, the United States Sentencing
    Commission is requested to--
        (1) promptly review the sentencing guidelines applicable to
    securities and accounting fraud and related offenses;
        (2) expeditiously consider promulgation of new sentencing
    guidelines or amendments to existing sentencing guidelines to
    provide an enhancement for officers or directors of publicly
    traded corporations who commit fraud and related offenses; and
        (3) submit to Congress an explanation of actions taken by
    the Commission pursuant to paragraph (2) and any additional
    policy recommendations the Commission may have for combating
    offenses described in paragraph (1).
        (b) Other.--In carrying out this section, the Sentencing
    Commission is requested to:
        (1) ensure that the sentencing guidelines and policy
    statements reflect the serious nature of securities, pension,
    and accounting fraud and the need for aggressive and
    appropriate law enforcement action to prevent such offenses;
        (2) assure reasonable consistency with other relevant
    directives and with other guidelines;
        (3) account for any aggravating or mitigating circumstances
    that might justify exceptions, including circumstances for
    which the sentencing guidelines currently provide sentencing
    enhancements;
        (4) make any necessary conforming changes to the sentencing
    guidelines; and
        (5) assure that the guidelines adequately meet the purposes
    of sentencing as set forth in section 3553(a)(2) of title 18,
    United States Code.
        (c) Emergency Authority and Deadline for Commission
    Action.--The Commission is requested to promulgate the
    guidelines or amendments provided for under this section as
    soon as practicable, and in any event not later than the 120
    days after the date of the enactment of this Act, in accordance
    with the procedures set forth in section 21(a) of the
    Sentencing Reform Act of 1987, as though the authority under
    that Act had not yet expired.

    SEC. . AUTHORITY OF THE COMMISSION TO PROHIBIT PERSONS FROM SERVING AS
                        OFFICERS OR DIRECTORS.

        (a) In section 21C of the Exchange Act of 1934, add at the
    end a new subsection as follows:
        ``( ) Authority of the Commission To Prohibit Persons From
    Serving as Officers or Directors.--In any cease-and-desist
    proceeding under subsection (a), the Commission may issue an
    order to prohibit, conditionally or unconditionally, and
    permanently or for such period of time as it shall determine,
    any person who has violated section 10(b) of this title or the
    rules or regulations thereunder from acting as an officer or
    director of any issuer that has a class of securities
    registered pursuant to section 12 of this title or that is
    required to file reports pursuant to section 15(d) of this
    title if the person's conduct demonstrates unfitness to serve
    as an officer or director of any such issuer.''
        (b) In section 8A of the Securities Act add at the end a
    new subsection as follows:
        ``( ) Authority of the Commission To Prohibit Persons From
    Serving as Officers or Directors.--In any cease-and-desist
    proceeding under subsection (a), the Commission may issue an
    order to prohibit, conditionally or unconditionally, and
    permanently or for such period of time as it shall determine,
    any person who has violated section 17(a)(1) of this title from
    acting as an officer or director of any issuer that has a class
    of securities registered pursuant to section 12 of the
    Securities Exchange Act of 1934 or that is required to file
    reports pursuant to section 15(d) of that Act if the person's
    conduct demonstrates unfitness to serve as an officer or
    director of any such issuer.''

                    AMENDMENT NO. 4189 TO AMENDMENT NO. 4188

        Mr. Gramm. Madam President, I send a second-degree
    amendment to the desk.
        The Presiding Officer. The clerk will report.
        The legislative clerk read as follows:

        The Senator from Texas [Mr. Gramm] proposes an amendment
    numbered 4189 to amendment No. 4188.

        Mr. Gramm. Madam President, I ask unanimous consent that
    reading of the amendment be dispensed with.
        The Presiding Officer. Without objection, it is so ordered.
        The amendment is as follows:

    (Purpose: To deter fraud and abuse by corporate executives)

        Strike all after the first word, and insert the following:

               HIGHER MAXIMUM PENALTIES FOR MAIL AND WIRE FRAUD.

        (a) Mail Fraud.--Section 1341 is amended by striking ``five'' and
    inserting ``ten''.
        (b) Wire Fraud.--Section 1343 is amended by striking ``five'' and
    inserting ``ten''.

    SEC. . TAMPERING WITH A RECORD OR OTHERWISE IMPEDING AN OFFICIAL
                        PROCEEDING.

        Section 1512 of title 18, United States Code is amended--
        (a) by re-designating subsections (c), (d), (e), (f), (g),
    (h), and (i) as subsections (d), (e), (f), (g), (h), (i) and
    (j);
        (b) by inserting after subsection (b) the following new
    subsection:
        ``(c) Whoever corruptly--
        ``(1) alters, destroys, mutilates or conceals a record,
    document or other object, or attempts to do so, with the intent
    to impair the object's integrity or availability for use in an
    official proceeding; or
        ``(2) otherwise obstructs, influences, or impedes any
    official proceeding, or attempts to do so;
    ``shall be fined under this title or imprisoned not more than
    ten years, or both.''

    SEC. . TEMPORARY FREEZE AUTHORITY FOR THE SECURITIES AND EXCHANGE
                        COMMISSION.

        (a) In General.--The Securities Exchange Act of 1934 is
    amended by inserting after section 21C(c)(2) (15 U.S.C. 78u-
    3(c)(2)) the following:
        ``(3) Temporary freeze.--
        ``(A) Whenever during the course of a lawful investigation
    involving possible violations of the Federal securities laws by
    an issuer of publicly traded securities or any of its
    directors, officers, partners, controlling persons, agents or
    employees, it shall appear to the Commission that it is likely
    that the issuer will make extraordinary payments (whether
    compensation or otherwise) to any of the foregoing persons, the
    Commission may petition a Federal district court for a
    temporary order requiring the issuer to escrow, subject to
    court supervision, those payments in an interest-bearing
    account for 45 days. Such an order shall be entered, if the
    court finds that the issuer is likely to make such
    extraordinary payments, only after notice and opportunity for a
    hearing, unless the court determines that notice and hearing
    prior to entry of the order would be impracticable or contrary
    to the public interest. A temporary order shall become
    effective immediately and shall be served upon the parties
    subject to it and, unless set aside, limited or suspended by
    court of competent jurisdiction, shall remain effective and
    enforceable for 45 days. The period of the order may be
    extended by the court upon good cause shown for not longer than
    45 days, provided that the combined period of the order not
    exceed 90 days.
        ``(B) If the individual affected by such order is charged
    with violations of the Federal securities laws by the
    expiration of the 45 days (or the expiration of any extended
    period), the escrow would continue, subject to court approval,
    until the conclusion of any legal proceedings. The issuer and
    the affected director, officer, partner, controlling person,
    agent or employee would have the right to petition the court
    for review of the order. If the individual affected by such
    order is not charged, the escrow will terminate at the
    expiration of the 46 days (or the expiration of any extended
    period), and the payments (with accrued interest) returned to
    the issuer.
        (b) Technical Amendment.--Section 21C(c)(2) of the
    Securities Exchange Act of 1934 (15 U.S.C. 78u-3(c)(2)) is
    amended by striking ``This'' and inserting ``Paragraph (1) of
    this''.

    SEC. . AMENDMENT TO THE FEDERAL SENTENCING GUIDELINES.

        (a) Request for Immediate Consideration by the United
    States Sentencing Commission.--Pursuant to its authority under
    section 994(p) of title 28, United States Code, and in
    accordance with this section, the United States Sentencing
    Commission is requested to--
        (1) promptly review the sentencing guidelines applicable to
    securities and accounting fraud and related offenses;
        (2) expeditiously consider promulgation of new sentencing
    guidelines or amendments to existing sentencing guidelines to
    provide an enhancement for officers or directors of publicly
    traded corporations who commit fraud and related offenses; and
        (3) submit to Congress an explanation of actions taken by
    the Commission pursuant to paragraph (2) and any additional
    policy recommendations the Commission may have for combating
    offenses described in paragraph (1).
        (b) Other.--In carrying out this section, the Sentencing
    Commission is requested to:
        (1) ensure that the sentencing guidelines and policy
    statements reflect the serious nature of securities, pension,
    and accounting fraud and the need for aggressive and
    appropriate law enforcement action to prevent such offenses;
        (2) assure reasonable consistency with other relevant
    directives and with other guidelines;
        (3) account for any aggravating or mitigating circumstances
    that might justify exceptions, including circumstances for
    which the sentencing guidelines currently provide sentencing
    enhancements;
        (4) make any necessary conforming changes to the sentencing
    guidelines; and
        (5) assure that the guidelines adequately meet the purposes
    of sentencing as set forth in section 3553(a)(2) of title 18,
    United States Code.
        (c) Emergency Authority and Deadline for Commission
    Action.--The Commission is requested to promulgate the
    guidelines or amendments provided for under this section as
    soon as practicable, and in any event not later than the 120
    days after the date of the enactment of this Act, in accordance
    with the procedures set forth in section 21(a) of the
    Sentencing Reform Act of 1987, as though the authority under
    that Act had not yet expired.

    SEC. . AUTHORITY OF THE COMMISSION TO PROHIBIT PERSONS FROM SERVING AS
                        OFFICERS OR DIRECTORS.

        (a) In section 21C of the Exchange Act of 1934, add at the
    end a new subsection as follows:
        ``( ) Authority of the Commission To Prohibit Persons From
    Serving as Officers or Directors.--In any cease-and-desist
    proceeding under subsection (a), the Commission may issue an
    order to prohibit, conditionally or unconditionally, and
    permanently or for such period of time as it shall determine,
    any person who has violated section 10(b) of this title or the
    rules or regulations thereunder from acting as an officer or
    director of any issuer that has a class of securities
    registered pursuant to section 12 of this title or that is
    required to file reports pursuant to section 15(d) of this
    title if the person's conduct demonstrates unfitness to serve
    as an officer or director of any such issuer.''
        (b) In section 8A of the Securities Act add at the end a
    new subsection as follows:
        ``( ) Authority of the Commission To Prohibit Persons From
    Serving as Officers or Directors.--In any cease-and-desist
    proceeding under subsection (a), the Commission may issue an
    order to prohibit, conditionally or unconditionally, and
    permanently or for such period of time as it shall determine,
    any person who has violated section 17(a)(1) of this title from
    acting as an officer or director of any issuer that has a class
    of securities registered pursuant to section 12 of the
    Securities Exchange Act of 1934 or that is required to file
    reports pursuant to section 15(d) of that Act if the person's
    conduct demonstrates unfitness to serve as an officer or
    director of any such issuer.''

        Mr. Daschle. Madam President, I suggest the absence of a
    quorum.
        The Presiding Officer. The clerk will call the roll.
        The legislative clerk proceeded to call the roll.
        Mr. Daschle. Madam President, I ask unanimous consent the
    order for the quorum call be rescinded.
        The Presiding Officer. Without objection, it is so ordered.

                        AMENDMENT NO. 4186, AS MODIFIED

        Mr. Daschle. Madam President, I think we are working
    through the number of procedural issues with which we have to
    deal. I want to make sure we are in a position to be able to
    complete that work. So I call for the regular order.
        The Presiding Officer. Amendment No. 4186 is pending.
        Mr. Daschle. I modify the original amendment that I offered
    with the changes that are at the desk.
        The Presiding Officer. The amendment is so modified.
        The amendment, as modified, is as follows:

        On page 117 in line 12 strike ``Act'' and insert the
    following: Act.

              TITLE VIII--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS

    SEC. 801 SHORT TITLE.

        This title may be cited as the ``White-Collar Crime Penalty
    Enhancement Act of 2002''.

    SEC. 802. CRIMINAL PENALTIES FOR CONSPIRACY TO COMMIT OFFENSE OR TO
                        DEFRAUD THE UNITED STATES.

        Section 371 of title 18, United States Code, is amended by
    striking ``If two or more'' and all that follows through ``If,
    however,'' and inserting the following:
        ``(a) In General.--If 2 or more persons--
        ``(1) conspire to commit any offense against the United
    States, in any manner or for any purpose, and 1 or more of such
    persons do any act to effect the object of the conspiracy, each
    person shall be fined or imprisoned, or both, as set forth in
    the specific substantive offense which was the object of the
    conspiracy; or
        ``(2) conspire to defraud the United States, or any agency
    thereof in any manner or for any purpose, and 1 or more of such
    persons do any act to effect the object of the conspiracy, each
    person shall be fined under this title, or imprisoned not more
    than 10 years, or both.
        ``(b) Misdemeanor Offense.--If, however,''.

    SEC. 803. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.

        (a) Mail Fraud.--Section 1341 of title 18, United States
    Code, is amended by striking ``five years'' and inserting ``10
    years''.
        (b) Wire Fraud.--Section 1343 of title 18, United States
    Code, is amended by striking ``five years'' and inserting ``10
    years''.

    SEC. 804. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE RETIREMENT
                        INCOME SECURITY ACT OF 1974.

        Section 501 of the Employee Retirement Income Security Act
    of 1974 (29 U.S.C. 1131) is amended--
        (1) by striking ``$5,000'' and inserting ``$100,000'';
        (2) by striking ``one year'' and inserting ``10 years'';
    and
        (3) by striking ``$100,000'' and inserting ``$500,000''.

    SEC. 805. AMENDMENT TO SENTENCING GUIDELINES RELATING TO CERTAIN WHITE-
                        COLLAR OFFENSES.

        (a) Directive to the United States Sentencing Commission.--
    Pursuant to its authority under section 994(p) of title 18,
    United States Code, and in accordance with this section, the
    United States Sentencing Commission shall review and, as
    appropriate, amend the Federal Sentencing Guidelines and
    related policy statements to implement the provisions of this
    title.
        (b) Requirements.--In carrying out this section, the
    Sentencing Commission shall--
        (1) ensure that the sentencing guidelines and policy
    statements reflect the serious nature of the offenses and the
    penalties set forth in this title, the growing incidence of
    serious fraud offenses which are identified above, and the need
    to modify the sentencing guidelines and policy statements to
    deter, prevent, and punish such offenses;
        (2) consider the extent to which the guidelines and policy
    statements adequately address--
        (A) whether the guideline offense levels and enhancements
    for violations of the sections amended by this title are
    sufficient to deter and punish such offenses, and specifically,
    are adequate in view of the statutory increases in penalties
    contained in this title; and
        (B) whether a specific offense characteristic should be
    added in United States Sentencing Guideline section 2B1.1 in
    order to provide for stronger penalties for fraud when the
    crime is committed by a corporate officer or director;
        (3) assure reasonable consistency with other relevant
    directives and sentencing guidelines;
        (4) account for any additional aggravating or mitigating
    circumstances that might justify exceptions to the generally
    applicable sentencing ranges;
        (5) make any necessary conforming changes to the sentencing
    guidelines; and
        (6) assure that the guidelines adequately meet the purposes
    of sentencing as set forth in section 3553(a)(2) of title 18,
    United States Code.

    SEC. 806. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.

        (a) In General.--Chapter 63 of title 18, United States
    Code, is amended by adding at the end the following:

    ``Sec. 1348. Failure of corporate officers to certify financial reports

        ``(a) Certification of Periodic Financial Reports.--Each
    periodic report containing financial statements filed by an
    issuer with the Securities Exchange Commission pursuant to
    section 13(a) or 15(d) of the Securities Exchange Act of 1934
    (15 U.S.C. 78m(a) or 78o(d)) shall be accompanied by a written
    statement by the Chairman of the board, chief executive
    officer, and chief financial officer (or equivalent thereof) of
    the issuer.
        ``(b) Content.--The statement required under subsection (a)
    shall certify the appropriateness of the financial statements
    and disclosures contained in the periodic report or financial
    report, and that those financial statements and disclosures
    fairly present, in all material respects, the operations and
    financial condition of the issuer.
        ``(c) Criminal Penalties.--Notwithstanding any other
    provision of law--
        ``(1) any person who recklessly violates any provision of
    this section shall upon conviction be fined not more than
    $500,000, or imprisoned not more than 5 years, or both; or
        ``(2) any person who willfully violates any provision of
    this section shall upon conviction be fined not more than
    $1,000,000, or imprisoned not more than 10 years, or both.''.
        (b) Technical and Conforming Amendment.--The section
    analysis for chapter 63 of title 18, United States Code, is
    amended by adding at the end the following:

     ``1348. Failure of corporate officers to certify financial reports.''.

        Mr. Daschle. Madam President, I ask for the yeas and nays.
        The Presiding Officer. Is there a sufficient second?
        There appears to be a sufficient second.
        The yeas and nays were ordered.

             AMENDMENT NO. 4190 TO AMENDMENT NO. 4186, AS MODIFIED

        Mr. DASCHLE. Madam President, I send up an amendment in the
    second degree.
        What we have done now is to assure that both the Biden
    amendment and the Lott amendment will have an opportunity to be
    considered and debated. I am hoping we might even be able to
    continue to work to see if we can have one vote rather than
    two.
        The Presiding Officer. The clerk will report the amendment.
        The legislative clerk read as follows:

        The Senator from South Dakota [Mr. Daschle], for Mr. Biden,
    proposes an amendment numbered 4190 to amendment No. 4186, as
    modified.

        The amendment is as follows:
    (Purpose: To increase criminal penalties relating to conspiracy, mail
        fraud, wire fraud, and certain ERISA violations, and for other
        purposes)

        Strike all after the first word and insert the following:

                 VIII--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS

    SEC. 801 SHORT TITLE.

        This title may be cited as the ``White-Collar Crime Penalty
    Enhancement Act of 2002''.

    SEC. 802. CRIMINAL PENALTIES FOR CONSPIRACY TO COMMIT OFFENSE OR TO
                        DEFRAUD THE UNITED STATES.

        Section 371 of title 18, United States Code, is amended by
    striking ``If two or more'' and all that follows through ``If,
    however,'' and inserting the following:
        ``(a) In General.--If 2 or more persons--
        ``(1) conspire to commit any offense against the United
    States, in any manner or for any purpose, and 1 or more of such
    persons do any act to effect the object of the conspiracy, each
    person shall be fined or imprisoned, or both, as set forth in
    the specific substantive offense which was the object of the
    conspiracy; or
        ``(2) conspire to defraud the United States, or any agency
    thereof in any manner or for any purpose, and 1 or more of such
    persons do any act to effect the object of the conspiracy, each
    person shall be fined under this title, or imprisoned not more
    than 10 years, or both.
        ``(b) Misdemeanor Offense.--If, however,''.

    SEC. 803. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.

        (a) Mail Fraud.--Section 1341 of title 18, United States
    Code, is amended by striking ``five years'' and inserting ``10
    years''.
        (b) Wire Fraud.--Section 1343 of title 18, United States
    Code, is amended by striking ``five years'' and inserting ``10
    years''.

    SEC. 804. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE RETIREMENT
                        INCOME SECURITY ACT OF 1974.

        Section 501 of the Employee Retirement Income Security Act
    of 1974 (29 U.S.C. 1131) is amended--
        (1) by striking ``$5,000'' and inserting ``$100,000'';
        (2) by striking ``one year'' and inserting ``10 years'';
    and
        (3) by striking ``$100,000'' and inserting ``$500,000''.

    SEC. 805. AMENDMENT TO SENTENCING GUIDELINES RELATING TO CERTAIN WHITE-
                        COLLAR OFFENSES.

        (a) Directive to the United States Sentencing Commission.--
    Pursuant to its authority under section 994(p) of title 18,
    United States Code, and in accordance with this section, the
    United States Sentencing Commission shall review and, as
    appropriate, amend the Federal Sentencing Guidelines and
    related policy statements to implement the provisions of this
    title.
        (b) Requirements.--In carrying out this section, the
    Sentencing Commission shall--
        (1) ensure that the sentencing guidelines and policy
    statements reflect the serious nature of the offenses and the
    penalties set forth in this title, the growing incidence of
    serious fraud offenses which are identified above, and the need
    to modify the sentencing guidelines and policy statements to
    deter, prevent, and punish such offenses;
        (2) consider the extent to which the guidelines and policy
    statements adequately address--
        (A) whether the guideline offense levels and enhancements
    for violations of the sections amended by this title are
    sufficient to deter and punish such offenses, and specifically,
    are adequate in view of the statutory increases in penalties
    contained in this title; and
        (B) whether a specific offense characteristic should be
    added in United States Sentencing Guideline section 2B1.1 in
    order to provide for stronger penalties for fraud when the
    crime is committed by a corporate officer or director;
        (3) assure reasonable consistency with other relevant
    directives and sentencing guidelines;
        (4) account for any additional aggravating or mitigating
    circumstances that might justify exceptions to the generally
    applicable sentencing ranges;
        (5) make any necessary conforming changes to the sentencing
    guidelines; and
        (6) assure that the guidelines adequately meet the purposes
    of sentencing as set forth in section 3553(a)(2) of title 18,
    United States Code.

    SEC. 806. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.

        (a) In General.--Chapter 63 of title 18, United States
    Code, is amended by adding at the end the following:

    ``Sec. 1348. Failure of corporate officers to certify financial reports

        ``(a) Certification of Periodic Financial Reports.--Each
    periodic report containing financial statements filed by an
    issuer with the Securities Exchange Commission pursuant to
    section 13(a) or 15(d) of the Securities Exchange Act of 1934
    (15 U.S.C. 78m(a) or 78o(d)) shall be accompanied by a written
    statement by the Chairman of the board, chief executive
    officer, and chief financial officer (or equivalent thereof) of
    the issuer.
        ``(b) Content.--The statement required under subsection (a)
    shall certify the appropriateness of the financial statements
    and disclosures contained in the periodic report or financial
    report, and that those financial statements and disclosures
    fairly present, in all material respects, the operations and
    financial condition of the issuer.
        ``(c) Criminal Penalties.--Notwithstanding any other
    provision of law--
        ``(1) any person who recklessly violates any provision of
    this section shall upon conviction be fined not more than
    $500,000, or imprisoned not more than 5 years, or both; or
        ``(2) any person who willfully violates any provision of
    this section shall upon conviction be fined not more than
    $1,000,000, or imprisoned not more than 10 years, or both.''.
        (b) Technical and Conforming Amendment.--The section
    analysis for chapter 63 of title 18, United States Code, is
    amended by adding at the end the following:

     ``1348. Failure of corporate officers to certify financial reports.''.

        This section shall take effect one day after date of this
    bill's enactment.

        Mr. Daschle. Madam President, I yield the floor. It is my
    understanding Senator Biden and Senator Lott would both like to
    address their amendments. I yield for that purpose now.
        The Presiding Officer. The Republican leader.

                               AMENDMENT NO. 4188

        Mr. Lott. Madam President, if I could describe my amendment
    briefly. I understand Senator Biden is prepared to do the same
    thing.
        First, I should note, in at least one area they overlap in
    what they propose. In some other areas, there are some
    differences. But I don't see there are major problems.
        Senator Biden's amendment, as I understand it, just from
    looking at it quickly, would increase penalties in some areas
    that are not included in my amendment. What this amendment
    would do, though, is increase penalties for corporate fraud.
        Section 1 would increase maximum sentences for fraud. Mail
    fraud and wire fraud statutes are often used in criminal cases
    involving corporate wrongdoing. So obviously this is an area
    that is of concern and needs to be addressed. This section
    proposes doubling the maximum prison term for these crimes from
    5 years to 10 years by amending 18 U.S.C. sections 1341 and
    1343.
        The second section would enact stronger laws against
    document shredding. Current law prohibits obstruction of
    justice by a defendant acting alone, but only if a proceeding
    is pending and a subpoena has been issued for the evidence that
    has been destroyed or altered. Timing is very important.
        Most people understand that shredding documents is a very
    bad thing to do. Obviously, you cannot do it if there is
    something pending or if there is a subpoena. But as was the
    case recently, they knew that an investigation was underway and
    a subpoena was likely, and the shredding of documents went
    forward.
        So this section would allow the Government to charge
    obstruction against individuals who acted alone, even if the
    tampering took place prior to the issuance of a grand jury
    subpoena. I think this is something we need to make clear so we
    do not have a repeat of what we saw with the Enron matter
    earlier this year.
        Section 3 freezes payments of potential wrongdoers. This
    section would allow the SEC, during an investigation, to seek
    an order in Federal court imposing a 45-day freeze on
    extraordinary payments to corporate executives.
        Again, this year we have seen just that sort of thing
    happening. While an investigation is underway, basically
    rewards were given to these corporate executives. While it
    would require a court order, there would be this 45-day freeze.
        The targeted payments would be placed in escrow, ensuring
    that corporate assets are not improperly taken from an
    executive's personal benefit.
        If an executive is charged with violations of Federal
    securities laws prior to the expiration of the court order, the
    escrow would continue until the conclusion of legal
    proceedings, again, with court approval.
        Section 4 involves sentencing guideline enhancements for
    crimes committed by corporate officers and directors. This
    section would implement President Bush's call on the Sentencing
    Commission to quickly adopt the new ``aggravating factor'' to
    provide stronger penalties for fraud when the crime is
    committed by a corporate officer or director. This
    ``aggravating factor'' is a term of art used in the law. It
    would provide, under this section, stronger penalties for such
    fraud.
        Section 5 would bar corporate officers and directors who
    engage in serious misconduct. Under current law, only a Federal
    court can issue an order prohibiting a person from acting as an
    officer or director of a public company.
        The SEC cannot order this remedy in its own administrative
    cease-and-desist proceedings, even in a case of securities
    fraud where the person's conduct would otherwise meet the
    standards for imposing such a bar. This section would grant the
    SEC the authority to issue such orders if a person had
    committed securities law violation and his or her conduct
    demonstrated unfitness to serve as an officer or a director.
        These points are all points that were made by the
    President, asking that legislation be provided to provide for
    these additional increases and strengthening of the law. We
    have found clearly that in recent events there has been
    improper conduct. There have been questionable accounting
    procedures, and there has probably been some illegal conduct.
    So you can put all the laws in the world on the books, but if
    people act in bad faith, violate the law, you can never
    legislate morality.
        We have also seen that there are some cases where the law
    had some loopholes or where it was not timely or where it was
    not strong enough. One example, of course, is where there has
    been shredding. Another example is the very bad image of
    corporate executives taking increased payments, extraordinary
    payments, while they are being investigated. You can't have
    that sort of thing.
        I think these are basic things that should be added to this
    bill. It would strengthen the bill. I have checked with a
    number of Senators on both sides of the aisle. There is general
    support for this legislation.
        I thank Senator Biden for allowing me to make this brief
    statement about the amendment. Again, I emphasize that there
    are some similarities between this amendment and his amendment,
    but he does add additional penalties beyond what is in this
    proposal. But I did want to put into the bill what the
    President specifically recommended.
        The Presiding Officer (Mr. Dayton). The Senator from
    Delaware.
        Mr. Biden. Mr. President, this amendment is from Senator
    Hatch and me. He had as much input in this as I had. Let me
    respond in the spirit in which I was asked to do this and
    explain what the Biden-Hatch amendment does and then yield to
    my colleague to make any additional statements.
        Based on what Senator Lott has just pointed out, he has
    indicated that there are four basic sections to his amendment.
    On the first one, doubling the penalties for title 18, sections
    1341 and 1343, that is exactly the same provision that is in
    the Biden-Hatch bill.
        Secondly, making it a crime for document shredding: If I am
    not mistaken, that is in the Leahy amendment we just passed and
    that I cosponsored, as well as many others.
        The third part of the amendment discussed by the Republican
    leader is something with which I happen to agree. It is not in
    either the Leahy bill just passed or in the Biden-Hatch
    amendment. That is the 45-day freeze on corporate executives'
    extraordinary income based upon the SEC being able to hold that
    in escrow and freeze it for 45 days while they look at it. I,
    for one, would be willing--I will yield to my colleague from
    Utah at the appropriate time--to accept that or join that in
    our amendment.
        Fourth, the Sentencing Commission provisions that were
    referred to by my friend from Mississippi are in the Biden-
    Hatch bill. There is only one piece of the legislation of the
    Senator from Mississippi, as I understand it, based on the
    summary, that is not either already passed or included in
    Biden-Hatch.
        But there are three areas that are not included which we
    think are very important. One is in section 2 of our
    legislation, which relates to conspiracy. Under title 18,
    section 371, the maximum penalty for general conspiracy to
    commit a crime is 5 years in prison regardless of whether the
    penalty for the predicate offense--that is, the thing they are
    conspiring to do--is considerably more than 5 years. So what
    Senator Hatch and I do is we allow the penalty for conspiracy
    to be consistent with what the penalty would be for the
    underlying crime; that is, the predicate crime. That is not
    included in the amendment of the Senator from Mississippi.
        Also, a very important provision of Biden-Hatch is that
    right now, under ERISA, the Employment Retirement Security Act
    of 1974--we were both here to vote for that--under current law,
    a violation for essentially squandering someone's pension to
    the tune of tens of millions, maybe billions, of dollars is a
    misdemeanor with a maximum penalty of 1 year. If you were to
    steal an automobile from my driveway, which is about 2 miles
    from the Pennsylvania line, drive it across the Pennsylvania
    line, under Federal law, it is a 10-year sentence. There is
    obviously a bizarre disparity.
        What we do is we increase the penalty for criminal
    violation of ERISA to 1 to 10 years, based upon the value of
    what is stolen in ERISA. If the loss in ERISA is a $20,000
    pension versus several billion dollars' worth, the Sentencing
    Commission can make that judgment, as they do now, to have the
    penalty be from 1 but up to 10 years. That is not in Senator
    Lott's amendment.
        Lastly, section 6 of Biden-Hatch. Currently, the Securities
    and Exchange Commission requires regulated companies to file
    periodic financial reports with the SEC. This section of Biden-
    Hatch creates a new section in title 18 of the United States
    Code to require certification, signed by the top officials of
    that corporation, that the financial reports being filed
    accurately reflect the financial condition of the company.
    Criminal penalties are created for failure to comply with this
    section. Reckless failure to certify--you have to be able to
    prove it; it is a high standard--requires a penalty of up to 5
    years, while a willful failure to certify on the part of these
    executives includes a maximum penalty of up to 10 years.
        The point is, A, everything but one provision of Senator
    Lott's amendment either has been passed or is in Biden-Hatch. I
    will yield to my colleague, but I am willing to accept the one
    provision that is not included. That is the provision relating
    to freezing payments for up to 45 days under the authority of
    the SEC of compensation packages that are excessive so there is
    time to look at it. I am willing to accept that.
        It does not include three sections: Conspiracy, the ERISA
    increased penalties, and the requirement of certification that
    the financial reports accurately reflect the financial
    condition of the company, with penalties to prevail if in fact
    they either recklessly or willfully do not sign such a document
    or they recklessly or willfully signed it and it does not
    reflect what in fact they say it reflects.
        That is a response to the majority leader's request of what
    the difference is. That is the difference.
        I now yield, with the permission of my colleagues, to the
    Senator from Utah, and I might add, this is not original stuff
    of Joe Biden; this was Hatch and Biden, Biden and Hatch. He
    takes equal responsibility for this. If we are wrong, we are
    equally wrong.
        I yield the floor.
        The Presiding Officer. The Senator from Utah.
        Mr. Hatch. Mr. President, I am proud to stand here with my
    colleague from Delaware, who is one of the truly remarkable
    Senators who knows as much about criminal law as anybody in
    this body or in the Congress itself.
        I also rise today and applaud President Bush and Senator
    Lott, as well as Senator Biden, for offering what really,
    combined, will be a comprehensive legislative proposal that
    calls for harsh, swift punishment of corporate executives who
    exploited the trust of their shareholders and employees while
    enriching themselves.
        Senator Biden and I have worked together for years now on
    many important pieces of legislation. This is not new for us. I
    always feel good when I can work with my colleagues on the
    other side. It is always a pleasure to work with him. I commend
    him for the care and attention he has given to the subject of
    white-collar penalties, as well as for his leadership in this
    area. Just in the past 4 weeks, Senator Biden scheduled two
    hearings to review the adequacy of current penalties for white-
    collar criminal offenses. I am thankful that he did so for I
    think this is a critically important area for us to focus on,
    especially in today's unprecedented climate of market turmoil
    and corporate responsibility--or should I say irresponsibility.
        All of us well know that the past few months have been
    painful ones for our Nation's financial markets. At least some
    of the blame can be laid at the doors of some multibillion-
    dollar corporations, their highly paid executives, and the
    accounting firms that were supposed to assure the public's
    trust. We learn--each week it seems--of more and more
    accounting and corporate fraud and irregularities that have
    caused billions of dollars of losses to innocent investors. I
    am personally outraged by these scandals.
        The amendment I cosponsor today is a product of much
    thoughtful attention and scrutiny. No Member feels more
    strongly than I do about the importance of our criminal laws.
    They must be fair, and they must be just. If our criminal laws
    are to bear credibility and provide deterrence, they must
    adequately reflect the severity of the offenses. But right now
    they do not do so in the context of so-called white collar
    crimes. They are, to put it bluntly, out of whack.
        A person who steals, defrauds, or otherwise deprives
    unsuspecting Americans of their life savings--no less than any
    other criminal--should be held accountable under our system of
    justice for the full weight of the harm he or she has caused.
    Innocent lives have been devastated by the crook who cooks the
    books of a publicly traded company, the charlatan who sells
    phony bonds, and the confidence man who runs a Ponzi scheme out
    there. These sorts of white-collar criminals should find no
    soft spots in our laws or in their ultimate sentences, but all
    too often they have done so.
        It is time for us to get tough with these offenders. We
    need to make crystal clear that we will not tolerate this sort
    of outrageous criminal conduct, conduct that not only
    devastates the savings of citizens, but also has lasting
    effects on the entire world's confidence in our American
    financial markets. This amendment will take away the soft
    landings these criminals have expected and obtained for far too
    long.
        The amendment Senator Biden and I propose--with the
    acceptance of the additional language of the President and
    Senator Lott--makes several notable improvements to current
    law. As Senator Biden said, and I will reiterate, first, our
    amendment increases the maximum penalties for those who commit
    mail fraud, wire fraud, and ERISA offenses, as well as those
    who conspire to violate Federal criminal laws. These changes
    are long overdue. The maximum penalty under current law for
    most of these offenses is 5 years, which is the same as the
    maximum penalty that could be handed down for mutilating a coin
    produced by the U.S. Mint. The current maximum penalty for
    ERISA fraud violations is just 1 year. In other words, a fraud
    committed in connection with employment retirement plans, no
    matter how severe or wide, is punishable now only as a
    misdemeanor. Under current law, one could get 5 years for
    scratching George Washington's face off a quarter but only 1
    year for defrauding an entire company's pension plan. It goes
    without saying that we need to fix this problem.
        Think about it. Pension plans go down the drain because of
    dishonest business people, which is sometimes hundreds of
    millions of dollars. Think of all the people who lose as a
    result of that.
        Second, our amendment would make corporate officials
    criminally responsible for their public filings with the SEC.
    Make no mistake, these filings are critically important to
    investors who rely upon them to make decisions affecting how
    they should invest billions and billions of dollars. They need
    to be accurate. Our amendment makes it possible to hold
    somebody criminally accountable if they are not accurate.
        Third, our amendment directs the U.S. Sentencing Commission
    to review the adequacy of current guidelines for white-collar
    offenders. We heard just a few weeks ago from the Department of
    Justice that these types of criminals often get off with a slap
    on the wrist and that judges too often do contortions to avoid
    handing down terms of imprisonment. This simply is not good and
    will not do. It undermines the deterrent effect of our criminal
    laws, makes a mockery of our system of fair and evenhanded
    justice, and ultimately sends the wrong message to all
    Americans. Our amendment will ensure that the Sentencing
    Commission will take steps designed to ensure that our system
    of justice no longer coddles criminals simply because they
    ``just'' steal.
        It is time for the Senate to act on this important matter
    of fraud and responsibility. I think these amendments are a big
    step in the right direction. I compliment the President,
    Senator Lott, and, of course, my dear friend and colleague from
    Delaware, Senator Biden, for the work they have all done on
    these two amendments. I agree with Senator Biden that we are
    willing to accept that part of the preference package.
        With that, I yield the floor.
        The Presiding Officer. The Senator from North Carolina is
    recognized.
        Mr. Edwards. Mr. President, I ask unanimous consent that
    the pending amendment be laid aside.
        The Presiding Officer. Is there objection?
        Mr. Sarbanes. I object for the moment. I suggest the
    absence of a quorum.
        The Presiding Officer. The clerk will call the roll.
        The assistant legislative clerk proceeded to call the roll.
        Mr. Biden. Mr. President, I ask unanimous consent that the
    order for the quorum call be rescinded.
        The Presiding Officer. Without objection, it is so ordered.

                        AMENDMENT NO. 4190, AS MODIFIED

        Mr. Biden. Mr. President, I ask unanimous consent to modify
    the Hatch-Biden amendment by changing on page 6 of our
    amendment, under the title ``Failure of corporate officers to
    certify financial reports,'' line 19--it presently reads:

        (1) any person who recklessly violates any provision of
    this section. . . .

        I ask unanimous consent to amend it to say on line 19,
    subsection 1:

        Any person who recklessly--

        And add the words ``and knowingly''--

    recklessly and knowingly.

        Page 6, line 19, fourth word in, add as a fifth word
    ``and'' and the sixth word ``knowingly.''
        The Presiding Officer. Without objection, it is so ordered.
    The amendment is so modified.
        The amendment, as modified, reads as follows:

        Strike all after the first word and insert the following:

                 VIII--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS

    SEC. 801 SHORT TITLE.

        This title may be cited as the ``White-Collar Crime Penalty
    Enhancement Act of 2002''.

    SEC. 802. CRIMINAL PENALTIES FOR CONSPIRACY TO COMMIT OFFENSE OR TO
                        DEFRAUD THE UNITED STATES.

        Section 371 of title 18, United States Code, is amended by
    striking ``If two or more'' and all that follows through ``If,
    however,'' and inserting the following:
        ``(a) In General.--If 2 or more persons--
        ``(1) conspire to commit any offense against the United
    States, in any manner or for any purpose, and 1 or more of such
    persons do any act to effect the object of the conspiracy, each
    person shall be fined or imprisoned, or both, as set forth in
    the specific substantive offense which was the object of the
    conspiracy; or
        ``(2) conspire to defraud the United States, or any agency
    thereof in any manner or for any purpose, and 1 or more of such
    persons do any act to effect the object of the conspiracy, each
    person shall be fined under this title, or imprisoned not more
    than 10 years, or both.
        ``(b) Misdemeanor Offense.--If, however,''.

    SEC. 803. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.

        (a) Mail Fraud.--Section 1341 of title 18, United States
    Code, is amended by striking ``five years'' and inserting ``10
    years''.
        (b) Wire Fraud.--Section 1343 of title 18, United States
    Code, is amended by striking ``five years'' and inserting ``10
    years''.

    SEC. 804. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE RETIREMENT
                        INCOME SECURITY ACT OF 1974.

        Section 501 of the Employee Retirement Income Security Act
    of 1974 (29 U.S.C. 1131) is amended--
        (1) by striking ``$5,000'' and inserting ``$100,000'';
        (2) by striking ``one year'' and inserting ``10 years'';
    and
        (3) by striking ``$100,000'' and inserting ``$500,000''.

    SEC. 805. AMENDMENT TO SENTENCING GUIDELINES RELATING TO CERTAIN WHITE-
                        COLLAR OFFENSES.

        (a) Directive to the United States Sentencing Commission.--
    Pursuant to its authority under section 994(p) of title 18,
    United States Code, and in accordance with this section, the
    United States Sentencing Commission shall review and, as
    appropriate, amend the Federal Sentencing Guidelines and
    related policy statements to implement the provisions of this
    title.
        (b) Requirements.--In carrying out this section, the
    Sentencing Commission shall--
        (1) ensure that the sentencing guidelines and policy
    statements reflect the serious nature of the offenses and the
    penalties set forth in this title, the growing incidence of
    serious fraud offenses which are identified above, and the need
    to modify the sentencing guidelines and policy statements to
    deter, prevent, and punish such offenses;
        (2) consider the extent to which the guidelines and policy
    statements adequately address--
        (A) whether the guideline offense levels and enhancements
    for violations of the sections amended by this title are
    sufficient to deter and punish such offenses, and specifically,
    are adequate in view of the statutory increases in penalties
    contained in this title; and
        (B) whether a specific offense characteristic should be
    added in United States Sentencing Guideline section 2B1.1 in
    order to provide for stronger penalties for fraud when the
    crime is committed by a corporate officer or director;
        (3) assure reasonable consistency with other relevant
    directives and sentencing guidelines;
        (4) account for any additional aggravating or mitigating
    circumstances that might justify exceptions to the generally
    applicable sentencing ranges;
        (5) make any necessary conforming changes to the sentencing
    guidelines; and
        (6) assure that the guidelines adequately meet the purposes
    of sentencing as set forth in section 3553(a)(2) of title 18,
    United States Code.

    SEC. 806. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.

        (a) In General.--Chapter 63 of title 18, United States
    Code, is amended by adding at the end the following:

    ``Sec. 1348. Failure of corporate officers to certify financial reports

        ``(a) Certification of Periodic Financial Reports.--Each
    periodic report containing financial statements filed by an
    issuer with the Securities Exchange Commission pursuant to
    section 13(a) or 15(d) of the Securities Exchange Act of 1934
    (15 U.S.C. 78m(a) or 78o(d)) shall be accompanied by a written
    statement by the Chairman of the board, chief executive
    officer, and chief financial officer (or equivalent thereof) of
    the issuer.
        ``(b) Content.--The statement required under subsection (a)
    shall certify the appropriateness of the financial statements
    and disclosures contained in the periodic report or financial
    report, and that those financial statements and disclosures
    fairly present, in all material respects, the operations and
    financial condition of the issuer.
        ``(c) Criminal Penalties.--Notwithstanding any other
    provision of law--
        ``(1) any person who recklessly and knowingly violates any
    provision of this section shall upon conviction be fined not
    more than $500,000, or imprisoned not more than 5 years, or
    both; or
        ``(2) any person who willfully violates any provision of
    this section shall upon conviction be fined not more than
    $1,000,000, or imprisoned not more than 10 years, or both.''.
        (b) Technical and Conforming Amendment.--The section
    analysis for chapter 63 of title 18, United States Code, is
    amended by adding at the end the following:

     ``1348. Failure of corporate officers to certify financial reports.''.

        This section shall take effect one day after date of this
    bill's enactment.

        Mr. Biden. I thank the Chair and suggest the absence of a
    quorum.
        The Presiding Officer. The clerk will call the roll.
        The assistant legislative clerk proceeded to call the roll.
        Mr. Reid. Mr. President, I ask unanimous consent that the
    order for the quorum call be rescinded.
        The Presiding Officer. Without objection, it is so ordered.
        The Senator from Maryland.
        Mr. Sarbanes. Mr. President, I ask unanimous consent that
    the pending second-degree amendments be withdrawn; that no
    second-degree amendments be in order to either of the two
    pending first-degree amendments; that the Daschle for Biden
    amendment No. 4186 be further modified with the changes that
    are at the desk; that the time until 4:45 p.m. today be for
    debate in relation to the pending first-degree amendments; that
    the time be equally divided between the two managers or their
    designees; that at 4:45 p.m., without further intervening
    action or debate, the Senate proceed to vote in relation to the
    Daschle for Biden amendment No. 4186, as further modified; that
    upon disposition of that amendment, the Senate vote in relation
    to the Lott amendment No. 4188; provided further that upon
    disposition of these amendments, Senator Edwards be recognized
    to call up amendment No. 4187.
        The Presiding Officer. Is there objection?
        The Senator from Nevada.
        Mr. Reid. Reserving the right to object, I ask the manager
    of this bill, the Chairman of the committee, to insert after
    the words ``Senator Edwards be recognized to call up amendment
    No. 4187,'' that following the disposition of that amendment,
    Senator Gramm be recognized.
        Mr. Gramm. Following.
        Mr. Reid. That is right. We were sequencing this, that
    following Senator Edwards, Senator Gramm be recognized;
    following that, Senator Levin be recognized; and following
    that, Senator Gramm be recognized.
        The Presiding Officer. Does the Senator from Maryland so
    modify his request? Is there objection?
        Without objection, it is so ordered.
        The amendments (Nos. 4189, and 4190, as modified) were
    withdrawn.
        The amendment (No. 4186), as further modified, reads as
    follows:

        On page 117 in line 12 strike ``Act'' and insert the
    following: Act.

              TITLE VIII--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS

    SEC. 801 SHORT TITLE.

        This title may be cited as the ``White-Collar Crime Penalty
    Enhancement Act of 2002''.

    SEC. 802. CRIMINAL PENALTIES FOR CONSPIRACY TO COMMIT OFFENSE OR TO
                        DEFRAUD THE UNITED STATES.

        Section 371 of title 18, United States Code, is amended by
    striking ``If two or more'' and all that follows through ``If,
    however,'' and inserting the following:
        ``(a) In General.--If 2 or more persons--
        ``(1) conspire to commit any offense against the United
    States, in any manner or for any purpose, and 1 or more of such
    persons do any act to effect the object of the conspiracy, each
    person shall be fined or imprisoned, or both, as set forth in
    the specific substantive offense which was the object of the
    conspiracy; or
        ``(2) conspire to defraud the United States, or any agency
    thereof in any manner or for any purpose, and 1 or more of such
    persons do any act to effect the object of the conspiracy, each
    person shall be fined under this title, or imprisoned not more
    than 10 years, or both.
        ``(b) Misdemeanor Offense.--If, however,''.

    SEC. 803. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.

        (a) Mail Fraud.--Section 1341 of title 18, United States
    Code, is amended by striking ``five years'' and inserting ``10
    years''.
        (b) Wire Fraud.--Section 1343 of title 18, United States
    Code, is amended by striking ``five years'' and inserting ``10
    years''.

    SEC. 804. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE RETIREMENT
                        INCOME SECURITY ACT OF 1974.

        Section 501 of the Employee Retirement Income Security Act
    of 1974 (29 U.S.C. 1131) is amended--
        (1) by striking ``$5,000'' and inserting ``$100,000'';
        (2) by striking ``one year'' and inserting ``10 years'';
    and
        (3) by striking ``$100,000'' and inserting ``$500,000''.

    SEC. 805. AMENDMENT TO SENTENCING GUIDELINES RELATING TO CERTAIN WHITE-
                        COLLAR OFFENSES.

        (a) Directive to the United States Sentencing Commission.--
    Pursuant to its authority under section 994(p) of title 18,
    United States Code, and in accordance with this section, the
    United States Sentencing Commission shall review and, as
    appropriate, amend the Federal Sentencing Guidelines and
    related policy statements to implement the provisions of this
    title.
        (b) Requirements.--In carrying out this section, the
    Sentencing Commission shall--
        (1) ensure that the sentencing guidelines and policy
    statements reflect the serious nature of the offenses and the
    penalties set forth in this title, the growing incidence of
    serious fraud offenses which are identified above, and the need
    to modify the sentencing guidelines and policy statements to
    deter, prevent, and punish such offenses;
        (2) consider the extent to which the guidelines and policy
    statements adequately address--
        (A) whether the guideline offense levels and enhancements
    for violations of the sections amended by this title are
    sufficient to deter and punish such offenses, and specifically,
    are adequate in view of the statutory increases in penalties
    contained in this title; and
        (B) whether a specific offense characteristic should be
    added in United States Sentencing Guideline section 2B1.1 in
    order to provide for stronger penalties for fraud when the
    crime is committed by a corporate officer or director;
        (3) assure reasonable consistency with other relevant
    directives and sentencing guidelines;
        (4) account for any additional aggravating or mitigating
    circumstances that might justify exceptions to the generally
    applicable sentencing ranges;
        (5) make any necessary conforming changes to the sentencing
    guidelines; and
        (6) assure that the guidelines adequately meet the purposes
    of sentencing as set forth in section 3553(a)(2) of title 18,
    United States Code.

    SEC. 806. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.

        (a) In General.--Chapter 63 of title 18, United States
    Code, is amended by adding at the end the following:

    ``Sec. 1348. Failure of corporate officers to certify financial reports

        ``(a) Certification of Periodic Financial Reports.--Each
    periodic report containing financial statements filed by an
    issuer with the Securities Exchange Commission pursuant to
    section 13(a) or 15(d) of the Securities Exchange Act of 1934
    (15 U.S.C. 78m(a) or 78o(d)) shall be accompanied by a written
    statement by the Chairman of the board, chief executive
    officer, and chief financial officer (or equivalent thereof) of
    the issuer.
        ``(b) Content.--The statement required under subsection (a)
    shall certify the appropriateness of the financial statements
    and disclosures contained in the periodic report or financial
    report, and that those financial statements and disclosures
    fairly present, in all material respects, the operations and
    financial condition of the issuer.
        ``(c) Criminal Penalties.--Notwithstanding any other
    provision of law--
        ``(1) any person who recklessly and knowingly violates any
    provision of this section shall upon conviction be fined not
    more than $500,000, or imprisoned not more than 5 years, or
    both; or
        ``(2) any person who willfully violates any provision of
    this section shall upon conviction be fined not more than
    $1,000,000, or imprisoned not more than 10 years, or both.''.
        (b) Technical and Conforming Amendment.--The section
    analysis for chapter 63 of title 18, United States Code, is
    amended by adding at the end the following:

     ``1348. Failure of corporate officers to certify financial reports.''.

        Mr. Biden. Mr. President, I rise today--along with my good
    friend, Senator Hatch--to offer our bill, the White-Collar
    Penalty Enhancement Act of 2002 as a second-degree amendment to
    amendment No. 4174, Senator Leahy's amendment to S. 2637.
        Let me begin by applauding Senator Sarbanes for his
    leadership in sponsoring S. 2637, and guiding it through his
    Banking Committee with a 17-4 vote. It is my hope and
    expectation that it will win the same overwhelming support on
    the floor of the Senate. I also commend Senators Leahy and
    Daschle for offering the Corporate and Criminal Fraud
    Accountability Act, of which I am a cosponsor.
        Let me briefly recount the events which bring me to the
    floor today to offer this amendment to increase penalties on
    white collar criminals. In recent months, dramatic events have
    shaken our country out of complacency. A decade of peace and
    prosperity came to an end, first with a shattering reminder of
    our vulnerability to external threats, and then with a series
    of spectacular corporate collapses that revealed cracks in the
    very foundation of our economic system.
        Our response to terrorism was to come together as a Nation,
    reminded of all we have in common, all we have to be proud of.
        The shock of those high-flying corporations falling
    spectacularly to earth presents us with different problems. We
    have to examine our own system--the capitalist system that has
    brought us so much material success, the envy of the rest of
    the world.
        As the stock market continues to lose value, as the dollar
    has dropped to a 2-year low, we know that investors, here at
    home and abroad, have lost some of their faith in the American
    economy.
        That loss of faith has a material impact of the wealth of
    this country, as our currency and our securities lose value.
    Some observers worry aloud that a full-blown loss of faith in
    our economy could drain even more value from our markets.
        The task before us is nothing less than restoring
    confidence in our market economy. There are many facets to this
    problem.
        One is reforming the auditing process. On the Senate floor
    right now is the Sarbanes bill that is essential to any effort
    to restore investor's faith in our markets. Audit firms are
    supposed to be independent voices, providing disinterested
    information that investors need to assess risk and to allocate
    funds to those companies that will have the best chance of
    raising our standard of living.
        We need more transparency, more accountability in the
    conduct of accounting firms, and more confidence that they have
    access to, and are willing to tell us, the truth about the
    businesses they audit. Senator Sarbanes has done us all a
    service by bringing this bipartisan bill to the floor.
        Yesterday, I was hoping to hear the President support this
    bipartisan approach to reform, reform that is supported by the
    business community in the form of the Business Roundtable, when
    he spoke yesterday. I still hope he will soon add his voice in
    support of this landmark reform.
        Just as important is the amendment to the Sarbanes bill
    that I am cosponsoring with Senator Leahy. It will put real
    teeth in securities fraud enforcement, providing substantial
    criminal penalties for those who defraud investors of
    publically traded securities or who destroy evidence to
    obstruct justice.
        Yesterday, the President announced his support for tougher
    criminal penalties for fraud offenses. I applaud the
    President's call for increase penalties for wire and mail
    fraud, and my amendment contains identical provisions. But I am
    concerned that the President's proposals do not go far enough.
        For example, in the wake of the publicly reported problems
    at Enron, WorldCom, and other companies, we need to restore
    people's faith in their pension plans. They need to know that
    the companies they work for will treat them fairly, handle
    their funds wisely, and that the investments made by pension
    funds are sound. Yet, I believe that the criminal penalties for
    violations under the Employment Retirement Investment Security
    Act of 1974, ERISA, limited to 1 year in jail, are woefully
    inadequate to protect defrauded pensioners.
        As Chairman of the Judiciary Subcommittee on Crime and
    Drugs, I held a hearing several weeks ago--and am holding a
    second hearing this afternoon--on the adequacy of criminal
    penalties to deter this type of corporate wrongdoing. Corporate
    executives who defraud investors by whatever means should go to
    jail--period--and we need to give investigators and prosecutors
    the tools they need to send them there.
        One thing most of our hearing witnesses agreed on was that
    there is a ``penalty gap'' between white collar crimes and
    other crimes. For example, if a kid steals your car and drives
    it over the 14th Street Bridge into Northern Virginia, he could
    get up to 10 years in jail under the Federal interstate auto
    theft law. Yet, if a corporate CEO steals your pension and
    commits a criminal violation under ERISA, he is only subject to
    1 year in jail.
        At my hearing, we heard from Charlie Prestwood, a 63-year-
    old Enron retiree, who lives in Conroe, TX. Charlie worked
    proudly for some 33 years for that company, saved and invested
    in his pension, and retired with about $1.3 million in his
    plan. Within a few tragic months, that was nearly wiped out--
    only $8,000 remained. Charlie is not a lawyer, but he had the
    good sense to know that its just not fair that a car thief who
    steals a jalopy can get 10 years in prison and a Gucci-clad
    corporate crook can steal a person's life savings and might
    only end up with 1 year in prison.
        Accordingly, the amendment that Senator Hatch and I offer
    today is carefully crafted to hold corporate officer
    responsible and to reduce the ``penalty gap'' between a number
    of white collar crimes and other serious crimes. It does 3
    basic things.
        First, it goes beyond President Bush's proposal by raising
    penalties for those white collar crimes that are most often
    violated but which have insufficient penalties to deter
    corporate crooks. For example, it raises the maximum penalties
    from 1 to 10 years for ERISA criminal violations. It double
    penalties for wire and mail fraud from 5 to 10 years, and it
    treats white collar who conspire with others like drug king
    pins, by mandating that they receive the same maximum penalty
    for the offense underlying the charged conspiracy, rather than
    their sentence being capped at a 5-year penalty as exists under
    current law.
        When these penalty enhancements are taken in combination
    with the new 10-year felony for securities fraud contained in
    the amendment I have co-sponsored with Senator Leahy, the
    Government will have the full range of prosecutorial arrows in
    its quiver to fight pension crooks and corporate wrong doers.
    Respectfully, the President's penalty proposal is only one
    small piece of the white collar crime-fighting puzzle.
        Second, our amendment tells corporate big wigs that they
    are no longer off the hook for their companies misdeeds. My
    amendment requires top corporate officials to certify to the
    Securities and Exchange Commission that the periodic financial
    reports filed by their companies with the Commission accurately
    reflect the financial health of these corporations. Reckless
    failure by a corporate official to do so will result in up to 5
    years in prison, while willful failure to do so will trigger a
    jail term of up to 10 years.
        Third, our amendment directs the U.S. Sentencing Commission
    to review and amend the Federal sentencing guidelines to
    lengthen sentences for white collar criminals to reflect these
    new, more serious penalties. It also directs the Commission to
    impose sentencing enhancement where corporate officials defraud
    victims. I applaud President Bush for announcing a similar
    proposal.
        Make no mistake--this amendment will not stamp out white
    collar crime. We live in a fallen world where bad people do bad
    things--whether its stealing cars or stealing pensions. But,
    its time to ``level the playing field'' between white collar
    and blue collar criminals.
        I believe the amendment that Senator Hatch and I are
    offering will move us substantially in the direction of
    deterring corporate wrongdoers by holding them responsible for
    the criminal acts. It will also begin the restoration of
    confidence in our financial markets. We must do both. The time
    to act is now. I urge my colleagues to support this amendment.
        I yield the floor.

                               AMENDMENT NO. 4188

        Mr. Hatch. Mr. President, I want to applaud President Bush
    and Senator Lott for offering a comprehensive legislative
    proposal that calls for harsh, swift punishment of corporate
    executives who exploit the trust of their shareholders and
    employees, while enriching themselves.
        This bill, which tracks the President's recent proposal,
    increases the criminal penalties that apply to fraud statutes
    that are frequently used to prosecute corporate wrongdoers. It
    also strengthens an existing obstruction of justice statute,
    and calls for an aggravated sentencing enhancement for frauds
    perpetrated by corporate officers and directors. Finally, it
    increases the Security and Exchange Commission's administrative
    enforcement tools by strengthening the SEC's ability to freeze
    improper payments to corporate executives while the company is
    under investigation, and by enabling the SEC to bar corporate
    officers and directors from continued service where they engage
    in serious misconduct.
        I support these provisions because I strongly believe that
    it is critical that we hold corporate executives accountable
    for acts of wrongdoing. We can do so by supplying the SEC and
    Federal prosecutors with the civil and criminal tools they need
    to investigate and prosecute acts of corporate misconduct.
        Let me briefly elaborate on some of the specific provisions
    contained in this bill.
        First, as I mentioned, the bill doubles the maximum prison
    term for mail and wire fraud offenses, from 5 years to 10
    years. This is identical to a provision Senator Biden and I
    have included in our amendment. This is a necessary sentencing
    enhancement, and one that is long overdue. Because prosecutors
    frequently use the mail and wire statutes to charge acts of
    corporate misconduct, it is important that we ensure that the
    penalties that apply to such offenses are sufficiently severe
    to deter and punish corporate wrongdoers.
        Second, like the suggested enhancement contained in the
    bill Senator Biden and I have proposed, this amendment directs
    the U.S. Sentencing Commission to review the sentencing
    guidelines that apply to acts of corporate misconduct and to
    enhance the prison time that would apply to criminal frauds
    committed by corporate officers and directors. As I have
    stated, I strongly support such an enhancement because
    corporate leaders who hold high offices and breach their duties
    of trust should face stiff penalties.
        Third, the amendment strengthens an existing Federal
    offense that is often used to prosecute document shredding and
    other forms of obstruction of justice. Section 1520 of Title 18
    of the United States code currently prohibits individuals from
    persuading others to engage in obstructive conduct. However, it
    does not prohibit an act of destruction committed by a
    defendant acting alone. While other existing obstruction of
    justice statutes cover acts of destruction that are committed
    by and individual acting alone, such statutes have been
    interpreted as applying only where a proceeding is pending, and
    a subpoena has been issued for the evidence that is destroyed.
        This amendment closes this loophole by broadening the scope
    of the Section 1512. Like the new document destruction
    provision contained in S. 2010, this amendment would permit the
    government to prosecute an individual who acts alone in
    destroying evidence, even where the evidence is destroyed prior
    to the issuance of a grand jury subpoena.
        Prosecutors in the Andersen case succeeded in convicting
    the corporation. However, in order to do so, they had to prove
    that a person in the corporation corruptly persuaded another to
    destroy or alter documents, and acted with the intent to
    obstruct an investigation. Certainly, one who acts with the
    intent to obstruct an investigation should be criminally liable
    even if he or she acts alone in destroying or altering
    documents. This amendment will ensure that individuals acting
    alone would be liable for such criminal acts.
        This amendment also includes new statutory provisions that
    will strengthen the SEC's ability to freeze improper payments
    to corporate executives while a company is under investigation.
    These provisions would prevent corporate executives from
    enriching themselves while a company is subject to an SEC
    investigation, but before the SEC has gathered sufficient
    evidence to file formal charges.
        In particular, these provisions would enable to SEC to
    freeze improper payments by obtaining a Federal court order.
    The order, which could last for 45 days and be extended upon a
    showing of good cause, would freeze extraordinary payments to
    corporate executives and require that such payments be
    escrowed. And where an executive is charged with a securities
    law violation prior to the expiration of the court order, the
    escrow would continue, with court approval, until the
    conclusion of legal proceedings.
        Finally, the amendment grants the SEC the authority to bar
    individuals who have engaged in serious misconduct from serving
    as officers and directors of any public company. Under current
    law, only a court may order an officer and director bar. In an
    SEC enforcement action, a court may issue an order that bars a
    person from acting as an officer or director of a public
    company where the person has committed a securities fraud
    violation, and his or her conduct demonstrates ``substantial
    unfitness'' to serve as an officer or director. However, under
    current law, the SEC cannot order this remedy in an
    administrative cease-and-desist proceedings, even where the
    person's conduct would otherwise meet the standards for the
    bar.
        This amendment would enable the SEC to issue such a bar
    where the officer or director has committed a securities law
    violation and his or her conduct demonstrates ``unfitness'' to
    serve as an officer or director. This will give the SEC the
    ability to punish an officer or director who has committed an
    unlawful act, where it has not yet instituted an enforcement
    action.
        I strongly believe that if Congress and the President act
    together to increase corporate transparency and to enact tough
    civil and criminal provision, we will succeed in restoring
    confidence in our market economy. The Federal government plays
    an important role in upholding and enforcing standards of
    corporate conduct. I look forward to working with my colleagues
    and with the President to enact needed legislation to
    strengthen corporate accountability.
        Mr. Gramm. Mr. President, let me try to explain where we
    are. We are about to have two votes. One vote is on a
    bipartisan amendment that was put together prior to our receipt
    of the language of the President's proposal. That was done by
    Senator Biden and Senator Hatch. That amendment will be voted
    on first.
        I believe that amendment deals with the same subject area
    as the President's proposal. The overlap is not perfect, but
    when you take Senator Leahy's amendment that we have already
    adopted, when you take this amendment, the things that are
    covered in the President's proposal are covered.
        We also have the legislative language proposed by the White
    House to follow on the proposals the President made yesterday
    in New York.
        When we adopt these two amendments, we will have added a
    substantial amount to the underlying bill. We will have added,
    in essence, two different variants of the President's proposal
    of yesterday. I assume we will get a unanimous vote for both of
    these amendments. I commend to my colleagues to vote for both
    of them.
        At that point, we will proceed in the outline we have. It
    is my understanding we will try to put together an additional
    list, depending on the amount of time we have. Once these two
    votes are taken, the subject matter of the President's proposal
    of yesterday will be part of this bill. I commend to my
    colleagues to vote for both amendments.
        Mr. Sarbanes. Mr. President, in just a few minutes, at
    4:45, we will move to the first of two votes. The first vote
    will be on the Daschle amendment, and the second vote on the
    Lott amendment. I urge my colleagues to support both
    amendments.
        At the conclusion of those votes, we will go to Senator
    Edwards, who has been waiting patiently, to call up an
    amendment. Then we have sequenced behind Senator Edwards, for
    purposes of calling up amendments, Senator Gramm, and Senator
    Levin has an amendment involving the powers of the SEC, and
    then back to Senator Gramm. That is the procedure we have
    managed to put into place so far while continuing to work to
    try to compile a list of amendments and to do some sequencing.
        We urge our colleagues to inform us--I am not urging to add
    amendments, but just informing colleagues of the process so
    they can be on the alert.
        Very shortly we will begin the first of two rollcall votes.
    Both of these are amendments which strengthen the penalties.
    Many are related to the Leahy amendment which we adopted
    earlier today, and in a sense deal primarily with the subject
    matter that was in the Leahy amendment.
        I urge my colleagues to be supportive of both amendments.
        Mr. Gramm. I yield back any time I may have.
        Mr. Sarbanes. I yield back the time.
        The Presiding Officer (Mr. Miller). The question is on
    agreeing to amendment No. 4186 as further modified. The yeas
    and nays have been ordered. The clerk will call the roll.
        The assistant legislative clerk called the roll.
        Mr. Reid, I announce that the Senator from New Jersey (Mr.
    Corzine) is necessarily absent. I further announce that, if
    present and voting, the Senator from New Jersey (Mr. Corzine)
    would vote ``aye.''
        Mr. Nickles, I announce that the Senator from North
    Carolina (Mr. Helms), the Senator from Ohio (Mr. Voinovich),
    and the Senator from Idaho (Mr. Crapo) are necessarily absent.
    I further announce that, if present and voting, the Senator
    from North Carolina (Mr. Helms), would vote ``aye.''
        The Presiding Officer. Are there any other Senators in the
    Chamber desiring to vote?
        The result was announced--yeas 96, nays 0, as follows:
                          [Rollcall Vote No. 170 Leg.]
        Yeas--96: Akaka, Allard, Allen, Baucus, Bayh, Bennett, Biden,
    Bingaman, Bond, Boxer, Breaux, Brownback, Bunning, Burns, Byrd,
    Campbell, Cantwell, Carnahan, Carper, Chafee, Cleland, Clinton,
    Cochran, Collins, Conrad, Craig, Daschle, Dayton, DeWine, Dodd,
    Domenici, Dorgan, Durbin, Edwards, Ensign, Enzi, Feingold, Feinstein,
    Fitzgerald, Frist, Graham, Gramm, Grassley, Gregg, Hagel, Harkin,
    Hatch, Hollings, Hutchinson, Hutchison, Inhofe, Inouye, Jeffords,
    Johnson, Kennedy, Kerry, Kohl, Kyl, Landrieu, Leahy, Levin, Lieberman,
    Lincoln, Lott, Lugar, McCain, McConnell, Mikulski, Miller, Murkowski,
    Murray, Nelson (FL), Nelson (NE), Nickles, Reed, Reid, Roberts,
    Rockefeller, Santorum, Sarbanes, Schumer, Sessions, Shelby, Smith (NH),
    Smith (OR), Snowe, Specter, Stabenow, Stevens, Thomas, Thompson,
    Thurmond, Torricelli, Warner, Wellstone, Wyden
        Not Voting--4: Corzine, Crapo, Helms, Voinovich

        The amendment (No. 4186), as further modified, was agreed
    to.
        Mr. Sarbanes. Mr. President, I move to reconsider the vote.
        Mr. Leahy. I move to lay that motion on the table.
        The motion to lay on the table was agreed to.

                           VOTE ON AMENDMENT NO. 4188

        The Presiding Officer. Under the previous order, the
    question is on agreeing to Lott amendment No. 4188.
        Mr. Hatch. I ask for the yeas and nays.
        The Presiding Officer. Is there a sufficient second?
        There appears to be.
        The clerk will call the roll.
        The legislative clerk called the roll.
        Mr. Nickles. I announce that the Senator from North
    Carolina (Mr. Helms), the Senator from Ohio (Mr. Voinovich),
    and the Senator from Idaho (Mr. Crapo) are necessarily absent.
        I further announce that if present and voting the Senator
    from North Carolina (Mr. Helms) would vote ``yea.''
        The result was announced--yeas 97, nays 0, as follows:
                          [Rollcall Vote No. 171 Leg.]
        Yeas--97: Akaka, Allard, Allen, Baucus, Bayh, Bennett, Biden,
    Bingaman, Bond, Boxer, Breaux, Brownback, Bunning, Burns, Byrd,
    Campbell, Cantwell, Carnahan, Carper, Chafee, Cleland, Clinton,
    Cochran, Collins, Conrad, Corzine, Craig, Daschle, Dayton, DeWine,
    Dodd, Domenici, Dorgan, Durbin, Edwards, Ensign, Enzi, Feingold,
    Feinstein, Fitzgerald, Frist, Graham, Gramm, Grassley, Gregg, Hagel,
    Harkin, Hatch, Hollings, Hutchinson, Hutchison, Inhofe, Inouye,
    Jeffords, Johnson, Kennedy, Kerry, Kohl, Kyl, Landrieu, Leahy, Levin,
    Lieberman, Lincoln, Lott, Lugar, McCain, McConnell, Mikulski, Miller,
    Murkowski, Murray, Nelson (FL), Nelson (NE), Nickles, Reed, Reid,
    Roberts, Rockefeller, Santorum, Sarbanes, Schumer, Sessions, Shelby,
    Smith (NH), Smith (OR), Snowe, Specter, Stabenow, Stevens, Thomas,
    Thompson, Thurmond, Torricelli, Warner, Wellstone, Wyden
        Not Voting--3: Crapo, Helms, Voinovich

        The amendment (No. 4188) was agreed to.
        Mr. Reid. Mr. President, I move to reconsider the vote.
        Mr. Sarbanes. I move to lay that motion on the table.
        The motion to lay on the table was agreed to.
        Mr. Reid. Mr. President, I suggest the absence of a quorum.
        The Presiding Officer. The clerk will call the roll.
        The legislative clerk proceeded to call the roll.
        Mr. Reid. Mr. President, I ask unanimous consent that the
    order for the quorum call be rescinded.
        Mr. Sarbanes. Mr. President, I ask for the regular order.
        The Presiding Officer. Under the previous order, the
    Senator from North Carolina is recognized.

                               AMENDMENT NO. 4187

        Mr. Edwards. Mr. President, I wish to say a few words about
    an amendment I intend to offer along with Senators Enzi and
    Corzine. This amendment addresses an important player in the
    problem we have had with corporate misconduct in this country.
    It is a player with which I have a lot of personal experience.
    That player is a lawyer.
        As most people know, I practiced law for 20 years and spent
    a lot of time representing kids and families against very
    powerful interests. I think I have a reasonably good
    understanding of what responsibilities we as lawyers have to
    the people we represent. While those are the kinds of folks
    that I mostly represented, other lawyers have different kinds
    of clients. Some lawyers represent corporations rather than
    individuals. The lawyers who represent corporations have the
    same kind of responsibility, but it is to a different entity
    and a different group of people. They have a responsibility,
    though, to represent that corporation, their client, zealously,
    the same way I had the responsibility to represent kids and
    families.
        One of the problems we have seen occurring with this sort
    of crisis in corporate misconduct is that some lawyers have
    forgotten their responsibility. We have heard a great deal
    about managers and accountants, which Senator Enzi is familiar
    with, and scandals such as Enron and WorldCom. Managers and
    accountants are the focus of Senator Sarbanes' bill, and they
    are critical to us doing what needs to be done to correct this
    problem and restore the public confidence.
        The truth is that executives and accountants do not work
    alone. Anybody who works in corporate America knows that
    wherever you see corporate executives and accountants working,
    lawyers are virtually always there looking over their shoulder.
    If executives and/or accountants are breaking the law, you can
    be sure that part of the problem is that the lawyers who are
    there and involved are not doing their jobs.
        For the sake of investors and regular employees, ordinary
    shareholders, we have to make sure that not only the executives
    and the accountants do what they are responsible for doing, but
    also that the lawyers do what they are responsible for doing as
    members of the bar and as citizens of the country.
        Let me be a little more specific about what this amendment
    does and what the responsibility of a lawyer is and should be.
    If you are a lawyer for a corporation, your client is the
    corporation and you work for the corporation and you work for
    the shareholders, the investors in that corporation; that is to
    whom you owe your responsibility and loyalty. And you have a
    responsibility to zealously advocate for the shareholders and
    investors in that corporation.
        What we have seen some lawyers do, unfortunately, is
    different. We have seen corporate lawyers sometimes forget who
    their client is. What happens is their day-to-day conduct is
    with the CEO or the chief financial officer because those are
    the individuals responsible for hiring them. So as a result,
    that is with whom they have a relationship. When they go to
    lunch with their client, the corporation, they are usually
    going to lunch with the CEO or the chief financial officer.
    When they get phone calls, they are usually returning calls to
    the CEO or the chief financial officer. The problem is that the
    CEO and the chief financial officer are not the client. Their
    responsibility and the client they have to advocate for--and
    which they have an ethical responsibility to advocate for--is,
    in fact, the corporation, not the CEO or the chief financial
    officer.
        One of the most critical responsibilities that those
    lawyers have is, when they see something occurring or about to
    occur that violates the law, breaks the law, they must act as
    an advocate for the shareholders, for the company itself, for
    the investors. They are there and they can see what is
    happening. They know the law and their responsibility is to do
    something about it if they see the law being broken or about to
    be broken.
        This amendment is about making sure those lawyers, in
    addition to the accountants and executives in the company,
    don't violate the law and, in fact, more importantly, ensure
    that the law is being followed. For some time, the SEC actually
    tried to do that in the late 1970s and early 1980s. They
    brought legal actions to enforce this basic responsibility of
    lawyers--the responsibility to take steps to make sure
    corporate managers didn't break the law and harm shareholders
    in the process. If you find out that the managers are breaking
    the law, you must tell them to stop. If they won't stop, you go
    to the board of directors, which represents the shareholders,
    and tell them what is going on. If they won't act responsibly
    and in compliance with the law, then you go to the board and
    say something has to be done; there is a violation of the law
    occurring. It is basically going up the ladder, up the chain of
    command.
        For years, the SEC recognized the principle that lawyers
    had a legal responsibility to go up the ladder if they saw
    wrongdoing occurring. But then they stopped. One of the reasons
    they stopped is because there were a lot of protests coming
    from the organized bar. With Enron and WorldCom, and all the
    other corporate misconduct we have seen, it is again clear that
    corporate lawyers should not be left to regulate themselves no
    more than accountants should be left to regulate themselves.
    There has been a lot of debate, rhetoric, and discussion--
    rightfully so--about the necessity about not ``letting the fox
    guard the chicken coop.'' The same is true with lawyers. This
    has become clear through various acts of misconduct. The
    lawyers have involvement and responsibility, and they also
    cannot be left to regulate themselves.
        In January, a bipartisan group of the top securities
    lawyers and legal ethics experts in the country wrote a letter
    to Harvey Pitt telling him it was time for the SEC to enforce
    the up-the-ladder principle, as in the past. Mr. Pitt's top
    lawyer said: We are not going to do anything. If Congress wants
    something done, Congress should act. Then I wrote a letter to
    Mr. Pitt in essence saying: We are ready to act here. Will you
    help us in crafting legislation and working out this problem?
        That was 3 weeks ago. As of now, I have not yet received a
    response.
        The time has come for Congress to act. This amendment acts
    in a very simple way. It basically instructs the SEC to start
    doing exactly what they were doing 20 years ago, to start
    enforcing this up-the-ladder principle.
        This is what the amendment says specifically: First, the
    SEC shall establish rules to protect investors from
    unprofessional conduct by lawyers, conduct that violates the
    legal standards of the profession.
        Second, the SEC shall make one rule in particular, and it
    is a simple rule with two parts. No. 1, a lawyer with evidence
    of a material violation of the law has to report that evidence
    either to the chief legal counsel or the chief executive
    officer of the company. No. 2, if the person to whom that
    lawyer reports doesn't respond appropriately by remedying the
    violation, by doing something that makes sure it is cured, that
    lawyer has an obligation to go to the audit committee or to the
    board. It is that simple. You report the violation. If the
    violation isn't addressed properly, then you go to the board.
        Three important details about this amendment address some
    of the concerns that I have heard voiced. First, the way we
    have drafted the bill, the duty to report applies only to
    evidence of a material violation of the law. That means no
    reporting is required for piddling violations or violations
    that don't amount to anything. The obligation to report is
    triggered only by violations that are material--violations that
    a reasonable investor would want to know about. So we have been
    very careful there.
        Second, when the evidence is reported within the company,
    we have not specified how a CEO or a general counsel should act
    to rectify the violation. That is because the truth is that the
    appropriate response to cure the problem will vary
    dramatically, depending on the circumstances. If the CEO can do
    a short investigation, for example, and figure out that no
    violation occurred, then the obligation stops there. But if
    there is a serious violation of the law, the appropriate
    response is clear: The CEO has to act promptly to remedy the
    violation. If he doesn't, the lawyer has to go to the board. It
    is that simple.
        One final point. Nothing in this bill gives anybody a right
    to file a private lawsuit against anybody. The only people who
    can enforce this amendment are the people at the SEC.
        They will enforce this amendment not on behalf of any
    private party, but in the name of the American people. This is
    about forcing the SEC to do its job and protect the American
    people.
        Mr. President, I call up amendment No. 4187 and ask for its
    immediate consideration.
        The Presiding Officer. The clerk will report.
        The legislative clerk read as follows:

        The Senator from North Carolina [Mr. Edwards], for himself,
    Mr. Enzi, and Mr. Corzine, proposes an amendment numbered 4187.

        Mr. Edwards. Mr. President, I ask unanimous consent that
    the reading of the amendment be dispensed with.
        The Presiding Officer. Without objection, it is so ordered.
        The amendment is as follows:

    (Purpose: To address rules of professional responsibility for
        attorneys)

        On page 108, line 15, insert before the end quotation marks the
    following:
        ``(c) Rules of Professional Responsibility for Attorneys.--Not
    later than 180 days after the date of enactment of this section, the
    Commission shall establish rules, in the public interest and for the
    protection of investors, setting forth minimum standards of
    professional conduct for attorneys appearing and practicing before the
    Commission in any way in the representation of public companies,
    including a rule requiring an attorney to report evidence of a material
    violation of law by the company or any agent thereof to the chief legal
    counsel or the chief executive officer of the company (or the
    equivalent thereof) and, if the counsel or officer does not
    appropriately respond to the evidence (adopting, as necessary,
    appropriate remedial measures or sanctions with respect to the
    violation), requiring the attorney to report the evidence to the audit
    committee of the board of directors or to another committee of the
    board of directors comprised solely of directors not employed directly
    or indirectly by the company, or to the board of directors.

        Mr. Edwards. I yield the floor.
        Mr. Gramm addressed the Chair.
        Mr. Sarbanes. Will the Senator yield for a question?
        The Presiding Officer. The Senator from Texas.

                    AMENDMENT NO. 4200 TO AMENDMENT NO. 4187

    (Purpose: To modify attorney practices relating to clients, and for
        other purposes)

        Mr. Gramm. Mr. President, on behalf of Senator McConnell, I
    send a second-degree amendment to the desk.
        The Presiding Officer. The clerk will report.
        The legislative clerk read as follows:

        The Senator from Texas [Mr. Gramm], for Mr. McConnell,
    proposes an amendment numbered 4200 to amendment No. 4187.

        Mr. Gramm. Mr. President, I ask unanimous consent that the
    reading of the amendment be dispensed with.
        The Presiding Officer. Without objection, it is so ordered.
        (The amendment is printed in today's Record under ``Text of
    Amendments.'')
        Mr. Gramm. Mr. President, I am not going to talk about the
    amendment. Senator McConnell was concerned--he has an
    appointment tonight and he wanted to be recognized, so I
    offered the amendment for him. I wish to say a few words before
    I yield, giving him an opportunity to speak on behalf of the
    second-degree amendment.
        I wish to print in the Record the lead editorial from
    today's Wall Street Journal. I would like to read the first
    paragraph. I want to make it clear, I am not talking about this
    amendment, I am just talking about the climate we are in. This
    is the lead editorial in today's Wall Street Journal:

        As if investors weren't frightened enough, the politicians
    are now offering to help. That was worth more than 180 points
    off the Dow yesterday, but then stock prices aren't the point.
    Everything you're hearing now from Washington is aimed at
    winning the November elections, not calming financial markets.

        This is an excellent editorial. One can agree with it or
    not agree with it. The point I want to make is the following:
    There is a wonderful line in a very famous economics book,
    ``The Wealth of Nations,'' where Adam Smith is talking about
    government and talking about problems. A line in ``The Wealth
    of Nations'' goes something like: The economy is powerful and
    it overcomes not only the illness but the absurd prescription
    of the doctor that comes from the Government.
        I believe we have now put together the makings of a good
    bill. We still have differences of opinion. We still have
    differences not on whether we should set up a board, not on how
    strong it should be. We agree on those issues. We have
    differences about how independent the SEC should be. We have
    differences as to whether that board ought to set audit
    standards and independent standards or whether we ought to do
    it by law.
        As we go through the process in the next 2 days, if the
    some 30 amendments that people on my side of the aisle are
    proposing to offer is any index, and as someone once said--and
    I am sorry I cannot remember his name--I have only seen the
    heart of a good man, not necessarily the heart of an evil man.
    I have just seen these amendments.
        I am concerned that people who are looking at investing are
    going to say: My God, it is one thing that my stock has been
    battered because there were people who did things that were
    wrong, there were people who did things that were illegal, but
    now I am going to be battered by one-upmanship efforts to show
    that Congress is really tough, that Congress is tougher than
    the President, the President is tougher than the Congress, that
    Republicans are tougher than Democrats, or Democrats are
    tougher than Republicans.
        I would just like to say, not that anybody is going to be
    calmed by what I say, but I would like to say, in the end, I
    think we will end up with a fairly responsible bill, and I hope
    people who are thinking about investing money will take into
    account that this, too, will pass; that this summer will pass;
    that after all the charges are made and the one-upmanship has
    occurred, in the end, normally this process has worked pretty
    well for over 200 years, and my guess is it will work well
    again and we will end up in a give-and-take in conference, with
    the White House involved, measuring each amendment in terms of
    what we think will work and what we think probably hurts more
    than it helps--the absurd prescription of the doctor about
    which Adam Smith talked.
        If we do go too far in one area or we do not go far enough
    in another, there is going to be another Congress next year and
    the year after and for every year from now until the end of the
    world, I hope.
        Just reading this article set me thinking about it. There
    are probably people trying to decide this afternoon what they
    are going to do tomorrow on Wall Street. We have this bill
    passed in the House where, if you are domiciled outside the
    United States and move your domicile, you cannot get Government
    contracts. This is the era of where, if you want to slap an
    accountant around, it is not going to do a lot of harm. It is
    not fair, it is not right, I am not for it, and I am not going
    to do it, but if you want to slap business around, this is a
    wonderful time to do it.
        The problem is the market is going to open in the morning
    and people are going to either buy or sell or they are going to
    do both.
        I ask unanimous consent to print this lead editorial from
    the Wall Street Journal in the Record.
        There being no objection, the editorial was ordered to be
    printed in the Record, as follows:

                         [From the Wall Street Journal]

                     Review & Outlook: The November Markets

        ``Congress must now act to restore public confidence.''--
    Senator Carl Levin (D., Mich.)
        As if investors weren't frightened enough, the politicians
    are now offering to help. That was worth 180 more points off
    the Dow yesterday, but then stock prices aren't the point.
    Everything you're hearing now from Washington is aimed at
    winning the November elections, not calming financial markets.
        That includes President Bush's much-touted Wall Street
    speech yesterday on ``corporate responsibility.'' His stern
    words for CEO wrongdoers were perfectly apt, and some of his
    proposals might even help. But coming so long after the Enron
    scandal first broke, and amid election season, the speech was
    widely and accurately described as an exercise in defensive
    politics.
        Democrats immediately panned it as inadequate, but they'd
    have said that if Mr. Bush had proposed public hangings. Their
    goal is to associate Republicans with corporate ``greed,'' to
    knock Mr. Bush's approval rating from its war-time pedestal and
    develop a campaign issue.
        You can judge their sincerity by the sop to trial lawyers
    that has suddenly appeared in the ``reform'' queue. For months
    Maryland Democrat Paul Sarbanes has worked to form a bipartisan
    coalition for accounting reform. But now Senate Democrats are
    also demanding that Mr. Bush sign onto expanding the time
    available for plaintiff plutocrat Bill Lerach to file
    shareholder suits. In other words, what they're really after is
    a Bush veto, which they will then run against.
        It's not as if Mr. Bush is letting business off the moral
    hook. He's creating a new Justice Department task force on
    corporate fraud, which as these things go will find someone to
    indict. He's also painted a bull's-eye on CEOs, who will now be
    personally and criminally liable (and face stiff penalties) for
    their companies' financial results.
        We only hope Justice keeps in mind the requirement of mens
    rea, or criminal intent, when it's CEO hunting. This legal
    principle got trampled in the rush to convict Arthur Andersen.
    If otherwise honest CEOs can be indicted merely for putting
    their names to a statement that turns out to be false, good
    luck finding competent executives.
        The brighter CEOs have also been busy cleaning up their own
    act. They understand something that politicians won't admit,
    which is that only business is truly capable of restoring
    confidence in business. The New York Stock Exchange and Goldman
    Sachs chief Hank Paulson have proposed more CEO supervision by
    independent directors, among other reforms.
        Just as significant, major pension funds and large
    investors have begun to scrutinize stock options and other
    forms of executive compensation. This sort of due diligence too
    often went missing in the ``decade of greed,'' as liberals now
    like to call the 1990s. (Or are we confusing our decades?)
        Mr. Bush put it well yesterday: ``I challenge every CEO in
    America to describe in the company's annual report, prominently
    and in plain English, details of his or her compensation
    package, including salary and bonus and benefits. And the CEO,
    in that report, should also explain why his or her compensation
    package is in the best interests of the company he serves.''
    The point isn't that there is a moral taint to high pay but
    that it has to be justified in shareholders value.
        The one place we've thought regulatory change might help is
    audit reform. Clearly the culture of the accounting trade went
    awry in the 1990s, and not only at Arthur Andersen. We favored
    Paul Volcker's plan, which would have restored some internal
    accounting-firm discipline and reduced conflicts of interest.
    But the accounting lobby resisted and now finds itself fending
    off much more intrusive regulation in Congress. Serves them
    right.
        As a political matter, Republicans are also paying for
    protecting the accountants. Bush SEC Chairman Harvey Pitt, who
    once worked for the Big Five, is now being urged to resign by
    the likes of Al Gore, Tom Daschle and John McCain. As these
    columns noted long before these politicians wet their finger to
    the wind, Mr. Pitt's temptation now will be to appease these
    critics by cracking down too hard on too many, in a way that
    further roils financial markets. A regulator with more
    credibility usually has to regulate less.
        The investing public, fortunately, seems to understand
    this. While rightly angry about WorldCom and Enron, the public
    hasn't panicked even after three years of stock-market losses.
    Americans know that even scarier than a bear market in stocks
    is a bull market for politicians.

        Mr. Gramm. Mr. President, I ask my colleagues to read the
    editorial and pray over it. As I say, there are some things in
    it one may like, some one may not like; one may not like any of
    it, or one may like all of it.
        In the next couple of days, we are going to have a lot of
    proposals that are going to be frightening to investors. I
    wanted to take this opportunity tonight to tell them that--I
    know my dear colleague who is sitting in the chair as a
    Presiding Officer remembers the old hymn, ``This is My Father's
    World.'' Remember that hymn? It talks about all these things
    that are happening, all these bad things that happen, but in
    the end it is going to be right. I think the Lord is going to
    count on us to right it. I hope it is in good hands.
        In any case, I wanted to say that as we hear all these
    ideas brought up, if you are thinking about investing money
    tomorrow or next week or next year, do not be frightened. I
    think this issue is going to move back toward a middle course,
    and if we go too far--and I hope we will not, and I am
    dedicated to not doing more harm than good--then we will fix
    it, and if in some areas we do not go far enough, we can come
    back and fix it, too.
        As I said, I offered the second-degree amendment for
    Senator McConnell who has an appointment and wanted to get his
    amendment in. I yield the floor.
        The Presiding Officer. The Senator from Kentucky is
    recognized.
        Mr. McConnell. Mr. President, I say to my friend from
    Texas, I have enjoyed his wisdom over the last 18 years. I am
    going to save my remarks about how I feel about his departure
    until later in the year. We have just heard another example of
    the extraordinary wisdom of the senior Senator from Texas from
    which I have benefited for 18 years. I wish to tell him again
    how much his service has meant not only to his State but to our
    Nation.
        I say to my friends from Wyoming and North Carolina, they
    will be relieved to know I do not intend to make my speech on
    the second-degree amendment. This is an amendment about which I
    am sure the junior Senator from South Carolina is going to be
    particularly enthusiastic. I say that with tongue in cheek. I
    will briefly describe what it is.
        This is an amendment to provide a client's bill of rights
    for clients with Federal claims or who are in Federal court.
    Fundamentally, what this client's bill of rights would provide
    is an opportunity for an orderly and systematic notice from
    their lawyers of the fee arrangements to which they are
    subjecting themselves; in addition to that, a bereavement rule
    which would prevent the solicitation of business within 45 days
    of the occurrence of the event. That is a brief summary of what
    my amendment is about. There will be ample time for everyone to
    take a look at the amendment over the evening. It does not in
    any way detract from the underlying Edwards-Enzi amendment,
    which I support and commend the authors for offering. I think
    it is right on the mark. I would like to see these principles
    expanded to a larger class of clients so they, too, can receive
    adequate protection.
        I yield the floor.
        The Presiding Officer. The Senator from Nevada.
        Mr. Reid. Mr. President, I ask unanimous consent that
    following the previous sequence already in place, the
    amendments listed in this agreement be the next six amendments
    in the sequence, in the order listed: Carnahan amendment
    regarding electronic filing; McCain amendment regarding
    accounting treatment/stock options; Dorgan amendment regarding
    bankruptcy/disgorgement; Enzi amendment regarding materiality;
    Schumer amendment regarding restitution; and Murkowski
    amendment regarding the Ninth Circuit.
        The Presiding Officer. Without objection, it is so ordered.
        Several Senators addressed the Chair.
        Mr. Reid. Mr. President, I would say to the Chair that I
    ask the Senator to yield to me for a unanimous consent request
    so the Senator from Illinois would have the floor.
        The Presiding Officer. The Senator from Illinois.
        Mr. Durbin. Mr. President, I want to make a comment about
    the second-degree amendment that is pending. I want to commend
    my colleague, the Senator from Kentucky.
        Last night, at the close of the session, there was an
    amendment offered by the Senator from Kentucky and the Senator
    from Texas. Now remember, this bill is about corporate
    misconduct. This is about corporate corruption. Last night,
    they decided we ought to expand the jurisdiction and scope of
    this debate to include reforming labor unions.
        I have followed Enron, WorldCom, and others very closely
    and do not recall ever hearing anybody say the root cause of
    the problem of these corporations was labor unions. Thank
    goodness the Senate rejected that notion.
        The Senator from Kentucky comes back tonight and says, no,
    it is not just labor unions, it is the fees paid to lawyers;
    that is the problem. When you are dealing with corporate
    corruption, it is the fees paid to lawyers, contingency fee
    contracts, and class actions.
        I was stopped cold when I heard this amendment being
    described to try to understand what this has to do with making
    certain that criminal misconduct by corporate officers will
    result in time in jail. I do not get the connection. Perhaps
    the Senator from Kentucky can help me understand this. How does
    the issue of attorney's fees relate to corporate misconduct and
    corporate corruption?
        I am sorry he cannot join us in this debate to respond, but
    I say to my colleagues I am beginning to get the distinct
    impression that the other side of the aisle is trying to change
    the subject on us. I do not think they want to talk about
    wrongdoing in corporate boardrooms and what we can do to
    restore confidence.
        Yesterday, the President used the bully pulpit and turned
    the bears loose on Wall Street. Today, we had another dip in
    the stock market. We had better get honest. We had better get
    real. We had better make some real changes in the law to bring
    honesty in transactions with major businesses if we want to
    restore America's confidence in business dealings and bring
    people back to the stock market and get this economy back on
    track and give people a chance to save for their retirement.
    That is what this is all about.
        Somehow or another the other side of the aisle wants us to
    veer off now and talk about attorney's fees. I do not get the
    connection, and I urge my colleagues to take a close look at
    this long amendment and try to join me in divining what they
    are trying to achieve other than to perhaps change the subject.
        I yield the floor.
        The Presiding Officer. The Senator from Wyoming is
    recognized.
        Mr. Enzi. Mr. President, I do rise in support of the
    Edwards-Enzi-Corzine amendment. I am disappointed there has
    been a second-degree amendment to this, on which amendment we
    are working. It does not deal with the same topic. It does not
    deal with the same bill. It is going off in a different
    direction. If we keep having second-degree amendments
    throughout that go off in other directions, we are not going to
    get this bill finished and through the process. So it would be
    my hope it would be withdrawn.
        I will concentrate my efforts on the amendment I have
    worked on with Senator Edwards, Senator Corzine, and others.
    This amendment is designed to assure that attorneys are
    responsible for fully informing their corporate client of
    evidence of material violations of Federal securities law. That
    is what we are talking about through the whole accounting
    reform.
        Over the past few months, Congress and the public have
    concentrated on the role of accountants and auditors involved
    in Enron, WorldCom, Global Crossing, and others. We have held
    hearings and drafted legislation intended to restore a high
    level of ethical behavior to corporate America and the
    accounting industry. This breach in ethical behavior led to the
    problems these companies are now experiencing. I have to say
    through all of those hearings, as an accountant, I felt the
    profession was very picked on, and the profession deserved to
    be picked on--not everybody in the profession. Again, it is
    that one-half of 1 percent or one-tenth of 1 percent who are
    fouling up everything for everybody. It happens in a lot of
    different professions.
        As we beat up on accountants a little bit, one of the
    thoughts that occurred to me was that probably in almost every
    transaction there was a lawyer who drew up the documents
    involved in that procedure. I know as to the companies we
    looked at, that was the case. It seemed only right there ought
    to be some kind of an ethical standard put in place for the
    attorneys as well. All of the people who are involved should be
    looking at a new way of doing business.
        As an accountant, I have been deeply disturbed by the
    action taken by some in my profession, and as a result I have
    taken a more personal interest than others might in drafting
    legislation which will ensure that accountants act
    professionally and responsibly, and which will protect the
    interests of corporate shareholders.
        Following hearings on this matter, it has become clear that
    the role of attorneys who counseled these corporations and
    their accountants must be scrutinized as well. Just like
    accountants, these lawyers are expected to represent the
    corporation in the best interests of the shareholders. In doing
    so, these attorneys are hired to aid the corporation and its
    accountants in adhering to Federal securities law.
        When their counsel and advice is sought, attorneys should
    have an explicit, not just an implied, duty to advise the
    primary officer and then, if necessary, the auditing committee
    or the board of directors of any serious legal violation of the
    law by a corporate agent. Currently, there is no explicit
    mandate requiring this standard of conduct. It is clearly in
    the best interest of their client to disclose this kind of
    information to the board, rather than just upper management.
        Maybe it could be called the ``smell test.'' If something
    smells wrong, somebody who can do something to fix it ought to
    be told.
        It is important to understand the corporate attorney's
    client is the whole corporation and its shareholders, and not
    just the CEOs or some of the executives, accountants, or
    auditors. As a result, their ultimate duty of representation is
    not to the people to whom they normally report but to the
    shareholders through the board of directors.
        This amendment would require the Securities and Exchange
    Commission to enact rules within 180 days to set forth minimum
    standards of professional conduct and responsibility for
    attorneys appearing and practicing before the Commission; not
    all attorneys, just attorneys appearing and practicing before
    the Commission; that is, those who are dealing with documents
    that deal with companies listed by the Securities and Exchange
    Commission.
        This amendment instructs the Commission to establish rules
    that require an attorney, with evidence of material legal
    violation by the corporation or its agent, to notify the chief
    legal counsel or the chief executive officer of such evidence
    and the appropriate response to correct it. If these officers
    do not promptly take action in response, the Commission is
    instructed to establish a rule that the attorney then has a
    duty to take further appropriate action, including notifying
    the audit committee of the board of directors or the board of
    directors themselves, of such evidence and the actions of the
    attorney and others regarding this evidence. It is all within
    the corporation.
        This amendment is simple. It requires the attorney to
    contact specific persons who are part of the management
    hierarchy and explain the problem. If that fails to correct the
    problem, the attorney must contact the audit committee or the
    board of directors.
        I am usually in the camp that believes States should
    regulate professionals within their jurisdiction. However, in
    this case, the State bars as a whole have failed. They have
    provided no specific ethical rule of conduct to remedy this
    kind of situation. Even if they do have a general rule that
    applies, it often goes unenforced. Most States also do not have
    the ability to investigate attorney violations involved with
    the complex circumstances of audit procedures within giant
    corporations.
        Similarly, the American Bar Association's Model Rules of
    Professional Responsibility do not have mandatory rules for
    professional conduct for corporate practitioners which require
    them to take specific action. The ABA merely has a general rule
    that an attorney must represent the best interests of an
    organization and suggests a number of ways an attorney could
    respond, including reporting illegal conduct to a responsible
    constituent of the organization, such as the board of
    directors. But this does not mandate action.
        In response to Enron and the current environment concerning
    corporate integrity, on March 27 of this year the ABA did form
    a task force on corporate responsibility. But how many task
    forces have been formed and accomplished nothing? Task forces
    are often used to delay implementation of necessary changes.
    When task forces are used, we all know it takes years to set up
    the rules. When they are established, States may not actively
    enforce them or even have the means to enforce them.
        In any event, it is my understanding that the ABA's task
    force's preliminary recommendations are for the attorney to
    report law violations through a chain or ladder of the
    corporation. That is what, in fact, this amendment does, first
    through the legal counsel or CEO and then to the audit
    committee or the board of directors.
        While I almost always advocate a State solution, in this
    instance I must advocate a Federal solution. In the past,
    Congress has authorized a Federal commission to regulate the
    conduct of attorneys through promulgation of rules on attorneys
    practicing before them. For example, 31 U.S.C. section 330
    provides the Treasury Department authority to regulate the
    practice of attorneys appearing before the Internal Revenue
    Service. Accordingly, the IRS has promulgated rules on the
    conduct of attorneys.
        Under 31 CFR, part 10.21 of the IRS regulations, each
    attorney who knows the client has not complied with the revenue
    laws or who has made an error or omission on any return or
    document required by the IRS shall advise the client promptly
    of the fact of such noncompliance, error, or omission. The
    amendment I am supporting will give the SEC authority to
    promulgate a rule similar to the IRS rule.
        In the past, the SEC has tried to impose ethical conduct on
    attorneys. SEC rule 2(e), previously 102(e), authorizes the
    Commission to disbar or suspend from practice before it a
    lawyer or other professional who violates the securities law,
    assists in someone else's violation, or otherwise engages in
    unprofessional conduct.
        Through this process, the SEC previously instituted
    proceedings under rule 102(3) to enforce the ethical standards
    for the practice of Federal securities law. But it has stopped
    bringing these types of actions. This amendment will get the
    SEC back on track and make attorneys stand up and pay attention
    if they have evidence a corporate agent has committed a
    material legal violation.
        In the wake of Enron, over forty professors with expertise
    in Federal securities and ethics law, have written to SEC
    Chairman Harvey Pitt asking for some form of regulation over
    the practice and conduct of attorneys involved in Federal
    securities law.
        In their letter, they state that if senior managers will
    not rectify a violation, lawyers who are responsible for the
    corporation's securities compliance work, should be required to
    report to the board of directors.
        As they point out, such a disclosure obligation is still
    less onerous than that imposed on accountants under section 10A
    of the 1934 Securities Exchange Act, which requires an auditor
    to report, both to the client's directors and simultaneously to
    the SEC, and illegal act if management fails to take remedial
    action.
        The amendment I am supporting would not require the
    attorneys to report violations to the SEC, only to corporate
    legal counsel or the CEO, and ultimately, to the board of
    directors.
        Some argue that the amendment will cause a breach of
    client/attorney privilege, which is ludicrous. The attorney
    owes a duty to its client which is the corporation and the
    shareholders. By reporting a legal violation to management and
    then the board of directors, no breach of the privilege occurs,
    because it is all internal--within the corporation and not to
    an outside party, such as the SEC.
        This amendment also does not empower the SEC to cause
    attorneys to breach their attorney/client privilege. Instead,
    as is the case now, attorneys and clients can assert this
    privilege in court.
        In addition, this amendment creates a duty of professional
    conduct and does not create a right of action by third parties.
    The Fourth Circuit has made such a ruling concerning the code
    of conduct applied by the IRS Rules.
        The SEC has already found that attorneys who fail to take
    steps to prevent their clients from violating Federal
    securities law are guilty of aiding and abetting. This
    amendment will put attorneys on the right course. By reporting
    violations to the board of directors, they can avoid being
    found guilty of aiding and abetting their client.
        Just as I am concerned about the conduct of accountants
    because that is my profession, I would think member attorneys
    would be as concerned about the conduct of the legal
    profession. To ignore the role attorneys played in Enron,
    WorldCom and Global Crossing is a disservice to their
    profession.
        I hope you will join me in ensuring that attorneys are
    required to conduct themselves ethically and in the best
    interests of their client when they see evidence of a material
    legal violation. They should be expressly required to report
    that type of activity to upper managers, and ultimately, to the
    board of directors who represent the shareholders.
        After Enron, it is clear we need some hard and fast rules,
    and not just an arcane honor code rarely adhered to, so the
    necessary measure of client duty is placed into the hearts and
    minds of the legal profession. Again, I am disappointed there
    is a second-degree amendment. This is an important amendment
    and something that I thought would be cleared by both sides. We
    will deal with the rest of the process.
        I yield the floor.
        The Presiding Officer (Mr. Akaka). The Senator from Wyoming
    yields the floor.
        The Senator from New Jersey.
        Mr. Corzine. Mr. President, first, I am proud to have
    worked with Senator Edwards and Senator Enzi on this amendment
    on lawyer responsibility in corporate practice. It is an
    exceptional piece of additional effort in dealing with
    corporate fraud, corporate crime, and corporate abuse. I am
    very happy to have participated with him, and I particularly
    compliment Senator Edwards on bringing this important issue to
    the attention of the Senate and for making sure that we propose
    this strong amendment, to ensure corporate lawyers' ethical
    responsibilities.
        I, too, with the Senator from Wyoming, am disappointed. We
    are mixing apples and oranges when we are talking about
    lawyer's fees. This is dealing with corporate actions of
    lawyers. I don't understand why we are trying to move to a
    completely different subject when what we are trying to deal
    with is corporate responsibility. Lawyers play a role in that
    as much as accountants and management.
        Again, I thank Senator Enzi for his cooperation and
    leadership, not only on this effort but with regard to the core
    bill, which is going to make a big difference in the
    marketplace. People talk about weakness in the market and are
    fearful of what we do in Congress, but they are really fearful
    of what we will not do or what we might do in addressing some
    of the quite obvious needed reforms.
        We have talked a lot in the wake of Enron and WorldCom
    about the responsibility of accountants and corporate managers.
    Rightly so, as we have seen far too much bending of the rules,
    breaking of the rules in pursuit of profit, pursuit of personal
    gain. In their wake, shareholders, employees, and frankly the
    whole economy, has suffered from the selfishness that we have
    seen demonstrated by the actions of many--the criminal actions,
    in some instances.
        It is not insignificant that even before this week, before
    there was so much focus on this issue, this year there had been
    roughly $2 trillion worth of damage, value lost in the stock
    market, which is reflective of the discomfort that investors
    across the globe, as well as here at home, feel about where we
    stand.
        As a former corporate leader, I tell you I am disgusted
    with many of the actions I have seen taken by some corporate
    managers when they betrayed shareholders' trust, employees'
    trust, and the public confidence in general. I think they have
    basically betrayed our whole Nation's economy. That is why I
    have been pleased to work on this critical legislation that
    Senator Sarbanes has proposed regarding the accounting
    industry's corporate responsibility.
        But I do not think that is enough. I think, as Senator
    Edwards said when he brought this to our attention, executives
    and accountants do not work alone. In fact, in our corporate
    world today--and I can verify this by my own experiences--
    executives and accountants work day to day with lawyers. They
    give them advice on almost each and every transaction. That
    means when executives and accountants have been engaged in
    wrongdoing, there have been some other folks at the scene of
    the crime--and generally they are lawyers.
        This is not a new issue. The SEC had an unambiguous view
    about this more than 10, 15 years ago. More than 10 years ago
    Judge Stanley Sporkin, while commenting on the criminal actions
    of Charles Keating, noted that Keating had:

        . . . surrounded himself with literally scores of
    accountants and lawyers to make sure all the transactions were
    legal.

        In a now famous refrain, Sporkin lamented:

        Where were these professionals . . . when these clearly
    improper transactions were being consummated? . . . Where,
    also, were the outside accountants and attorneys when these
    transactions were being effectuated?''

        That sounds a little familiar in the current circumstance.
    The bottom line is this. Lawyers can and should play an
    important role in preventing and addressing corporate fraud.
    Our amendment seeks to ensure that. It seeks to go back to the
    old way: When lawyers know of illegal actions by a corporate
    agent, they should be required to report the violation to the
    corporation.
        Let me be clear. The same as I feel about most accountants
    and most business leaders, the vast majority of lawyers
    discharge their duties with integrity and in an ethical manner.
    This is not an effort to blame corporate lawyers. But we cannot
    overlook the role corporate lawyers, the lowest common
    denominator, can play in addressing abuses and ensuring that
    our markets have integrity. We need to clarify that corporate
    lawyers have a duty to the shareholders, not just to the
    management that hired them.
        That is why Senator Edwards, Senator Enzi, and I have
    crafted an amendment that will clarify that lawyers who know of
    wrongdoing by a corporation must report that wrongdoing to the
    client so it can be corrected. The client is more than just the
    person who hired them. The lawyer's client is the corporation's
    shareholders, not the manager. As we have seen far too often
    this year, when management is engaged in fraud it harms the
    shareholders. That is why we need to ensure that lawyers who
    know of illegal acts report those acts to the board of
    directors which represent those shareholders. Our amendment
    would require the SEC to establish rules in the public interest
    and for the protection of investors, setting forth minimum
    standards of professional conduct for attorneys appearing and
    practicing before the Commission. Those rules would include--
    shall include a requirement that lawyers who have evidence of a
    violation of law would be required to go up the ladder of
    corporate management and report the violation.
        It is a simple principle--very much common sense. If a
    manager doesn't respond appropriately, including remedying any
    violation, the lawyer would then be required to report the
    violation to the board of directors which represents the
    shareholders.
        We should recognize that in some instances where there may
    be evidence of a violation, it may become apparent after a more
    complete investigation that there is not an actual violation.
    But when lawyers are aware of a potential violation, they do
    have a duty to investigate. And if they determine there is a
    material violation of law--not some small violation, some
    insignificant rule--that violation should be remedied by the
    corporation. If it is not remedied, it is the duty of the
    lawyer, under our language, to report it to the board.
        I am pleased that Senator Edwards and Senator Enzi and I
    have been able to craft an amendment that will firmly establish
    the ethical duty of corporate lawyers to report wrongdoing to
    their client, including, if necessary, to the board of
    directors that represents a company's shareholders.
        Addressing the role of corporate lawyers is just as
    important a step as it is with accountants and with corporate
    officers. If we want to truly address this breakdown in
    corporate responsibility, it is a critical piece of the puzzle
    that cannot be overlooked. I urge my colleagues to support this
    sensible amendment.
        Once again I say I am disappointed with the McConnell
    amendment. I suggest we move to table that, in light of its
    irrelevance with respect to the underlying matter.
        I will withdraw that motion, and I suggest the absence of a
    quorum.
        Mr. Reid. Will the Senator withhold?
        Mr. Sarbanes. Does the Senator yield the floor?
        The Presiding Officer. Does the Senator withhold suggesting
    the absence of a quorum?
        Mr. Corzine. Yes. I yield the floor.
        The Presiding Officer. The Senator from Georgia.

                               AMENDMENT NO. 4206

        Mr. Miller. Mr. President, I ask unanimous consent the
    pending amendments be laid aside so I may offer an amendment,
    and that there be a time limitation of 2 minutes on my
    amendment, with no amendments in order to my amendment. This
    amendment has been agreed to by both managers.
        Mr. Reid. Reserving the right to object, and following the
    disposition of this that we will return to the Edwards
    amendment?
        The Presiding Officer. That is the understanding of the
    Chair. Is there objection? Without objection, it is so ordered.
        Mr. Miller. I send my amendment to the desk.
        The Presiding Officer. The clerk will report the amendment.
        The assistant legislative clerk read as follows:

        The Senator from Georgia (Mr. Miller) proposes an amendment
    numbered 4206.

        Mr. Miller. I ask unanimous consent the reading of the
    amendment be dispensed with.
        The Presiding Officer. Without objection, it is so ordered.
        The amendment is as follows:

    (Purpose: To express the sense of the Senate that the chief executive
        officer of a corporation should sign the corporation's income tax
        returns)

        At the end add the following new title:

                       TITLE VIII--CORPORATE TAX RETURNS

    SEC. 801. SENSE OF THE SENATE REGARDING THE SIGNING OF CORPORATE TAX
                        RETURNS BY CHIEF EXECUTIVE OFFICERS.

        It is the sense of the Senate that the Federal income tax
    return of a corporation should be signed by the chief executive
    officer of such corporation.

        Mr. Miller. Mr. President, this amendment is only three
    lines long. Let me read them to the Senate:

        It is the sense of the Senate that the Federal income tax
    return of a corporation shall be signed by the chief executive
    officer of such corporation.

        Believe it or not, that is not in the law right now, and it
    should be. The average wage earner on his 1040 form has to sign
    it. We require it of him. That is what we should require of the
    CEO of a corporation, just treat them the same.
        I yield the floor.
        The Presiding Officer. The Senator from Maryland, Senator
    Sarbanes.
        Mr. Sarbanes. I urge the adoption of the amendment.
        The Presiding Officer. Is there further debate?
        Mr. Gramm. Mr. President, I suggest the absence of a
    quorum.
        The Presiding Officer. The clerk will call the roll.
        Mr. Gramm. Mr. President, I withdraw the request. I don't
    have any problem. It was a confusion of which amendment.
        The Presiding Officer. Without objection, the amendment is
    agreed to.
        The amendment (No. 4206) was agreed to.
        Mr. Levin. Mr. President, I move to reconsider the vote.
        Mr. Reid. I move to lay that motion on the table.
        The motion to lay on the table was agreed to.
        Mr. Reid. I suggest the absence of a quorum.
        The Presiding Officer. The clerk will call the roll.
        The assistant legislative clerk proceeded to call the roll.
        Mr. Daschle. Mr. President, I ask unanimous consent that
    the order for the quorum call be rescinded.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Daschle. Mr. President, I announce that there will be
    no more rollcall votes tonight. I hope Senators will come to
    the floor and continue to participate in the debate. But for
    the interest of Senators and schedules, we will have no
    additional rollcall votes tonight.
        I yield the floor, and I suggest the absence of a quorum.
        The Presiding Officer. The clerk will call the roll.
        The assistant legislative clerk proceeded to call the roll.
        Mr. Sarbanes. Mr. President, I ask unanimous consent that
    the order for the quorum call be rescinded.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Sarbanes. Mr. President, while we are all waiting for
    further business, I will take just a moment to speak to the
    amendment that has been offered by the very able Senator from
    North Carolina. In fact, I would like to put a couple of
    inquiries to the Senator, if I might.
        It is my understanding that this amendment, which places
    responsibility upon the lawyer for the corporation to report up
    the ladder, only involves going up within the corporate
    structure. He doesn't go outside of the corporate structure. So
    the lawyer would first go to the chief legal officer, or the
    chief executive officer, and if he didn't get an appropriate
    response, he would go to the board of directors. Is that
    correct?
        Mr. Edwards. Mr. President, my response to the question is
    the only obligation that this amendment creates is the
    obligation to report to the client, which begins with the chief
    legal officer, and, if that is unsuccessful, then to the board
    of the corporation. There is no obligation to report anything
    outside the client--the corporation.
        Mr. Sarbanes. I think that is an important point. I simply
    asked the question in order to stress the fact that that is the
    way this amendment works. This has been a very carefully worked
    out amendment. I engaged in an exchange with the distinguished
    Senator from North Carolina, and the Senator from Wyoming, Mr.
    Enzi, the cosponsors of this amendment. I know how careful they
    have been in trying to craft the amendment and in bringing it
    here. I think they have done an absolutely first-rate job in
    sort of focusing the amendment, considering questions that were
    raised from one source or another, and adjusting it in order to
    meet them.
        I think the amendment they have now put before us is an
    extremely well reasoned amendment, and it ought to command the
    support of the Members of this body.
        I very deeply regret that Senator McConnell has added an
    amendment to the amendment. His amendment really doesn't
    address this amendment. It doesn't really address the subject
    matter of this legislation. It is a total diversion. Of course,
    I presume it will complicate our ability to try to move ahead
    as we consider amendments. It obviously complicates the
    consideration of the Edwards-Enzi amendment which is now
    pending.
        Furthermore, I understand that under this amendment it can
    only be enforced by the SEC through an administrative
    proceeding. Is that correct?
        Mr. Edwards. The answer is yes. The only way to enforce
    this legal requirement is through an administrative process.
        Mr. Sarbanes. That was an effort, of course, to deal with
    the idea that somehow it might bring causes of action from
    outside, or somewhere else. So it is limited to the SEC. The
    SEC, as I understand it, had something like this in place in
    the past. Is that correct?
        Mr. Edwards. The answer is yes. Years ago, the SEC had and
    enforced such a regulation, which they have not been doing for
    some time.
        Mr. Sarbanes. I further understand that a number of
    professors of securities regulations and professional ethics
    are, in fact, supportive of this proposal. I think at an
    earlier time they wrote to the SEC urging the SEC itself to put
    some provision such as this into place. Is that correct?
        Mr. Edwards. The Senator is correct. There is a large group
    of distinguished securities lawyers and legal ethics lawyers
    who have written the SEC suggesting exactly what the Senator
    said--that it become part of the regulations and part of the
    law.
        Mr. Sarbanes. This amendment really, in effect, parallels
    or follows those recommendations--at least in substantial
    respect--as I understand it.
        Mr. Edwards. That is correct.
        Mr. Sarbanes. Again, that letter which I have had the
    chance to review, and also the signatories to it--some 40 or so
    distinguished professors of securities regulations or
    professors of professional ethics at the law schools--is also a
    very carefully reasoned proposal. The one they submitted to the
    SEC is the one the Senator from North Carolina has tracked in
    his amendment.
        I thank both Senator Edwards and Senator Enzi for their
    very careful work. And I very much hope at the appropriate time
    we will be able to adopt this amendment and include it in this
    legislation. I think it makes an important contribution.
        Mr. President, I yield the floor. I suggest the absence of
    a quorum.
        The Presiding Officer. The clerk will call the roll.
        The assistant legislative clerk proceeded to call the roll.
        Mr. Levin. Mr. President, I ask unanimous consent that the
    order for the quorum call be rescinded.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Levin. Mr. President, I ask unanimous consent at this
    time that I be called upon to offer an amendment; that the
    amendment be debated tonight--it is the amendment on SEC
    enforcement--and that when the debate is completed tonight and
    when we recess until the morning, that when the morning
    arrives, we would then return immediately to the Edwards
    underlying amendment and the McConnell second-degree amendment
    thereto.
        The reason I make this unanimous consent proposal tonight
    is that there are a lot of relevant amendments which are
    waiting in line, which are important amendments, which have a
    lot of support, I believe, on a bipartisan basis in this body
    that ought to be considered prior to cloture or else; because
    they may not be technically germane, they would be precluded if
    cloture is invoked.
        I have a number of amendments on the list. I think we
    should move this train forward tonight, utilize the time this
    evening to move this process forward so as many of these
    amendments as possible can be considered before cloture. I make
    that unanimous consent proposal at this time.
        The Presiding Officer. Is there objection?
        The Senator from Texas.
        Mr. Gramm. Mr. President, reserving the right to object,
    let me say that we have a lot of people who want to offer
    amendments. I have on my side some 30 amendments. We had better
    follow the regular order. Let me say that I would intend, once
    we have disposed of this unanimous consent request, to ask that
    all further amendments be germane to the bill and that at noon
    tomorrow we proceed to third reading. But I object to the
    unanimous consent request.
        The Presiding Officer. Objection is heard.
        The Senator from Nevada.
        Mr. Reid. Mr. President, I ask unanimous consent that at
    10:30 tomorrow morning, Thursday, July 11, the Senate resume
    consideration of S. 2673 and that the time until 12 noon be
    divided as follows: The first 45 minutes under the control of
    Senator Byrd; the remaining 45 minutes under the control of
    Senator McConnell or his designee; that at 12 noon Senator Enzi
    be recognized to make a motion to table the McConnell second-
    degree amendment No. 4200, with no intervening amendment in
    order prior to disposition of the McConnell amendment.
        That is not part of this agreement. For the information of
    Senators, we would have an hour, beginning at 9:30, for morning
    business for both sides, equally divided.
        Mr. Levin. Mr. President, reserving the right to object.
        Mr. Gramm. Mr. President, I think this is a perfectly
    reasonable unanimous consent request, and I do not object.
        Mr. Levin. Reserving the right to object, Mr. President, I
    have two questions relative to this unanimous consent request.
    The first question is, Does this then mean we would move to the
    disposition of the Edwards amendment?
        Mr. Reid. Mr. President, that is my hope. One of the
    reasons we want to dispose of the second-degree amendment--
    Senator Enzi, who has worked with you and others on the
    underlying amendment, is going to move to table. We hope we can
    move to the Edwards amendment.
        The Senator from Texas, Mr. Gramm, has told us he wants to
    study this tonight and he will give us word on it tomorrow. I
    think it has been debated quite sufficiently. It appears to me
    the Edwards amendment is reasonable. I think in the dialog he
    answered all the questions of the Senator from Texas. I have no
    problem if the Senator wants to spend the night looking it over
    more.
        Mr. Levin. My second question under the reservation is
    this: This does not then change the order that has been
    previously listed for amendments under the earlier UC request;
    is that correct?
        Mr. Reid. That is correct. We have a number of amendments
    queued up. Senator Edwards has been here all day, for example.
    The Senator from Michigan has been here a long time today. We
    hope we can move through some of these tomorrow.
        As the Senator knows, there is anticipation tonight that a
    cloture motion will be filed on this bill. The majority leader
    has told everyone that we have only 3 weeks remaining in this
    little session before the August recess. We would like to do
    prescription drugs. We are going to move, we hope, to the
    MILCON appropriations bill in the next day or so. We have
    homeland security we have to do. There is so much to do and a
    limited amount of time in which to do it.
        Mr. Levin. Further reserving the right to object, Mr.
    President, I will simply add the following because there are
    relatively few hours between now and a vote on cloture,
    assuming that cloture motion is filed. I think we should fully
    utilize that time to consider relevant amendments. What my
    great fear is--which is being reinforced tonight--is that the
    time is going to be filled not by relevant amendments but in
    other ways which would preclude the consideration of relevant
    amendments in the event cloture is adopted. That is a major
    concern I have. I don't know if other people waiting in line
    with amendments that are relevant amendments have the same
    concern, but I hope and believe they do.
        I hope it will be possible for relevant amendments to be
    considered, if not tonight, then tomorrow, and that the time be
    fully utilized; otherwise, it would simply preclude important
    relevant amendments that are waiting in line.
        Mr. Reid. Mr. President, the Senator also speaks for
    others. We have had, over the last several months, problems
    getting legislation up the way we used to do it here. It is
    difficult when we have obstacles that are brought up. It does
    not allow us to proceed in the normal fashion. I hope the
    Senator will allow the agreement to go forward.
        The Presiding Officer (Ms. Cantwell). The Senator from
    Texas.
        Mr. Gramm. Madam President, I am told one of my colleagues
    is coming down to object to this unanimous consent request. I
    have to suggest the absence of a quorum.
        The Presiding Officer. The clerk will call the roll.
        The assistant legislative clerk proceeded to call the roll.
        Mr. Reid. Madam President, I ask unanimous consent that the
    order for the quorum call be rescinded.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Reid. I renew my unanimous consent request.
        The Presiding Officer. Is there objection?
        Mr. Gramm. Madam President, the reservations of the Senator
    from Michigan have no impact on this unanimous consent request?
    That is a parliamentary inquiry. The reservations expressed by
    the Senator fromMichigan have no impact on the unanimous
    consent request as it is written?
        The Presiding Officer. That is correct.
        Mr. Gramm. I have no objection.
        The Presiding Officer. Without objection, it is so ordered.
        The Senator from Nevada.
        Mr. Reid. Madam President, I appreciate very much the work
    of the managers of this bill. This is very important
    legislation. I was advised by the Chairman of the committee
    just a few minutes ago the stock market dropped again today
    almost 300 points. We need to do something to reestablish
    credibility and to reestablish the confidence of the American
    people in corporate America. This legislation goes a long way
    toward that end. I hope there will be cooperation tomorrow so
    that some of these relevant amendments can be offered.
        I hope everyone understands the importance of this
    legislation. I am confident they do. I appreciate the ability
    to work this out so we can at least move forward tomorrow to
    the extent we do in this unanimous consent agreement.
        The Presiding Officer. The Senator from Texas.
        Mr. Gramm. Madam President, let me just outline, if I may,
    where I see we are in the process. Tonight, a cloture motion is
    going to be filed. Tomorrow we are going to have a series of
    amendments. As everybody knows, when cloture is invoked, the
    relevant test is germaneness, not relevance, not significance,
    not the feeling of a Member that their amendment is important
    or more important than any other Member. The test is
    germaneness.
        Anybody who has ever been involved in a situation where we
    move toward cloture understands that once we are on that track,
    unless amendments are relatively acceptable on a broad basis to
    all parties involved, knowing that the amendment is sheared off
    at the hour of cloture, that amendment in all probability--let
    me state it more precisely--that amendment is not going to be
    adopted.
        We can do this in one of two ways, and either way works
    perfectly with me. We can either try for the nongermane
    amendments--if your amendment is germane, you are solid, you
    can offer it now, you can offer it later, and you are going to
    get a vote on it. But if your amendment is not germane, I
    suggest we try to get our staffs together and see if something
    can be worked out where if part of the amendment or all of the
    amendment or the amendment and something else is
    noncontroversial, it could be adopted.
        At the end of the day, we will all be happier if we do
    that. If we spend all of tomorrow butting heads knowing what
    the final outcome is going to be, the net result is we are just
    going to have unhappiness and no good will come out of it.
        I say to anyone who has a nongermane amendment, in the end,
    to have that amendment adopted it is going to have to be
    generally supported because, obviously, any Member is going to
    be able to prevent it from being voted on. It is going to get
    sheared off at cloture.
        I have a list of amendments, most of which have absolutely
    nothing to do with this bill. I have amendments on bankruptcy.
    I have amendments on the Ninth Circuit Court of Appeals. I have
    amendments on pensions. I have amendments on tax policy. I have
    numerous amendments on stock options.
        I submit to all these people who want to offer amendments
    that what we ought to do if we are going to try to get
    something done is to have them have their staff sit down with
    staff on both sides of the aisle and say: Is there anything in
    here that might be generally agreed to, and if that is the
    case, we could move in that direction.
        Finally, let me say we have in place a unanimous consent
    agreement about how we are going to proceed tomorrow morning,
    and I ask the Democratic floor leader, if I can, given that we
    have a unanimous consent agreement in place for the morning,
    can we simply have the floor open for the purpose of debate
    only tonight so that those of us who are going to be here all
    day tomorrow, as we were all day today, can go home?
        Mr. Reid. I say to my friend, there are some things we have
    to do, such as filing cloture, and if that situation of debate
    only is in effect, we could not do that.
        Mr. Gramm. With what now?
        Mr. Reid. If there is debate only, we could not file the
    cloture motion.
        Mr. Gramm. If you can just tell us, if we can have an
    agreement--the Senator can amend it. All I am saying is, if
    people want to stay and debate any pending amendment or talk
    about whatever they want to talk about, that is fine. It seems
    to me if we are through with all of our business except debate,
    we could let people who have debated enough go home.
        Mr. Reid. The leader has stated there will be no more
    rollcall votes tonight. I hope if one wants to talk about the
    bill, they will do that, but I do not think we need a UC to
    accomplish that.
        Mr. Gramm. If the Senator will yield, what about a
    unanimous consent request, except to file a cloture motion,
    that there will be debate only tonight? That way we do not have
    a problem of potentially someone asking unanimous consent for
    something.
        Mr. Reid. My personal feeling is I have no problem with
    that. I have to check with staff to make sure I am not missing
    anything, but I want to make sure the Senator from North
    Carolina is protected.
        Mr. Edwards. Will the Senator from Texas yield, if he has
    the floor?
        Mr. Gramm. If I do I yield to him.
        The Presiding Officer. The Senator from North Carolina.

                        AMENDMENT NO. 4187, AS MODIFIED

        Mr. Edwards. Madam President, I have a modification to my
    amendment at the desk.
        The Presiding Officer. The amendment is so modified.
        The amendment, as modified, is as follows:

        On page 108, line 15, insert before the end quotation marks
    the following:
        ``(c) Rules of Professional Responsibility for Attorneys.--
    Not later than 180 days after the date of enactment of this
    section, the Commission shall establish rules, in the public
    interest and for the protection of investors, setting forth
    minimum standards of professional conduct for attorneys
    appearing and practicing before the Commission in any way in
    the representation of public companies, including a rule
    requiring an attorney to report evidence of a material
    violation of securities law or breach of fiduciary duty or
    similar violation by the company or any agent thereof to the
    chief legal counsel or the chief executive officer of the
    company (or the equivalent thereof) and, if the counsel or
    officer does not appropriately respond to the evidence
    (adopting, as necessary, appropriate remedial measures or
    sanctions with respect to the violation), requiring the
    attorney to report the evidence to the audit committee of the
    board of directors or to another committee of the board of
    directors comprised solely of directors not employed directly
    or indirectly by the company, or to the board of directors.

        Mr. Edwards. I yield the floor.
        The Presiding Officer. The Senator from Nevada.

                                 Cloture Motion

        Mr. Reid. Madam President, I send a cloture motion to the
    desk.
        The Presiding Officer. The cloture motion having been
    presented under rule XXII, the Chair directs the clerk to read
    the motion.
        The assistant legislative clerk read as follows:
                                 Cloture Motion
        We, the undersigned Senators, in accordance with the provisions of
    rule XXII of the Standing Rules of the Senate, do hereby move to bring
    to a close the debate on Calendar No. 442, S. 2673, the Public Company
    Accounting Reform and Investor Protection Act of 2002:

        Jon Corzine, Deborah Stabenow, Paul Wellstone, Ron Wyden, Daniel
                Akaka, Barbara Boxer, Charles Schumer, Byron Dorgan, Harry
                Reid, Paul Sarbanes, Daniel Inouye, John Edwards, Barbara
                Mikulski, Thomas Carper, Jack Reed, Tim Johnson.

        The Presiding Officer. The Senator from Maryland.
        Mr. Sarbanes. Madam President, before the Senator from
    Texas departs, I wish to add an observation to the comments he
    made before about how to proceed.
        There are a number of amendments. The definition of
    germaneness, once cloture has been invoked, is very narrow.
    There are amendments that Members have which in the normal
    terminology would be regarded as germane and are certainly
    relevant. It seems to me an effort should be made to address
    those amendments as well as ones that are perceived to be
    germane in the very narrow sense.
        There is another category of amendments that I am not very
    sympathetic to, and those are ones that have really nothing to
    do with this bill. The second-degree amendment offered by the
    Senator from Kentucky that is now pending, in my judgment, is
    an example of that. We probably ought to move very quickly to
    table those kinds of amendments when they come up so we have an
    opportunity for colleagues who have amendments that are really
    relevant to this legislation to bring them up and to have them
    considered.
        Mr. Gramm. Will the Senator yield?
        Mr. Sarbanes. Yes.
        Mr. Gramm. I think we have a fairly broad consensus that is
    the direction in which we should go. The fact that we are
    getting ready to have cloture should not prevent us from
    adopting amendments where there is support and where there is a
    collective judgment that the amendment is relevant. The plain
    truth is that anyone knowing that cloture was coming could have
    held up the President's amendment which added criminal
    sanctions. Any Member of the Senate could have prevented that
    from being voted on knowing that it was nongermane, but nobody
    did that because there was a general base of support for it.
        All I was saying was that every Member of the Senate knows
    the germaneness rule and everybody knows that, come whenever we
    invoke cloture, any amendment that is nongermane is going to
    fall. Then what is going to happen is, unless there is some
    consensus for the amendment, it is simply going to be delayed
    until it is cut off.
        If what the Senator is saying is that if an amendment is
    relevant, if it would improve the bill, if it is not highly
    controversial, we ought to take it, I agree with that. Looking
    down my amendment list, there are not a lot of such amendments,
    but the ones that are there, if people want to bring them up, I
    am not going to oppose an amendment simply because it is not
    germane.
        Mr. Sarbanes. I suggest the absence of a quorum.
        The Presiding Officer. The clerk will call the roll.
        The legislative clerk proceeded to call the roll.
        Mr. Reid. Madam President, I ask unanimous consent that the
    order for the quorum call be rescinded.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Reid. Madam President, I ask unanimous consent that the
    previously agreed to Daschle for Biden amendment, No. 4186, as
    modified, be inserted in the appropriate place in the bill.
        The Presiding Officer. Without objection, it is so ordered.

            VOLUME 148, THURSDAY, JULY 11, 2002, NUMBER 93,
                          PAGES [S6603-S6616]

      Public Company Accounting Reform and Investor Protection Act of 2002

        The Presiding Officer. Under the previous order, the Senate
    will resume consideration of S. 2673, which the clerk will
    report.
        The assistant legislative clerk read as follows:

        A bill (S. 2673) to improve quality and transparency in
    financial reporting and independent audits and accounting
    services for public companies, to create a Public Company
    Accounting Oversight Board, to enhance the standard setting
    process for accounting practices, to strengthen the
    independence of firms that audit public companies, to increase
    corporate responsibility and the usefulness of corporate
    financial disclosure, to protect the objectivity and
    independence of securities analysts, to improve Securities and
    Exchange Commission resources and oversight, and for other
    purposes.

        Pending:

        Edwards modified amendment No. 4187, to address rules of
    professional responsibility for attorneys.
        Gramm (for McConnell) amendment No. 4200 (to amendment No.
    4187), to modify attorney practices relating to clients.

        The Presiding Officer. The Senator from Nevada is
    recognized.
        Mr. Reid. Mr. President, this has been cleared by both
    managers of the bill. We have had a number of inquiries about
    the need for more time to talk on various issues. As the Chair
    knows, from 12:30 until 2 o'clock, we have our policy luncheon,
    and normally we don't have votes.
        I ask unanimous consent that the previously scheduled
    order, which provided that Senator Enzi be recognized at 12
    noon today to make a motion to table the McConnell amendment
    No. 4200, be modified to provide that the recognition of
    Senator Enzi occur at 12:45 today, with the additional 45
    minutes, from 12 to 12:45, equally divided and controlled
    between Senators Sarbanes and Gramm, or their designees, and
    that all other provisions of the previous order remain in
    effect.
        Mr. Dorgan. Mr. President, reserving the right to object, I
    would like to engage in a brief discussion with my colleague
    from Nevada under my reservation of an objection, if I might. I
    shall not object to the specific request of the Senator, but I
    have just visited with the Chairman of the Committee and you
    know there exists a list of amendments that Members of the
    Senate wish to offer to this legislation.
        As I have watched this process over the last couple of
    days, it appears to me that we have set up a gatekeeper of
    sorts for determining who will offer amendments and whether
    there will be votes on the amendments, and it appears to me we
    are not making very much progress. I would like to get some
    sense of whether we have a clear process beginning this
    afternoon, so that this afternoon and this evening we might be
    able to move through 6, 8, 10 amendments and get time
    agreements so Members of the Senate have the opportunity under
    the rules to offer and have considered amendments that they
    consider important in this legislation.
        Mr. Reid. Mr. President, I say to my friend, the chairman
    of the committee has worked for hours and hours trying to get
    movement so people could offer relevant amendments. We have
    been not very successful, to be very candid with the Senator
    from North Dakota. I have stood by the Senator from Maryland
    and coerced, urged, and we haven't gotten to the debating point
    yet. We have done everything we can.
        There are a number of Senators, not the least of whom is
    the Senator from North Dakota, who have amendments. There is
    the Senator from Michigan, the Senator from New York, and
    others who have spent a lot of time wanting to offer
    amendments. We are doing everything we can. We hope the Enzi
    motion to table will break some of this loose.
        I say to my friend from North Dakota that we understand how
    he feels. The only thing I will say is there is no gatekeeper.
    On one bill the two managers said they would oppose any
    amendment that was not relevant, but that is not the case now.
    The Senator from Maryland has expressed to me that there are
    some relevant amendments which should be offered. He has done
    everything he can to----
        Mr. Byrd. Mr. President, who controls time?
        The Presiding Officer. Under the previous order, the
    Senator from West Virginia controls the next 45 minutes. There
    is a unanimous consent request pending.
        Mr. Byrd. Mr. President----
        Mr. Dorgan. Mr. President, reserving the right to object.
        Mr. Reid. If I can ask my friend to let me finish. I ask
    unanimous consent that the time in the colloquy between the
    Senator from North Dakota and the Senator from Nevada not take
    away from the time of the Senator from West Virginia.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Dorgan. Mr. President, continuing on my reservation--
    and it is not my intention to delay the Senator from West
    Virginia--I want to try to understand what is happening.
        First, my comments should not in any way suggest that the
    chairman of the committee hasn't done an extraordinary job. I
    have great respect for him. But it has been difficult to get
    amendments up and get votes on them in the last day or two.
    There are a good number of very important amendments.
        Under the reservation, I say that we know what has happened
    to the stock market in the last few days. We know this is a
    critically important issue--this legislation and the amendments
    to it. We ought not to treat this lightly. This piece of
    legislation ought to be on the floor and open for amendment,
    having a robust discussion on the very important issues dealing
    with corporate responsibility.
        Instead, what is happening is we have a couple people on
    the floor who seem to want to stall this process and prevent
    amendments from being considered in order. I hope--and I will
    come back after lunch today--to offer at least two amendments.
    I want to debate them and get them voted on. At least as a
    Senator I have a right to do that.
        It is very important to me that I be able to add these
    amendments. If the Senate doesn't like them, fine, we will
    vote. But it is important to me to have that opportunity. I
    shall not object to the unanimous consent request with respect
    to the tabling motion.
        I wanted to say to the Senator from Nevada and the Senator
    from Maryland, who have done everything humanly possible to try
    to make this process work, that there are others in the Chamber
    who are trying to drag this process out and prevent others from
    offering amendments. I am going to assert my rights, to the
    extent I can, to say that before this bill is completed we need
    to have
    the best ideas everyone in the Senate has to offer about how to
    do this job.
        The economy in this country is in significant trouble. We
    know it. The confidence the American people have in this
    economy and corporate governance has been shattered in many
    ways. It rests upon the shoulders of this institution to pass
    this legislation and do everything we can to make it the best
    piece of legislation possible to restore that confidence and
    give some lift to this economy. I wanted to make that point.
        I appreciate the indulgence and the patience of the Senator
    from Nevada. If the Senator from Maryland will give me a chance
    to say this once again: In no way am I saying the Chairman
    hasn't done everything humanly possible to move this along. He
    wants to move quickly. I shall not object.
        Mr. Graham. Mr. President, reserving the right to object.
        The Presiding Officer. The Senator from Florida.
        Mr. Graham. Mr. President, I express my great admiration
    for what Senator Sarbanes has done in presenting to America
    such a meaningful piece of legislation to deal with one of the
    great scandals that has occurred in the history of our free
    enterprise system, and taking a step toward restoring the
    confidence of the public in the investment community.
        But as Senator Dorgan, I have an idea which, in fact, in
    one instance, is parallel to Senator Dorgan's; that is, I
    believe we need to be very clear that we are applying the same
    standards to corporations that have their corporate
    headquarters inside the United States as we do to corporations
    that take advantage of our capital markets and have chosen to
    locate or relocate their headquarters outside of the United
    States.
        Mr. Reid. Mr. President, I am reclaiming my time.
        Mr. Graham. Reserving the right to object, there are enough
    incentives to do that already in the Tax Code and otherwise. We
    should not be creating additional incentives for companies to
    run from their responsibilities within the United States. My
    specific----
        Mr. Reid. Mr. President, I want the floor back.
        Mr. Graham. I am raising this today----
        Mr. Reid. Mr. President, I have the floor.
        The Presiding Officer. The Senator from Nevada has the
    floor.
        Mr. Graham. Mr. President, I am reserving my right to
    object.
        Mr. Reid. Mr. President, I have the floor.
        Mr. Graham. I will conclude my comments in short order.
        The Presiding Officer. The Senator can either object or
    not. Reserving the right to object occurs at the indulgence of
    those who have the floor.
        Mr. Reid. Mr. President, we have built in time for people
    to speak. It is not fair to Senator Byrd and others who have
    been waiting to speak. I have no problem with Senator Graham
    coming. I agree with his position. There is time to be allowed
    under this unanimous consent agreement. Otherwise, the time
    will be all gone, and there are two Senators who have an hour
    and a half, by virtue of a unanimous consent agreement entered
    into last night.
        It is not fair to use the extra half hour with these
    speeches that are taking away from Senator Byrd and Senator
    McConnell.
        The Presiding Officer. Is there objection?
        Mr. Graham. Reserving the right to object, just for the
    purpose of concluding my remarks.
        Mr. Byrd. Mr. President, I object.
        The Presiding Officer. Objection is heard.
        Mr. Byrd. Mr. President, I will be happy to yield to the
    Senator when I get the floor. We cannot make long speeches on
    reservations to object. We either object or we don't. I object
    and then I will be happy to yield to the Senator. I want to be
    fair. Am I recognized?
        The Presiding Officer. The Senator from West Virginia is
    recognized.
        Mr. Byrd. How much time does the Senator wish?
        Mr. Graham. Just 1 minute.
        Mr. Byrd. Mr. President, I yield to the distinguished
    Senator from Florida for 1 minute, reserving my right to the
    floor.
        Mr. Graham. I appreciate the courtesy of the Senator. I
    want to bring to your attention an article from the Washington
    Post today. I ask unanimous consent that this article be
    printed in the Record.
        There being no objection, the article was ordered to be
    printed in the Record, as follows:

           SEC Chairman Pitt a Potential Liability to Administration

                               (By Dana Milbank)

        While President Bush was delivering his long-awaited speech
    on corporate governance Tuesday, Securities and Exchange
    Commission Chairman Harvey L. Pitt was exactly where many Bush
    aides wanted him to be: on a week-long beach vacation.
        ``We were not surprised that the Chairman was not included
    in Administration plans for public appearances,'' SEC
    spokeswoman Christi Harlan said. ``The commission is an
    independent agency.''
        White House officials, though calling it a coincidence,
    acknowledged they had no desire for Pitt's presence.
        The arms-length treatment of Pitt underscores a dilemma for
    Bush and his radioactive SEC chairman. Many Democrats and even
    a few Republicans have called for Pitt's resignation because of
    his alleged conflicts of interest and ties to the accounting
    industry. There is no sign that Bush is even thinking of
    dropping Pitt. But whether Pitt stays or goes, he is a
    potential liability.
        Dismissing Pitt would violate the Bush code of loyalty and
    would be viewed as validating Bush's critics, from Senate
    Majority Leader Thomas A. Daschle (D-S.D.) to Bush's Republican
    nemesis, Sen. John McCain (Ariz). ``Dropping Harvey Pitt right
    now would be an acknowledgment of wrongdoing where there's been
    no wrongdoing,'' said GOP lobbyist Ed Gillespie, a former Bush
    campaign aide.
        Forcing Pitt out would also open the White House to charges
    of interfering in the SEC's investigation of Halliburton Co.'s
    activities when Vice President Cheney was its chief executive.
    Underscoring that danger, Halliburton shareholders yesterday
    filed a fraud lawsuit in Dallas against the company and Cheney.
    White House Press Secretary Ari Fleischer said the suit is
    ``without merit.'' That prompted Larry Klayman, whose group,
    Judicial Watch, represents the shareholders, to accuse the
    White House of seeking to influence the SEC's investigation.
        Yet Pitt's presence as the Government's top securities
    watchdog carries dangers for Bush, too. Even some Pitt
    defenders say his close ties to the accounting industry limit
    his credibility as a reformer. In his first speech as SEC
    Chairman last year, Pitt told an audience of auditors that the
    SEC would be ``a kinder and gentler place for accountants.''
        ``Pitt has been in hot water since day one and WorldCom
    turned it into a full boil,'' said GOP operative Scott Reed.
    Because Bush will not drop Pitt, Reed said, ``McCain and the
    Democrats have turned him into a political pinata, and that
    will continue ad infinitium.''
        Democrat Chris Lehane, who defended Bill Clinton and Al
    Gore during that Administration's scandals, said Bush is making
    the wiser political choice in keeping Pitt, even though Pitt
    could undermine faith in Bush's reforms. ``Pitt could do
    everything right and nobody's going to give him credit for
    it,'' he said.
        Pitt's foes point to his past legal work for executives of
    now-sullied corporations, including MCI, Merril Lynch & Co.,
    Arthur Andersen LLP and other accounting firms. He has also
    been criticized for meeting in April with a former client, KPMG
    Consulting Inc., while KPMG's audits of Xerox Corp. were being
    investigated by the SEC. Critics also say that as a lawyer,
    Pitt favored restricting Federal oversight of auditing firms.
    Over the years, Pitt has represented figures such as Ivan
    Boesky and Michael Saylor in SEC actions.
        Bush, in his Monday news conference, generously defended
    Pitt. ``I support Harvey Pitt--Harvey Pitt has been fast to
    act,'' Bush said. Later, Bush added: ``I'm going to give him a
    chance to continue to perform.''
        Privately, Bush has expressed amazement at the conflict-of-
    interest charges. ``It's only in this town that people want
    someone who doesn't know what they're talking about to lead an
    agency,'' he told Congressional Republicans visiting the White
    House yesterday.
        Pitt has an unlikely defender in Lanny J. Davis, one of
    President Clinton's scandal handlers. ``The attack being made
    by Democrats could be made on most anyone for having conflicts
    from prior positions,'' he said. But Davis said the
    Administration has been making matters worse. ``The more you
    bottle up Harvey Pitt, the more you allow Democrats to make him
    an issue,'' Davis said.
        Observers on both sides expect Pitt to make a public effort
    to build his credibility by demonstrating that he can be hard
    on his old friends. Indeed, some in the Administration joke
    that Pitt will come to resemble a model Democratic SEC
    Chairman, one heavy on regulations.
        The White House has distributed evidence of Pitt's activity
    on the job: requiring chief executive and chief financial
    officers of the 947 largest companies to personally recertify
    the accuracy of their disclosures; seeking to bar 54 officers
    and directors; and issuing a long list of new reporting rules
    and regulations.
        Pitt was not Bush's first choice for the SEC job, and
    officials say he continues to be far from Bush's inner circle.
    The reforms Bush announced Tuesday were developed largely by
    Treasury Secretary Paul H. O'Neill and White House Deputy Staff
    Chief Joshua Bolten, with help from Bush economic advisers
    Lawrence B. Lindsey and R. Glenn Hubbard.
        But Bush is stubborn about demonstrating loyalty to his
    aides, which enables him to claim reciprocal loyalty. Officials
    say he continues to defend Army Secretary Thomas E. White,
    embattled because of his Enron Corp. ties and personal travel,
    because White has been faithful to Bush.
        But when underlings act disloyal, Bush can quickly cut them
    loose. Linda Chavez was dropped as Bush's nominee to be Labor
    Secretary when it appeared she had misled those vetting her
    background. Michael Parker, the Civilian Chief of the Army
    Corps of Engineers, was ousted for complaining about
    administration budget cutting.
        Pitt so far has demonstrated fealty to Bush, and Bush aides
    remain loyal to him. ``The best thing to do is vigorously
    enforce the law, and that's what he's doing,'' Lindsey said.

        Mr. Graham. In this article, the President of the United
    States has given as one of his reasons to continue his support
    for the Chairman of the Securities and Exchange Commission,
    Chairman Harvey L. Pitt, the fact that Mr. Pitt has required
    chief executives and chief financial officers of the 947
    largest companies to personally recertify the accuracy of their
    disclosures.
        What was left out were all the American companies which
    have their corporate headquarters outside the United States of
    America. Apparently, the Chairman of the SEC believes he can
    discriminate and apply a principle only against those
    corporations which are sited in the United States and exclude
    corporations outside the United States.
        That is an irrational and unfair distinction and one that
    we should correct as promptly as possible in this legislation.
        I thank the Senator from West Virginia.
        The Presiding Officer. The Senator's time has expired.
        Mr. Reid. Mr. President, will the Senator yield for a
    unanimous consent request?
        Mr. Byrd. Gladly.
        Mr. Reid. Madam President, I renew my unanimous consent
    request.
        The Presiding Officer (Ms. Landrieu). Without objection, it
    is so ordered.
        The Senator from West Virginia.
        Mr. Byrd. Madam President, since the revelation last month
    of yet another corporate accounting scandal--this time
    involving the second largest telecommunications provider,
    WorldCom--the Bush Administration seems to have lost its
    patience with corporate America. In fact, from the rhetoric we
    have heard from the Administration in recent weeks, I expected
    to hear the President tell corporate America this week that his
    top advisors had been in the White House basement planning, not
    just a corporate fraud task force, but a new Department of
    Corporate Security.
        The President said last month at the G8 summit in Canada,
    ``The revelations that WorldCom has misaccounted [$3.8] billion
    is outrageous.''
        In his June 29 weekly radio address, the President warned
    corporate America that ``no violation of the public's trust
    will be tolerated. The Federal Government will be vigilant in
    prosecuting wrongdoers to ensure that investors and workers
    maintain the highest confidence in American business.''
        The President apparently is so miffed with these corporate
    ``wrongdoers'' that he has elevated them in his rhetoric to a
    bad-guy level that is almost, but not quite as bad, as al-
    Qaeda's ``evildoers.'' Almost the same level; perhaps not
    quite.
        WorldCom president and CEO John Sidgmore, in a June 28
    letter to President Bush, joined the President in expressing
    his outrage. ``I want you to know that we, the current
    management team, are equally surprised and outraged . . . about
    past accounting irregularities at WorldCom,'' he said.
        So the Bush Administration and the CEO of WorldCom now both
    agree that American corporations teaming up with unscrupulous
    (or incompetent) accountants to mislead shareholders about how
    much money the company is making is an ``outrageous'' practice.
        Madam President, how comforting it is. As Jackie Gleason
    used to say: ``How sweet it is.'' How sweet it is. How
    comforting it is to know that we have finally reached a
    consensus on that issue.
        Despite the excuses and the explanations, I find little
    credibility in the argument that certain corporate executives
    lacked sufficient knowledge to ask the right questions about
    their companies' accounting practices.
        If CEOs are worth their generous pay, one would think they
    could take the time to make sure that the company's chief
    financial officer is not padding earnings by omitting costs
    from the balance sheet.
        In fact, one finds disconcerting the acute lack of shame--
    the acute lack of shame--S-H-A-M-E--on the part of some of
    these corporate executives. Former Enron CEO Jeffrey Skilling
    told the House Energy and Commerce Oversight Subcommittee that
    Enron had tight control on financial risk, but that he could
    not be expected to oversee everything and ``close out the cash
    drawers . . . every night.''
        Can you imagine that kind of statement? I think it was
    Wordsworth who said: No matter how high you are in your
    department, you are responsible for what the lowliest clerk is
    doing.
        Let me repeat that. Wordsworth said: No matter how high you
    may be in your department, you are responsible for what the
    lowliest clerk is doing. That was William Wordsworth. Let's
    take that statement and put it beside the statement of former
    Enron CEO Jeffrey Skilling when he told the House Energy and
    Commerce Oversight Subcommittee that Enron had tight controls
    on financial risk but that he could not be expected to oversee
    everything and ``close out the cash drawers . . . every
    night.'' Oh, that poor man. What a heavy burden he carried.
    That poor man. We can all shed crocodile tears for someone who
    is put into that very difficult position and then consider the
    kinds of salaries these people draw down.
        Shakespeare said: ``The quality of mercy is not strain'd,
    it droppeth as the gentle rain . . . upon the place beneath.''
    I will tell you, it does strain gentle mercy when we read about
    these scandals that have swept over this country and how these
    people plead the fifth amendment when they are called up before
    Senate committees and House committees--plead the fifth
    amendment. That is a stunningly irresponsible attitude for a
    chief executive.
        It is something that you might hear from the teenage
    manager of a fast food restaurant who cannot account for a
    handful of change missing from the cash drawer at the end of
    the night. You might hear that from the teenage manager of a
    fast food restaurant who cannot account for a handful of change
    missing from the cash drawer at the end of the night. But we
    are not talking about a handful of change. We are talking about
    the American public. Those eyes that are peering--they are
    peering at this Senate floor at this very minute through the
    lenses of those cameras. They are the taxpayers out there. I
    see them looking through those cameras. I see them in West
    Virginia. I see them in Texas. I see them in Wyoming. I see
    them in New York looking through those cameras.
        We are talking about them, the American public having lost
    by some estimates tens of billions--not millions--tens of
    billions of dollars of invested savings in companies that
    issued false--the Ten Commandments, I keep them on my walls;
    some of these CEOs should keep them on their walls--financial
    reports and tens of thousands of workers who have lost their
    jobs, and many have lost their meager earnings that they, too,
    invested, that is what we are talking about.
        So here is an individual who tells a House committee he
    cannot be expected to oversee everything and close out the cash
    drawers every night--such a stunning, irresponsible, arrogant
    attitude on the part of a chief executive. I say again it is
    something that you might expect to hear--you might--from the
    teenage manager of a fast food restaurant who could not account
    for a handful of change missing from the cash drawer at the end
    of the night.
        We are not talking, let me say again, about a handful of
    change. We are talking about the American public, those people
    out there, Republicans and Democrats and Independents, in the
    Alleghenies, along the eastern coast, on the storm-beaten coast
    of Maine, the fishermen on the mighty deep, the people in the
    Plains and the Rockies and beyond. These are the people, north
    and south, the public. We are talking about the American public
    having lost, by some estimates, tens of billions of dollars of
    invested savings in companies that issued false--and they knew
    they were issuing false--financial reports. Tens of thousands
    of workers who have to wash the grime from their hands and
    their faces, workers in the fields, in the mines, in the
    shipyards, those are the people we are talking about, the
    public, tens of thousands of workers who have lost their jobs.
        Even after these corporations' fraudulent accounting,
    somebody ought to go to jail, and the doors should be locked
    and the keys thrown away. Throw away the keys. It really would
    not be too severe a punishment for some of these four-flushers.
        Even after these corporations' fraudulent accounting
    methods are exposed, the accounting games seem to continue.
    After telling the Securities and Exchange Commission that it
    hid nearly $4 billion in expenses last year, WorldCom submitted
    revised financial reports to the SEC which the SEC Chairman,
    Harvey Pitt, immediately called wholly inadequate and
    incomplete. Apparently, WorldCom's revised financial statements
    included additional accounting errors dating back to 1999 and
    2000. That, Chairman Pitt said, could add at least $1 billion
    to the company's financial revision.
        No wonder the trust of those people is broken. No wonder
    the public's trust in corporate America has eroded. What kind
    of trust can the public have in companies that hide information
    in an effort to pull the wool over the eyes of American
    investors?
        After WorldCom's announcement, the Bush Administration
    sharpened its rhetoric and is now working to assure the
    American public that it recognizes the importance of
    transparency and disclosure. The Chairman of the White House
    Council of Economic Advisers, Glenn Hubbard, said in an
    interview last month that the President wants to reassure
    investors about the economy while also delivering a shot across
    the bow to leaders of corporations that abuses of the public
    trust will not be tolerated.
        In the midst of Congressional hearings last March, after
    the collapse of Enron, the President lectured corporate America
    about how to regain the public's trust. He said corporations
    must disclose relevant facts to the investing public and they
    must focus on the interests of shareholders, who are the real
    owners of any publicly held enterprise, to properly inform
    shareholders and the investing public that we must adopt better
    standards of disclosure.
        That is nice rhetoric, but this Administration hardly sets
    the model for openness and transparency. In fact, this is an
    administration that prides itself on operating in secrecy and
    governing by surprise. Remember the secret government that was
    being set up? In fact, this is an administration, let me say
    again, that prides itself in operating in secrecy and governing
    by surprise.
        I find it difficult to watch this Administration lecture
    corporate America about virtues of disclosing information to
    the public while at the same time it is restricting the
    public's access to information about its own executive actions.
        Last October, Attorney General John Ashcroft issued a memo
    encouraging Federal agencies to withhold unclassified records
    under the Freedom of Information Act, the law that gives the
    American public the legal right to certain Government
    information. The Attorney General even told the Federal
    agencies that the Justice Department would defend agency
    decisions to deny FOIA, Freedom of Information Act, requests.
        Last November, the President issued an Executive Order to
    limit access to Presidential papers that, under the
    Presidential Records Act of 1978, would normally be made
    available to the American public. The Executive order allows a
    former or a sitting President to block the release of records
    requested under the law by invoking ``constitutionally based
    privileges.'' The words ``constitutionally based privileges''
    are in quotation marks.
        The American people would have to go to court to challenge
    the privilege claim. The order could even permit a former or
    incumbent President to impede requests for old records simply
    by withholding approval for their release, effectively negating
    the need for the Chief Executive to even make the claim of
    executive privilege.
        We have had our own little taste of this side of the coin
    from the executive branch as we on the Appropriations
    Committee, Senator Stevens and I, tried to have the
    Administration let Tom Ridge come up before the committee and
    testify.
        Then we see this creation of this mammoth reorganization of
    Government that sprang like Minerva, fully clothed and armed,
    from the forehead of Jupiter.
        When this Administration's chief executive talks about
    adopting better standards of disclosure, I hope that these
    executive actions are not what he has in mind. These are just
    examples of the Administration directly restricting the
    public's access to government information. The Administration
    has also moved to limit access by Members of Congress, who are
    elected by the people and responsible for the oversight of
    executive actions in the public's behalf.
        Last December, the President gave notice that he was
    unilaterally withdrawing the United States from the
    Antibalistic Missile Treaty, allowing the Administration to
    begin development of a new antibalistic missile defense system.
    Soon after, the Pentagon began to exempt missile defense
    projects from traditional reporting requirements and
    Congressional oversight, an overt attempt to keep the Congress
    and the American people in the dark about the progress of that
    system. As the Administration requests additional defense
    funds, the Pentagon is taking further steps to shield cost
    estimates and time tables from the Congress, making it harder
    to keep the Administration accountable for technical and
    budgetary assessments.
        The Dark Ages were supposed to have ended in about 1000
    A.D. They lasted 1,000 years, the Dark Ages. Reminiscent of the
    Dark Ages, an administration that believes in keeping a
    Congress in the dark, the American people in the dark, and we
    are hearing a lot of sword rattling about it. An attack on
    Iraq--the Administration should level with the Congress. It is
    an equal branch. It is not a subordinate branch to the
    Government. It never has been, and I hope never will be. Let's
    hear more about this plan to invade Iraq. Watch out for August
    when Congress is out of town, or before the election. Who
    knows?
        This reorganization of Government sprang like Aphrodite
    from the ocean foam, and she was carried on a leaf to the
    island of Crete. She later appeared in full dress before the
    gods on Mount Olympus. They were stunned with her beauty.
        This is what we see. These ideas sprang from where? This
    idea to reorganize the Government--and I am concerned it will
    also reorganize the checks and balances of the Constitution
    unless we are watchful--sprang from the bowels of the White
    House, the creation of four individuals who are named in the
    public press. Not exactly the equal, perhaps, of that committee
    that wrote the Declaration of Independence--Thomas Jefferson,
    Benjamin Franklin, Roger Sherman, John Adams, and Livingston,
    those five. Not exactly.
        But look at all the commotion that ideas has created. Look
    out, the Congress is being stampeded into putting its
    imprimatur on that idea. Well, some parts of the idea may be
    OK, but we should not be in too big a hurry.
        And that is to say nothing of the fact that these executive
    actions toward secrecy have occurred during a period in which
    the President has refused to allow Tom Ridge, in his capacity
    as the Director of Homeland Security, to testify before the
    Congress, and in which the Comptroller of the General
    Accounting Office was forced to sue the Vice President of the
    United States to obtain information about the White House
    energy task force and its connections to Enron.
        These are not the actions of an administration that
    believes in the virtues of disclosing information to the
    public. This is an administration that not only embraces the
    idea of operating in secrecy, but flaunts its abilities to hide
    information from the Congress and the American public.
        Upon announcing its proposal for a new Department of
    Homeland Security, the Administration bragged to the media
    about how the plan had been pieced together by just four men
    and a few trusted aides in the basement of the White House. As
    the work became more detailed and the working groups expanded,
    the code of silence was gravely explained to each new arrival.
    At the end of each meeting, all papers were collected: nothing
    left that room, we've been told. The work was completed before
    any member of the Congress was briefed on the plan. White House
    Chief of Staff Andrew Card even arrogantly proclaimed, ``We
    consulted with agencies and with Congress, but they might not
    have known we were consulting.''
        Now, get that. I can hardly believe my eyes, except my eyes
    have seen this prior to my having stated it on the floor. White
    House chief of staff Andrew Card even proclaimed--I used the
    adverb ``arrogantly,'' I will put it back in--White House chief
    of staff Andrew Card arrogantly proclaimed, ``We consulted with
    agencies and with Congress but they might not have known we
    were consulting.''
        What a reflection on Congress. What is he saying about
    Congress? That is hardly a model of transparency that I want
    corporate America to follow.
        We don't want to hear corporate CEOs saying we shared
    information with the American public, but they might not have
    known we were sharing it with them. The Administration's
    euphoria for secrecy seems motivated in large part by its
    desire to implement a political agenda. That is what it is. A
    political agenda, regardless of whether it has the support of
    the American people.
        Mr. Reid. Will the Senator yield?
        Mr. Byrd. I would be glad to yield.
        Mr. Reid. Mr. President, I have been listening to the
    Senator from West Virginia give his speech, and I am of the
    opinion maybe the reason all that secrecy takes place is they
    are running the White House like people run corporations.
    Rather than having a public institution as the Administration
    and White House should be, maybe they are running the White
    House like a corporation.
        I say to my friend that the White House, this
    Administration is covered with corporate America. Maybe they
    think the White House is to be run like a corporation.
        Mr. Byrd. The distinguished Senator from Nevada introduces
    an interesting idea. Maybe they do. Maybe anything goes. All is
    fair in love and in war they say. Now we can add, big business.
    Big business.
        That is not a fair thing to say about many big businesses
    really because many of the people in big business are honest
    and try to do the right thing. They are open, they are
    transparent. It is too bad a few bad apples reflect on the
    whole barrel. I used to sell produce. I was a produce boy,
    married, with children coming on, and I found that a few bad
    peaches would quickly ruin the whole bushel. The same thing
    with apples and other fruits and so on.
        When the Administration's polls suggest opposition to
    certain policies from the American public, it limits access to
    information about that policy. I fear that the American public,
    and their elected representatives in Congress, at times are
    viewed by this Administration as some sort of obstacle or
    hurdle that is to be avoided. There is a contempt, there is an
    arrogancy in this Administration, there is a contempt for
    Congress. They hold Congress in contempt.
        This kind of executive mentality can only emanate from the
    arrogance of an Administration that believes the White House is
    the fountain of wisdom in Washington. Wisdom is the principal
    thing. Such a mentality is dangerous, it is absolutely
    dangerous. I was here in the Nixon Administration. I remember
    what happened to that Administration. Such a mentality is
    dangerous. We need only look to the corporate accounting
    scandals which this Administration has so harshly criticized in
    recent weeks to see why.
        Most economic pundits seem convinced that the hyperactive
    stock market of the late 1990s was the catalyst for a slow,
    steady deterioration in professional and ethical standards in
    corporate America. The pressure on CEOs and companies to
    produce earnings, quarter after quarter, resulted in a kind of
    competitive behavior that encouraged companies to push the
    accounting envelope. Rising profits and stock prices provided
    cover for underlying ethical lapses. The longer the boom
    lasted, the more brazen these corporations became in cutting
    corners and taking a little more off the top.
        By the end of the boom, many companies appear to have been
    engaged in the kind of fudging, gamesmanship and ethical
    corner-cutting that, while legal in some cases, was certainly
    less than ethical. Unfortunately, it was only after the stock
    market began its inevitable decline and great piles of money
    were lost that people began to ask the critical, penetrating
    questions that should have been asked earlier to prevent this
    kind of behavior in the first place. Those harder questions are
    now leading to accounting revisions, executive resignations,
    lawsuits, and criminal investigations.
        So far, the reflexive instinct of the business community
    and the Bush Administration largely has been to blame a ``few
    bad apples,'' but that assertion is hardly consistent with the
    fact that the SEC opened 64 financial-reporting cases between
    January and March of this year, and that almost a thousand
    companies, not just a handful, have been asked to recertify to
    the SEC their financial statements through the last fiscal
    year.
        It is somewhat ironic that the actions of chief executives
    were protected by soaring stock prices, since the
    Administration finds itself in a similar position. Just like
    soaring stock, as long as the President's approval ratings
    remain high, presumably propped up by the American public's
    understandable desire to support the war on terrorism, the more
    latitude the Administration will be granted in restricting
    information about its executive actions under the guise of
    national security. This kind of culture can be extremely
    dangerous. It was allowed to flourish in corporate America
    during the late 1990s, and now threatens the public trust.
        The Administration would do well to take some of its own
    medicine and make itself more transparent to the American
    public. For all of its expressed concerns about the public's
    loss of confidence in corporate America, this Administration
    seems to have given little, if any, consideration to the loss
    of the public's trust in government. That is the most basic of
    commodities in republican government. I do not refer to it, as
    many politicians who ought to know better glibly refer to this,
    our system, as a democracy. They ought to go back and read
    Madison's 10th and 14th essays in the Federalist Papers. They
    will finally learn the difference--or be reminded of the
    difference. They probably have forgotten the difference between
    a democracy and a republic.
        The public's trust in government--when the public loses its
    trust, when the public's trust is eroded, all is lost: The
    public trust. And sooner or later, high poll numbers will
    tumble, as they always do. We have seen them do it before.
        Don't read the polls, I say to my colleagues, so
    assiduously, read the Constitution--which I hold in my hand.
    Read the Constitution. I say to the Administration, I say to
    the executive branch, read the Constitution. Don't be so
    enamored with the polls. They are fleeting. Read the
    Constitution.
        This Administration's Chief Executive came into office
    touting himself as the first President to earn a master's
    degree in business Administration. That is certainly more than
    I have. He announced that he would run the White House like a
    modern-day corporation. Ha-ha-ha; watch out.
        To be fair, the President probably didn't realize at the
    time that he would be faced with the exposure of a corporate
    culture--not all his. The President probably didn't realize at
    the time that he would be faced with the exposure of a
    corporate culture which encouraged shoddy auditing, negligent
    or criminal management, and impudent and secretive corporate
    CEOs.
        In hiding its own actions from the public view, this
    Administration is fostering the same kind of arrogant, arrogant
    culture in which these corporate accounting scandals were
    allowed to flourish. This Administration would do well to take
    preventive measures to keep the nasty, nasty little seeds of
    arrogance and secrecy that have affected corporate America from
    taking root in the executive branch and threatening the
    public's trust.
        I close with a Biblical parable: Pride goeth before
    destruction, and the haughty spirit before a fall.
        I ask unanimous consent to have printed in the Record an
    article from today's Washington Post titled ``Bush Took Oil
    Firm's Loans as Director''; and an article from today's
    Washington Times titled ``Cheney named in fraud suit.''
        There being no objection, the material was ordered to be
    printed in the Record, as follows:

                   [From the Washington Post, July 11, 2002]

                     Bush Took Oil Firm's Loans as Director

                                (By Mike Allen)

        As a Texas businessman, President Bush took two low-
    interest loans from an oil company where he was a member of the
    board of directors, engaging in a practice he condemned this
    week in his plan to stem corporate abuse and accounting fraud.
        Bush accepted loans totaling $180,375 from Harken Energy
    Corp. in 1986 and 1988, according to Securities and Exchange
    Commission filings. Bush was a director of Harken from 1986 to
    1993, after he sold his failed oil and gas exploration concern
    to the company. He used the loans to buy Harken stock.
        Corporate loans to officers came under scrutiny after
    WorldCom Inc., the long-distance carrier that last month
    reported huge accounting irregularities, revealed it had lent
    nearly $400 million to Bernard J. Ebbers to buy the company's
    stock when he was chief executive. He resigned in April as the
    stock price tumbled.
        Bush attacked corporate loans during his speech on Wall
    Street on Tuesday, when he offered proposals to tighten the
    accountability of corporate executives while stopping short of
    the tougher measures headed toward passage in the Senate. ``I
    challenge compensation committees to put an end to all company
    loans to corporate officers,'' he said.
        A senior Administration official, briefing reporters on
    Bush's plan, said Tuesday that Bush wants public companies to
    ban loans to their officers, including directors. ``Corporate
    officers should not be able to treat a public company like
    their own personal bank,'' the official said.
        The contrast between Bush's record as a business executive
    and his rhetoric in the face of corporate scandals underscores
    the challenge his Administration faces in trying to credibly
    foster what he calls ``a new era of integrity in corporate
    America.''
        Bush was investigated by the SEC in 1991 for possible
    illegal insider trading, although the SEC did not take action
    against him, and he has admitted making several late
    disclosures to the agency, which regulates public companies.
        Harken's loans to Bush--at 5 percent interest, below the
    prime rate--were reported several times in filings to the SEC
    in the years before the debt was retired in 1993 and were noted
    in news accounts at the time. The loans were for the purchase
    of Harken stock, which was then held as collateral.
        Rajesh K. Aggarwal, a Dartmouth College professor who
    specializes in executive compensation and incentives, said such
    loans ``are not unique, but are by no means widespread.''
        White House communications director Dan Bartlett said
    Harken offered the loans to directors to buy shares in the
    company as part of an incentive for board members ``to have a
    long-term commitment with the company.'' Bartlett said the
    loans to Bush were ``totally appropriate--there was no
    wrongdoing there.''
        ``This is a common practice in small, medium and large
    companies,'' Bartlett said. ``These recent abuses of certain
    types of loans led the president to believe that the government
    should draw a bright line concerning loans going forward. This
    is one of the main things that undermined the confidence of
    investors and shareholders.''
        Bartlett said the loans were for $96,000 in 1986, for
    80,000 shares, and $84,375 in 1988, for 25,000 shares. He said
    that in 1993, Harken changed its compensation policies and
    discontinued the loan program. He said Harken converted to a
    program giving directors stock options, allowing them to buy
    stock later at a fixed price.
        Bartlett, asserting that Bush did not profit on the loans,
    said Bush traded the 105,000 shares being held as collateral
    for the loans, retiring his debt. Bush then received 42,503
    options under the new compensation plan, Bartlett said, The
    options were never exercised and expired after Bush left the
    board, Bartlett said.
        With adminsitration officials privately expressing concern
    about the impact of so much fresh attention to old questions
    about Bush's career, the White House yesterday distributed
    talking points headlined ``If you get asked about Harken'' to
    Bush loyalists who might be contacted by reporters. Bartlett
    said the fact sheets were sent to members of Congress after
    they asked for them.
        White House press secretary Ari Fleischer said aides to
    Bush have ``talked to the private accountants and private
    counsels who are involved in the president's private
    transactions'' while preparing answers to reporters' question
    during the growing debate over corporate responsibility.
        Vice President Cheney also is receiving unwanted attention
    to his corporate past. The SEC is investigating an accounting
    practice begun by Halliburton Co., the Dallas-based energy
    services company, when Cheney was chief executive before
    joining Bush's campaign ticket.
        Also yesterday, the White House refused to release records
    of Bush's service on Harken's board. Bush had pointed to those
    records during a news conference on Monday when asked about his
    role in the sale of a subsidiary. The transaction later was
    used by Harken to mask losses.
        ``You need to look back on the director's minutes,'' Bush
    said.
        Bartlett said the Administration does not have the minutes
    and does not plan to ask Harken for them. ``He personally would
    not have access to them,'' Bartlett said. ``These are company
    documents. I can't release something I don't have.''
        Harken has declined to release board records ever since
    questions about Bush's record on the board were raised during
    his first campaign for Texas governor, in 1994.
        Bartlett also said the White House would not accept a
    challenge by Senate Majority Leader Thomas A. Daschle (D-S.D.)
    on Sunday to ask the SEC to make public the records of its
    investigation into whether Bush had engaged in illegal insider
    trading of Harken stock.
        Daschle said on CBS's ``Face the Nation'' that Bush would
    do well to ask the SEC to release the file. ``We've had
    different explanations as to what actually occurred,'' Daschle
    said. ``I think that would clarify the matter a good deal.''
        Bartlett said Bush will not do that. ``Those are documents
    in the possession of an independent regulatory agency,''
    Bartlett said. ``I'm not in a position to call on them to do
    that. We've made available every relevant document we have in
    our possession.''
        Administration officials said they would take the same
    position about an SEC investigation that resulted in Harken's
    restating its earnings to show a $12.6 million loss for a
    quarter instead of an earlier reported loss of $3.3 million.
    Bush was a member of the board's audit committee.

                                   ----------

                   [From the Washington Times, July 11, 2002]

                           Cheney Named in Fraud Suit

                               (By Patrice Hill)

        Vice President Richard B. Cheney was named yesterday with
    the energy company he headed in a lawsuit by investors that
    cited bookkeeping practices under investigation by the
    Securities and Exchange Commission.
        The lawsuit arranged by Judicial Watch, a government
    watchdog group, charges that Halliburton Inc. overstated its
    revenue by $534 million between 1998 and the end of last year
    by illegally booking revenue from oil construction projects
    that were in dispute and had not been collected from its
    clients. The suit says the accounting fraud resulted in
    overvaluation of Halliburton's stock, deciving investors.
        Mr. Cheney was Halliburton's chief executive from 1995
    until August 2000, after he joined the Bush presidential
    campaign. The White House and Halliburton yesterday said the
    suit was without merit but both acknowledged that the SEC
    investigation is continuing.
        ``We are working dilgently with the SEC to resolve its
    questions regarding the company's accounting practices,'' said
    Doug Foshee, Halliburton's chief financial officer. The claims
    in this lawsuit are untrue, unsupported and unfounded.''
        SEC Chairman Harvey L. Pitt has vowed to pursue the
    investigation. ``We don't give anyone a pass,'' he told ABC's
    ``This Week'' on June 30. ``If anybody violates the law, we go
    after them.''
        President Bush on Tuesday called for stronger SEC
    enforcement and longer prison terms for corporate executives
    found guilty of the kind of accounting fraud charged in the
    lawsuit. The suit was filed in the U.S. District Court in
    Dallas, where Halliburton is based.
        A unified Senate approved harsh new penalties yesterday for
    corporate fraud and document shredding, adding enforcement
    teeth to Mr. Bush's plan to curb accounting scandals. In a
    series of unanimous votes, senators added the penalties to an
    accounting oversight bill moving toward passage.
        Also named as a defendant in the lawsuit is the Arthur
    Andersen firm, Halliburton's former auditor, which was fired in
    April after the accounting firm was charged with obstructing an
    SEC investigation of Enron Corp. Andersen was convicted of the
    obstruction charge last month and is no longer permitted to
    audit public companies.
        The suit says Andersen was a champion of ``aggressive''
    accounting tactics and masterminded the bookkeeping maneuvers
    that defrauded Halliburton investors.
        As evidence of Mr. Cheney's knowledge and approval of these
    maneuvers, the suit refers to his appearance in a promotional
    video for Andersen in which he said he got ``good advice'' from
    the firm, advice that went ``over and above just the normal by-
    the-books auditing arrangements.''
        The lawsuit cites a critical accounting change made by
    Halliburton and Andersen in late 1998. Halliburton was facing
    losses because of a recession in the oil industry and cost
    overruns on construction contracts in which the company had
    negotiated fixed, or lump-sum, payment plans.
        Before the accounting change, which was never formally
    disclosed to investors, Halliburton had booked the cost
    overruns as losses on such projects as long as they were in
    dispute and customers had not agreed to pay them.
        But starting in 1998, the company booked payment for the
    cost overruns as revenue if it believed the disputes would be
    resolved and the customers would pay the bills.
        As a result of this change, Halliburton showed a profit for
    several quarters in 1998 and 1999 when it otherwise would have
    posted losses, the suit charges. In some years, the disputed
    revenue appears to account for as much as half of the company's
    reported profits.
        ``Halliburton overstated profits that many American
    citizens relied upon,'' said Larry Klayman, chairman of
    Judicial Watch. ``That's fraudulent security practices, and it
    resulted in those Americans suffering huge losses.''
        The suit says Halliburton and Andersen violated securities
    laws when they did not disclose and justify the accounting
    change in a letter to investors. Halliburton's financial
    statements starting in 1998 do note, however, that it was
    booking uncollected revenue from cost overruns.

        Mr. Reid. Madam President, if the Senator will yield for a
    parliamentary inquiry.
        Mr. Byrd. Yes. I yield.
        Mr. Reid. The Senator was allocated 45 minutes. Of course,
    we have other time. We have an extra 15 minutes. It is my
    understanding there are 4 or 5 minutes left. Is that right?
        The Presiding Officer. There are 3\1/2\ minutes remaining.
        Mr. Reid. If the Senator so desires, we could also allocate
    15 minutes to the Senator from West Virginia if he has more to
    say.
        Mr. Byrd. Madam President, I thank the distinguished
    majority whip for his courtesies and generosity, and for his
    characteristic ways of helping his colleagues. I think I will
    let my remarks remain today as they are. I thank him.
        I yield the floor.
        Mr. Reid. Madam President, while there are a couple of
    minutes remaining of the Senator's time, I am sure the chairman
    of the committee joins with me in expressing our pleasure at
    being able to listen to such a profound statement which the
    Senator made. I think it again is what this is all about. By
    ``this,'' I am talking about the legislation.
        I talked with a friend of mine. We played football together
    as young men. He runs a company in Las Vegas. He said: Harry, I
    took all of my money out of the stock market. I will never
    invest in the stock market until something is done. He said: I
    am afraid. I said: We all feel that way.
        I think the Senator really condensed what is going on in
    corporate America. It needs to be changed, and hopefully this
    legislation will help that.
        Mr. Byrd. Madam President, let me express my gratitude to
    the distinguished Senator for his comments.
        And with respect to the manager of this legislation, let me
    state without any equivocation that this is one of the finest
    minds I have seen in the Senate. I have been here 44 years. I
    have seen the equivalent of the entire Senate come and go, and
    I have never seen a sharper intellect. I have seen some Sharp
    ones--John Pastore, Herman Talmadge, and there are others. I
    have never seen any sharper than that of Paul Sarbanes, in my
    judgment. I don't know a great deal about the intelligence
    quotients. I don't know what the high range is. I assume it
    could be 150, or 155, or 160--whatever it is. Paul Sarbanes is
    the brightest.
        Also, he has a way about him of not flaunting his intellect
    in front of others. Most of us--not because of that kind of
    intellect--have been inclined to speak more often--maybe too
    much, and perhaps I do already, but not because of that kind of
    intellect. But I salute the manager and commend that kind of
    intellect. He applies it. I watch him in the committees, and I
    watch him on the floor as he manages a bill. He is never a man
    to act in haste, or to be too rhetoric in haste. I admire his
    patience. He is plotting; he is studying; he is working; and he
    is extremely effective.
        When I was majority leader, there were certain Senators I
    would call into my office from time to time. I would try to
    pick their brains as to what we should do on this or that.
    Scoop Jackson was one. Paul Sarbanes is always there.
        Mr. Reid. Madam President, will the Senator yield for a
    comment?
        Mr. Byrd. Yes.
        Mr. Reid. What the Senator is saying is that the Rhodes
    Scholar Committee a number of years ago made a good choice in
    selecting Paul Sarbanes to be a Rhodes scholar. Is that what
    the Senator is saying?
        Mr. Byrd. I am saying exactly that. I am happy the
    distinguished Senator put it that way.
        This bill before the Senate is the product of that kind of
    mind, that kind of attention, and that kind of dedication.
        I hope we can pass this bill with an overwhelming vote,
    and, also in conference so that when put on the President's
    desk he can sign it. I am eager to support it in any way I can.
        Before I yield the floor, let me say that when we talk
    about intellect and sharp intellects, this man from Texas, Phil
    Gramm, is another. He is sharp. I have talked to my staff many
    times about that kind of intellect. He can talk about anything.
    He doesn't need a script. I have prided myself on working with
    him on several challenges, and I have found him to be fair and
    straightforward.
        I admire people--like these two--having that kind of sharp
    intellect.
        I was told by an old Baptist pastor, former chief chaplain
    in the Army during the war--I don't remember which war it was.
    But he always said: The mark of brilliance is to surround
    yourself with brilliant people.
        I am really proud to look around this Chamber and see
    people such as Paul Sarbanes and Phil Gramm. Sometimes I say
    that North Dakota has the highest overall quotient, perhaps of
    all, with its two Senators--Senators Conrad and Dorgan. I don't
    know whether they are Rhodes scholars or not. I am not a Rhodes
    scholar. I was not fortunate enough. I just barely made it by
    working at night for 10 years just to get a law degree. But
    these people make me proud to serve in this body.
        Let me yield to the Senator from Maryland.
        Mr. Sarbanes. Madam President, I thank the distinguished
    Senator for his extraordinarily generous remarks. I am very
    appreciative of them.
        I want to echo what the very able Senator from Nevada said
    about the Senator's eloquent address just a few minutes ago,
    which is reflective of the pattern that he has established--
    which is to go on the floor of the Senate and go to the very
    fundamentals of what our system is all about. His constant
    reference to the Constitution draws us back to those
    fundamentals. The Senator has always put before the Senate this
    broader and deeper vision of why we are here, what we ought to
    be doing, and calling us back to our basic principles as a
    Nation--right back to the Founding Fathers--as the Senator
    pointed out in his talk today. Important aspects of that are
    being challenged today in a very serious way.
        I echo what my colleague said and express my appreciation
    to the Senator from West Virginia.
        Mr. Byrd. Madam President, I thank the distinguished
    Senator. I am going to yield the floor.
        Before I yield it, I apologize to the distinguished Senator
    from Kentucky, Mr. McConnell. He is a Republican and I am a
    Democrat.
        I have been known to go down into Kentucky at his
    invitation and speak, and I value his friendship. I apologize
    to him for imposing on his time.
        Mr. Gramm. Before the Senator yields, if he would yield
    very briefly to me, I thank him for his very sweet comments. I
    am very happy to be named along with Paul Sarbanes. And someday
    when I am talking to my grandchildren about the fact that their
    grandpa actually was a pretty important guy in his day--though
    his mind, I am sure, at that point will have seemed to have
    largely slipped away--I will say: I got to serve with the great
    Robert C. Byrd.
        Mr. Byrd. I thank the Senator.

                               amendment no. 4200

        The Presiding Officer. The Senator from Kentucky will now
    be recognized for up to 45 minutes.
        Mr. McConnell. Thank you, Madam President.
        I rise to speak on behalf of the McConnell amendment which
    will be voted on sometime in the not too distant future. It is
    my understanding that my own colleague, Senator Enzi, may make
    a motion to table at the end of the debate. So let me, at the
    outset, say I support the Edwards-Enzi amendment.
        The second-degree amendment that is pending at the desk,
    which I will shortly discuss, does not, in any way, change or
    diminish the Edwards-Enzi amendment. I think it is a good idea.
    However, I think it simply does not go far enough.
        I also supported the Leahy amendment yesterday after my
    amendment to combat union fraud was defeated. I will continue
    to support responsible corporate accountability measures in
    this bill.
        My only point is, corporations do not have a monopoly on
    misconduct, deception, and fraud. As long as we are addressing
    professional misconduct, deception, and fraud, we ought to
    recognize this is a problem in our entire professional culture,
    not just in corporate culture. Let me repeat that. This is a
    problem in our entire professional culture, not just in
    corporate culture.
        I understand the mood at the moment is to beat up on
    corporations. And they deserve it. That is what the underlying
    bill is about. On the other hand, to ignore other areas of
    abuse, it seems to me, is to miss an opportunity to address the
    problem in a broader way.
        The Senator from North Carolina raises real problems with
    the ethics and conduct of corporate lawyers. I commend him for
    that. And I commend the Senator from Wyoming for that. But I
    have long sought to curb similar and well-documented abuses in
    the general practice of law, specifically in the case of
    personal injury law.
        Let me say at this point that the McConnell amendment
    applies only to Federal claims and Federal courts. We are
    talking here about Federal claims and Federal courts. My point
    in offering this amendment is not to obstruct but to extend and
    enhance our debate on professional conduct.
        We ought to set standards for corporate attorneys. I favor
    that. And we ought to set standards for personal injury lawyers
    as well. Corporations and corporate attorneys do not have a
    monopoly on misconduct. We are doing a real disservice to the
    American public if, during this important debate on
    professional misconduct, we turn a blind eye to abuses in our
    society that have been piling up way before--long before--
    Enron, WorldCom, and Global Crossing.
        All too often we hear stories about lawyers who take
    advantage of their clients by not informing them of the legal
    fees and costs those clients will incur. This sad practice
    results in consumers of legal services receiving next to
    nothing in personal injury and other claims.
        Let me recount the story of Diana Saxon. Ms. Saxon was a
    victim of, among other things, attempted forcible rape. The
    defendant was convicted, and Ms. Saxon brought a personal
    injury action against that defendant. The attorney she hired
    said the fee he was going to charge was 40 percent, plus costs.
        Ms. Saxon received an award of $25,000. Of that, per her
    agreement, $8,300 went to her lawyer in attorney's fees. But an
    additional $20,716 went to her lawyer for expenses. However,
    none of those costs was made known to Ms. Saxon during the
    course of the litigation. She was only informed of them after
    her case was concluded.
        Now, it gets even better--or, for Ms. Saxon's unfortunate
    situation, it gets worse. After her lawyer charged her his
    costs, she ended up owing her attorney $4,000--$4,000. That is
    right. For poor Ms. Saxon, she was actually left over $4,000 in
    the hole, in debt.
        Now, to be fair, Ms. Saxon's lawyer was actually
    magnanimous in that he waived a few costs and a small portion
    of his fee so that she was actually able to walk away with the
    princely sum of $833--$833.
        In his letter to her, where he agreed to offer her these
    few hundred dollars from her award of $25,000, he wrote:

        I'm agreeable to pay the sum of $833. This is the only
    money you will receive from your $25,000 settlement.

        So, in sum, even though Ms. Saxon's lawyer told her that
    the lawyer would get 40 percent of her award, plus costs, in
    reality, after including these costs, he got 96 percent--96
    percent--of her award. That is right, 96 cents on every dollar
    that Ms. Saxon received.
        We need to make sure that consumers of legal services are
    not duped by this type of inaccurate and incomplete
    information.
        Let me quote Ms. Saxon. She has put the problem better than
    I could. Here is what she had to say:

        This is not how our civil justice system is supposed to
    work. What happened to me should never happen to anyone again.
    You have a chance today to make a difference by passing a law
    to protect people from the kind of thing my attorney did to me.
    Had I known in advance or at some point along the way how
    little of my lawsuit was going to benefit anyone but my lawyer,
    I might have thought different about enduring 2 years of
    emotional trauma during the litigation.

        Summing up what she had to say: Had she had any idea how
    little of the money she might get, she might not have wanted to
    endure the trauma of this litigation for 2 long years.
        Now, Ms. Saxon, in a sense, was lucky in that at least her
    lawyer told her she would be liable for costs, although he
    obviously did not tell her the magnitude of the costs she was
    looking at and, thereby, completely misled her.
        But as these excerpts from the Yellow Pages here in the
    District of Columbia area phonebook indicate, some lawyers are
    not even that candid.
        So let's take a look at the first chart out of the DC
    phonebook. On this first chart, we have an ad with the big
    banner entitled ``AUTOMOBILE ACCIDENTS.'' There is a line
    almost as big--the fourth line down--proclaiming: ``No
    Recovery, No Legal Fees''--``No Recovery, No Legal Fees.'' It
    does not say anything about the cost the plaintiff is going to
    have to bear and, therefore, does not paint an accurate
    picture.
        Let's take a look at the second chart, again out of the DC
    phonebook. It has a big banner down the right side entitled
    ``PERSONAL INJURY.'' At the top is says: ``Personal Injury
    Lawyers Who Put You First.'' ``The Firm Boasts an All-Star
    Roster of Top Personal Injury [Lawyers].'' And it makes the
    point: ``No fee if no recovery.'' But, again, like the last ad,
    it does not mention at all anywhere in the ad--nowhere in all
    of this ad--that the client will be liable for costs.
        Let's take a look at chart No. 3. This ad is marginally--
    marginally--better. At the top of the ad there is a headline,
    in bold, saying: ``Legal Problems Require a Lawyer.''
    Obviously, legal problems require a lawyer. About midway down
    is a line item saying: ``Call me. I can help.'' ``Call me. I
    can help.'' And right below this line, another line says: ``No
    Legal Fee If No Recovery.'' In a little bit smaller print you
    will notice, ``No Legal Fee If No Recovery.'' But this lawyer,
    at least, to his credit, has an asterisk by this line. If you
    look very carefully, you see an asterisk; and way down here at
    the bottom of the ad, in minuscule print--which might require
    you getting your glasses adjusted or to get a magnifying
    glass--it says: ``Cost May Be Additional.''
        This lawyer at least gets credit in his ad for mentioning
    that there might be some cost, although you better have your
    glasses adjusted in order to find it.
        Chart No. 4 is a familiar pitch, that there be ``no legal
    fees unless recovery.'' This lawyer, to his credit, at least
    has it in print large enough to where you might actually see
    that line. But there is, of course, an asterisk; down here at
    the bottom, again, in tiny, minuscule print, ``Clients may be
    responsible for reasonable fees.''
        This lawyer, at least, gets some credit--be the print ever
    so small--for pointing out that there could be a cost involved,
    and maybe a careful client would see that in the ad.
        Chart No. 5, really my favorite one, it has a big banner at
    the top, ``accidents,'' all the way across the top. You
    wouldn't have any trouble missing that. Underneath, ``No legal
    fee if no recovery.'' Very enticing observation to an injured
    client, potential client, and there is an asterisk after it.
        Going to the bottom of the page, below the Visa and
    MasterCard logos, it says, ``excluding costs.'' That is about
    the smallest print on the ad. But a careful potential client
    might be able to find that there could conceivably be a cost
    attached to this.
        Frankly, I am not sure if this phrase means that costs are
    excluded and, therefore, you don't have to pay for these
    either, or if it means that costs are excluded from the
    exclusion, which means you do have to pay for them. A consumer
    of legal services should not be enticed by the prospect of free
    legal services, including what appears to be an exclusion of
    cost from the charges for which he is responsible.
        As I will shortly describe, the amendment I am offering
    would help prevent people from being duped by incomplete and
    misleading representations such as these. Let me repeat that
    the scope of my amendment is not every court in America but
    only applies to Federal claims and Federal courts.
        Shifting gears for a moment, we also hear stories of
    ambulance chasers who take advantage of grieving families when
    they are most vulnerable. For example, at the scene of a 1993
    collision between two commuter trains in Gary, IN, witnesses
    reported seeing lawyers' business cards being passed around at
    the scene of the accident. And the injured were being
    videotaped as they were removed on stretchers.
        After an August 1987 crash of a commercial airline flight
    in Detroit, a man posing as a Roman Catholic priest, Father
    John Irish, appeared at the scene to console families of the
    victims. He hugged crying mothers and talked with grieving
    fathers of God's rewards in the hereafter. Then he would hand
    them the business card of a Florida attorney, urging them to
    call the lawyer, and then the father would disappear.
        We should make sure that misleading ads and shameless
    ambulance chasing do not occur. I propose a clients' bill of
    rights for consumers of legal services. We have talked a lot in
    recent years about a Patients' Bill of Rights to make sure
    patients are treated properly by health maintenance
    organizations. We need a clients' bill of rights to make sure
    consumers of legal services are treated fairly.
        This clients' bill of rights would do two things. The first
    thing it would do is require consumers of legal services to
    receive basic information at the beginning, during the course,
    and at the end of the case so that all along the way the
    client, the consumer of legal services, has a clear
    understanding of what the financial relationship is between the
    lawyer and the client.
        As the old saying goes: Knowledge is power. My amendment
    empowers consumers by giving them the knowledge they need to
    make informed decisions about their legal representation. As I
    pointed out earlier in one of my examples, there was a lady who
    had no earthly idea, because of not receiving proper
    information about the extent of the cost that could be involved
    in her case, that after getting a $25,000 settlement she would
    essentially get nothing. The lawyer then benevolently gave her
    $833.
        So clients need information all along the way to make
    informed decisions about legal representation.
        At the initial meeting before they are retained, under the
    McConnell amendment, attorneys would have to provide would-be
    clients with the following things--and this is not
    unreasonable; it's elementary justice--No. 1, the estimated
    number of hours that will be spent on the case; No. 2, the
    hourly fee or the contingent fee that will be charged; No. 3,
    very importantly, the probability of a successful outcome;
    next, the estimated recovery reasonably expected; next, the
    estimated cost or expenses the plaintiffs will bear; and
    whether a client will be subject to fee arrangements with other
    lawyers.
        This is elementary consumer protection. Let me say to my
    friends in the Senate who are close to and allied with the
    plaintiffs' lawyers in America: We are not talking about
    capping anybody's fees. This is not about capping fees. The fee
    arrangement could still be whatever astronomical amount the
    lawyer believes he can charge. But we are talking about
    providing basic information to the client so the client can
    understand what the fee arrangement is going to be. There are
    no fee caps in this amendment.
        Monthly statements: My amendment would also require lawyers
    to provide their clients with monthly statements so that
    consumers of legal services will be informed on a regular basis
    of the basic progress of their case. Specifically, the lawyers
    would have to tell clients how much time they are expending on
    their case, what they are spending their time doing, and what
    expenses they are incurring in the case. Again, this is basic
    information clients should receive so they know how their case
    is progressing and how in essence their money is being spent.
        Then an accounting at the end of the case: Clients should
    receive basic information at the end of the case so they know
    exactly what they paid for during their representation. To this
    end, my amendment provides that within 30 days after the end of
    the case, attorneys shall provide clients with the number of
    hours expended; the amount of expenses to be charged; the total
    hourly fee or the total contingency fee in a contingency fee
    case; the effective hourly fee charged, which would be
    determined by dividing the total contingency fee by the total
    number of hours expended.
        Again, this is elementary, reasonable information, no fee
    caps, just providing reasonable information to the client at
    the end of the case so they can understand just what the legal
    services have provided.
        Madam President, in the age of disclosure, I cannot believe
    that my colleagues would not support some basic disclosures
    that the first part of my amendment would provide. It does not
    limit--I say again--attorney's fees in any regard. There are no
    fee caps of any sort in this amendment. Frankly, I would like
    to see that. We have had fee caps under the Federal Tort Claims
    Act for years, and I am told there is no dearth of lawyers
    prepared to bring tort claims against the United States. But
    there are not any fee caps in this legislation. That is
    something a large number of Members of the Senate do not
    support. The first part of my amendment simply enables
    consumers of legal services to make informed choices.
        The second thing my amendment does is establish a
    bereavement rule. A bereavement rule means the provision for a
    period of mourning, or a period of bereavement, during which
    lawyers would have to be respectful of injured victims or their
    families. As I mentioned, this provision is important because
    there are disturbing stories of ambulance-chasing lawyers who
    prey upon victims and their families when these people are the
    most vulnerable.
        To address this problem, my amendment simply provides that
    there will be no unsolicited communication by lawyers to
    victims, or to their families, regarding an action for personal
    injury, or wrongful death, for 45 days from the date of death
    or personal injury--just 45 days to give the victims, or their
    families, an opportunity to begin to get their feet back under
    them before they start considering which lawyer, if any, they
    want to retain to pursue the legal action to which they may be
    entitled.
        Let me repeat. This amendment applies only to unsolicited
    communications. If the victims or their families are feeling
    like it 2 days after the event, they are certainly free to call
    whomever they choose. This only applies to unsolicited
    communications to victims or their families. Injured parties
    and their families are free to contact whomever they want
    whenever they want.
        Madam President, there is precedent for this respectful,
    considerate principle in existing Federal law. In 1996, we
    passed legislation that prohibited lawyers from engaging in
    unsolicited communications for 30 days following an airline
    disaster. Let me say it again. There is precedent for a
    bereavement rule already in Federal law. In 1996, we passed
    legislation that prohibited lawyers from engaging in
    unsolicited communications for 30 days following an airline
    disaster. Just 2 years ago, in 2000, we extended this
    prohibition to 45 days from the date of an airline crash. That
    prohibition is codified at 49 U.S.C. section 1136(g)(2).
        The point I am making here is that there is precedent in
    Federal law already for a bereavement rule, and this simply
    expands upon that preference and provides this protection for
    additional victims during a period of mourning.
        Madam President, someone who has been killed or injured in
    a train crash or a shipping accident is just as dead, or just
    as injured, as someone who is killed or injured in an airline
    crash. These victims and their families deserve the same type
    of respect and consideration. All these types of victims and
    their families are in a vulnerable state where it is easy for
    them to be pressured or taken advantage of.
        The second part of my amendment would afford victims of
    other tragedies the same protection that we afford victims of
    airline disasters. The language in my amendment that we used to
    do so is virtually identical to current Federal law. It would
    guarantee these people a reasonable period of time to grieve,
    collect their thoughts, and to think clearly about what action
    they want to take and who they want to take such action on
    their behalf.
        As I said, there is current precedent for it in Federal
    law, and I hope my colleagues will support it, along with the
    disclosure provisions in my amendment.
        Madam President, what is the time situation?
        The Presiding Officer. The Senator has 20 minutes
    remaining.
        Mr. McConnell. Madam President, let me sum up what the
    McConnell amendment is. There are essentially two parts to it.
    First, it would require that lawyers provide to their clients
    all along the way, from initially being retained until the
    conclusion of the case, adequate consumer protection
    information so the clients will have a sense at every stage of
    the case how the case is moving along, what the likelihood of
    success is and, very importantly, what kind of costs the client
    may be incurring in the course of the litigation.
        Secondly, we provide for a bereavement rule of 45 days to
    give the victims and their families an opportunity to get back
    on their feet during an atmosphere in which unsolicited efforts
    to retain these victims are put off. If, however, the family at
    any point during that 45-day period decides it is ready to move
    on and wants to look at its legal options, there is nothing in
    the amendment that would prevent the victim or victim's
    families from retaining a lawyer at any time. All this does is
    protect them from unwanted solicitations for a brief period of
    45 days following the occurrence of the event.
        As I pointed out, there is already precedent in Federal law
    for such a bereavement period of 45 days. That applies in the
    wake of airline disasters.
        Finally, let me repeat this because I know this is
    something that is offensive to many Members of the Senate,
    particularly on the other side of the aisle. As much as I would
    like to see fee caps established, this amendment has no fee
    caps in it. Even though, under the Federal Tort Claims Act,
    since the late 1940s, we have had a fee cap of 25 percent in
    tort actions against the Federal Government, no such fee cap is
    in this amendment.
        So I think this is a modest proposal to provide consumer
    protection to victims of accidents as they contemplate their
    futures and determine, first, which lawyer to hire, and after
    hiring the lawyer, have adequate information along the way to
    make sure they understand what the fee arrangement is.
        I yield the floor and retain the remainder of my time and
    now urge--and I will also do so later--the Senate to adopt this
    amendment.
        The Presiding Officer (Mrs. Clinton). Who yields time?
        Mr. Sarbanes. Madam President, can I inquire as to what the
    allocation of time is? Let me make a parliamentary inquiry. I
    understand the vote on a motion to table that will be offered
    by Senator Enzi is scheduled to take place at 12:45.
        The Presiding Officer. That is correct.
        Mr. Sarbanes. Can the Chair inform us as to the allocation
    of time from now until quarter to 1?
        The Presiding Officer. The unanimous consent agreement
    provided that the time between the conclusion of Senator
    McConnell's remarks and the 12:45 p.m. vote will be evenly
    divided between Senators Gramm and Sarbanes, and Senator
    McConnell has a remaining amount of time of 16 minutes.
        Mr. Sarbanes. Sixteen minutes?
        The Presiding Officer. That is correct.
        Mr. McConnell. Madam President, is it the Senator's thought
    we move up the vote?
        Mr. Sarbanes. Staff has made an announcement, and people
    have planned accordingly. I understand that is the situation on
    both sides of the aisle for that matter. It was announced
    earlier on. People, therefore, made plans accordingly.
        The Presiding Officer. If Senator McConnell used all of his
    remaining time, each side would have approximately 10 minutes.
        Mr. McConnell. I say to my friend from Maryland, I will be
    happy to hear from the other side on the amendment. I am
    reluctant to yield back my time until I know the extent of the
    debate in which we are going to engage. In any event, the vote,
    Madam President, occurs at quarter to 1?
        The Presiding Officer. That is correct.
        Mr. McConnell. I retain the remainder of my time until such
    time we decide otherwise. I have not heard from the other side.
        Mr. Sarbanes. As I understand the agreement, I do not think
    others can use time until the Senator from Kentucky uses his
    time.
        The Presiding Officer. That is the Chair's understanding.
        Mr. McConnell. I suggest we divide the remainder of the
    time between now and the vote. Will that be acceptable?
        The Presiding Officer. Is there objection?
        Mr. Sarbanes. I ask unanimous consent that the remaining
    time between now and quarter of 1 be divided equally to the
    manager of the bill, to Senator Enzi, and to Senator McConnell.
    That will give us about 10 minutes each, I think.
        The Presiding Officer. Without objection, it is so ordered.
        The Senator from Maryland.
        Mr. Sarbanes. Madam President, I will speak briefly to the
    McConnell amendment which has been added as a second-degree
    amendment to the Edwards-Enzi amendment. Before I address that
    amendment itself, let me again indicate my very strong support
    for the underlying first-degree amendment, the Edwards-Enzi
    amendment, which was very carefully worked out and I believe
    represents a constructive suggestion. I am hopeful we can get
    to that amendment and have a vote on it sometime in the near
    future.
        Obviously, the way things are now structured, we have to
    dispose of the McConnell second-degree amendment in order to
    get to the Edwards-Enzi amendment, but I think the Edwards-Enzi
    amendment warrants both the attention and the support of this
    body. I hope at some point we will be able to do that.
        I am not going to address the substance of the McConnell
    amendment, or perhaps I will discuss it only in passing. I
    simply wish to observe that it is not relevant to this bill. It
    is talking about a client's bill of rights which may or may not
    be a worthy subject to examine.
        How we regulate the lawyers is a complicated problem,
    obviously. It has mostly been done at the State level. The
    Senator from Kentucky has some sweeping proposals on a national
    basis, and they may warrant examination, but I certainly do not
    think they warrant coming into this debate on a very different
    issue. I do not know that there has been any study of it. I do
    not think this represents the recommendation or the report of
    any committee that is putting this forward, having undertaken
    an appropriate series of hearings in order to examine the
    subject. I have not had the benefit of testimony from the
    proponents and opponents. In fact, if the Senator from Kentucky
    will yield for a question, has a committee of the Senate
    recommended anything like this?
        Mr. McConnell. I say to my friend from Maryland, no
    committee of the Senate recommended the energy bill on which we
    spent 6 weeks in the Senate, and the majority leader has
    bypassed committees consistently throughout the last year. So I
    do not know that the Senate was constrained in any way----
        Mr. Sarbanes. It may be a response to say to me it was done
    somewhere else. I have a very specific question: Has a
    committee of the Senate recommended this proposal?
        Mr. McConnell. I would like to provide my own answer. If
    the Senator is asking for an answer from the Senator from
    Kentucky, I would like to be able to express myself, if that is
    OK with the Senator from Maryland.
        Mr. Sarbanes. The Senator from Kentucky is very skilled. I
    watched him on these television programs. I know he is very
    good when the question is put to him to give the answer he
    wants to give, even though it is not directed to the question.
    Obviously, I will have to go through that same experience on
    the floor of the Senate now.
        Mr. McConnell. I thank my friend from Maryland for his
    compliment and respond, as with many other bills over the last
    year that we dealt with on the floor of the Senate, it has not
    been reported by a committee. But many worthwhile ideas have
    been adopted and made a part of law that have been recommended
    by both Democratic and Republican Senators that, in the years
    my friend and I have been here, were not officially reported
    out of a committee.
        Mr. Sarbanes. Have any hearings been held on these
    proposals--the bereavement period and the fees proposal? Have
    hearings been held on those issues?
        Mr. McConnell. I am unaware of any hearings to that effect,
    but I ask my friend from Maryland why he thinks something as
    elementary as this, something as obviously as fair as this, and
    in the case of the bereavement rule, which we adopted in
    Federal law for families and victims of airline crashes, would
    not be an appropriate thing to do with or without hearings?
        Mr. Sarbanes. It seems to me there are complicated issues
    that are raised by Senator McConnell's proposal, and they
    certainly should have been preceded by hearings in which the
    pros and cons could have been carefully examined.
        Madam President, I reiterate my point, this amendment is
    not relevant to the issue before us. It does not come to us on
    the basis of any hearings that back up or buttress the
    proposal. It has not worked through any committee. It certainly
    has not been recommended by any committee, and there have not
    even been any hearings, as I understand it, by any committee.
        At the appropriate time, I will be very strongly supportive
    of the motion to table that will be offered by the able Senator
    from Wyoming. This is, of course, the second McConnell second-
    degree amendment we have had to deal with on this legislation.
        I hope the Senator from Kentucky does not view this as a
    kind of fair hunting game to bring forth at each step along the
    way, whenever there is an opening for a second-degree
    amendment, whatever sort of pet project he has been harboring
    in his office for whatever period of time.
        I reserve the remainder of my time.
        The Presiding Officer. The Senator from Kentucky.
        Mr. McConnell. I yield myself some of my time to respond to
    my friend from Maryland.
        As I listened carefully to my friend from Maryland, he is
    straining to think of a good argument against this worthwhile
    amendment. It has been my experience over the years in the
    Senate that when we start saying there has been no committee
    action, there have been no hearings, we are having a hard time
    thinking of a good argument against the proposal on the merits.
        So let me repeat again what the merits are. It seems to me
    we do not need committee hearings or committee action to
    convince us that a 45-day bereavement rule for victims and
    their families, which we have already adopted in Federal law
    for victims and families of plane crashes--we do not need
    committee action to tell us this is a fundamentally appropriate
    thing to do.
        Do we need hearings and committee action to tell us that in
    Federal claims and in Federal cases it is appropriate and only
    right that lawyers provide information to their clients at the
    beginning, during, and at the end of their handling of the case
    as to the possible costs involved? That is what is before us,
    not the issue of whether or not we should have hearings on this
    or whether or not the committee should act. My goodness, we
    spent 6 weeks on an energy bill that the committee did not pass
    out of the Energy Committee. We do that frequently. The Senate
    is not known to be constrained by tight rules of germaneness,
    nor by official committee action.
        So I urge my colleagues to look at the amendment itself,
    not these rather extraneous arguments seeking to divert our
    attention away from what the amendment itself provides, which
    is protections for consumers of legal services.
        I reserve the remainder of my time.
        The Presiding Officer. The Senator from Maryland.
        Mr. Sarbanes. Madam President, on the energy analysis, I
    simply point out that the Energy Committee held extended
    hearings over a long period of time on the energy issue. Then,
    they did not actually evolve a bill, but they had a very full
    set of hearings and a lot of recommendations available to be
    included in an energy package.
        On the other, I say to my colleague, I forbore from
    discussing the substance because I did not want to prejudice
    the Senator on some future occasion by having to go
    substantively into the weaknesses and deficiencies of the
    proposal that is before us. Since the time is limited and that
    would take quite a while to do, I intend to continue to do that
    out of a sense of consideration to my colleague because
    presumably, if this amendment is tabled, he will be back
    visiting with us on another day, perhaps on an appropriate
    vehicle. I do not know. One would have to wait and see whether
    that would be realized.
        Out of some deference of respect for my friend from
    Kentucky, I simply thought I would not undertake to go into
    this point by point on the substance because it is really not
    appropriate. We ought to recognize that and go ahead and table
    the amendment, and maybe when it finally comes up in an
    appropriate context, we can then address its substantive
    weaknesses or strengths. Perhaps at that time it would have
    evolved into a different animal.
        I reserve the remainder of my time.
        The Presiding Officer. Who yields time?
        The Senator from Wyoming.
        Mr. Enzi. Madam President, I yield myself such time as I
    may consume. At 12:45, I will be making a motion to table the
    McConnell second-degree amendment to amendment No. 4200. We are
    working on a bill that I have spent hundreds of hours on, part
    of them in hearings, much of the time in drafting my own
    legislation, then working with Senator Gramm to come up with an
    even better bill, and then working with Senator Sarbanes to
    come up with the bill we have before us.
        There is a crisis in the stock market. Two days ago, it
    dropped by 185 points. Yesterday, it dropped by 285 points.
    Some suggest that is because Congress is working on this issue
    and it is scaring the heck out of the people of the United
    States. I hope that is not the case. I hope it is a sign that
    they do want to have a solution, and they want to have a
    solution quickly. We do have the solution that, combined with
    the House bill, can serve the purpose of restoring the
    confidence of American investors.
        The McConnell amendment is a clients' bill of rights to
    reform the way attorneys treat their clients. It is not about
    securities and exchange. It is all about attorneys. Senator
    Edwards and I modified our amendment so it applies only to
    action before the Securities and Exchange Commission. That was
    so that if this debate draws out with multiple second-degree
    amendments well beyond the time we have the cloture vote, our
    amendment will still be germane.
        A standard that the Senator from Texas, Mr. Gramm, has put
    on amendments is that they be germane. He did an extensive
    speech last night about the need to do germane amendments and
    get this finished.
        This amendment is good and well intended. It requires
    attorneys to do a number of things in representing those who
    put their trust in attorneys' hands, and this includes
    requiring attorneys to provide written disclosure to their
    clients on the number of hours that will be spent on their
    case, the attorney's hourly or contingent fee, the probability
    of successful outcome, estimated recovery of costs, and
    bereavement.
        Under normal circumstances, I probably would be very
    excited about this bill. The reason I am opposing it is simply
    because it does not have anyplace in the accounting reform bill
    that we are debating today. I realize it does not change
    anything in my amendment. It is not a substitute amendment, but
    it is an addition that will cause problems further down the
    road. It will delay actually getting accounting reform into
    place. The accounting reform bill is being used as a vehicle to
    provide a free ride for a nongermane, unrelated amendment. I
    will probably use that same line again on a number of other
    amendments that come up later--it is nongermane.
        The McConnell amendment needs to hitchhike on a different
    road with a different vehicle at a different time.
        Over several months, I and my esteemed colleagues on both
    sides of this aisle have worked hard on the accounting reform
    bill. We have worked hard to keep out surplus, nonrelevant
    issues so we can get through the process of getting accounting
    legislation through in a timely fashion and in a bipartisan
    manner. We have been very successful at keeping out exact
    amendments even that deal with how to do accounting and have
    set up a process where people who are knowledgeable on that can
    figure out the right way to do it and the right way to do it
    faster than before.
        I strongly believe this bill cannot afford to be held up
    any longer just for Members on both sides of the aisle to score
    political points on hot button issues. A lot of us have pet
    projects and issues we would have liked to add on, but we
    resisted and we encouraged our colleagues on the Banking
    Committee to do the same thing.
        We are now in the amendment process, but amendments should
    be germane to the contents of the underlying bill and
    amendment. That is not a requirement until after cloture, but
    we need to get the bill done. There is no reason we even need
    to go to cloture if we would get the germane amendments done
    and get this into a conference committee so we can get the work
    done.
        The McConnell second-degree amendment, while well intended,
    is not germane. It does not deal solely with securities laws or
    those attorneys appearing and practicing before the SEC. It
    does not deal solely with attorneys working for publicly traded
    companies but to any attorney and any client practicing any
    form of Federal law. It does not deal with an attorney's
    professional responsibilities of reporting Federal securities
    law violations to its corporate client. It is much broader than
    the underlying amendment which does deal strictly with Federal
    securities laws, attorneys appearing and practicing before the
    SEC, and internal reporting by an attorney within a publicly
    traded company.
        In addition, the McConnell amendment is going to require
    study and debate, meaning more time spent diverting passage of
    the much needed accounting reform bill. We are running out of
    time before the next recess and have several important bills
    yet to consider, including Homeland Security Department
    legislation.
        While the McConnell amendment is well intended, the timing
    is simply wrong. I respect my colleague from Kentucky and his
    constant support and earnest effort to make attorneys play it
    straight with their clients. But I must respectfully oppose
    this amendment at this time. I hope we will be able to debate
    and vote on it on another day. When the time is appropriate
    under the agreement, I will make a motion to table the
    amendment.
        I yield the floor, and I reserve the remainder of my time.
        The Presiding Officer. The Senator from Kentucky.
        Mr. McConnell. Madam President, let me say first with
    regard to whether this is appropriate to be added to this bill,
    the ranking member of the Banking Committee, the manager of the
    bill on this side, supports my amendment. Obviously, it is not
    his view that this is in any way inappropriate for this
    legislation.
        I also say to my good friend from Wyoming, this will not
    slow down the bill. This amendment will be voted on at 12:45.
    There is a time agreement on it. We certainly are not in any
    way trying to slow down the passage of the underlying bill
    which I fully expect to support.
        The issue is whether we are only interested in corporate
    defense counsel misbehavior. Why are we only interested in
    corporate defense counsel misbehavior? My amendment applies to
    the other side, the plaintiff 's side. It would apply to cases,
    for example, brought under the Federal Employers Liability Act,
    which governs injury and wrongful death actions against
    railroads in interstate commerce by railroad workers and their
    families. It would apply to cases brought under the Longshore
    and Harbor Workers Compensation Act, which establishes no-fault
    compensation for employees injured on navigable rivers. And it
    would apply to plaintiffs bringing action under the Price
    Anderson Act amendments of 1998, which creates a Federal cause
    of action for nuclear accidents. It would also apply to the
    Federal Tort Claims Act, which creates Federal causes of action
    for tort claims against the U.S. Government. It would apply to
    lawyers representing clients bringing cases under the Public
    Health Service Act, which are suits against certain Federally
    supported health centers and their employees brought under the
    Federal Tort Claims Act. And finally, it would apply to lawyers
    representing clients bringing actions under part of Federal
    law, very important in my State, the Black Lung Benefits Act of
    1972, which establishes a compensation scheme for coal miners
    allegedly suffering from blank lung disease and survivors of
    miners who died from or were totally disabled by the disease.
        Let me sum it up again: it is not my intent to slow the
    bill down. This amendment will be voted on at 12:45, so it
    clearly is not slowing anything down. It seems to me entirely
    consistent with the underlying amendment dealing with corporate
    defense counsel misbehavior to also address the question of a
    plaintiff 's lawyer's misbehavior.
        Beyond that, we are talking simply about providing
    consumers of legal services with basic information, at the
    beginning, during, and at the end of a lawsuit, and a modest
    45-day bereavement rule giving the victims and their families a
    chance to get back on their feet before they are contacted by
    lawyers seeking to represent them in court. It would not in any
    way prevent families from contacting a lawyer during that time
    but would protect them from unwarranted solicitation of legal
    services for a mere 45 days.
        This is a very modest proposal. I would love to go a lot
    further. I like the fee caps in the Federal Tort Claims Act.
    That is not what we have offered. That is not what I offered.
    There is no impact on fees, no caps on damages. This is
    strictly consumer protection in the area of legal services. It
    is a very modest proposal which I hope the Senate will adopt
    when we vote on it at 12:45.
        I reserve the remainder of my time.
        The Presiding Officer. The Senator from Wyoming.
        Mr. Enzi. Madam President, I will give a little explanation
    for the point raised that this particular bill--because a time
    has been set for the vote--will not hold things up. There are
    about 60 amendments out there; there are probably 10 that
    actually deal with what is in the bill. There has to be some
    point where we have to ask, can we not concentrate on what is
    in the bill instead of bringing up the other things? I am sorry
    that yours is the bill on which we are starting that.
        Mr. McConnell. Will the Senator yield?
        Mr. Enzi. Sure.
        Mr. McConnell. It was my understanding that cloture was
    filed last night. Would my friend from Wyoming not agree, that
    cloture vote brings the bill to a conclusion? I am not in any
    way trying to delay the passage of the bill. I support the
    underlying bill. I believe my amendment is appropriate to be
    considered.
        Mr. Sarbanes. Will the Senator yield?
        Mr. Enzi. Yes.
        Mr. Sarbanes. Actually, I will use my own time, and the
    Senator may reserve his time.
        We must table this amendment. Otherwise, it becomes an
    invitation for others to come in and offer second-degree
    amendments that are not relevant to the bill. This amendment is
    not relevant to the bill--nowhere close. If we start this
    process now, opening up the bill to these nonrelevant
    amendments, what will happen to the relevant amendments, some
    of which are germane under cloture and others of which might
    miss the tight test of germaneness but are relevant material,
    which are pending, which other colleagues have offered, if they
    want to get to those amendments?
        We could have done the Edwards amendment yesterday and
    moved on to something else, but we came in with a second-degree
    amendment, not relevant--not only not relevant to the Edwards
    amendment, not relevant to the bill.
        Frankly, we are well beyond the point where we at least
    ought to set aside amendments that have no relevance to the
    underlying legislation.
        Mr. McConnell. Will the Senator yield?
        Mr. Sarbanes. Certainly, I yield.
        Mr. McConnell. I ask my friend from Maryland, if he
    believes my amendment may have some merit, whether he would
    support taking it up as a freestanding measure with a time
    agreement.
        Mr. Sarbanes. No, I would not support that.
        Mr. McConnell. I thank the Senator.
        Mr. Sarbanes. Why would I support a request like that?
    Surely the Senator from Kentucky is just making a joke on the
    floor of the Senate by making that inquiry. That must be
    apparent to all. I appreciate the Senator's sense of humor in
    that regard. I also appreciate his indication, just a moment or
    two ago, he intends to support the underlying bill. Of course,
    we are gratified to hear that.
        I yield the floor and reserve whatever time I may have
    left.
        What is the time situation?
        The Presiding Officer. The Senator has 33 seconds, Senator
    McConnell has 4 minutes 38 seconds, and the Senator from
    Wyoming has 3 minutes.
        Who yields time?
        The Presiding Officer. The Senator from Kentucky.
        Mr. McConnell. It was my understanding that Senator
    Santorum was on the way. But if he has not arrived yet, I
    suppose the best thing to do would be to enter a quorum call
    knowing full well my time is running.
        I suggest the absence of a quorum.
        The Presiding Officer. The clerk will call the roll.
        The bill clerk proceeded to call the roll.
        Mr. Reid. Madam President, I ask unanimous consent the
    order for the quorum call be rescinded.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Reid. Madam President, I will alert Members we are
    going to have a vote later. The two members of the
    Appropriations Committee have finally gotten a meeting with the
    House appropriators on the supplemental appropriations bill. I
    think it would be in everyone's best interest that they are
    allowed to go forward with that most important meeting.
        We received a request from the chairman of the
    Appropriations Committee, Senator Byrd. Therefore, I ask
    unanimous consent that the order that is now in effect be
    modified and that Senator Enzi would be recognized at 2 p.m. to
    move to table the amendment, and that 8 minutes prior to that
    would be devoted to debate between the two managers of the
    bill, Senator Sarbanes and Senator Gramm, and that Senator Enzi
    would be recognized for 2 minutes, and Senator McConnell for 2
    minutes--a total of 8 minutes. All other provisions of the
    unanimous consent agreement now in effect would remain the way
    they are.
        The Presiding Officer. Is there objection?
        Without objection, it is so ordered.
        Mr. Reid. Madam President, the vote will occur at 2 o'clock
    today. In the meantime, I ask there be a period from now until
    then for morning business, with the time equally divided
    between Senator Daschle or his designee or Senator Lott or his
    designee.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Reid. I suggest the absence of a quorum, and I ask the
    time be charged equally between Senator Daschle and Senator
    Lott.
        The Presiding Officer. Without objection, it is so ordered.
    The clerk will call the roll.
        The bill clerk proceeded to call the roll.
        Mrs. Clinton. Mr. President, I ask unanimous consent that
    the order for the quorum call be rescinded.
        The Presiding Officer (Mr. Miller). Without objection, it
    is so ordered.

            VOLUME 148, THURSDAY, JULY 11, 2002, NUMBER 93,
                          PAGES [S6620-S6633]

     Public Company Accounting Reform and Investor Protection Act of 2002--
                                   Continued

                               amendment no. 4200

        The Presiding Officer (Mr. Carper). The question is on
    agreeing to the motion to table amendment No. 4200. The yeas
    and nays have been ordered. The clerk will call the roll.
        The legislative clerk called the roll.
        Mr. Nickles. I announce that the Senator from North
    Carolina (Mr. Helms), the Senator from Ohio (Mr. Voinovich),
    and the Senator from Idaho (Mr. Crapo) are necessarily absent.
        I further announce that if present and voting the Senator
    from North Carolina (Mr. Helms) would vote ``no.''
        The Presiding Officer. Are there any other Senators in the
    Chamber desiring to vote?
        The result was announced--yeas 62, nays 35, as follows:
                          (Rollcall Vote No. 172 Leg.)
        Yeas--62: Akaka, Allen, Baucus, Bayh, Biden, Bingaman, Boxer,
    Breaux, Byrd, Cantwell, Carnahan, Carper, Chafee, Cleland, Clinton,
    Collins, Conrad, Corzine, Daschle, Dayton, Dodd, Dorgan, Durbin,
    Edwards, Enzi, Feingold, Feinstein, Graham, Hagel, Harkin, Hollings,
    Inouye, Jeffords, Johnson, Kennedy, Kerry, Kohl, Landrieu, Leahy,
    Levin, Lieberman, Lincoln, McCain, Mikulski, Miller, Murray, Nelson
    (FL), Nelson (NE), Reed, Reid, Rockefeller, Sarbanes, Schumer, Shelby,
    Snowe, Specter, Stabenow, Thompson, Torricelli, Warner, Wellstone,
    Wyden
        Nays--35: Allard, Bennett, Bond, Brownback, Bunning, Burns,
    Campbell, Cochran, Craig, DeWine, Domenici, Ensign, Fitzgerald, Frist,
    Gramm, Grassley, Gregg, Hatch, Hutchinson, Hutchison, Inhofe, Kyl,
    Lott, Lugar, McConnell, Murkowski, Nickles, Roberts, Santorum,
    Sessions, Smith (NH), Smith (OR), Stevens, Thomas, Thurmond
        Not Voting--3: Crapo, Helms, Voinovich

        The motion was agreed to.
        Mr. Sarbanes. I move to reconsider the vote.
        Mr. Daschle. I move to lay that motion on the table.
        The motion to lay on the table was agreed to.
        The Presiding Officer. The majority leader.

                    AMENDMENT NO. 4269 TO AMENDMENT NO. 4187

    (Purpose: To address procedures for banning certain individuals from
        serving as officers or directors of publicly traded companies,
        civil money penalties, obtaining financial records, broadened
        enforcement authority, and forfeiture of bonuses and profits)

        Mr. Daschle. Mr. President, I have an amendment I send to
    the desk on behalf of Senator Levin.
        The Presiding Officer. The clerk will report.
        The assistant legislative clerk read as follows:

        The Senator from South Dakota [Mr. Daschle], for Mr. Levin,
    for himself, Mr. Nelson of Florida, Mr. Harkin, Mr. Corzine,
    and Mr. Biden, proposes an amendment numbered 4269.

        Mr. Daschle. Mr. President, I ask unanimous consent reading
    of the amendment be dispensed with.
        The Presiding Officer. Without objection, it is so ordered.
        (The amendment is printed in today's Record under ``Text of
    Amendments.'')
        Mr. Daschle. I yield the floor.
        The Presiding Officer. The Senator from Michigan.
        Mr. Levin. Mr. President, this amendment is offered--and I
    thank the majority leader--on behalf of myself, Senator Bill
    Nelson, Senator Harkin, Senator Corzine, and Senator Biden.
        Our amendment would grant the SEC administrative authority
    to impose civil fines on persons who violate securities laws,
    regulations, and rules. Now the SEC has to go to court, which
    is difficult and burdensome.
        We, just the other day, decided we wanted to give the SEC
    the power to remove directors and officers from public
    companies who violate rules and regulations and laws without
    having to go to court.
        Of course, those decisions administratively by the SEC are
    subject to an appeal. That is always true and always must be
    true. The same approach is essential relative to the imposition
    of civil fines. If the SEC is going to have power, without a
    lot of cumbersome, costly, and expensive procedures, to really
    take on those directors and those auditors who violate the law,
    who violate rules and regulations, the SEC must have the same
    authority which other regulatory bodies have to impose civil
    fines.
        A few examples: The Commodity Futures Trading Commission
    has authority to impose civil fines up to three times the
    monetary gain from a violation plus restitution of customer
    damages. The Department of Transportation can impose civil
    fines. The Consumer Product Safety Commission can impose civil
    fines. The Occupational Safety and Health Administration, OSHA,
    can impose civil fines. The Federal Communications Commission
    can impose civil fines.
        As a matter of fact, the Securities and Exchange Commission
    can impose civil fines on some of the people it regulates--
    brokers. But unless we act today, there will be a great gap in
    the enforcement power of the SEC, a continuing gap. That gap
    is, it does not have the power, without legislation, to impose
    an administrative civil fine on auditors and members of boards
    of directors who violate rules and regulations in the law of
    the land.
        Our amendment would give the SEC that authority to impose
    administratively civil fines on those people who violate our
    securities laws and regulations and rules. That includes
    officers, directors, and auditors of publicly traded companies.
        I emphasize, these fines would be, and must be, subject to
    judicial review, as are the other SEC administrative
    determinations which they have authority to answer at this
    point. That is the first objective of the amendment.
        Secondly, our amendment would significantly increase the
    civil fines the SEC can impose on law violators. I particularly
    thank Senator Nelson of Florida for highlighting the problem
    and supporting the inclusion of these provisions in the
    amendment.
        The civil fines that currently can be imposed on broker-
    dealers administratively have maximum amounts that start at
    $6,500 per violation. That is the maximum amount under the so-
    called tier 1 civil fine. If a broker-dealer now violates the
    securities laws under so-called tier 1 where there is a
    violation found, not yet proven to be fraudulent but a
    violation nonetheless, $6,500 is the maximum fine under current
    law. Tier 2 for individuals is a $60,000 fine. That is where
    you find fraud, deceit, manipulation, and deliberate or
    reckless disregard--$60,000 for an individual for that
    violation.
        It is laughable. The current structure of fines which can
    be imposed on those people who administratively can be subject
    to a civil action or civil fine by the SEC is so low, these
    fines are a joke. We are talking about people who frequently
    are walking away, lining their pockets, violating rules and
    regulations for millions of dollars, sometimes tens of millions
    of dollars. To have a system where the maximum fine under tier
    1 is $6,500 for an individual and under tier 2 is $60,000 is
    just simply inadequate.
        Here is what the SEC staff said in June of this year: The
    current maximum penalty amounts may not have the desired
    deterrent effect on an individual or a corporate violator. For
    example, an individual who commits a negligent act is subject
    to a maximum penalty of $6,500 per violation.
        This is the conclusion of the SEC staff: The amount is so
    trivial that it cannot possibly have a deterrent effect on the
    violator.
        I would say that is an understatement: $6,500, given the
    current amount of money flowing through these violations of
    rules and regulations, is pitifully trivial. In fact, it is no
    deterrent at all. It might as well not be there. If we are
    going to have a deterrent system, we have to have fines which
    have some bite, which are real, which have an impact on people.
        We would, under our amendment, increase the maximum fines
    from a range of $6,500 to $600,000, which is the current range
    for tiers 1 through 3, to a range which goes from $100,000 to
    $5 million in fines per violation.
        We are seeing these corporate restatements and misconduct
    involving $2 billion, $4 billion, and even $12 billion. These
    new fine amounts are critical if they are to have the desired
    deterrent and punitive effects on wrongdoers in the corporate
    world.
        Our bill also has language which is similar to the language
    in the Leahy and Lott amendments that were adopted relative to
    the removal from office. We do this for the sake of
    completeness, so that we can lay out the entire structure being
    proposed in our bill for administratively imposed civil fines.
    That part of the amendment is the same as the removal from
    office provisions adopted by the Senate yesterday in the Leahy
    and Lott amendments.
        Finally, our amendment would grant the SEC new
    administrative authority, when the SEC has opened an official
    investigation, to subpoena financial records from a financial
    institution without having to notify the subject that such a
    records request has been made. This authority would allow the
    SEC to evaluate financial transactions, to trace funds, to
    analyze relationships, without having to alert the subject of
    the investigation to the SEC's action.
        Under current law, the SEC either has to give the subject
    advance notice of the subpoena or to obtain a court order that
    can delay notification for no longer than 90 days. That is a
    huge impediment to enforcement by the SEC. We ought to change
    that.
        The staff of the SEC wrote the following relative to this
    amendment:

        This amendment would enhance the Commission's ability to
    trace money and relationships quickly and effectively. The
    Commission typically requests bank records when it has reason
    to suspect possible relationships between persons or entities
    and that passage of money between those persons or entities may
    be relevant to violations of the securities laws. Identifying
    those relationships and quickly identifying assets obtained or
    transferred in connection with possible unlawful activity is
    critical to the Commission's ability to obtain orders freezing
    assets and other appropriate relief.
        In many situations, the Commission could proceed much more
    effectively if it could obtain relevant bank records without
    providing notice to the persons whose account records are
    sought.
        Under current law, however--

        The SEC staff wrote--

        the right to the Financial Privacy Act generally requires
    the commission to provide those persons with notice and a
    substantial period--10 to 14 days--in which to file a contest
    to the commission's authority to obtain the records.

        Let me continue with the SEC staff analysis of this
    language that is in our bill:

        Because Congress recognized that the notice requirement
    can, in some cases, compromise important and legitimate
    commission investigative objectives, Congress provided in
    section 21(h) of the Exchange Act that the commission may seek
    court authorization to obtain relevant bank records without
    notifying the customer for at least 90 days. Unfortunately----

        The SEC staff wrote--

        those important investigative objectives are also
    compromised by the inherent delay in obtaining the necessary
    court order.
        The proposed amendment to section 21(h)----

        Our language in this amendment--

        addresses both the notice and delay problem by allowing the
    commission the discretion only in those cases in which it has
    already authorized a formal investigation to proceed without
    notice to the customer. The proposed amendment also reiterates
    and strengthens the commission's authority to require that
    financial institutions not compromise investigations by
    notifying any persons or entities that their bank records have
    been subpoenaed.

        Mr. Nelson of Florida. Will the Senator yield for a
    question?
        Mr. Levin. I will be happy to yield for a question, but I
    do have an additional thought.
        Mr. Nelson of Florida. I am proud to be here today with my
    colleague from Michigan to offer these reforms aimed at
    preventing and punishing perpetrators of corporate fraud. The
    questions I wanted to ask the very distinguished Senator from
    Michigan, who has the foresight of why we need this at this
    particular time, are these: Would it not intrigue the Senator
    from Michigan and other Senators here that all of this is
    happening in an environment when 17,000 workers at WorldCom
    have received pink slips and have realized losses of over a
    billion dollars in their retirement plans; and at the same time
    they were receiving pink slips, the corporate executives were
    attending a retreat in Hawaii? That would not surprise the
    Senator, would it?
        Mr. Levin. It would not surprise me at all.
        Mr. Nelson of Florida. I doubt that it would surprise the
    Senator that one of those executives, by the way, was putting
    the finishing touches on a $15 million mansion, derived from
    that money from WorldCom. Would it surprise the Senator that
    late last year Global Crossing laid off 1,200 people, giving
    them no severance package, while the CEO of that company walked
    away with hundreds of millions of dollars?
        Mr. Levin. I am afraid very little would surprise me about
    some of these violations and deceptions these days.
        Mr. Nelson of Florida. I know it would not surprise the
    Senator, but I will ask him this anyway. After what went on
    with Enron last summer, while Enron executives were selling
    their shares for hundreds of millions of dollars and protecting
    their portfolios, their retirees and employees lost more than a
    billion dollars in retirement savings. Does that surprise the
    Senator?
        Mr. Levin. Tragically, it is not a surprise.
        Mr. Nelson of Florida. It is unconscionable. One of those
    we had testify in our Commerce Committee was Janice Farmer, an
    Enron retiree who lost her entire life savings that she had
    built up in a retirement plan from Enron. In her case, it was
    $700,000. She has nothing now.
        And then, I suppose it also would not surprise the
    distinguished Senator that, while we are talking about these
    excesses of corporate irresponsibility and corporate greed, the
    Florida pension fund for the Florida retirement system had a
    loss of $335 million--more losses than any other State--from
    Enron stock purchases, and that the money managers of that
    Florida pension fund, which covers all of the public sector
    retirees in Florida--the money managers kept buying Enron
    stock, based on the assertions from the company's management
    that everything was OK, that doesn't surprise us either, does
    it?
        Mr. Levin. No surprise. I am afraid that the public, having
    lost so much of its pension money, is disgusted but no longer
    surprised.
        Mr. Nelson of Florida. The management said everything was
    OK, but it was not OK. While the stock was dropping like a
    rock, but not before the company's management had unloaded
    their shares, the money managers were buying that stock as it
    dropped like a rock, and it caused to a dozen or so pension
    funds, retirement systems, public pension funds in this country
    over a billion dollars in losses. My State had the most losses
    of $335 million.
        So we have seen in the last year and a half corporate
    abuses of monumental proportions, and it is time for us to stop
    it. I am grateful to the Senator from Michigan for his
    leadership in bringing forth the amendment that he has
    described, which is basically going to give some additional
    teeth to the Securities and Exchange Commission to cause
    disclosure and to cause some hurt when these corporate
    managers, motivated and operated by greed, cross the line.
        I thank the Senator for his leadership.
        Mr. Levin. I very much thank the Senator from Florida for
    his comments and his questions, and also for the active role he
    has taken in shaping this language. He has identified the
    feeble nature of the fine structure that we have in the current
    law. We have some ruthless people out there who have lined
    their own pockets in violation not only of law and regulation,
    but of any code of morality and fiduciary duty. We have some
    ruthless people.
        We also have some toothless laws. The SEC, when it has to
    go to court to impose a civil fine, is put through hoops that
    other regulatory agencies are not put through. They can impose
    civil fines administratively--always subject to an appeal by
    the respondent or the defendant. But they have the capability
    to seek civil fines administratively--these other agencies. I
    have given examples of some of them. But when it comes to the
    SEC--outside of the brokers, where the SEC has that power--they
    have to go through the cumbersome proceedings of going to
    court.
        Now, we have cured some of this already in the bill. When
    it comes to the removal from office, yesterday we took action
    to give the SEC the ability to act administratively and to
    order the removal of directors or executives from office. What
    we didn't do yet, and what this amendment does, is add a
    critical component to regulatory effectiveness, which is the
    ability to impose civil fines administratively.
        This is what the Administration said in supporting the
    grant to the SEC of the power to remove directors from office,
    which we have now already done. It says that if we didn't do
    that--and now I am quoting the Statement of Administration
    Policy:

        It would continue to require the SEC to expand significant
    time and resources in order to attempt to gain similar relief
    in the Federal courts.

        That is what we are talking about now with civil fines.
        If we do not adopt this amendment, if we do not give the
    SEC these enforcement tools that other agencies have relative
    to directors and auditors, we will be requiring the SEC to be
    wasting time and wasting resources that they otherwise should
    be using to chase these corrupt and immoral people.
        Mr. Nelson of Florida. Will the Senator yield for another
    question?
        Mr. Levin. I will be happy to yield.
        Mr. Nelson of Florida. The distinguished Senator from
    Michigan has laid out how this amendment will give stronger
    enforcement measures to the Securities and Exchange Commission.
    We have a saying in the South: It is beyond me. It is beyond me
    why there are other people in this Chamber, when confronted
    with such corporate and auditor misconduct, would not want to
    strengthen the law to prevent and punish such corporate abuse.
        Does the senior Senator from Michigan have any idea why
    people would oppose us trying to strengthen existing law and,
    indeed, strengthen the underlying bill?
        Mr. Levin. I am hopeful there will be broad support for
    this amendment, just for the reason the Senator from Florida
    gives. There should be. This is not novel. This capability of
    imposing civil fines administratively belongs to other
    regulatory agencies. The protection is always an appeal to the
    court, but without this tool, the SEC has a weaker capability.
    They are not in a position then to do what other enforcement
    agencies can do in the face of some of the worst deception this
    country has ever seen--the deception which is now unfolding in
    too much of corporate America.
        This is of the worst attack on our system we have seen. It
    is unfolding in front of our eyes, and the SEC should be given
    the powers to deter it or punish it--all the power.
        We want the court to be able to review administrative
    actions. I think most Members of this body do not want any
    administrative agency to be able to act without court review if
    they are excessive or if they are wrong. I think most of us
    believe in that. I believe in that. But I also believe an
    administrative agency has to have enforcement tools.
        We have given the SEC some additional tools in the last few
    days. Senator Leahy and Senator Lott, for instance, in the
    criminal law area, toughened the criminal penalties, and the
    SEC now has the capability to impose fines against the
    stockbroker, although they are pitifully small.
        Our amendment would include directors, corporate
    executives, and auditors in the purview of the SEC power to act
    administratively and would toughen the fines so they would be
    far more realistic and could have some deterrent effect. The
    current fine structure against a limited class of people is
    useless; it is toothless.
        This is a huge gap in the bill before us. This is a
    terrific bill, by the way, and I do not want anything I say to
    suggest otherwise. The Banking Committee has given the Senate,
    and hopefully the country--if we can get some support for it
    from the Administration and if it can get through conference--
    the Banking Committee has come up with a very strong law. We
    have strengthened it so far on the floor.
        This amendment will strengthen it further by filling a gap
    that exists in the toolbox. It is the missing tool in the
    toolbox of enforcement capabilities that the SEC should have.
        Mr. Nelson of Florida. The Senator's timing is just
    uncanny. We need look back no further than to yesterday when
    the stock market dropped almost 300 points, all the way down
    close to 8,800, the stock market being a reflection of the
    confidence of the American people in their investments in
    public corporations. Lo and behold, that confidence is sinking,
    and the American people need some greater sense of confidence
    that, indeed, they will not be hoodwinked, that they will not
    be fooled by greedy corporate executives or greedy auditors who
    blur the lines on what their auditing duties ought to be and
    instead get in bed with those who would mismanage the finances
    of a corporation. The people of America who invest their hard-
    earned dollars ought to have the confidence that when they see
    the financial reports, those financial reports are accurate.
    That confidence is not there, and we saw it yesterday in the
    reaction of the people in their purchases and sales in the
    stock market.
        I thank the Senator from Michigan for his timeliness in
    trying to put some teeth in the authority of the Securities and
    Exchange Commission to give greater confidence to the Joe and
    Jane Citizen of America who invest their money because they
    want to invest in the future of their country and they need to
    do it and know they are getting accurate figures. I thank the
    Senator.
        Mr. Levin. I thank the Senator from Florida.
        Mr. President, I wish to expand for one moment on the
    question of the notice provision in our amendment.
        As I indicated before, where there are allegations that
    officers, directors of companies are misusing the accounting
    rules and abusing their powers, the SEC has to be able to look
    at financial records without giving the account holder an
    opportunity to move funds or to change accounts or to further
    muddy the investigative waters. Other agencies have that power,
    and this agency must have that power.
        We have carefully circumscribed that power in a number of
    ways. We have not just simply said you can subpoena any
    documents you want. We have criteria for doing that or else
    they have to give notice.
        One of the criteria is that it has to be an official
    investigation that has been ordered by the Commission. That is
    an important safeguard. This is not just the beginning of an
    investigation. This is not during a discovery process. This is
    where the Securities and Exchange Commission has initiated an
    official investigation, which is a very formal act on the part
    of the Securities and Exchange Commission.
        At that point, they should be able to subpoena documents
    under certain circumstances. These are the circumstances that
    we set forth in the amendment:
        If the Commission so directs in its subpoena, no financial
    institution or officer, director, partner, employee,
    shareholder, representative or agent can directly or indirectly
    disclose that records have been requested or provided in
    accordance with subparagraph (A).
        In other words, you cannot disclose to the subject of the
    investigation that you, as a financial institution, have been
    subpoenaed for those records if the Commission finds reason to
    believe that such disclosure may--and then we set forth the
    rules, and the rules are intended to make sure that the
    Commission can act after it has announced or determined there
    should be an official investigation but does not want to risk
    that the subject of the investigation is going to remove
    documents or remove money or hide assets.
        So we set forth the protections, and they are: If the
    Commission finds reason to believe that disclosing the fact of
    the official investigation to the subject of that investigation
    by a financial institution would, one, result in the transfer
    of assets or records outside of the territorial limits of the
    United States. So if the Commission says, hey, we have reason
    to believe if that person is notified in advance of those
    records being obtained by us or if there is a delay in our
    obtaining records that person may transfer assets or records
    outside of the United States, there could be nondisclosure.
        The second criteria which, if it exists, would permit this
    to happen is if the disclosure would result in improper
    conversion of investor assets.
        The third cause for the requirement that there be
    nondisclosure is that if such disclosure would impede the
    ability of the Commission to identify, trace, or freeze funds
    involved in any securities transaction. That speaks for itself.
        The fourth way in which nondisclosure would be permitted is
    that if it endangers the life or physical safety of an
    individual. If the Commission has reason to believe the life or
    physical safety of an individual would be compromised by
    disclosure, surely we ought to not require disclosure.
        Fifth, if it results in flight from prosecution, if they
    have reason to believe that could happen, or if the Commission
    has reason to believe that the disclosure may result in
    destruction of or tampering with evidence, or if such
    disclosure may result in intimidation of potential witnesses or
    otherwise seriously jeopardize an investigation or unduly delay
    a trial.
        Those are carefully set forth reasons for why disclosure
    should not be required. These are similar to what other
    agencies have in terms of powers, and it seems to me with this
    careful delineation of this subpoena power that we should
    surely give the Securities and Exchange Commission that power.
        Again, staff has given the reasons for the importance of
    that amendment, and I hope that reasoning of the SEC staff
    would be persuasive on this body. We have to give the SEC some
    administrative authority to impose civil fines. It would
    provide a tool that is now missing from the toolbox. It would
    add this tool, this weapon, to their arsenal. Without this
    weapon in their arsenal, they still have one hand tied behind
    their back. Without this amendment, they do not have the same
    administrative authority that other agencies have.
        Given the environment we are in, that we must use all
    legitimate means to put an end to the abuses and the deceptions
    of too many of our corporate leaders, corporate executives,
    corporate directors, and auditors, we must surely bring our
    laws up to date in terms of the powers we give to the SEC, and
    in terms of the civil fines we authorize them to impose, always
    subject to an appeal to the courts.
        I yield the floor.
        The Presiding Officer (Mr. Corzine). The Senator from
    Texas.
        Mr. Gramm. Mr. President, some of my colleagues change
    positions on issues like privacy so quickly that it gives me
    whiplash, and I will get to that point. I do not know how many
    people have seen the movie ``Minority Report.'' If you have
    not, I want to tell you the story. I never thought I would see
    a real-life example of what happens in this movie, but I have
    found one right here on the floor of the Senate.
        In the movie ``Minority Report,'' you have a cop who has
    almost supernatural powers, and his job is to arrest people
    before they commit a crime. It starts with three people, two
    guys who naturally do not have very much ESP, and then you have
    this lady, who naturally is quite attractive, who has these
    massive powers of ESP. They visualize crimes that are going to
    happen, their brain waves activate a computer, and then it
    prints out what they are seeing. They see crimes happening that
    have not yet occurred.
        The action in the movie begins with a guy finding his wife
    in bed with another man. The husband is obviously a nice guy--
    probably an accountant--and he is leaving his house. His wife
    seems so eager for him to leave, he figures out something is
    going on. He is sort of an old, balding fellow and as he is
    leaving, he misses his bus. While he is waiting for the next
    bus, a young guy comes in and walks in his front door. Needless
    to say, the husband is upset about it. (Who wouldn't be upset
    about it? No one would want that to happen to them or anybody
    they knew.) So the husband goes in and he is sort of in shock.
    He finds himself in the bedroom, sitting by the bed. He goes
    crazy, and picks up a pair of scissors.
        At this point, the computer system (hooked up to the people
    with ESP) alerts this superwarrior for law enforcement that
    there is about to be a murder. He jumps in this sort of minijet
    that flies fast and stops on a dime. The officer zooms in--have
    you seen this movie, Senator McCain?--and just as the guy is
    getting ready to stab his wife, the officer grabs the knife,
    puts the handcuffs on the husband, takes him off and they put
    him in prison for murder.
        Mr. McCain. Will the Senator yield? That is a better
    description than the movie was.
        Mr. Gramm. Now, I thought, the whole thing is sort of a
    moral question: Were these people really going to commit these
    crimes? They put them in prison for life. They put them in
    these metal cylinders and wired them up to control their brain
    waves. It is not very pleasant. So the question is, do you have
    a right to do this to people who have not yet committed a crime
    simply because some person with extrasensory perception said it
    was going to happen?
        That is what the movie is about. It is a big hit movie. It
    made over $100 million the first week. It sounds silly when I
    tell it, but they got $100 million and I am giving this speech.
        In any case, I thought, what an absurd plot. Who in the
    world could ever believe--this is the U.S. of A, by the way.
    This movie is off in the future.
        Why would we ever have a law under which people can be
    punished for what they might do? Is that absurd? Can anybody
    believe that would happen? If you think not, you are wrong.
        Let me read from this amendment. This is in general. It is
    talking about authority of the Commission to assess monetary
    penalties. This is from the amendment that is pending.

        In general, in any cease and desist proceedings under
    subsection A, the commission may impose a civil monetary
    penalty if it finds on the record, after notice and opportunity
    of hearing, that a person is violating, has violated, or is
    about to violate or has been or will be the cause of violation.

        Senator Levin is going to fine people because we are
    concluding that they are about to do something before they have
    done it. Or that they ``will be'' the cause of a violation.
        I submit, first of all, this is not from the SEC. The SEC
    has not asked for this provision. This is from staff at the
    SEC--maybe ``a'' staff person, for all I know.
        The point is, do we really want to say we are going to
    penalize people because they are about to violate the law or we
    believe they are going to? How can you tell? How are you going
    to tell that they will be the cause of a violation? I submit
    that is a standard I am unaware has ever existed. If so, I
    didn't know about it or I would have tried to change it.
        Let me mention a second problem. The second problem has to
    do with financial records. Correct me, my colleague on the
    Banking Committee, if somehow I have fallen into a time warp
    and am in a different world than last year. Was it not last
    year we were going to shut down the Internet, we were going to
    put people in prison for putting out your mailing address or
    for mailing you a letter where someone could read your address
    off of it and go murder you? Were we not just in this time warp
    where privacy was the be-all and end-all of society?
        I get whiplash, we change positions so often.
        Let me state what the current law is and then read what
    Senator Levin is proposing. The current law is the following:
    The SEC and other Federal agencies have the power to get your
    financial records, and they can do it through administrative
    subpoena or judicial subpoena.
        Now, normally there is one little inconvenience. Normally,
    they have to tell you they have taken your financial records.
    Not an unreasonable thing, it would seem to me, if this is
    still America. But we are talking about business people here,
    and there is a different standard. Two consenting adults can
    engage in any activity other than commerce, with full
    constitutional protection, but if they engage in job creation
    or wealth creation, they stand naked before the world in terms
    of any rights whatever.
        Under current law, the Government can come in and take your
    financial records, but they have to tell you they have done
    it--``except.'' And there are three reasons they can do it
    without telling you. I think we all would say they make
    reasonably good sense. They can not tell you if they have
    reason to believe that there is going to be a flight from
    prosecution; or if they believe there is going to be
    destruction of or tampering with evidence; or if telling you
    would otherwise seriously jeopardize an investigation of
    official proceedings, or unduly delay a trial of an ongoing
    official process.
        That is the current law. What is unreasonable about that?
    If the Government believes someone is doing something wrong,
    they can come in and take their records. Unless they believe
    there is going to be a flight from prosecution or there will be
    tampering with evidence or it will jeopardize the
    investigation, they have to tell you they took the records.
    That is not unreasonable. But if they believe any of these
    things to be the case, they can go in and take your records and
    not tell you.
        Now, what does the amendment of the Senator from Michigan
    do? It says notwithstanding--that is always dangerous--
    notwithstanding sections 1105 or 1107 of the Right To Financial
    Privacy Act of 1978--that law has been around here a long time.
    But notwithstanding it, which means throw it out, the
    Commission may obtain access to and copies of or information
    contained in financial records of any person held by a
    financial institution, including financial records of a
    customer, without notice to that person.
        If you think someone is going to flee prosecution or
    destroy evidence or that will jeopardize an ongoing
    investigation, maybe we would accept the limits of our
    individual liberty. But under the Levin amendment, you don't
    have to find any of those things. The government doesn't have
    to find that any of those circumstances is the case to be able
    to go in and take financial records.
        Since this bill is a bill that amends our securities laws
    and our financial laws, this bill falls under this
    jurisdiction. So what this literally means is that a government
    agency, without ever going to the courthouse, could come and
    take all of your financial records--your banking records, your
    investment records, any financial records you have or have ever
    had--and without finding that there is any risk that you are
    going to flee from justice or destroy evidence or jeopardize an
    investigation, they can take them and not tell you about it.
        There is a limit, it seems to me, to the logic in this
    case. If the Senator had an amendment that simply raised these
    fines for people who are criminals, that would be an amendment
    I could support. It shows how far we have flown from reality
    when we are talking about penalizing people because they are
    ``about'' to violate the law; or that ``will be'' the cause of
    a violation.
        It is very hard to know when someone is going to violate
    the law. I have not yet gotten any kickback, I am not a
    stockholder even, I don't think I have received a contribution
    from the PAC of the people who made the movie I've described--
    though if they had any decency, they would have contributed to
    my campaign over the years. But if you watch this movie, you
    are going to see what the problem with the Levin amendment is.
        The problem with the Levin amendment, as it turns out, is
    these psychics are not always right, and they don't always
    agree. Sometimes there is a ``Minority Report.'' The
    superwarrior cop discovers this. It turns out they try to frame
    him for a murder. A good movie. I recommend seeing it.
        In any case, I am opposed to this amendment. It is a thick
    amendment. There are a lot of things in it. There are some
    things in it that I support. But I do not support penalizing
    people for what you think they are going to do. I do not
    support taking people's financial records without telling them
    about it. It sounds to me as if somebody at the SEC has got the
    idea that maybe they are living in a different era in a
    different country and they are saying: Look, if we didn't have
    to fool with civil liberties, if we could get rid of the Bill
    of Rights, we could be a more effective law enforcement agency.
    If we could arrest people we think are going to violate the
    law, we could be more efficient. We don't live in that country.
        I yield the floor.
        The Presiding Officer. The Senator from Michigan.
        Mr. Levin. Mr. President, first let me assure my good
    friend from Texas that I have seen ``Minority Report.''
        Mr. Gramm. You have?
        Mr. Levin. I have.
        Mr. Gramm. Then you got the idea from it.
        Mr. Levin. As a matter of fact, I got the idea for the
    protections we write in here from ``Minority Report'' just
    because, as a tribute to the protections and civil liberties
    that are defended and protected in ``Minority Report,'' I had
    to be absolutely certain we would put these protections in our
    bill, to make sure that only if there were reason to believe a
    transfer of assets was going to go outside of the United
    States, or there would be conversion of assets, or it would
    endanger the life or physical safety of an individual, or
    result in flight from prosecution--those very criteria,
    carefully delineated, that are a tribute to the civil liberties
    and protections and privacy rights in this country to which my
    good friend from Texas just referred.
        I can assure my good friend from Texas, the lesson of
    ``Minority Report'' is carefully reflected in this amendment. I
    saw that because I knew the Senator from Texas was going to
    raise that movie. With that kind of foresight, I decided,
    knowing just how he does this so beautifully on the floor of
    the Senate, I had better see ``Minority Report.'' That is why I
    want to assure the Senator from Texas that these very
    protections which he is so careful to delineate are in fact set
    forth in this amendment. We have these criteria laid out in
    this amendment.
        Mr. Reid. I don't want to take away from the seriousness of
    the debate, but I haven't seen ``Minority Report.'' I have seen
    ``Big Fat Greek Wedding,'' and I would recommend that.
        [Laughter.]
        Mr. Levin. It sounds as if I have not been doing too much
    else, but I have also seen that--since we are giving
    testimonials to movies here.
        The language to which the Senator from Texas objects, about
    penalizing people for what they are going to do--that is
    language which the good Senator from Texas, as chairman and
    ranking member of the Banking Committee, has overseen for
    years. That is the same language that currently exists in the
    SEC law. We are not adding anything new here. This is the SEC
    law, section 77(h)(1): Cease and desist proceeding, authority
    of the Commission.
        If the Commission finds after notice and opportunity for a
    hearing that any person is violating, has violated or is about
    to violate any provision----
        That is existing law. The Senator from Texas has overseen
    that for all these years. He has done a brilliant job as
    chairman and ranking member of the Banking Committee, and we
    are just simply following the language that exists already in
    the SEC law and applying it to folks who are not now covered.
        Mr. Gramm. Will the Senator yield?
        Mr. Levin. For a question, I will be happy to.
        Mr. Gramm. What the Senator saying is they can issue cease
    and desist orders under these circumstances, but they can't
    fine somebody. You are not only ceasing and desisting them--I
    have no problem. In the movie--and that is where you got this
    idea from. I thought it was.
        In the movie, I don't object to them grabbing the guy who
    is about to stab his poor wife. It is putting him in prison,
    not for attempted murder--he did that--but for killing her when
    she is not dead.
        Mr. Levin. The Senator from Texas raises an issue which, I
    am afraid, is also addressed in current law. It is not just
    cease and desist orders, it is the implementation of civil
    fines. We are following the same language. But what we are
    saying is, if the SEC has power to impose a fine on a broker,
    based on the standards which exist in this law, there is no
    reason the SEC should not have the same power to impose a fine
    on an auditor or on a director who violates the regulations and
    laws of this land. This is the same language. We haven't added
    anything new.
        What is new here is that for the first time there will be
    the potential, the power in the SEC, subject to an appeal to
    the court--which is another protection of our civil liberties--
    subject to an appeal to the court, to impose a civil fine,
    administratively, on people who are now let off the hook. There
    is no reason for this gap in the law.
        If, in fact, there is a problem that the Senator has
    raised, with language, that language is in the existing law for
    SEC. It is in the existing law for FDIC, the Federal Deposit
    Insurance Corporation:

        If, in the opinion of the appropriate Federal banking
    agency, any insured depository institution, depository
    institution which has insured deposits, or any institution
    affiliated party is engaged or has engaged, or the agency has
    reasonable cause to believe that the depository institution or
    any institution affiliated party is about to engage--

        The words which the Senator from Texas mocks are in
    existing law, in the FDIC law, in the SEC law.
        There may be reasons the Senator wants to maintain this gap
    in enforcement, but that cannot be used as the reason. That
    cannot be used.
        The Presiding Officer. The Senator from Arizona.

                   MOTION TO RECOMMIT WITH AMENDMENT NO. 4270

    (Purpose: To require publicly traded companies to record and treat
        stock options as expenses when granted for purposes of their income
        statements)

        Mr. McCain. Mr. President, I move to recommit the bill to
    the Committee on Banking, Housing, and Urban Affairs with
    instructions to report the bill back forthwith, with the
    following amendment that I send to the desk.
        The Presiding Officer. The clerk will report the motion.
        The legislative clerk read as follows:

        The Senator from Arizona (Mr. McCain) moves to recommit the
    bill (S. 2673) to the Committee on Banking, Housing and Urban
    Affairs, with instructions to report back forthwith with the
    following amendment, numbered 4270:
        At the appropriate place, insert the following:

    SEC. . STOCK OPTIONS MUST BE BOOKED AS EXPENSE WHEN GRANTED.

        Any corporation that grants a stock option to an officer or
    employee to purchase a publicly traded security in the United
    States shall record the granting of the option as an expense in
    that corporation's income statement for the year in which the
    option is granted.

        The Presiding Officer. The Senator from Nevada.
        Mr. Reid. Mr. President, I suggest the absence of a quorum.
        The Presiding Officer. The clerk will call the roll.
        The legislative clerk proceeded to call the roll.
        Mr. Reid. Mr. President, I ask unanimous consent the order
    for the quorum call be rescinded.
        The Presiding Officer. Without objection, it is so ordered.

                               AMENDMENT NO. 4271

        Mr. Reid. Mr. President, I send an amendment to the desk.
        The Presiding Officer. The clerk will report.
        The legislative clerk read as follows:

        The Senator from Nevada [Mr. Reid], for Mr. Edwards, for
    himself, Mr. Enzi, and Mr. Corzine, proposes an amendment
    numbered 4271 to the instructions of the motion to recommit S.
    2673 to the Committee on Banking.

        Mr. Reid. Mr. President, I ask unanimous consent reading of
    the amendment be dispensed with.
        Mr. McCain. I object. I would like to hear what the
    amendment says.
        The Presiding Officer. Objection is heard. The clerk will
    continue to read the amendment.
        Mr. Reid. I say to my friend, I will be happy to have it
    read, but it is the exact same amendment that was pending
    beforehand.
        Mr. McCain. Thank you.
        The Presiding Officer. Is there objection?
        Without objection, it is so ordered.
        The amendment is as follows:

    (Purpose: To address rules of professional responsibility for
        attorneys)

        At the end of the instructions add the following:
        ``(c) Rules of Professional Responsibility for Attorneys.--Not
    later than 180 days after the date of enactment of this section, the
    Commission shall establish rules, in the public interest and for the
    protection of investors, setting forth minimum standards of
    professional conduct for attorneys appearing and practicing before the
    Commission in any way in the representation of public companies,
    including a rule requiring an attorney to report evidence of a material
    violation of securities law or breach of fiduciary duty or similar
    violation by the company or any agent thereof to the chief legal
    counsel or the chief executive officer of the company (or the
    equivalent thereof) and, if the counsel or officer does not
    appropriately respond to the evidence (adopting as necessary,
    appropriate remedial measures or sanctions with respect to the
    violation), requiring the attorney to report the evidence to the audit
    committee of the board of directors, or to another committee of the
    board of directors comprised solely of directors not employed directly
    or indirectly by the company, or to the board of directors.

        Mr. Reid. Mr. President, I ask for the yeas and nays.
        The Presiding Officer. Is there a sufficient second?
        There appears to be.
        The yeas and nays were ordered.

                    AMENDMENT NO. 4272 TO AMENDMENT NO. 4271

    (Purpose: To address procedures for banning certain individuals from
        serving as officers or directors of publicly traded companies,
        civil money penalties, obtaining financial records, broadened
        enforcement authority, and forfeiture of bonuses and profits)

        Mr. Reid. Mr. President, I send a second amendment to the
    desk.
        The Presiding Officer. The clerk will report.
        The legislative clerk read as follows:

        The Senator from Nevada [Mr. Reid], for Mr. Levin, for
    himself, Mr. Nelson of Florida, Mr. Harkin, Mr. Corzine, and
    Mr. Biden, proposes an amendment numbered 4272 to amendment No.
    4271.

        Mr. Reid. Mr. President, I ask unanimous consent reading of
    the amendment be dispensed with.
        The Presiding Officer. Without objection, it is so ordered.
        (The amendment is printed in today's Record under ``Text of
    Amendments.'')
        Mr. Reid. Mr. President, I appreciate the cooperation of
    the Senator from Arizona. There are other ways we could have
    gotten to the point we are now. This just made it a lot easier.
    I appreciate that very much.
        I say this, before I yield the floor, to my friend from
    Arizona. We are now in the exact same posture we were in prior
    to the Senator from Arizona offering his amendment--his
    instructions, I should say.
        The Presiding Officer. The Senator from Arizona.
        Mr. McCain. Mr. President, before the Senator from Nevada
    leaves the floor, I wonder if he would respond to a question.
    Do we intend to vote on these pending amendments and the motion
    to recommit?
        Mr. Reid. I say to my friend, we have been trying very
    hard. I have received instructions--it is probably the wrong
    word, but Senator Edwards has been here for 2 days, and he left
    here for a while this afternoon waiting to vote on his
    amendment. Senator Levin has been here for several days--2
    days. We would like very badly to vote on the Levin second-
    degree amendment and the Edwards first-degree amendment.
        I have spoken to the manager of the bill for the minority.
    It appears very unlikely that we are going to be able to do
    that. I think that is a disappointment. I think some of these
    relevant--I shouldn't say some--I think all of these relevant
    amendments we can get up to prior to the cloture vote, we
    should try to dispose of.
        But I understand the rules of the Senate. I am disappointed
    to say, my friend from Texas also understands them, so even
    though I would like votes, it does not appear we are going to
    be able to have votes.
        Mr. McCain. Mr. President, I thank my friend from Nevada
    for his candor. I think it is pretty obvious. Everybody ought
    to understand what is happening as we go through these arcane
    procedures.
        The whole purpose of this--the whole purpose of what we
    just went through--is to not have a vote on anything that has
    to do with stock options. Let's be very clear what that is all
    about.
        Whatever side you are on on the issue, the fix is in, as we
    say all too often in the sport of boxing. The fix is in and we
    will now have cloture invoked and there will not be a vote on
    stock options.
        While my friend from Nevada is still here, I can tell him,
    I understand the rules of the Senate. I have been through other
    difficult issues on which I have been blocked from getting
    votes. I tell my friend from Nevada, and all of my colleagues,
    we will have a vote on stock options. We will have--sooner or
    later--a vote on stock options. And I only regret that we
    cannot do it now, get it over with, and get everybody on
    record.
        I also would make one additional comment. I hope I do not
    harm the feelings of any of my colleagues. This is an important
    issue. This is a very important issue, no matter where you
    stand on the issue of stock options and how they should be
    accounted. It is a very important issue.
        Why is it that this body would not take up the issue and
    have an up-or-down vote on how stock options are treated? I
    would ask the manager of the bill, why would we not at least
    allow a vote up or down?
        I will read editorials. In fact, it may be sometime before
    I give up the floor because I have a lot to say about this
    issue. I will read from Mr. Greenspan's speech, a fairly widely
    respected individual, who says--well, I will read his speech in
    just a minute. He is in favor of treating stock options as an
    expense.
        So is Mr. Stiglitz and Mr. Buffett, and so many others, who
    are aware of this issue and its impact and the way it has been
    terribly abused by the same people we are trying to go after,
    the same people we are after.
        Mr. Sarbanes. Will the Senator yield for a response to his
    question?
        Mr. McCain. According to a recent analysis from 1996 to
    2000, Enron issued nearly $600 million in stock options,
    collecting tax deductions, which allowed the corporation to
    severely reduce their payment in taxes. According to reports
    that I think I have here, over $1 billion in stock options were
    issued to the senior executives of WorldCom.
        This is an important issue. I respect the views of my
    colleagues who disagree with my position and that of Mr.
    Greenspan, Mr. Stiglitz, and Mr. Buffett in various op-eds and
    editorials in newspapers throughout America. But why would we
    not vote on it? That is the question.
        Why would the distinguished Senator and friend from Nevada
    feel it incumbent upon himself to not allow a vote on stock
    options? I guess that question can be answered by observers.
        But here is the deal. I want to tell my friend from Nevada
    again, there will be a vote on how stock options are treated. I
    will repeat the amendment. I will repeat the amendment and will
    repeat it again several times before I finish discussing this
    issue. The issue, no matter how you feel, should be addressed.
    But through the invocation of cloture, everybody knows that the
    amendment and the motion to recommit will fall.
        I want to repeat. The amendment is fairly clear-cut, fairly
    simple. We deal with a lot of arcane issues in the discussion
    of this regulatory reform. But I repeat:

        Any corporation that grants a stock option to an officer or
    employee to purchase a publicly traded security in the United
    States shall record the granting of the option as an expense in
    that corporation's income statement for the year in which the
    option is granted.

        It is very simple. It does not say anything about the tax
    treatment of it. It does not say anything about a number of
    other rather controversial aspects. It just says it will
    ``record the granting of the option as an expense in that
    corporation's income statement. . . . ''
        Mr. President, it is curious to me--actually, it is not
    curious to me--why a vote on this amendment is blocked. It is
    because every lobbyist in this town for the high-tech community
    has said: Don't do it. Don't do it. The one thing that the
    folks in Silicon Valley are scared of more than anything else
    is that they would lose their precious stock options--all of
    it, of course, in the interest of the employee, only the
    employees, the secretaries, the workers, those people who are
    down there toiling in the bowels of the corporation, trying to
    get some incentive to stay there and have their retirement.
        Meanwhile, Mr. Ellison, the CEO of Oracle, last year,
    cashes in $706 million worth of stock options, $706 million
    worth of stock options in 1 year. Are we going to vote on it?
    Yes, we will vote on it. Maybe not now, but unless there is
    cloture on every single bill that comes before this body, there
    will be a vote on stock options. I want to assure my friend
    from Nevada of that.
        I will just remind him, there were many who wanted to block
    a vote on campaign finance reform for a long period of time.
    Well, we got our vote on campaign finance reform, and we will
    get a vote on stock options.
        We have to end the double standard for stock options.
    Currently corporations can hide these multimillion-dollar
    compensation plans from their stockholders or other investors
    because these plans are not counted as an expense when
    calculating company earnings.
        I want to make it perfectly clear to all, I am not in favor
    of doing away with stock options. Stock options have a valuable
    place in American corporate life. What we are addressing here
    is how they are treated so investors can know exactly what the
    profit and loss of a corporation is.
        I repeat: I am not in favor of eliminating stock options.
    What I am trying to do is exactly in accordance with Mr.
    Greenspan's comments from which I will quote. Federal Reserve
    Chairman Alan Greenspan, New York University, March 26, 2002:

        Some changes, however, appear overdue. In principle, stock-
    option grants, properly constructed, can be highly effective in
    aligning corporate officers' incentives with those of
    shareholders. Regrettably, the current accounting for options
    has created some perverse effects on the quality of corporate
    disclosures that, arguably, is further complicating the
    evaluation of earnings and hence diminishing the effectiveness
    of published income statements in supporting good corporate
    governance. The failure to include the value of most stock-
    option grants as employee compensation and, hence, to subtract
    them from pretax profits has increased reported earnings and
    presumably stock prices. This would be the case even if offsets
    for expired, unexercised options were made. The Financial
    Accounting Standards Board proposed to require expensing in the
    early to middle 1990s but abandoned the proposal in the face of
    significant political pressure.
        The Federal Reserve staff estimates that the substitution
    of unexpensed option grants for cash compensation added about
    2\1/2\ percentage points to reported annual growth in earnings
    of our larger corporations between 1995 and 2000. Many argue
    that this distortion to reported earnings growth contributed to
    a misallocation of capital investment, especially in high tech
    firms.

        Especially in high-tech firms? Where is most of the
    opposition coming from to the proper accounting of stock
    options? From the high-tech firms. I repeat:

        Many argue that this distortion to reported earnings growth
    contributed to a misallocation of capital investment,
    especially in high tech firms. If market participants indeed
    have been misled, that, in itself, should be surprising, for
    there is little mystery about the effect of stock-option grants
    on earnings reported to shareholders. Accounting rules require
    enough data on option grants be reported in footnotes to
    corporate financial statements to enable analysts to calculate
    reasonable estimates of their effect on earnings.
        Some have argued that Black-Scholes option pricing, the
    prevailing means of estimating option expense, is approximate.
    But so is a good deal of other earnings estimates, as I
    indicated earlier. Moreover, every other corporation does
    report an implicit estimate of option expense on its income
    statement. That number for most, of course, is zero. Are option
    grants truly without any value?

        I repeat Mr. Greenspan's question: Are option grants truly
    without any value?

        Critics of option expensing have also argued that expensing
    will make raising capital more difficult. But expensing is only
    a bookkeeping transaction. Nothing real is changed in the
    actual operations or cash-flow of the corporation. If investors
    are dissuaded by lower reported earnings as a result of
    expensing, it means only that they were less informed than they
    should have been. Capital employed on the basis of
    misinformation is likely to be capital misused.
        Critics of expensing also argue that the availability of
    options enables corporations to attract more-productive
    employees. That may well be true. But option expensing in no
    way precludes the issuance of options. To be sure, lower
    reported earnings as a result of expensing could temper stock
    price increases and thereby exacerbate the effects of share
    dilution. That, presumably, would inhibit option issuance. But
    again, that inhibition would be appropriate, because it would
    reflect the correction of misinformation.

        I am not sure this debate is between me and the high-tech
    community. I think the debate is somewhat different. When you
    look at the preponderance of opinion, not only that stock
    options need to be expensed but the incredible effect that it
    has had on the whole distortion of the market, then it is an
    important issue.
        I ask again: How can we really address the entire issue we
    are facing without addressing the issue of stock options? That
    is like playing a baseball game without third base.
        Mr. Joseph Stiglitz, noble laureate professor of economics
    at Columbia University on Tuesday, March 12, 2002:

        Some contend that it is difficult to obtain an accurate
    measure of the value of the options. But this much is clear:
    zero, the implicit value assigned under current arrangements,
    is clearly wrong. And leaving it to footnotes, to be sorted out
    by investors, is not an adequate response, as the Enron case
    has brought home so clearly. At the Council of Economic
    Advisers, we devised a formula that represented a far more
    accurate lower bound estimate of the value of the options than
    zero. Moreover, many firms use formulae for their own purposes,
    in valuing stock options (charging them against particular
    divisions of the firm). However, Treasury, in its opposition to
    the FASB concerns, was singularly uninterested in these
    alternatives. I leave it to others to hypothesize why that
    might have been the case.
        If we are to have a stock market in which investors are to
    have confidence, if we are to have a stock market which avoids
    the kind of massive misallocation of resources that result when
    information provided does not accurately report the true
    condition of firms, we must have accounting and regulatory
    frameworks that address these issues. As derivatives and other
    techniques of financial engineering become more common, these
    problems too will become more pervasive. While headlines and
    journalistic accounts describe some of the inequities--those
    who have seen their pensions disappear as corporate executives
    have stashed away millions for themselves--what is also at
    stake is the long run well being of our economy. The problems
    of Enron and Global Crossing are part and parcel of the current
    downturn.

        I was under the impression this legislation was all about
    trust and transparency--regaining the trust of the American
    people and investors in the stock market and, frankly, the
    economic system that drives America and has been so successful,
    and transparent. Perhaps under this legislation, by beefing up
    many of the penalties and regulations and many other things--
    many of which I have recommended and strongly supported and
    will have in further amendments, but how in the world do we say
    that we have given transparency when, in the view of most
    experts, this is one of the greatest hindrances to transparency
    in the system as it exists today?
        I would now like to read the opinion of Mr. Warren Buffett,
    in the Washington Post, April 9, 2002, Stock Options and Common
    Sense:

        In 1994 seven slim accounting experts, all intelligent and
    experienced, unanimously decided that stock options granted to
    a company's employees were a corporate expense.
        Six fat CPAs, with similar credentials, unanimously
    declared these grants were no such thing.
        Can it really be that girth, rather than intellect,
    determines one's accounting principles? Yes indeed, in this
    case. Obesity--of a monetary sort--almost certainly explained
    the split vote.
        The seven proponents of expense recognition were the
    members of the Financial Accounting Standards Board, who earned
    $313,000 annually. Their six adversaries were the managing
    partners of the (then) Big Six accounting firms, who were
    raking in multiples of the pay received by their public-
    interest brethren.
        In this duel the Big Six were prodded by corporate CEOs,
    who fought ferociously to bury the huge and growing cost of
    options, in order to keep their reported earnings artificially
    high. And in the pre-Enron world of client-influenced
    accounting, their auditors were only too happy to lend their
    support.
        The members of Congress decided to adjudicate the fight--
    who, after all, could be better equipped to evaluate accounting
    standards?--and then watched as corporate CEOs and their
    auditors stormed the Capitol. These forces simply blew away the
    opposition. By an 88-9 vote, U.S. senators made a number of
    their largest campaign contributors ecstatic by declaring
    option grants to be expense-free. Darwin could have foreseen
    this result: It was survival of the fattest.
        The argument, it should be emphasized, was not about the
    use of options. Companies could then, as now, compensate
    employees in any manner they wished. They could use cash, cars,
    trips to Hawaii or options as rewards--whatever they felt would
    be most effective in motivating employees.
        But those other forms of compensation had to be recorded as
    an expense, whereas options--which were, and still are, awarded
    in wildly disproportionate amounts to the top dogs--simply
    weren't counted.
        The CEOs wanting to keep it that way put forth several
    arguments. One was that options are hard to value. This is
    nonsense: I've bought and sold options for 40 years and know
    their pricing to be highly sophisticated. It's far more
    problematic to calculate the useful life of machinery, a
    difficulty that makes the annual depreciation charge merely a
    guess. No one, however, argues that this imprecision does away
    with a company's need to record depreciation expense. Likewise,
    pension expense in corporate America is calculated under widely
    varying assumptions, and CPAs regularly allow whatever
    assumption management picks.
        Believe me, CEOs know what their option grants are worth.
    That's why they fight for them.
        It's also argued that options should not lead to a
    corporate expense being recorded because they do not involve a
    cash outlay by the company. But neither do grants of restricted
    stock cause cash to be disbursed--and yet the value of such
    grants is routinely expensed.
        Furthermore, there is a hidden, but very real, cash cost to
    a company when it issues options. If my company, Berkshire,
    were to give me a 10-year option on 1,000 shares of A stock at
    today's market price, it would be compensating me with an asset
    that has a cash value of at least $20 million--an amount the
    company could receive today if it sold a similar option in the
    marketplace. Giving an employee something that alternatively
    could be sold for hard cash has the same consequences for a
    company as giving him cash. Incidentally, the day an employee
    receives an option, he can engage in various market maneuvers
    that will deliver him immediate cash, even if the market price
    of his company's stock is below the option's exercise price.
        Finally, those against expensing of options advance what I
    would call the ``useful fairy-tale'' argument. They say that
    because the country needs young, innovative companies, many of
    which are large issuers of options, it would harm the national
    interest to call option compensation as expense and thereby
    penalize the ``earnings'' of these budding enterprises.
        Why, then, require cash compensation to be recorded as an
    expense given that it, too, penalizes earnings of young,
    promising companies? Indeed, why not have these companies issue
    options in place of cash for utility and rent payments--and
    then pretend that these expenses, as well, don't exist?
    Berkshire will be happy to received options in lieu of cash for
    many of the goods and services that we sell corporate America.
        At Berkshire we frequently buy companies that awarded
    options to their employees--and then we do away with the option
    program. When such a company is negotiating a sale to us, its
    management rightly expects us to proffer a new performance-
    based cash program to substitute for the option compensation
    being lost. These managers--and we--have no trouble calculating
    the cost to the company of the vanishing program. And in making
    the substitution, of course, we take on a substantial expense,
    even though the company that was acquired had never recorded a
    cost for its option program.
        Companies tell their shareholders that options do more to
    attract, retain and motivate employees than does cash. I
    believe that's often true. These companies should keep issuing
    options. But they also should account for this expense just
    like any other.
        A number of senators, led by Carl Levin and John McCain,
    are now revising the subject of properly accounting for
    options. They believe that American businesses, large or small,
    can stand honest reporting, and that after Enron-Andersen, no
    less will do.
        I think it is normally unwise for Congress to meddle with
    accounting standards. In this case, though, Congress fathered
    an improper standard--and I cheer its return to the crime
    scene.
        This time Congress should listen to the slim accountants.
    The logic behind their thinking is simple.
        One, if options aren't a form of compensation, what are
    they?
        Two, if compensation isn't an expense, what is it?
        Three, and if expenses shouldn't go into the calculation of
    earnings, where in the world should they go?

        Mr. President, I have to admit to you that I stood fifth
    from the bottom of my class at the Naval Academy. I don't
    pretend to understand a lot of the nuances and hidden workings
    of the stock market or many of the issues we are facing today
    because there were some very imaginative CEOs and corporate
    officers who have deprived investors of their money and
    hundreds of thousands of people of their jobs. But even I can
    understand Mr. Buffett's questions:

        If options aren't a form of compensation, what are they?
        If compensation isn't an expense, what is it?
        And if expenses should not go into the calculation of
    earnings, where in the world should they go?

        Mr. President, that is why this amendment is simple:
        Any corporation that grants a stock option to an officer or
    employee to purchase a publicly traded security in the United
    States shall record the granting of the option as an expense in
    that corporation's income statement for the year in which the
    option is granted.
        That is not a complicated issue, and there will be
    discussion from time to time about what the tax implications
    are and all those things. I would be glad to have smarter
    people than I figure it out.
        I want to read a letter to the editor of the New York Times
    by Steven Barr, senior contributing editor of CFO Magazine,
    April 5, 2002. Reference: ``Leave Options Alone'' by John Doerr
    and Frederick W. Smith:

        What if, in the mid-1990s, accounting-rule makers had not
    caved in to lobbyists and instead had forced companies to
    recognize options as a compensation expense on financial
    statements?
        There would still have been a technology boom, a bear
    market, and a period of recession. Such cycles are immutable.
    But there may have been less of the accounting gamesmanship
    that is now the object of government investigation and investor
    ire.
        Options should count as an expense to the corporation, and
    the ability to exercise them should be based on stock
    performance that exceeds an index of peers.

        Mr. President, one of the more egregious activities we have
    seen with some of these really unsavory people has been that
    while their company stock was declining, they exercised their
    stock options and sold them, making hundreds of millions of
    dollars.
        As I said earlier, in the case of Enron--I heard WorldCom
    was $1.8 billion, or Enron, I am not sure which--at the same
    time in the case of Enron, the employees, in testimony before
    the Commerce Committee, said they were urged to hang on to the
    stock, hang on to the Enron stock. Meanwhile, the executives
    were selling the stock. I do not know of anything quite as
    egregious as that.
        As I mentioned, according to a recent analysis from 1996 to
    2000, Enron issued nearly $600 million in stock options,
    collecting tax deductions which allowed the corporation to
    severely reduce their payment in taxes.
        I repeat, no other type of compensation gets treated as an
    expense for tax purposes without also being treated as an
    expense on the company books. This double standard is exactly
    the kind of inequitable corporate benefit that makes the
    American people irate and must be eliminated.
        If companies do not want to fully disclose on their books
    how much they are compensating their employees, then they
    should not be able to claim a tax benefit for it.
        The Washington Post, Thursday, April 18, 2000:

        Alan Greenspan, perhaps the Nation's most revered
    economist, thinks employee stock options should be counted,
    like salaries, as a company expense. Warren Buffett, perhaps
    the Nation's foremost investor, has long argued the same line.
    The Financial Accounting Standards Board, the expert group that
    writes accounting rules, reached the same conclusion eight
    years ago. The London-based International Accounting Standards
    Board recently recommended the same approach. In short, a
    rather unshort list of experts endorses the common-sense idea
    that, whether you get paid in cash or company cars or options,
    the expense should be recorded. Yet today's Senate Finance
    Committee hearing on the issue is likely to be filled with
    dissenting voices. There could hardly be a better gauge of
    money's power in politics.

        The Washington Post said:

        There could hardly be a better gauge of money's power in
    politics.
        Why does this matter? Because the current rules--which
    allow companies to grant executives and other employees
    millions of dollars in stock options without recording a dime
    of expenses--make a mockery of corporate accounts. Companies
    that grant stock options lavishly can be reporting large
    profits when the truth is they are taking a large loss. In
    2000, for example, Yahoo reported a profit of $71 million, but
    the real number after adjusting for the cost of employee stock
    options was a loss of $1.3 billion. Cisco reported $4.6 billion
    in profit; the real number was a $2.7 billion loss.

        Mr. President, those numbers are staggering. Let me repeat:

        Yahoo reported a profit of $71 million, but the real number
    after adjusting for the cost of employee stock options was a
    loss of $1.3 billion. Cisco reported $4.6 billion in profits;
    the real number was a $2.7 billion loss. By reporting make-
    believe profits, companies may have conned investors into
    bidding up their stock prices. This is one cause of the
    Internet bubble, whose bursting helped precipitate last year's
    economic slowdown.
        It is not surprising, therefore, that the expert consensus
    favors treating options as a corporate expense, which would
    mean that reported earnings might actually reflect reality. But
    the dissenters are intimidated by neither experts nor logic.
    They claim that the value of options is uncertain, so they have
    no idea what number to put into the accounts. But the price of
    an option can actually be calculated quite precisely, and
    managers have no difficulty doing the math for purposes of tax
    reporting. The dissenters also claim options are crucial to the
    health of young companies. But nobody wants to ban this form of
    compensation; the goal is merely to have it counted as an
    expense. Finally, dissenters say that options need not be so
    counted because granting them involves no cash outlay. But
    giving employees something that has cash value amounts to
    giving them cash.
        The dissenters include weighty figures in both parties.
    Sen. Joe Lieberman (D-Connecticut) is the chief opponent of
    options sanity in the Senate, and last week President Bush
    himself declared that Mr. Greenspan is wrong on this issue.
    What might be behind this? Many of the corporate executives who
    give generously to politicians are themselves the beneficiaries
    of options--often to the tune of millions of dollars. High-tech
    companies, an important source of campaign cash, are fighting
    options reform with all they've got. But if these lobbyists are
    allowed to win the argument, they will undermine a key
    principle of the financial system. Accounting rules are meant
    to ensure investors get good information. Without good
    information, they cannot know which companies will best use
    capital, and the whole economy suffers in the long run.

        Mr. President, again, transparency and trust. Transparency
    and trust. Without transparency, we are not going to have
    trust.
        A Washington Post, April 21, 2002, editorial; byline David
    S. Broder. Mr. Broder writes:

        Thanks to the Enron scandal, the public is getting to know
    about a scheme that corporate executives have used for years,
    but that most of us were not smart enough to understand.

        I include myself in that group that Mr. Broder describes.

        You can call it the have-your-cake-and-eat-it-too ploy.
        It involves stock options, the rights to buy company stock
    some time in the future at the (presumably bargain) price at
    which it is selling currently. Stock options awarded to senior
    management by their (usually hand-picked) boards of directors
    mushroomed from $50 billion in 1997 to $162 billion just three
    years later. As Business Week pointed out in its April 15
    issue, boards have been ``lavishing options on executives'' so
    profligately ``that they now account for a staggering 15
    percent of all shares outstanding.''
        This is obviously a good deal for the executives. One of
    them, Oracle Corporation's Lawrence Ellison, exercised options
    worth $706 million in one week. A nice mouthful of cake, by any
    standard.
        But here's how his company--and all others like it--can
    have its cake, too. The value of the stock options granted
    Ellison is a cost to Oracle for tax purposes, but it doesn't
    come off the bottom line when Oracle is reporting its earnings
    for the year.
        This would seem to defy common sense--and it does. Almost a
    decade ago, as the options craze was getting under way, the
    Federal Accounting Standards Board--the watchdog group--said
    that when options are granted, they should be treated as an
    expense in company reports as well as in tax returns. The
    corporate CEOs and the accounting firms they hire went nuts,
    and the next thing you knew, the Senate in 1994 was passing a
    resolution . . . telling the watchdog: forget it.

        Mr. Gramm. Mr. President, will the Senator yield? I do not
    want to break in, but a key point I would like to make--and I
    thought the Senator might want a breather----
        Mr. McCain. I would appreciate it if the Senator would
    phrase it in the form of a question, as he is very adept at
    doing. I will be glad to yield for his question.
        Mr. Gramm. I thought it was very important to make this
    point. What happened almost a decade ago when we saw this
    blossoming of stock options? The answer is, in 1993, we passed
    a law that said that if you paid a corporate executive more
    than $1 million a year in a plain old paycheck, you could not
    deduct it as an expense in running the business.
        At that time, the largest companies in America--and I am
    trying to make a point that is in no way contradicting anything
    the Senator says, though I do not agree with a word of it, but
    what we said was you could not pay a corporate executive,
    through their paycheck, more than a million a year, even though
    the 50 largest companies in America were paying their corporate
    executives $3 million a year, on average.
        When we passed that law, what happened? What happened is
    that corporate America, being clever--you do not make $3
    million a year if you are not pretty smart--figured out ways
    around the law. Some of the ways around the law were getting
    loans from the company at low interest rates and getting stock
    options, which are now criticized as giving corporate
    leadership a very short-term horizon.
        The only point I want to make is that everybody has
    forgotten that in 1993 Congress, in a demagogic amendment aimed
    at ``rich people,'' started this whole process.
        It struck me when you were saying this group of accountants
    got together in 1994, what they were doing was responding to a
    bad law, and the bad law helped trigger this. One of the
    things--and God knows it is not going to happen in the
    environment we are in now--but one of the things Congress ought
    to do is to repeal that law so General Electric could pay its
    CEO with a paycheck, like everybody else, instead of trying to
    find all these ways around the law. I just wanted to get in
    that advertisement.
        Mr. McCain. I would like to respond to the Senator's
    question by saying that I think the Senator makes a very valid
    point. I think this is probably none of Congress's business as
    to what salaries should be bestowed on a corporate executive,
    with truly independent boards of directors and with a voice of
    the stockholders.
        Let me say to the Senator before he leaves, I am not
    talking about doing away with stock options. I am talking about
    how they are treated. They may have gotten around that, but it
    is how they are treated. As we get into the debate further, I
    would be glad to hear him respond to Mr. Buffett's three
    questions.
        Mr. Gramm. I would be happy to respond to Mr. Buffett.
        Mr. McCain. I ask unanimous consent for Senator Gramm to
    respond without me losing my right to the floor.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Gramm. I would be happy to respond to him. First, I
    would have been happy to have voted on the Senator's amendment.
        Mr. McCain. I thank the Senator.
        Mr. Gramm. Second, this is something I am happy to debate.
    The only point I wanted to make is that while we are all
    damning corporate America, our law, which said if you paid
    somebody more than $1 million a year it could not count as a
    business expense, really helped trigger all of this. One of the
    things we ought to be doing in the name of reform is to repeal
    that law.
        When I tried today in Finance--the Senator said this would
    not be brought up in Finance, but today in the Finance
    Committee I thought we ought to have one Good Government
    amendment, and it failed, like logic and truth, for the lack of
    a second. That is my only point.
        Mr. McCain. I thank the Senator. I especially thank him for
    agreeing because the Senator from Texas--we have had our
    agreements, mostly agreements and occasional disagreements--has
    never, in all the years we have known each other, which goes
    back to our days in the other body, wanted to deprive anybody
    of a vote on an issue, no matter where he stood on that issue.
        I regret deeply that it is clear, as I said earlier, the
    fix is in; there is not going to be a vote on this issue before
    cloture is invoked, but I want to again assure my colleagues
    there will be a vote. There will be a vote on this issue, just
    like when I was blocked for a long time on the line-item veto,
    I was blocked for a long time on campaign finance reform, I
    have been blocked on a lot of other issues but we always got a
    vote because that is my right as a Senator to get a vote.
        It is not my right as a Senator to determine the outcome,
    but it is my right as a Senator to get a vote on an issue,
    particularly when, in the view of any observer, stock options
    are a key issue in this entire debate.
        Again, I respect the views of the Senator from Texas who
    disagrees with my position. I think it is a respectful
    disagreement that we have. I look forward to debating him. I do
    so at some disadvantage because he is a trained economist and
    former professor of economics.
        I can also see why he would want to do away with that
    million-dollar cap because I am sure the Senator from Texas
    will make more than a million dollars when he leaves this body,
    and justifiably so given his talent, expertise, and experience.
    I wish him well. I wish him every success in doing so.
        At least the Senator from Texas is in agreement that we
    should have a vote on this issue.
        The question is going to be raised by me and others, time
    after time: Why did we not have a vote on this issue? If we are
    truly committed to reforming the system, restoring trust and
    transparency to the system, why do we not have a vote on it?
    That is a very legitimate question. There will be a vote.
        I will return to Mr. Broder's editorial. He talks about
    that:

        The Federal Accounting Standards Board said that when
    options are granted, they should be treated as an expense.

        And the Senate passed a resolution telling the watchdogs,
    forget it.

        And that has had a truly wondrous effect. On average, the
    Federal Reserve Board estimates, the ruling has boosted the
    reported earnings growth of corporations by 3 percentage points
    from a realistic 6 percent to an inflated 9 percent. Enron, it
    is estimated, used that same ruling in 2000 to inflate its
    earnings by more than 10 percent. Overstated earnings, of
    course, boost stock prices, thus benefiting the executives who
    have been given stock options.

        By the way, I might add, not only stock options but it
    increases compensation because the stock value is inflated.

        But that is not the end of it. Because these stock options
    are deductible for tax purposes, and their cost can be carried
    forward for years, they also enable companies that hand out a
    lot of options to stiff-arm the IRS. In Enron's case, they
    allowed the company to cut its tax bill by $625 million between
    1996 and 2000.

        Especially on my side of the aisle, there is this
    continuous drumbeat: Let us make the tax cuts permanent; let us
    do away with the death taxes; let us make the tax cuts
    permanent; let us help the American taxpayer. Should we not try
    to make a corporation pay its legitimate taxes? In Enron's
    case, because of the use of stock options, they allowed the
    company to cut its tax bill by $625 million over a period of 4
    years. Amazing.

        Thanks to Enron, another push is under way to stop the
    double-dealing. But it faces tough sledding. The Coalition to
    Preserve and Protect Stock Options, which includes 32
    influential trade associations, is flooding Congress with
    `talking points' claiming that `stock options are a vital tool
    in the battle for economic growth and job creation . . . (and)
    to attract, retain and motivate talent.'
        The coalition is trying to kill a bill that would not end
    stock options but simply specify that companies could not use
    them to reduce their taxes unless they also report them as an
    expense in their financial statements.
        The bill has bipartisan sponsorship: Democratic Senators
    Carl Levin of Michigan, Mark Dayton of Minnesota and Dick
    Durbin of Illinois; Republican Senators John McCain of Arizona
    and Peter Fitzgerald of Illinois. Fitzgerald is particularly
    interesting. He is from a wealthy banking family and is a
    staunch conservative, but Enron has made him almost a raging
    populist.
        It has had no such effect on President Bush. Concerned as
    always for the deserving rich, he told the Wall Street Journal
    he opposes this kind of legislation. . . . But Federal Reserve
    Board Chairman Alan Greenspan testified recently in support of
    expensing stock options. The only issue, he said, is whether
    under current rules, ``is income being properly recorded? And I
    would submit to you that the answer is no.''

        That is what Alan Greenspan says: Is income being properly
    reported? And I would submit to you that the answer is no.

        And superinvestor Warren Buffett, who hands out bonuses but
    not stock options to his employees--

        By the way, I have not heard of any bad morale or failure
    to attract employees out at Berkshire Hathaway out in Omaha, a
    lovely place to live--for years has been asking three
    questions: ``If options aren't a form of compensation, what are
    they? If compensation isn't an expense, what is it? And if
    expenses shouldn't go into the calculation of earnings, where
    in the world should they go?"
        That is what Mr. Broder has to say.
        Paul Krugman, on May 17, 2002:

        On Tuesday Standard & Poor's, the private bond rating
    agency, announced that it would do something unprecedented: It
    will try to impose accounting standards substantially stricter
    than those required by the Federal government. Instead of
    taking corporate reports at face value, S&P will correct the
    numbers to eliminate what it considers the inappropriate
    treatment of ``one-time'' expenses, pension fund earnings and,
    above all, stock options--a major part of executive
    compensation that, according to Federal standards, somehow
    isn't a business expense. S&P's estimate of ``core earnings''
    for the 500 largest companies slashes reported profits by an
    astonishing 25 percent.
        Why does S&P--along with Warren Buffett, Alan Greenspan and
    just about every serious financial economist--think that
    current accounting standards require a drastic overhaul? And if
    such an overhaul is needed, why doesn't the government do it?
    Why does S&P think that it must do the job itself?
        To see the absurdity of the current rules, consider stock
    options. An executive is given the right to purchase shares of
    the company's stock, at a fixed price, some time in the future.
    If the stock rises, he buys at bargain prices. If the stock
    falls, he doesn't exercise the option. At worst, he loses
    nothing; at best, he makes a lot of money. Nice work if you can
    get it.
        Yet according to Federal accounting standards, such deals
    don't cost employers anything, as long as the guaranteed price
    isn't below the market price on the day the option is granted.
    Of course, this ignores the ``heads I win, tails you lose''
    aspect; executives get a share of investors' gains if things go
    well, but don't share the losses if things go badly. In fact,
    companies literally apply a double standard: they deduct the
    cost of options from taxable income, even while denying that
    they cost anything in their profit statements.
        So how could it possibly make sense not to count options as
    a cost? Defenders of the current system argue that stock
    options align the interests of executives with those of
    investors. Even if that were true, however, it wouldn't justify
    ignoring the cost--no more than it would make sense to deny
    that wages, which provide incentives to workers, are a business
    expense. Furthermore, it's now clear that stock options, far
    from reliably inducing executives to serve shareholders, often
    create perverse incentives. At worst, they handsomely reward
    managers who run their companies as pump-and-dump schemes,
    executives at Enron and many other companies got rich thanks to
    stock prices that soared before they collapsed.

        I hope the opponents of this provision, including my friend
    from Texas, will put it into the real-world context. It is nice
    to talk about economic theory. I know of no one better at that
    than the Senator from Texas. What happened at Enron? What
    happened at Enron when it cashed in $600 million worth of stock
    options and the stock tanks and there are 10,000 or so
    employees out of work? And there was a period of time where the
    employees were not allowed, because they were undergoing some
    managerial change of their portfolio, to cash in their stock
    options. But the executives were not prohibited from doing so.
    They kept on doing it. They kept on doing it.
        So I hope we can have this debate not in the world of
    theories of economics. I am not a CPA, nor am I a professor of
    economics, nor am I as smart as most of the Members of this
    body, but I know what happened to these people. I know of the
    thousands left penniless. I know of the thousands whose
    retirement savings were wiped out.
        Meanwhile, the very people this whole stock option deal was
    supposed to be protecting were not protected, and yet somehow
    the executives all made out like bandits.
        Perhaps my colleagues, as they oppose this legislation, can
    talk about the real-world examples--not the theoretical world
    of economics, which I will immediately grant them a distinct
    advantage on. I would like for them to have the opportunity to
    meet some of these employees, as I have, who were told by the
    executives of the corporation the stock was in great shape,
    while they were dumping the stock. I would like for them to
    talk to the employees or the retirees who invested enormous
    amounts of their money and their life savings, in some cases in
    a stock, and were told by their employers and executives that
    everything was great, things could not be better, estimates of
    double the stock value over the next few years.
        That is the framework of this debate, not the framework of
    whether certain economic theories are valid or not.

        Options are only part of an accounting system in deep
    trouble. As David Blitzer, S&P's chief investment strategist,
    recently wrote, ``Financial markets are as much a social
    contract as is democratic government.'' Yet there is a growing
    sense that this contract is being broken, undermining the trust
    that is so essential to the operation of financial markets.
    Clearly, major reforms are needed. And bear in mind that this
    isn't a left-right issue; it's about protecting investors--
    middle-class and wealthy alike from exploitation by self-
    dealing insiders. So who could possibly be opposed? You'd be
    surprise.
        Harvey Pitt, the accounting industry lawyer who heads the
    Securities and Exchange Commission, has clearly been dragging
    his feet on reform.

        Bear in mind, this is not a left-right issue. It is about
    protecting investors, middle class and wealthy alike, from
    exploitation by self-dealing insiders. So who could possibly be
    opposed? You would be surprised. Harvey Pitt, the accounting
    industry lawyer who heads the Securities and Exchange
    Commission, has clearly been dragging his feet on reform. Mr.
    Blitzer of S&P points out that in previous periods of corporate
    scandal, legislatures and prosecutors took the lead with public
    concerns over the market.
        It is a sad commentary on our leadership that this time he
    believes he must do the job himself--referring to Standard and
    Poors--and announced that it would impose accounting standards
    substantially stricter than those required by the Federal
    Government.
        Boston Globe, June 10, 2002:

        Stock options have become the currency of choice to reward
    high ranking executives in part because under current rules the
    company need not count them as an expense with much of their
    compensation. Depending on the difference between the option
    price of the stock and the market price, it is no wonder that
    some executives have used trickery to show quarterly growth and
    inflate the worth of their companies. Excessive reliance on
    stock options is a license for some executives to drive their
    companies along treacherous roads.

        I have a number of other views, but I think I have made my
    point. The point is this: Why should we, in the name of
    restoring confidence, trust, and transparency to the American
    people on an issue of this import, not have a vote? That is the
    first question.
        The second question that needs to be answered is Mr.
    Buffett's question, not mine; not mine because I don't claim to
    have a corner on expertise and knowledge on this issue. But I
    believe that Mr. Buffett does. I believe that Mr. Greenspan
    does. I believe that literally every outside observer and
    economist does. If options aren't a form of compensation, what
    are they? If compensation isn't an expense, what is it? And if
    expenses shouldn't go into the calculation of earnings, where
    in the world should they go?
        I know what I will hear in response. In fact, most of those
    have already been responded to so I don't intend to engage in
    extended debate about it. We all know where the majority stock
    options have gone--to the executives, not to the workers. Mr.
    Buffett, and many others, have been able to attract good and
    talented employees and retain them without having to resort to
    stock options.
        But the real question is not whether stock options are good
    or bad because the intent of the amendment is not to do away
    with stock options. The intent of the amendment is simply to
    give an accurate depiction of what stock options are. And that
    is clearly compensation. Depreciation is listed as an expense.
    In the view of many, that is much harder to calculate than a
    stock option.
        Another argument I anticipate will be, how do you treat it
    taxwise? Frankly, I would be glad to treat it taxwise as to how
    the smartest people at the SEC would say it should be treated.
    I would leave that up to the two experts. But to not treat it
    as an expense, as Mr. Buffett says, of course is just
    Orwellian. It is Orwellian.
        Mr. Levin. Will the Senator yield for a question?
        Mr. McCain. I am sorry my colleague will not allow a vote.
    I will be glad to respond to my colleague from Michigan.
        Mr. Levin. I appreciate the Senator's yielding for a
    question. I wonder if the Senator would agree that the
    following individuals and organizations support the change in
    accounting for stock options, which the Senator has outlined:
    Alan Greenspan, Paul Volcker, Arthur Levitt, Warren Buffett, as
    the Senator mentioned, TIAA-CREF, Paul O'Neill, Standard &
    Poor's, Council for Institutional Investors, Consumer
    Federation, Consumers Union, AFL /CIO--among others? Would the
    Senator agree that those organizations support a change in the
    accounting for stock options?
        Mr. McCain. I would say to my friend, yes. I think there is
    another important organization, the Federal Accounting
    Standards Board--I believe it is--the international.
        Mr. Levin. There are some additional organizations.
        Mr. McCain. Yes.
        Mr. Levin. I wanted to give the Financial Accounting
    Standards Board.
        Mr. McCain. Yes.
        Mr. Levin. Does the Senator remember, as I do very vividly
    because I appeared before the Federal Financial Standards Board
    in the middle 1990s to support their independence, when they
    decided that you had to expense options, that it was
    compensation, that it had value like all other forms of
    compensation?
        Does the Senator remember what the Financial Accounting
    Standards Board decided when they left it optional, as to
    whether or not to either expense options or to show them as a
    footnote--just to disclose them without actually expensing
    them? Because if the Senator does not, I would like to read
    what the Financial Accounting Standards Board said about the
    pressure they were put under, the horrendous, horrific pressure
    they were put under, and how they could have, indeed, been put
    out of existence if they went forward with what they believed
    was right, which is what Warren Buffett says.
        If the Senator does not remember those words, I wonder if
    he might yield to me to read them, without losing his right to
    the floor.
        Mr. McCain. Yes.
        Mr. Levin. This is what the Financial Accounting Standards
    Board said. They had proposed that stock options be expensed.
    That was their proposal. This is the board of accountants.

        The debate on accounting for stock-based compensation,
    unfortunately, became so divisive that it threatened the
    Board's future working relationship with some of its
    constituents. Eventually the nature of the debate threatened
    the future of accounting standards setting in the private
    sector. The Board continues to believe that financial
    statements would be more relevant and representationally
    faithful if the estimated fair value of employee stock options
    was included in determining an entity's net income, just as all
    other forms of compensation are included. To do so would be
    consistent with accounting for the cost of all other goods and
    services received as consideration for equity instruments.
    However, in December 1994, the Board decided that the extent of
    improvement in financial reporting that was envisioned when
    this project was added to its technical agenda and when the
    Exposure Draft was issued was not attainable because the
    deliberate, logical consideration of issues that usually leads
    to improvement in financial reporting was no longer present.

        That is the climate that was created for this Board in
    1994. And when the accountants, the Board, the Financial
    Accounting Standards Board of this country, said they have
    value, these options, they are compensation, they should be
    accounted for in the financial statement, they were hit upon so
    hard that even when they said we are throwing in the towel
    because it could destroy us, even when they said we will allow
    it to be shown as a footnote, not required to be taken as an
    expense--even then, they said this is not the right way to
    proceed.
        We are now creating--I should ask a question, I think,
    given the request I made.
        Does the Senator not agree that ideally what we should be
    allowing here is an independent Financial Accounting Standards
    Board to determine the rules?
        Mr. McCain. I could not agree more with the Senator from
    Michigan. I think he knows how strongly I believe that options
    should be expensed because they are compensation and they have
    value and there is no other form of compensation that is not
    expensed. It is a stealthy form of compensation and has driven
    the excesses of the 1990s. These options have driven the
    deceptions that make these financial statements for
    corporations look better than those corporations' situations
    really are because they have created so much value in those
    options that then executives--mainly executives--were able to
    cash in on these options and make tens of millions of dollars
    based on financial accounting which was deceptive.
        Would the Senator agree with that and agree that ideally
    these standards should be set by an independent financial
    accounting standards board?
        Mr. McCain. I say to my friend from Michigan, first of all,
    it was the Senator from Michigan who first initiated discussion
    with me on this issue several years ago. We were treated as
    virtual pariahs for having the audacity to challenge what was
    then, as we now know, a high-tech bubble in the way stock
    options were being disbursed.
        By the way, let's do away with the myth that these stock
    options are for the average worker. The fact is the
    overwhelming majority of the stock options have gone to the
    chief executives. That is just a matter of record and fact.
        But I think the Senator is correct. I think the Senator has
    also an additional, I think important, corollary to this
    amendment, that we could have certain direction from FASB, as
    it is known. But I think it is also a clear-cut, black-and-
    white issue as to how stock options should be treated.
        I would be glad to agree with the Senator from Michigan
    that some of these aspects of it can be better handled by the
    experts.
        Finally, the Senator from Nevada and the Senator from
    Maryland are in the Chamber. I hope they will reconsider and
    allow a vote postcloture at some time on this important
    amendment. I do not see how you can possibly go to the American
    people and say: Look, we have discussed and debated all these
    issues, but we wouldn't allow a vote on the issue of stock
    options.
        There is no observer who does not believe that the issue of
    stock options is one of significant importance in this entire
    scenario of returning trust and transparency so we can regain
    the confidence of the American investor.
        Again, I assure my friends, we will have a vote on this
    issue at some time, whether it be now on this bill or whether
    it be the next bill or the bill after that. So I hope my
    colleague from Nevada and my colleague from Maryland will allow
    an up-or-down vote on this amendment.
        Mr. Levin. Will the Senator yield for one last question?
        Mr. McCain. I am glad to.
        Mr. Levin. Assuming cloture is invoked, there is still,
    does my friend agree, the possibility at least of voting on
    germane amendments relating to this subject? So the amendment
    which is germane postcloture does not state what the Senator
    from Arizona and I believe, which is that unless we deal with
    this, we are missing a huge problem, we are not addressing a
    huge problem that has driven the situation that we now face in
    terms of deceptive financial statements. But, in any event,
    will the Senator from Arizona agree that at least postcloture,
    if an amendment is germane which says it is determined that
    FASB or an independent accounting board reviewed this matter,
    that at least there could be a vote at that time on something
    which carries out the spirit of what the Senator from Arizona
    and I have been fighting for, which is that an independent
    accounting board be allowed to proceed without threatening its
    very existence to determine what is the proper accounting for
    stock options?
        Mr. McCain. I apologize to my colleagues for taking as much
    time as I have on this subject. As I said, I believe it is one
    of transcending importance in the minds of average American
    citizens. Yes. I would support the Senator's amendment
    postcloture. But I would also have to add that it doesn't
    address the issue completely. Here is why.
        The Senator from Michigan just talked about how these
    boards have been intimidated and bullied into backing off of a
    position they had before. I can't have the confidence that any
    board that is subject to the kind of intimidation and bullying
    that has happened in the past would properly carry out what is
    a pretty simple operation.
        I understand the Senator's point. I will support his
    amendment postcloture. I think it is an important one. But
    there has to be a clear signal sent. That clear signal is this:
    As Mr. Buffett says, if it isn't compensation, what is it? If
    options are not a form of compensation, what are they? If
    compensation is not an expense, what is it? If expenses
    shouldn't go into the calculation of earnings, where in the
    world should they go? This answers Mr. Buffett's question. We
    know where it should go--as an expense.
        Again, I am not trying to do away with stock options but
    how it is treated so the American people can restore their
    confidence.
        Mr. Levin. Will the Senator yield for a couple of questions
    which his comments have raised?
        Mr. Sarbanes. Will the Senator yield? The Senator directed
    a question.
        The Presiding Officer. The Senator from Arizona has the
    floor.
        Mr. McCain. I would be glad to yield to the Senator from
    Maryland for a comment without yielding my right to the floor.
        Mr. Sarbanes. I wanted to respond at this point because the
    Senator just directed a question. We are not trying to prevent
    a vote on your amendment. We have been trying repeatedly to get
    votes on these amendments. Senator Edwards has had an amendment
    pending in here for now more than a day. We can't get a vote on
    it. Senator Levin has had an amendment pending. We have a list
    of people who want to offer amendments. We have been trying to
    work through these amendments. Now the Senator has come with
    his amendment. There are a lot of amendments around here on
    which people are trying to get votes. I think they are entitled
    to those votes.
        I know you have a problem. But I take some umbrage as sort
    of having it placed on my shoulders. In fact, I think that is
    totally inaccurate, and I just want to make sure I put that on
    the record.
        Mr. McCain. Thank you.
        I ask unanimous consent that the McCain amendment be
    allowed postcloture.
        Mr. Reid. Objection.
        Mr. McCain. So you see.
        Mr. Sarbanes. No. That doesn't approve anything. The
    Senator wants his amendment----
        Mr. McCain. I have the floor.
        Mr. Sarbanes. And denies everybody else.
        The Presiding Officer. The Senator from Arizona has the
    floor.
        Mr. McCain. I thank the Chair.
        I think I have made my point.
        Mr. Sarbanes. No. You haven't made your point.
        The Presiding Officer. The Senator from Arizona has the
    floor.
        Mr. McCain. I would like to respond to the question of the
    Senator from Michigan, if he would like.
        Mr. Sarbanes. Will the Senator yield?
        Mr. McCain. I would be glad to yield, if the Senator from
    Michigan would be glad to yield.
        Mr. Sarbanes. It is a very clever trick, but you haven't
    made your point. There are other Members here with amendments
    that are very important to them which they are trying to have
    considered. We have been trying to process those amendments in
    an orderly way. The Senator arrives on the scene and apparently
    thinks, well, there should be a special set of rules for the
    Senator to do his amendment. So he just now tried to jump ahead
    of other people, and a reasonable objection was made. And I
    think it ought to have been made. The Senator from Arizona
    comes in, and, all of a sudden, there is going to be a special
    set of rules to deal with his amendment. The Senator doesn't
    even recognize what is in the bill, which does try to address
    to some extent this problem with independent funding and FASB
    that this legislation provides for--which everyone agrees is
    long overdue and is an important contribution.
        But we have these people lined up here who want to do
    amendments. We have the Edwards amendment, we have the Levin
    amendment, and we have a whole list of people with amendments.
    We have been trying to process those amendments, and we have
    not been able to do it.
        As one who is down here trying to work overtime to get
    these amendments processed, I want to very strongly register
    that point.
        Mr. Reid addressed the Chair.
        The Presiding Officer. The Senator from Arizona has the
    floor.
        Mr. McCain. I still have the floor. I thank the Senator
    from Maryland. I appreciate his hard work managing the
    legislation. I have managed bills in my time. I know that
    sometimes it gets very frustrating and difficult.
        I have some suggestions. One is that the Senator oppose
    cloture so that we can address all of these issues and prevail
    on his colleagues to do so so that we can have relevant
    amendments considered.
        I also think--it is not just in this Senator's view but in
    the view of almost everyone, in the view of Alan Greenspan, in
    the view of Warren Buffett, in the view of the Washington Post
    and the New York Times, and everybody--that this is a serious
    and vital issue.
        So my suggestion is that we not have a cloture vote, and
    that we go ahead and take up the amendments in an orderly
    fashion. The Senator from Nevada, obviously, will not allow my
    amendment to be considered postcloture.
        The Senator from Michigan has a question. Would the Senator
    from Nevada, the distinguished whip, like to wait until the
    Senator from Michigan is finished, or would you like to go
    ahead?
        Mr. Levin. My question was actually touched upon by the
    Senator from Arizona relative to the independence of the
    Financial Accounting Standards Board, and as to whether or not
    the Senator was aware--at least now in this bill--that we have
    the source of financing for that board which hopefully will not
    only allow it to reach its own conclusion, as it did once
    before, that options have value and should be expensed but also
    that it carry through with it without threatening their own
    survival.
        I think that is an important part of this. But at least
    that gives us hope this time that when the Financial Accounting
    Standards Board reviews this matter--if it does--it will reach
    a conclusion not only that it believes it, but it can then
    implement it through an accounting standard.
        That was my question about that funding source in this
    bill.
        Mr. McCain. I would like to respond. I understand that. I
    did know it is part of the bill. I also know what has happened
    in the past. The fact is that we have not made the changes
    which are necessary because of enormous pressures that have
    been brought to bear.
        The Senate should be on record on this issue. This is not a
    minor issue. This is not a small item. The Senate should be on
    record on this issue, and it apparently will not be at this
    time.
        I thank my colleagues, though I do think that it is an
    important step forward. But I also believe this is something
    that we could address in a straightforward fashion.
        Mr. Levin. Mr. President, will my colleague yield for 60
    seconds so I can make a statement on this subject prior to a
    unanimous consent, or an address on a different part of my
    amendment?
        Mr. McCain. Mr. President, I yield the floor.
        The Presiding Officer. The Senator from Michigan.
        Mr. Levin. Mr. President, I thank Senator McCain for his
    steadfast support of the issue which is critically important.
        Unless we address the way stock options are dealt with in
    this country--the fact that it is now a free ride, and stealth
    compensation which has caused, in large measure, the problems
    because accepted accounting practices, as we have seen, are
    significantly driven by the option accounting which allows
    options to be left off the financial statements as an expense,
    and, therefore, cashed in when those books of the company show
    great value, which is not reality, but nonetheless drives up
    stock prices--I want to say that I agree with the Senator from
    Arizona. Unless we address this issue, we are leaving a huge
    gap in our reform efforts.
        The Presiding Officer. The Senator from Nevada.
        Mr. Reid. Mr. President, the Senator from Maryland has
    tried now for several days to figure out a way to have
    amendments. We have tried to negotiate. We have had those which
    have been arbitrated. We have had some cajoling. We have had a
    little bit of begging. We have gotten nowhere. But the rules of
    the Senate are the rules of the Senate. Therefore, it would be
    contrary to my beliefs to have a special set of rules for the
    Senator from Arizona, as well intentioned as his amendment may
    be.
        I have had phone calls. I have had personal visits from at
    least 15 Democratic Senators saying they have amendments that
    they believe in very strongly. They and their staffs have
    worked on some of these amendments for months. They are not
    going to be able to offer those amendments.
        Mr. Gramm. There are 58 Democratic amendments.
        Mr. Reid. So it would be totally unfair to have a
    nongermane amendment that would be available for us
    postcloture. That is why I object. If I had to do it again, I
    would do the same thing.
        But let me say this. People can complain--and I have no
    problem with their doing so--that we have not been able to go
    through the relevant amendments, but this legislation that has
    been brought to us by the Banking Committee and has now been
    improved upon by the Judiciary Committee's amendment of Senator
    Leahy is a very fine piece of legislation.
        Let's not lose track of that. This is a very fine vehicle.
    Maybe we could do a better job--put some rearview mirrors on
    both sides of it, maybe improve the upholstery a little bit,
    but the legislation we have that will be voted on and approved
    by the Senate is very good.
        The Public Company Accounting Reform and Investor
    Protection Agent would establish the Public Company Accounting
    Oversight Board to set standards for auditing public companies.
        It would inspect accounting firms. It would conduct
    investigations into possible violations of its rules and impose
    a full range of sanctions. It would restrict the nonaudit
    services a public accounting firm may provide to its clients
    that are public in nature. It would require a public accounting
    firm to rotate its lead partner and review partner on audits
    after 5 consecutive years of auditing a public company.
        It would require chief executive officers and chief
    financial officers to certify the accuracy of financial
    statements and disclosures. It would require CEOs and CFOs to
    relinquish bonuses and other incentive-based compensation and
    profit on stock sales in the event of accounting restatements
    resulting from fraudulent noncompliance with Securities and
    Exchange Commission financial reporting requirements.
        It would prohibit directors and executive officers from
    trading company stock during blackout periods. It would require
    scheduled disclosures of adjustment statements. It would
    establish bright-line boundaries to prohibit stock analyst
    conflicts of interest.
        It would authorize about $300 million more than the
    President's budget for the SEC next year to enhance its
    investigation and enforcement capabilities.
        I will not go through all the details of the amendment that
    has been approved by the Senate, offered by Senator Leahy,
    making certain things criminal in nature and increasing the
    penalties.
        This is a fine piece of legislation. But I do say this. The
    Senator from Maryland is in the Chamber. I am confident the
    Senator from Maryland would agree to a unanimous consent
    request that on relevant amendments, determined by the
    Parliamentarian, we have a half hour on each one, and as soon
    as the half hour is up, vote on them.
        I ask the Senator from Maryland, you would agree to that,
    wouldn't you?
        Mr. Sarbanes. It would be one way of trying to deal with
    these amendments and dispose of them. A request of that sort
    ought to be carefully considered, certainly.
        We have this problem. Members have amendments pending. We
    have been trying to move the amendments forward. We have not
    been able to do that. I know how frustrated they are. I share
    their frustration.
        (Mrs. Carnahan assumed the chair.)
        Mr. Reid. But in spite of all this, I want the Record to be
    spread with the fact that we have a good piece of legislation.
    I would like, as I said before, to have some of the fancier
    upholstery----
        Mr. Sarbanes. If the Senator will yield, it is interesting,
    in the debate we just had, until the Senator from Michigan
    underscored the fact, it was not pointed out that we provide
    independent funding in this legislation for the Financial
    Accounting Standards Board, which has the responsibility of
    setting these accounting standards.
        Their problem in the past has been that they are
    voluntarily funded from the industry. They have to go to them
    and beg for money in order to carry out their activities. And
    if the industry thinks they are going to do a ruling that is
    contrary to what they want, then they are not as willing to
    support their activity.
        We eliminate that in this bill because we have a mandatory
    fee that must be paid by all issuers, and the Board will be
    funded out of that money. So that, in itself, is a very
    important and significant step in establishing the independence
    of the Accounting Standards Board.
        Mr. Reid. Madam President, I have spoken with the Presiding
    Officer and staff on several occasions. Yours is our next
    amendment in order. You have been waiting 2 days to have that
    amendment offered, a very important amendment. And you are just
    one of several. You are fortunate in that you are the next one,
    if we can ever get to the next one.
        I would ask my friend----
        Mr. Gramm. I have the next Republican amendment.
        Mr. Reid. We know we have to be burdened with a Republican
    amendment once in a while.
        I say to my friend, would the Senator consider my proposal
    to have relevant amendments debated--and the relevancy would be
    determined by the Chair--for a half hour on each one of those
    and, at the end of the half hour, have a vote up-or-down on
    that amendment?
        Mr. Gramm. The Senator is already in a big fight with
    Senator McCain. I do not know why he wants to try to pick one
    with other people.
        Where we are is, we are going to cloture. And there are
    rules in the Senate. And postcloture, for an amendment, the
    ticket to get into the arena is it has to be germane, which
    means it must be directly related to a provision in the bill.
    It cannot amend the bill in more than one place. There is a
    certain set of rules.
        If the Senator would indulge me a second, we have 36
    Republicans who want to offer an amendment. My amendment is
    next on the list. I am the ranking member of this committee,
    and it appears I am not going to get an opportunity to offer an
    amendment. Now, I could cry and pout about it, but it would not
    change anything and would not change the world either. There
    are 58 Democrat amendments.
        The point is, we all agree on one thing: Whether you like
    this bill or you do not like it, it is an important bill and we
    need to get on with it. We need to pass it. We need to go to
    conference. We need to work out an agreement with the House and
    with the White House. If we sat here and tried to do 36
    Republican amendments and 58 Democrat amendments--and some of
    them having to do with things such as the Ninth Circuit Court
    of Appeals and bankruptcy law--we would literally spend 3 or 4
    months. So there is no other alternative than following the
    rules of the Senate. And that is exactly what I want to do.
        Mr. Reid. Reclaiming the floor, I have always enjoyed the
    Texas drawl of my friend, the senior Senator from Texas. But
    even through the drawl, I understood that to be a no.
        Mr. Gramm. Yes. Yes, it was a no.
        Mr. Reid. My friend, the other Senator from Arizona, is on
    the floor. We are waiting for the Republican leader. I assume
    that will be soon.
        I ask my friend from Wyoming, when the Republican leader
    does appear, if he would be kind enough to allow us to attempt
    to enter into an agreement.
        I ask the Senator, if you see him come to the floor, would
    you be so kind as to yield the floor for just a short time? It
    would be appreciated.
        Mr. Enzi. I would be happy to interrupt my remarks at that
    time. I would hope my remarks would appear as uninterrupted.
        Mr. Reid. I would agree.

             VOLUME 148, FRIDAY, JULY 12, 2002, NUMBER 94,
                          PAGES [S6683-S6685]

      Public Company Accounting Reform and Investor Protection Act of 2002

        The Acting President pro tempore. Under the previous order,
    the Senate will now resume consideration of S. 2673, which the
    clerk will report.
        The legislative clerk read as follows:

        A bill (S. 2673) to improve quality and transparency in
    financial reporting and independent audits and accounting
    services for public companies, to create a Public Company
    Accounting Oversight Board, to enhance the standard setting
    process for accounting practices, to strengthen the
    independence of firms that audit public companies, to increase
    corporate responsibility and the usefulness of corporate
    financial disclosure, to protect the objectivity and
    independence of securities analysts, to improve Securities and
    Exchange Commission resources and oversight, and for other
    purposes.

        Pending:

        Edwards modified amendment No. 4187, to address rules of
    professional responsibility for attorneys.
        Daschle (for Levin) amendment No. 4269 (to amendment No.
    4187), to address procedures for banning certain individuals
    from serving as officers or directors of publicly traded
    companies, civil money penalties, obtaining financial records,
    broadened enforcement authority, and forfeiture of bonuses and
    profits.
        McCain motion to recommit the bill to the Committee on
    Banking, Housing, and Urban Affairs with instructions to report
    back forthwith with amendment No. 4270, to require publicly
    traded companies to record and treat stock options as expenses
    when granted for purposes of their income statements.
        Reid (for Edwards) amendment No. 4271 (to the instructions
    of the motion to recommit the bill to the Committee on Banking,
    Housing, and Urban Affairs), to address rules of professional
    responsibility for attorneys.
        Reid (for Levin) amendment No. 4272 (to amendment No.
    4271), to address procedures for banning certain individuals
    from serving as officers or directors of publicly traded
    companies, civil money penalties, obtaining financial records,
    broadened enforcement authority, and forfeiture of bonuses and
    profits.

        The Acting President pro tempore. Under the previous order,
    the time until 9:30 a.m. shall be equally divided between the
    two managers for debate only. Who yields time?
        The Senator from Maryland.
        Mr. Sarbanes. Madam President, I understand there will be
    about 5 minutes allotted each manager now. Is that correct?
        The Acting President pro tempore. The Senator is correct.
        Mr. Sarbanes. Madam President, very shortly we will be
    voting on a cloture petition with respect to this legislation,
    S. 2673. I urge my colleagues to vote for the cloture motion.
        I know there are a lot of amendments pending, but we have
    now been on this legislation a full week. Even with the voting
    of cloture today, this matter will carry over into next week.
    There have been a range of amendments, some that are pending
    that are germane under cloture to the bill. In other words,
    they have been drawn in a way and the subject matter is focused
    and limited enough that they remain germane even after cloture.
        There are a number of amendments that are relevant to the
    bill but not germane. Once cloture is invoked, they will fall.
    I know that is a matter of some concern to those who are
    proposing those amendments, but I do not know how we can handle
    this differently and move along towards a resolution.
        In addition to those relevant amendments--and I have
    sympathy there because while they may not meet the very narrow
    definition of germaneness, they do touch the subject matter of
    the legislation--there are also amendments that are not even
    relevant to the bill that are sort of--I was going to say
    floating around, but it would be more accurate to say they are
    sort of present. They touch matters that have nothing to do
    with this legislation.
        I am frank to say to my colleagues, I do not see how we can
    progress and move towards a final vote and resolution on this
    issue without invoking cloture this morning. We tried not to
    precipitate that early on, although I know people were then
    blocked from getting votes, and I regret that. I was concerned,
    as anyone, to get the votes and give people a chance to have
    their amendments considered. Nevertheless, we are now where we
    are, and I urge my colleagues to vote for cloture.
        We have to move forward on this legislation. This is
    important legislation. I think the committee and my colleagues
    have fashioned legislation which will make a very important
    contribution toward addressing the serious economic challenge
    now confronting the country and this loss of confidence in the
    workings of our economic system. The fact that people cannot
    have any trust in or reliance on the basic financial
    information upon which they make important economic decisions
    is having a major impact on the workings of the economy and
    carries with it the very real potential of having an even more
    significant impact.
        This is serious business, and the potential for an economic
    downturn, triggered in part by the difficulties we are trying
    to address in this legislation, I think is not insignificant.
    So I think it is important that we move forward and pass this
    legislation. This is but one step along the way, and there are
    many steps left yet to be done.
        I am hopeful at some point the administration will come to
    see the necessity of putting into place a statutory framework
    to provide for an independent oversight board with respect to
    the accounting industry, to address the conflict that exists on
    the part of auditors when they are the auditor of a company and
    at the same time are providing certain consulting services to
    the company which carry with them an inherent conflict of
    interest with their responsibilities as an auditor.
        There are extensive provisions in this bill with respect to
    corporate responsibility and accountability with respect to
    corporate disclosure and, of course, with respect to the
    conflict of interest we have seen manifest with respect to
    stock analysts who are often in the position of giving buy
    recommendations on the stock of a company with which the
    analyst's company is also having investment banking deals
    which, of course, raises the question: Is the recommendation on
    the stock being done in order to gain the investment banking
    business? So we try to provide some, as they call them, Chinese
    walls between those two sides of the company in order to reduce
    the degree of that conflict.
        Furthermore, this has a very significant authorization of
    additional monies for the SEC in order to be able to meet its
    responsibilities, which I think is very important. The
    President asked the other day in his address for another $100
    million. That is not sufficient. We have to do better than that
    so the SEC can do its job.
        So we can move forward, I urge my colleagues to support the
    cloture motion which will be before us for a vote at 9:30.
        I presume I have used my time, and I yield the floor so my
    colleague, the ranking Republican Member, may use his time.
        The Acting President pro tempore. The Senator from Texas.
        Mr. Gramm. Madam President, we need to pass a bill. We are
    going to conference with a House bill that is substantially
    different from this bill. I believe that between the two bills,
    we can find a virtually unanimous vote. I think we can write a
    bill that will satisfy the President and both Houses of
    Congress. I do not think we are making the bill better. The
    amendments that are being offered now are largely nongermane.
    We have gotten into sort of a one-upmanship position, and I
    think we are harming the markets by convincing people that the
    cure may very well be worse than the disease.
        It is very important that we get on with our business and
    that we pass this bill. I intend to vote for it today. I do not
    think it is the bill we need in the end, but it gets us to
    conference where we can get the bill we need in the end. I urge
    my Republican colleagues to vote for it, not because in the end
    they are for this version but because they want to do
    something. We need to bring this debate to a close. We do have
    some germane amendments. We will be dealing with those, but the
    time has come to get on about our business. Getting on about
    our business means bringing this debate to a close.
        So I urge my colleagues to vote to end the debate. Let us
    go to conference. Let us write this bill. Let us let it be
    known with certainty what our policy is going to be. If we do
    that, it will help restore confidence in the country. So I urge
    my colleagues to vote for cloture and, as we get to the end of
    the process, for the bill.
        I yield back the remainder of my time.
        The Acting President pro tempore. The Senator from
    Michigan.
        Mr. Levin. I do not know if the manager has any time.
        Mr. Sarbanes. Do I have any time remaining?
        The Acting President pro tempore. The manager has no time.
        Mr. Levin. Madam President, I ask unanimous consent that I
    be allowed to proceed until 9:30 when cloture is invoked.
        The Acting President pro tempore. Without objection, it is
    so ordered.
        Mr. Levin. Madam President, a number of amendments have
    been pending where we have been unable to get a vote. These are
    highly relevant amendments, including mine which would have
    given the SEC administrative powers to impose civil fines.
        The Republican manager said the amendments were not
    particularly relevant. Well, we had a highly relevant amendment
    that goes directly to the issue of abuses by corporate officers
    and corporate directors. The current fine structure of the SEC
    does not reach officers and does not reach directors, except by
    going to court. They have no administrative authority in the
    SEC to impose civil fines, the way they do with brokers and the
    way a lot of other agencies that regulate business have
    authority to do. The SEC does not have the power to impose
    administrative fines on directors and on officers of
    corporations. They should have that power administratively.
        We were blocked in getting a vote, and the amendment which
    is pending is going to fall if cloture is invoked. That is the
    use of the rules. But let it be clear what the rules were used
    to do, which was to prevent a strengthening amendment for this
    bill.
        It is a good bill. I compliment the sponsors of this bill.
    I compliment Senator Sarbanes and his cosponsors that this bill
    can be strengthened; it should be strengthened. One of the
    strengthening amendments was blocked from getting to a vote
    yesterday and will fall if cloture is invoked.
        We also have a question. What about postcloture? There are
    48 germane or arguably germane amendments. The question is
    whether or not the rules are going to be used again to block
    votes on germane amendments. I will object to that happening. I
    will do everything I can to make sure germane amendments,
    including some that I have filed, are considered postcloture.
        I thank the manager for yielding. I yield the floor.

                                 cloture motion

        The Acting President pro tempore. Under the previous order,
    the clerk will report the motion to invoke cloture.
        The legislative clerk read as follows:
                                 cloture motion
        We, the undersigned Senators, in accordance with the provisions of
    rule XXII of the Standing Rules of the Senate, do hereby move to bring
    to a close the debate on Calendar No. 442, S. 2673, the Public Company
    Accounting Reform and Investor Protection Act of 2002:

        Jon Corzine, Deborah Stabenow, Paul Wellstone, Ron Wyden, Daniel
                Akaka, Barbara Boxer, Charles Schumer, Byron Dorgan, Harry
                Reid, Paul Sarbanes, Daniel Inouye, John Edwards, Barbara
                Mikulski, Thomas Carper, Jack Reed, Tim Johnson.

        The Acting President pro tempore. By unanimous consent, the
    mandatory quorum has been waived.
        The question is, Is it the sense of the Senate that debate
    on S. 2673, the Public Company Accounting Reform and Investor
    Protection Act of 2002, shall be brought to a close? The yeas
    and nays are required under the rule. The clerk will call the
    roll.
        The legislative clerk called the roll.
        Mr. Reid. I announce that the Senator from Hawaii (Mr.
    Inouye), the Senator from Massachusetts (Mr. Kerry), and the
    Senator from Louisiana (Ms. Landrieu) are necessarily absent.
        Mr. Nickles. I announce that the Senator from North
    Carolina (Mr. Helms), the Senator from Ohio (Mr. Volinovich),
    the Senator from Idaho (Mr. Crapo), and the Senator from
    Virginia (Mr. Warner) are necessarily absent.
        The Presiding Officer. Are there any other Senators in the
    Chamber desiring to vote?
        The yeas and nays resulted--yeas 91, nays 2, as follows:
                          [Rollcall Vote No. 173 Leg.]
        Yeas--91: Akaka, Allard, Allen, Baucus, Bayh, Bennett, Biden,
    Bingaman, Bond, Boxer, Breaux, Brownback, Bunning, Burns, Byrd,
    Campbell, Cantwell, Carnahan, Carper, Chafee, Cleland, Clinton,
    Cochran, Collins, Conrad, Corzine, Craig, Daschle, Dayton, DeWine,
    Dodd, Domenici, Dorgan, Durbin, Edwards, Ensign, Enzi, Feingold,
    Feinstein, Fitzgerald, Frist, Graham, Gramm, Grassley, Gregg, Hagel,
    Harkin, Hatch, Hollings, Hutchinson, Hutchison, Inhofe, Jeffords,
    Johnson, Kennedy, Kohl, Kyl, Leahy, Lieberman, Lincoln, Lott, Lugar,
    McConnell, Mikulski, Miller, Murkowski, Murray, Nelson (FL), Nelson
    (NE), Nickles, Reed, Reid, Roberts, Rockefeller, Santorum, Sarbanes,
    Schumer, Sessions, Shelby, Smith (NH), Smith (OR), Snowe, Specter,
    Stabenow, Stevens, Thomas, Thompson, Thurmond, Torricelli, Wellstone,
    Wyden
        Nays--2: Levin, McCain
        Not Voting--7: Crapo, Helms, Inouye, Kerry, Landrieu, Voinovich,
    Warner

        The Presiding Officer (Mr. Carper). On this vote, the yeas
    are 91, the nays are 2. Three-fifths of the Senators duly
    chosen and sworn having voted in the affirmative, the motion is
    agreed to.
        The pending motion to recommit is out of order.
        Mr. Sarbanes. Mr. President, I move to reconsider the vote.
        Mr. Daschle. I move to lay that motion on the table.
        The motion to lay on the table was agreed to.
        Mr. Daschle. Mr. President, I suggest the absence of a
    quorum.
        The Presiding Officer. The clerk will call the roll.
        The legislative clerk proceeded to call the roll.
        Mr. Byrd. Mr. President, I ask unanimous consent that the
    order for the quorum call be rescinded.
        The Presiding Officer. Without objection, it is so ordered.
        The Senate is not in order. The Senate will be in order.
    The Senate is not in order.
        The Senator from West Virginia.
        Mr. Byrd. Mr. President, we can have order in the Senate
    with Senators in their seats. At least they do not need to be
    cluttering up the well. I want to say a few words.
        The Presiding Officer. The Senate will be in order. The
    Senator will suspend.
        Mr. Gramm addressed the Chair.
        The Presiding Officer. The Senator from West Virginia has
    the floor.
        Mr. Byrd. I have the floor.
        The Presiding Officer. The Senator from West Virginia.

             VOLUME 148, FRIDAY, JULY 12, 2002, NUMBER 94,
                          PAGES [S6687-S8700]

        Public Company Accounting and Investor Protection Act of 2002--
                                   Continued

        Mr. Reid. Mr. President, will the Chair inform us what the
    matter before the Senate now is?
        The Presiding Officer. The Daschle second-degree amendment
    to the Edwards first-degree amendment.
        Mr. Reid. That is Daschle for Levin; is that not right?
        The Presiding Officer. That is correct.
        The Senator from Nevada.
        Mr. Ensign. Mr. President, I raise a point of order that
    the pending second-degree amendment is not germane to the bill
    postcloture.
        The Presiding Officer. The point of order is well taken.
    The amendment falls.
        The deputy majority leader.

             amendment no. 4286, as modified, to amendment no. 4187

        Mr. Reid. I call up amendment No. 4286, and I ask unanimous
    consent that Carnahan amendment No. 4286 be modified with the
    change at the desk.
        The Presiding Officer. Without objection, it is so ordered.
    The clerk will report.
        The legislative clerk read as follows:

        The Senator from Nevada [Mr. Reid], for Mrs. Carnahan, for
    herself, Mr. Dodd, Mr. Durbin, Mr. Levin, Mr. Harkin, and Mr.
    Corzine, proposes an amendment numbered 4286, as modified, to
    amendment No. 4187.

        Mr. Reid. Mr. President, I ask unanimous consent that the
    reading of the amendment be dispensed with.
        The Presiding Officer. Without objection, it is so ordered.
        The amendment is as follows:

    (Purpose: To require timely and public disclosure of transactions
        involving management and principal stockholders)

        At the end of the amendment, insert the following:
        (b) Electronic Filing.--Notwithstanding the provisions of section
    403 of this Act, section 16(a)(2) of the Securities and Exchange Act of
    1934, as added by section 403, is amended to read as follows:
        ``(2) if there has been a change in such ownership, or if such
    person shall have purchased or sold a security-based swap agreement (as
    defined in section 206B of the Gramm-Leach-Bliley Act) involving such
    equity security, shall file electronically with the Commission (and if
    such security is registered on a national securities exchange, shall
    also file with the exchange), a statement before the end of the second
    business day following the day on which the subject transaction has
    been executed, or at such other times as the Commission shall
    establish, by rule, in any case in which the Commission determines that
    such 2 day period is not feasible, and the Commission shall provide
    that statement on a publicly accessible Internet site not later than
    the end of the business day following that filing, and the issuer (if
    the issuer maintains a corporate website) shall provide that statement
    on that corporate website not later than the end of the business day
    following that filing (the requirements of this paragraph with respect
    to electronic filing and providing the statement on a corporate website
    shall take effect 1 year after the date of enactment of this
    paragraph), indicating ownership by that person at the date of filing,
    any such changes in such ownership, and such purchases and sales of the
    security-based swap agreements as have occurred since the most recent
    such filing under this paragraph.''.

        The Presiding Officer. The Senator from Missouri.
        Mrs. Carnahan. Mr. President, I am offering this amendment
    on behalf of myself and Senators Dodd, Dubbin, Levin, Harkin,
    and Corzine.
        The Senate is engaged in an important debate about how to
    improve our Nation's financial system. Today I am offering an
    amendment that is intended to provide more timely information
    to average investors. America has the most vibrant and dynamic
    economy in the world. Our robust and resilient capital markets
    are the foundation of our economy. But the success of those
    markets depends on the free flow of accurate, reliable
    information.
        Recent disclosures about the inaccuracy of some companies'
    financial reports have shaken that confidence. I am pleased the
    Senate has acted quickly to take up this important reform
    legislation. I believe that this bill makes tremendous progress
    in improving the quality of information available to the
    markets. In the interest of further improvement, I am offering
    an amendment to modernize the method of disclosure required
    when insiders trade in their own companies' stock.
        One warning sign that a company may be in trouble is when
    its executives are selling large amounts of company stock, as
    occurred at Enron. I have learned, however, that information
    about insider selling is not easily accessible.
        Under our current system a company's officers are required
    to file a disclosure form with the Securities and Exchange
    Commission, SEC, any time they sell securities of their
    company. Tens of thousands of these forms are filed annually.
    These are not complicated forms. I have a copy here. It is a
    simple 2-page form.
        The Office of Management and Budget estimates that the form
    should not take more than 30 minutes to fill out. With capital
    markets as sophisticated as they are in the U.S., information
    must be available quickly to be useful. However, insiders
    currently have up to six weeks to file their disclosure forms.
    And the overwhelming majority of these forms--95 percent--are
    filed on paper, rather than electronically.
        The Banking Committee has already addressed the issue of
    timely disclosure. This legislation would require disclosure of
    sales within 2 days, a vast improvement over the current
    deadlines. However, this legislation is silent on the issue of
    modernizing this arcane paper filing system.
        Right now, there is no way for an investor in Missouri to
    quickly learn that a company executive is selling off company
    stock. The only ways to get the information are to go to a
    reading room at the SEC in Washington, or to write a letter to
    the SEC. These written requests may take weeks to process. This
    is unacceptable in the electronic age.
        My amendment requires that information about insider sales
    of publicly traded companies be filed electronically. The SEC
    would then be required to make the forms available to the
    public over the Internet. Any company that maintains a
    corporate Web site would be required to post these disclosure
    forms on the Web site. The SEC, itself, has acknowledged the
    value of having these forms filed electronically.
        I have here a letter from SEC Chairman, Harvey Pitt. He
    wrote to me that ``expedited disclosure of trading by company
    insiders is imperative.'' In fact, he applauded the legislation
    I introduced earlier this year that requires electronic
    disclosure.
        I ask unanimous consent that a copy of this letter be
    printed in the Record.
        There being no objection, the letter was ordered to be
    printed in the Record, as follows:

                       U.S. Securities and Exchange Commission,
                                         Washington, DC, March 1, 2002.
    Hon. Jean Carnahan,
    U.S. Senate, Hart Office Building,
    Washington, DC.
        Dear Senator Carnahan: Thank you for your February 14th letter
    regarding S. 1897, the Fully Informed Investor Act which you recently
    introduced. I share your concerns about the issues regarding reporting
    of insiders' securities transactions that your bill addresses. As we
    announced on February 13th, the Commission will shortly propose rules
    that would provide accelerated reporting by companies of insider
    transactions in public company securities. This is an integral part of
    our effort to supplement the periodic disclosure system with ``current
    disclosure'' in order to put information investors want and need into
    their hands more promptly.
        I also share the view reflected in your bill that expedited
    electronic disclosure of trading by company insiders is imperative, and
    I applaud your initiative. As you know, the Securities Exchange Act of
    1934, rather than rules adopted by the Commission, sets the deadlines
    for officers, directors and beneficial owners of ten percent of a class
    of equity securities of a public company to report their trading in
    those securities. A legislative solution, therefore, will be necessary
    to address fully the issue of investors' timely access to information
    about insiders' securities transactions.
        While formal Commission comment on legislation is normally reserved
    for testimony or a response to a request from a committee or
    subcommittee given jurisdiction over the bill, we would welcome the
    opportunity to provide you with technical assistance on your bill if
    you would find that helpful. I have asked Casey Carter, the Director of
    our Office of Legislative Affairs, to contact your staff to see if you
    would like our assistance. Please feel free to call me or to have your
    staff call Ms. Carter at (202) 942-0019 if you have any questions.
          Yours truly,
                                                        Harvey L. Pitt.

        Mrs. Carnahan. This is not a new idea. In fact, more than 2
    years ago, in April 2000, the SEC published a rulemaking for
    its electronic data system. In that rulemaking, the SEC
    indicated that it ``anticipated'' making insiders file
    disclosure forms electronically. I applaud the SEC for
    recognizing the need to modernize, but I am frustrated by the
    delay. It has been over 2 years since the SEC made this
    proposal.
        An agency that is responsible for monitoring markets where
    trillions of dollars are electronically exchanged ought to be
    able to develop a fairly simple electronic database to make
    this information available.
        The Senate now has the opportunity to require the SEC to
    move quickly. I am very pleased that the bill I introduced
    earlier this year on this subject was included in the House
    accounting reform bill. The House has required that insiders
    file electronically, within one day of their transactions. The
    House has also required that corporations disclose insider
    sales on their corporate Web sites.
        I encourage my colleagues to support my amendment. We
    should not make investors wait any longer for these basic
    reforms.
        I yield the floor.
        The Presiding Officer. The Senator from North Dakota.
        Mr. Dorgan. Mr. President, I have an amendment at the desk.
        Mr. Dodd. Mr. President, I ask to be heard on the Carnahan
    amendment very briefly. Does the Senator mind?
        Mr. Dorgan. How briefly?
        Mr. Dodd. Two minutes or so.
        Mr. Dorgan. I am happy to yield to the Senator from
    Connecticut, provided that I am recognized following his
    presentation.
        Mr. Dodd. I appreciate that.
        The Presiding Officer. The Senator from Connecticut.
        Mr. Dodd. Mr. President, I commend my colleague from
    Missouri for this very fine amendment. I think it is going to
    make a strong difference by improving electronic reporting. It
    doesn't get the kind of attention it should.
        This is a positive and constructive suggestion. I am a
    cosponsor of the amendment and commend the distinguished
    Senator from Missouri for offering the amendment. It makes the
    bill stronger. It is something all our colleagues will be
    willing to support. I commend the Senator for her work.

                        AMENDMENT NO. 4215, AS MODIFIED

        Mr. Dorgan. Mr. President, I have an amendment numbered
    4215 at the desk. I have submitted a modification of that
    amendment which I believe has been reviewed by both sides. I
    ask for its immediate consideration and I ask unanimous consent
    that the amendment be modified.
        The Presiding Officer. Is there objection to laying aside
    the pending amendment of the Senator from Missouri?
        Mr. Sarbanes. Will the Senator yield?
        Mr. Dorgan. I am happy to yield.
        Mr. Sarbanes. Is this the amendment that deals with the
    offshore companies?
        Mr. Dorgan. Yes.
        Mr. Sarbanes. I have no objection to setting aside the
    pending amendments in order to consider this amendment. I
    understand upon the conclusion of the consideration of this
    amendment we will revert to the Edwards-Carnahan amendment
        Mr. Schumer. Reserving the right to object, I believe I
    have two amendments that have been cleared by both sides. I
    would like to offer them immediately after the Senator from
    North Dakota.
        Mr. Sarbanes. We are hoping to get to the Senator from New
    York. I make a unanimous consent request that following the
    disposition of the amendment of the Senator from North Dakota,
    we turn to the amendments referred to by the Senator from New
    York.
        Mr. Ensign. Provided that no second-degree amendments are
    in order to any of the three amendments.
        Mr. Sarbanes. Furthermore, upon conclusion of the
    consideration of the Schumer amendments, we return to the
    regular order, which I take it would be the Edwards-Carnahan
    amendment.
        Mr. Reid. Reserving the right to object, Senator Schumer
    has a number of amendments on the list. I think we better get
    numbers of those amendments before there is an agreement they
    be next in order.
        Mr. Sarbanes. Let us withdraw the unanimous consent request
    and make it only that Senator Schumer be recognized after the
    disposition of the Dorgan amendment and we can address those
    questions.
        The Presiding Officer. Is there objection?
        Mr. Ensign. Reserving the right to object, just to make
    sure we have this clarified, the unanimous consent request is
    just to the Dorgan amendment pending, and we would not object
    as long as the second-degree amendment is not in order to his
    amendment.
        The Presiding Officer. Without objection, it is so ordered.
        The Senator from North Dakota.
        Mr. Dorgan. Mr. President, first of all I will offer an
    amendment that I believe will be accepted. I understand the
    process is that those who have amendments that will be accepted
    will be allowed to offer them and those whose amendments are
    not approved by both sides will not be allowed to offer them.
    In my judgment, this is not the kind of procedure we ought to
    use when considering this legislation. But I understand the
    Senator from Texas indicated he will object to setting aside or
    laying aside an amendment for the purpose of offering another
    first-degree amendment unless he agrees with the amendment. I
    will talk a little bit more about that in a couple of minutes.
        I had asked unanimous consent my amendment be modified. Was
    the consent agreed?
        The Presiding Officer. It was agreed to.
        Mr. Dorgan. Is amendment No. 4215 called up at this point?
        The Presiding Officer. The pending amendment is set aside
    and the clerk will report.
        The legislative clerk read as follows:

        The Senator from North Dakota [Mr. Dorgan], for himself and
    Mr. Graham of Florida, proposes an amendment numbered 4215, as
    modified.

        Mr. Dorgan. I ask unanimous consent reading of the
    amendment be dispensed with.
        The Presiding Officer. Without objection, it is so ordered.
        The amendment is as follows:

    (Purpose: To clarify that the requirement that certain officers certify
        financial reports applies to domestic and foreign issuers)

        On page 82, after line 24, insert the following:
        (c) Foreign Reincorporations Have No Effect.--Nothing in this
    section 302 shall be interpreted or applied in any way to allow any
    issuer to lessen the legal force of the statement required under this
    section 302, by an issuer having reincorporated or having engaged in
    any other transaction that resulted in the transfer of the corporate
    domicile or offices of the issuer from inside the United States to
    outside of the United States.

        Mr. Dorgan. Let me describe what this amendment is briefly.
    There was a Wall Street Journal article on July 8 this week
    titled: ``Offshore-based Firm's Officials Won't Have to Swear
    to Results.''

        The Securities and Exchange Commission's new order
    requiring chief executives and chief financial officers of the
    Nation's biggest companies to swear to the accuracy of their
    financial results was intended to restore investors' battered
    confidence. But two of the companies that have promised the
    biggest concerns don't have to comply.
        Why? Because Tyco International Ltd. and Global Crossing
    Ltd. are based in Bermuda, even though they conduct many of
    their operations and have main office in the United States and
    are listed on the U.S. stock exchanges.
        Securities and Exchange Commission spokesmen said large
    foreign-domiciled companies over which the SEC has
    jurisdiction, such as and Global Crossing and Tyco, were
    excluded from the list because the agency wanted to issue the
    order ``very quickly.'' Therefore it focused only on U.S.
    companies.

        So the Securities and Exchange Commission says that the
    chief executives and chief financial officers of some of the
    biggest companies must swear to the accuracy of their financial
    results. But in recent times, we have had U.S. corporations
    decide that they want to renounce their American citizenship
    and they want to become citizens, for example, of Bermuda. That
    is called a corporate inversion. They have essentially
    renounced their American citizenship, saying we are now
    corporate citizens of another country.
        Guess what? Under the SEC order, they are rewarded for
    leaving the United States, in that their chief executives no
    longer have to certify financial results. The SEC says: We had
    to get this done quickly, and we don't expect to change it at
    this point.
        Why does a company renounce its U.S. citizenship? They do
    it because they don't want to pay U.S. taxes. Very simple. If
    they can become a citizen of another country and renounce their
    U.S. citizenship, they can save substantial money on their U.S.
    tax bill.
        At a time when we are at war with terrorists, is that a
    patriotic thing to do? No, I don't think so. I hope the Senate,
    and I certainly encourage my colleagues to do this, will shut
    that door tight and stop these corporate inversions. Stop these
    corporations from creating a sham of renouncing their U.S.
    citizenship in order to avoid paying U.S. taxes.
        It might be interesting to ask companies such as Tyco: If
    you get yourself in trouble someplace around the world, who are
    you going to call? The Bermuda navy? The Bermuda army? The
    Bermuda marines? You want the full protection of the U.S.
    Government and the U.S. military and all the benefits that
    being a U.S. citizen brings along. But then you want to
    renounce your citizenship and move to Bermuda, in a technical
    sense, while keeping your offices in the United States and
    saving big money on taxes. And then, under the SEC order, you
    don't even have to have your chief executive officers certify
    the financial results of the corporation.
        That is a shame. The SEC should know better. What could
    they have been thinking? I have accused them of sleeping, but
    this is not sleeping; this is making really dumb decisions.
        I have discussed my concern with the staff of the Banking
    Committee. They believe that their bill implicitly addresses
    the reincorporation problem. But Senator Graham of Florida and
    I said we are not satisfied with ``implicitly'' being covered.
    We want the issue addressed explicitly.
        Let me also say, the technical people smile when I talk
    about this, but, frankly, it took a day and a half for us to
    evaluate whether it was implicitly covered in the bill. So
    because of that, I think it is important to have an explicit
    provision in this bill that says those companies involved in
    inversions that renounce their citizenship, they, too, will be
    required to certify their results. Their chief executive
    officers and their CFOs will be required to certify their
    results.
        In a moment I will conclude and ask that this amendment be
    attached to the bill. As I do that, I ask for the attention of
    the Senator from Maryland and the manager on the other side to
    say that I have another amendment that I will offer. I
    understand, based on your process, you don't want it offered
    now. Let me describe it briefly.
        The other amendment deals with the issue of what is called
    disgorgement of profits.
        The top executives of these corporations make bonuses,
    commissions, and a substantial amount of compensation--some of
    them hundreds of millions of dollars. Then they issue a
    restatement of earnings and everything collapses. But they keep
    their profits and they keep their commissions and they keep
    their bonuses.
        This legislation says you can't do that. When you restate,
    and just prior to restatement you have made all these bonuses,
    you have to disgorge this money. It is a $2 word, but I think
    everybody understands what it means.
        The thing that is missing in this bill is that disgorgement
    should be required in cases of bankruptcy as well. So I have an
    amendment that will say: Yes, disgorgement in this bill with
    respect to periods prior to restatement, but also disgorgement
    for the 12 months prior to the filing of bankruptcy by a
    corporation as well.
        A fair number of people have had a lot to say about this.
    Former SEC Chairman, Richard Breeden, who was the Chairman of
    the SEC under President H.W. Bush from 1989 to 1993, said:

        We should consider disgorgement to the company of any net
    proceeds of stock sales or option exercises within a 6-month or
    a 1-year period prior to a bankruptcy filing.

        So he feels that way.
        Goldman Sachs CEO Henry Paulson has also spoken in favor of
    this idea.
        This bill will be incomplete if it does not include
    disgorgement in the period prior to bankruptcy. Those making a
    fortune, getting bonuses and commissions of tens of millions,
    yes hundreds of millions, as their companies are headed to
    bankruptcy--that is unfair. We need to do something about this.
        I will not ask consent at the moment because I want to get
    my first amendment approved, but I will, following some
    discussions, either this morning or else on Monday, ask consent
    to set aside the second-degree amendment so we can consider, in
    first-degree, this issue. My hope is we would have a 100-to-0
    vote on this matter because, failing that, this bill will be
    incomplete.
        This bill is a great bill. I have credited Senator Sarbanes
    and others at length. This is a wonderful piece of legislation
    that I fully support. It can be and will be improved by my
    amendments and by the amendments of Senator Schumer and others.
    Let's complete this amendment process.
        Let me just say one last thing, if I might.
        I know it has taken the patience of Job to try to manage
    this bill on the floor of the Senate. I understand all the
    difficulties that Senator Sarbanes and Senator Reid and many
    others have had these recent days because I have been here
    every day when this bill has been on the floor. My
    aggressiveness in trying to get these amendments considered has
    nothing at all to do with the wonderful stewardship of the
    chairman. I am very proud of the result he brings to the floor,
    and I believe both of my amendments will improve it. I hope I
    can work with him from now until Monday afternoon to have the
    bankruptcy amendment included in this legislation.
        Mr. Sarbanes. Will the Senator yield for just a moment?
        Mr. Dorgan. I will be happy to yield.
        Mr. Sarbanes. Madam President, I simply want to say I think
    the subject matter with which the Senator's other amendment,
    that he just referred to, deals is a very important subject,
    and I think his observations are very much on point. Working
    with the other side, we are trying to work through the
    amendment. We are in the process of trying to do that. Of
    course, we will be continuing to talk with the Senator, and I
    hope we can resolve it. It would be very helpful. I appreciate
    his kind words.
        Mr. Dorgan. I thank the Senator from Maryland. I ask my
    amendment be considered at this point and be voted upon.
        The Presiding Officer. Is there further debate on the
    amendment? If not, the question is on agreeing to amendment No.
    4215, as modified.
        The amendment, (No. 4215), as modified, was agreed to.
        Mr. Sarbanes. I move to lay the motion to reconsider on the
    table.
        The motion to lay on the table was agreed to.
        The Presiding Officer (Mrs. Clinton). The Senator from New
    York.

                               AMENDMENT NO. 4295

        Mr. Schumer. I ask unanimous consent the Carnahan amendment
    be laid aside, and I send an amendment to the desk which we
    have talked about.
        Mr. Sarbanes. Will the Senator describe the amendment?
        Mr. Schumer. Yes. This amendment is the amendment that
    enhances the conflict of interest provisions by prohibiting
    personal loans by issuers to chief officers of the issuer. It
    has been agreed to by both sides.
        Mr. Sarbanes. I ask unanimous consent no second-degree
    amendment to the Schumer amendment, when it is sent to the
    desk, be in order.
        The Presiding Officer. Without objection, it is so ordered.
        Is there objection to laying aside the pending amendment
    for purposes of ending up a new amendment? Without objection,
    it is so ordered. The clerk will report.
        The assistant legislative clerk read as follows:

        The Senator from New York (Mr. Schumer) proposes an
    amendment No. 4295.

        Mr. Schumer. I ask unanimous consent the reading of the
    amendment be dispensed with.
        The Presiding Officer. Without objection, it is so ordered.
        The amendment is as follows:

    (Purpose: To enhance conflict of interest provisions by prohibiting
        personal loans by issuers to chief officers of the issue)

        On page 91, strike line 19 and all that follows through
    page 93, line 22 and insert the following:

    SEC. 402. ENHANCED CONFLICT OF INTEREST PROVISIONS.

        (a) Prohibition on Personal Loans to Executives.--Section
    13 of the Securities Exchange Act of 1934 (15 U.S.C. 78m), as
    amended by this Act, is amended by adding at the end the
    following:
        ``(k) Prohibition on Personal Loans to Executives.--
        ``(1) In General.--It shall be unlawful for any issuer,
    directly or indirectly, to extend or maintain credit, or
    arrange for the extension of credit, in the form of personal
    loan to or for any director or executive officer (or equivalent
    thereof) of that issuer.
        ``(2) Limitation.--Paragraph (1) does not preclude any home
    improvement and manufactured home loans (as that term is
    defined in Section 5 of the Home Owners Loan Act, consumer
    credit (as defined in section 103 of the truth in lending act),
    or any extension of credit under an open end credit plan (as
    defined in section 103 of the Truth in Lending Act (15 U.S.C.
    1602)), that is----
        ``(A) made in the ordinary course of the consumer credit
    business of such issuer;
        ``(B) of a type that is generally made available by such
    issuer to the public; and
        ``(C) made by such issue on market terms, or terms that are
    no more favorable than those offered by the issuer to the
    general public for such loans.''.

        Mr. Schumer. Madam President, I also ask unanimous consent
    that Senator Feinstein be added as a cosponsor of this
    amendment.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Schumer. Madam President, I am going to be very brief
    because I know we do not have too much time and we have other
    business. I thank both the majority and minority managers,
    Senator Sarbanes and Senator Gramm, for their work on this
    amendment. I have also spoken to the people in the White House
    who were supportive of this amendment. It is a very simple
    amendment. It basically says that with certain narrow
    exceptions, CEOs and CFOs of companies will not be able to get
    loans from those companies.
        In his speech before Wall Street yesterday, President Bush
    forcefully stated: ``. . . I challenge compensation committees
    to put an end to all company loans to corporate officers.''
        I couldn't agree more. It seems like we didn't learn our
    lessons during the S&L crisis in the 1980's? These same kinds
    of transactions were used then to ``cook the books'' and our
    Nation's economy and financial institutions paid the price for
    it. Once again, history repeats itself.
        My amendment is very simple: it makes it unlawful for any
    publicly traded company to make loans to its executive
    officers. Let me give a few examples as to why we should do
    this.
        Executives of major corporations, including Enron,
    WorldCom, and Adelphia, collectively received more than $5
    billion in company funds in the form of personal loans. For
    example, Bernard Ebbers, CEO of WorldCom, borrowed a mind-
    boggling $408 million from the corporation over several years,
    while receiving a compensation package valued at over $10
    million annually, all the while the company was facing massive
    losses. In the case of Adelphia, the Rigas Family received
    loans and other financial benefits totaling a staggering $3.1
    billion, while that company has also reported huge financial
    losses.
        The question is: Why can't these super rich corporate
    executives go to the corner bank, the Suntrust's or Bank of
    America's, like everyone else to take loans?
        In the case of WorldCom, Ebbers had funded his personal
    stock market activities by borrowing on margin. When the value
    of those investments plunged, Ebbers had to pay up. How did he
    do it? He borrowed money from his board of directors to pay for
    the stock he had bought that was now being called in.
        This is just wrong, and it must be stopped.
        I urge the amendment be agreed to.
        The Presiding Officer. Is there further debate on the
    amendment? If not, the question is on agreeing to the
    amendment.
        The amendment (No. 4295) was agreed to.
        Mr. Sarbanes. I move to reconsider the vote.
        Mr. Craig. I move to lay that motion on the table.
        The motion to lay on the table was agreed to.

                               AMENDMENT NO. 4296

        Mr. Schumer. I have a second amendment that has also been
    agreed to, so I ask, again, the Carnahan amendment be laid
    aside, and I send the amendment to the desk and ask for its
    consideration. I ask unanimous consent Senator Shelby be added
    as a cosponsor on this amendment on the SPEs.
        Mr. Sarbanes. I ask unanimous consent no second-degree
    amendment be in order to the Schumer amendment being sent to
    the desk.
        The Presiding Officer. Without objection, it is so ordered.
    Is there objection to laying aside the pending amendments for
    the purpose of introducing a new amendment? Without objection,
    it is so ordered. The clerk will report.
        The assistant legislative clerk read as follows:

        The Senator from New York (Mr. Schumer), for himself and
    Mr. Shelby, proposes an amendment numbered 4296.

        Mr. Schumer. I ask unanimous consent the reading of the
    amendment be dispensed with.
        The Presiding Officer. Without objection, it is so ordered.
        The amendment is as follows:

    (Purpose: To require a study of the accounting treatment of special
        purpose entities)

        On page 91, between lines 18 and 19, insert the following:
        (c) Study and Report on Special Purpose Entities.----
        (1) Study required.--The Commission shall, not later than 1 year
    after the effective date of adoption of off-balance sheet disclosure
    rules required by section 13(j) of the Securities Exchange Act of 1934,
    as added by this section, complete a study of filings by issuers and
    their disclosures to determine----
        (A) the extent of off-balance sheet transactions, including assets,
    liabilities, leases, losses, and the use of special purpose entities;
    and
        (B) whether generally accepted accounting rules result in financial
    statements of issuers reflecting the economics of such off-balance
    sheet transactions to investors in a transparent fashion.
        (2) Report and recommendations.--Not later than 6 months after the
    date of completion of the study required by paragraph (1), the
    Commission shall submit a report to the President, the Committee on
    Banking, Housing, and Urban Affairs of the Senate, and the Committee on
    Financial Services of the House of Representatives, setting forth--
        (A) the amount or an estimate of the amount of off-balance sheet
    transactions, including assets, liabilities, leases, and losses of, and
    the use of special purpose entities by, issuers filing periodic reports
    pursuant to section 13 or 15 of the Securities Exchange Act of 1934;
        (B) the extent to which special purpose entities are used to
    facilitate off-balance sheet transactions;
        (C) whether generally accepted accounting principles or the rules
    of the Commission result in financial statements of issuers reflecting
    the economics of such transactions to investors in a transparent
    fashion;
        (D) whether generally accepted accounting principles specifically
    result in the consolidation of special purpose entities sponsored by an
    issuer in cases in which the issuer has the majority of the risks and
    rewards of the special purpose entity; and
        (E) any recommendations of the Commission for improving the
    transparency and quality of reporting off-balance sheet transactions in
    the financial statements and disclosures required to be filed by an
    issuer with the Commission.

        Mr. Schumer. Madam President, I will again be brief. This
    amendment relates to a second problem that we have seen in the
    latest crisis that we have faced in our financial markets, and
    that is the special purpose entities. Sometimes special purpose
    entities have a valid purpose. Many companies use them for
    valid purposes.
        We have seen, particularly most egregiously in the case of
    Enron, these have been entities that have been used to take
    losses off the books, and then shareholders, and everybody
    else, don't know much about them.
        Enron, for instance, conducted business through thousands
    of these with names such as LJM, Cayman LP, and Raptor. They
    become pretty famous and the Enron's former CFO, Andrew Fastow,
    contributed hard assets and related debt to Raptor SPE and then
    Raptor would turn around and borrow large sums of money from a
    bank to purchase assets or conduct other business.
        This is the key. The debts of this SPE, Raptor, never
    showed up on Enron's financial statements.
        People make money on it. Fastow made $30 million in
    management fees. These things go way overboard. The way we had
    proposed originally legislating on this was too complicated,
    but there are some good ones. There are some with legitimate
    purposes and many with bad purposes.
        Congress can't set these accounting standards, nor should
    we. Rather, that is the SEC and FASB's job.
        We have asked in this amendment that the SEC do a
    comprehensive study of the SPEs to show where the damage is,
    point the way to reform, and make recommendations. This
    amendment does not put Congress in the business of setting
    accounting standards.
        It does, however, say to thousands of Enron and other
    employees who have lost pensions that we are stepping up to the
    plate now to stop these kinds of egregious practices.
        I add that there are probably many of these SPEs for bad
    purposes floating around in other companies, and this study
    cannot come too soon.
        We have received agreement. I thank Senators Sarbanes and
    Gramm.
        I ask unanimous consent that the amendment be agreed to.
        The Presiding Officer. Is there objection?
        Without objection, it is so ordered.
        The amendment (No. 4296) was agreed to.
        Mr. Sarbanes. Mr. President, I move to reconsider the vote.
        Mr. Santorum. I move to lay that motion on the table.
        The motion to lay on the table was agreed to.
        The Presiding Officer. The Senator from New York.
        Mr. Schumer. Madam President, I thank Senator Sarbanes and
    his staff as well as Senator Gramm and his staff for their work
    on accepting these two important amendments that I think
    improves the bill, which is a very fine bill that I am proud to
    support.
        I yield the floor.
        The Presiding Officer. The Senator from Idaho.
        Mr. Craig. Madam President, let me spend a few minutes
    talking about the underlying legislation, S. 2673.
        There has been a great deal of debate over the last good
    number of days on this issue. I am pleased that we were able to
    get cloture. It is time we move on to this issue.
        The American public, a good many stockholders, a good many
    pension plans, a good many retirement plans are discussing what
    are we going to do about the meltdown that last occurred in
    corporate America at the executive level with some key
    corporations. It is really, in most instances, a crisis of
    confidence.
        There are a lot of well-run corporations across America
    that are publicly held. They have historically observed the
    prudent rules. Their boards have acted responsibly. But there
    are bad players. There are big, bad players that have had a
    dramatic impact on the markets. There is no question that we
    have to deal with this straight away.
        When I look at the whole of this issue, it isn't just in
    the markets where there is a crisis of confidence that
    Americans share: When you look at 9/11, then Enron, then
    WorldCom, and, of course, all the scandals that have occurred,
    and out in the West with the Ninth Circuit suggesting that the
    Pledge of Allegiance isn't constitutional, put all of that
    together, and America has to be scratching its head at this
    moment, asking: Where does all of this take us? Where is that
    rock of stability that we have come to rely on for so long?
        I suggest that when we are debating this issue, while this
    is an issue that has to be dealt with, and we are now moving
    appropriately, it is one of a combination of factors that is
    critically important for our country to deal with.
        One issue we have to deal with is the war on terrorism. The
    DOD appropriations ought to be the first bill we deal with on
    the defense side to begin to shore up again this sense of
    confidence in the American structure. Certainly, protecting our
    soldiers in the post-9/11 fighting that has gone on in
    Afghanistan is appropriate, and now, as we search out terrorism
    around the world, that is critical.
        The next step I would suggest is the confirming of judges.
    It is important that we deal with judges. For the judicial
    system of this country to remain strong, vacancies need to be
    filled. People should receive their day in court in a timely
    fashion. That has been one of the hallmarks and the strengths
    of this country throughout its history, and it ought to be
    today.
        Clearly, I hope we appoint judges who will not act as the
    ones in the Ninth Circuit who suggested that the Pledge of
    Allegiance is unconstitutional. I think President Bush has gone
    a long way in nominating good judges to the Senate.
        Yet, the politics here in the Senate today is obvious:
    Withhold as long as you can. Withhold as long as you can.
        The President spoke the other day on Wall Street relating
    to corporate accounting. The U.S. Senate is speaking today, as
    they should.
        I ask unanimous consent that a commentary by Lawrence
    Kudlow be printed in the Record.
        There being no objection, the material was ordered to be
    printed in the Record, as follows:
                   [From the Washington Times, July 11, 2002]
                    A Class Above the Corruption and Critics
                              (By Lawrence Kudlow)
        In front of a New York audience on Tuesday, President Bush unveiled
    a revised plan to counter corporate wrongdoing and accounting fraud,
    saying, ``There can be no capitalism without conscience, no wealth
    without character.'' Adam Smith, the father of free-market economics,
    couldn't have said it better.
        Smith always argued that smooth-functioning markets require ethical
    behavior at their center. From Day One of his presidency, Mr. Bush has
    applied this rule even more broadly, emphasizing the need for ethical
    clarity and moral certitude in all areas of American life. He has
    successfully applied the rule of ethics to the war on terror, and now
    he is transferring the very same principle to root out corporate
    corruption.
        From the election campaign to today, poll after poll shows that the
    public believes Mr. Bush is a leader with strong character and
    unshakable moral principles. Following the blowups of WorldCom, Enron
    and Tyco--and many other rotten apples--Mr. Bush's honest outrage has
    been heartfelt, and not political.
        It has also shone above the political carping of Tom Daschle, Al
    Gore, Richard Gephardt and other national Democrats who would locate
    the source of the contagious virus of accounting fraud and corporate
    corruption within the Bush administration. Theirs is a political,
    reckless, and silly approach to a serious situation. The bad-business
    bug gained strength and spread well before George W. Bush became
    president. And today it is a grave problem that requires sober
    solutions.
        Serious Democrats, such as Senate Banking Committee head Paul
    Sarbanes and Senate Investigations Subcommittee Chairman Carl Levin,
    have taken a completely different tack from the business-as-usual
    partisan politics of the Daschle gang.
        Mr. Sarbanes has crafted a significant proposal to set up an
    independent accounting-standards board--one that will end conflict of
    interests between the auditing and consulting functions, properly score
    stock options, create new pressure for independent boards of directors,
    and legislate tough legal sanctions on executives, bankers, auditors,
    accountants and others who violate the new standards.
        The accounting system desperately needs a fix; it is even more
    incoherent than the dreaded tax code. A new accounting-standards board
    should come under the aegis of the Securities and Exchange Commission.
    Along with proposals from the New York Stock Exchange to create truly
    independent boards of directors, this action will promote honest
    accounting and shareholder-based corporate governance.
        Meanwhile, Mr. Levin has just as seriously proposed giving the SEC,
    the Federal government's principal accounting overseer, the right to
    levy tough fines on corporate evildoers without having to go to court
    first.
        Suburban liberals like Sens. Sarbanes and Levin, its seems, have
    suddenly become conservative lawmakers who will ``move corporate
    accounting out of the shadows,'' as Mr. Bush rightly put it, and
    protect the basic workings of our wealth-creating capitalist system.
        President Bush, in tune with these focused Democrats, has proposed
    a doubling of the maximum prison term for mail- and wire-fraud statutes
    from five to 10 years. This severe jail-time penalty will greatly
    concentrate the executive mind. And so will Mr. Bush's proposal that
    fraudulently earned bonuses and compensation must be returned; and so
    will his request that corporate officers and directors who engage in
    serious misconduct be barred from again sitting in corporate-leadership
    positions. More, if the Bush corporate doctrine moves through Congress,
    top executives will now have to certify their financial statements with
    their own signatures. False reporting could lead to jail.
        It seems that our more serious men in Washington want to bolster
    the rue of law by strengthening the incentive to choose right from
    wrong.
        Incentives matter. If you tax something more you get less of it. If
    you tax something less you get more of it. A 10-year jail term for
    rotten corporate apples--or their accountants--is a huge legal tax on
    wrongful actions.
        Of course, standing behind higher ethical standards in business is
    the great American investor class. Covering more than 50 percent of
    American households and more than 80 million people, this group is
    positively changing financial practices and the political culture.
    These shareholders have lost enormous wealth, in part from dishonest
    accounting and egocentric corporate misdeeds. And they're furious.
        Financial markets have been democratized in the past 15 years with
    the rise of this investor class. They have already voted to depress the
    stock market as a signal of their indignation, and they're now prepared
    to vote this November against the silly politicians who fail to realize
    the enormity of the current problem. Consider this: Slightly more than
    60 percent of the investor class voted in the last election. This may
    be the most powerful lobby in America.
        In no uncertain terms, this new political movement is forcing
    Washington to renew the rule of law, strengthen accounting and
    financial standards across the board, and restore a proper incentive
    system that will return Adam Smith's ethical epicenter to the greatest
    wealth-creating machine in all of history. The days of egocentric and
    corrupt Soviet-style corporation have come to an end. In the stock
    market, moral amnesia is dead.

        Mr. Craig. Madam President, I see Chairman Sarbanes on the
    floor. It is not often that Lawrence Kudlow praises the
    chairman, but he did the other day in an op-ed and commentary
    that he often writes. He talked about the Sarbanes bill and
    said:

        Serious Democrats, such as the Senate Banking Committee
    head Paul Sarbanes and Senate Investigations Subcommittee
    Chairman Carl Levin, have taken a completely different tact
    from the business as usual----

        I will not repeat the remainder of it. But that ought to be
    a part of the Record because I think it reflects the spectrum
    of the thinking on the floor of the U.S. Senate at this moment.
    Whether you are conservative, moderate, or liberal, we know
    that we have to regain the confidence of the American investing
    public and the world investing public, and for that matter, the
    market systems of our country and in corporate America.
        As long and as loud as many of us speak about the good
    corporations out there and how well run they are, the moment
    another Enron occurs or someone else speaks out about
    misdealings, that confidence is once again dashed.
        This legislation moves to create a bright line between,
    good and bad accounting by separating auditing and consulting
    services for accountants in public corporations. It requires
    disclosure of off-balance sheet transactions and other
    obligations that might affect the corporate financial
    condition, and it establishes independent auditing boards to
    oversee corporate accounting.
        All of those are very critical in creating bright lines of
    clarity, understanding, confidence, and stronger enforcement of
    criminal behavior.
        Someone in my State said the other day: You don't have to
    strengthen the accounting procedure, Craig. Put the bums in
    jail. Those are criminal acts. When you knowingly are
    distorting the financial strength of a company which affects
    its stock, destroys retirement funds, employee's stock options,
    and all of that, it is, in fact, a criminal act.
        Our President has said it. Others have spoken on the floor.
    But there is a line we have to draw. It is not one of
    grandstanding for political purposes but doing the right thing,
    to set in place good public policy that directs the free market
    system in the appropriate fashion. Do we want to make it so
    restrictive that decisionmaking in the board room means always
    looking over their shoulder to see that they have done it
    exactly right against a Federal law when the marketplace is a
    dynamic place and laws are static?
        We know there have to be some static lines attached. There
    is no doubt about it. Those have to be clear. At the same time,
    we cannot be so restrictive that we blight the market and send
    investments outside the United States to the rest of the world.
        The Wall Street Journal wrote yesterday that everything you
    are hearing now from Washington is aimed at winning the
    November elections and not at calming financial markets. I hope
    this bill is all about calming financial markets. And I believe
    the majority of this bill does have that goal. Some of rhetoric
    may not reflect it. But I truly believe the chairman and the
    ranking member are working in the direction of building a
    substantive bill that will go to conference, that works out our
    differences between the House and that goes to the President's
    desk.
        I hope the Wall Street Journal is wrong. I hope we refrain
    from making corporate accountability simply another political
    exercise. It ought not be. It has not been. It should never be.
        In Idaho they say: ``You can't hang the same man twice.''
    ``You can't hang the same person twice.''
        So let's make the laws clear, easily defined, not
    arbitrary, not like our tax laws today where even the best
    consultants cannot give good advice.
        What we are working with, I hope, is clean and clear and
    appropriate. There are more than 16,000 corporations under the
    jurisdiction of the SEC. Of those, no more than a handful have
    been accused of criminal wrongdoing. In the end--when all the
    dust settles, the market stabilizes, and investors begin again
    to regain confidence, and the Congress has acted--no more than
    a handful of corporations will have been the bad actors.
        So I hope and I trust we can finalize what we are doing
    here today, and Monday possibly. It is important. The bottom
    line is very simple: Congress needs to act, and act now, and
    reaffirm the confidence the American people have in our public
    institutions.
        I just came from a Republican bicameral meeting between the
    House and the Senate Republican leaders. They said: Get us the
    bill immediately. Assign conferees. Let's go to work. Let's get
    this out before the August recess.
        Let's send a message to the American and the world investor
    that we have acted timely, that we have acted responsibly. The
    President has laid down his marker. The House has laid down
    their marker. It is now time for us to do the same. And in
    doing so, and in moving with expeditious action--not haste, not
    in an irresponsible way--I think we can turn to the American
    people and say: We have put in place the right safeguards, the
    right protections, the right firewalls. Study the papers, study
    the financials, and begin, once again, to reinvest in the
    American marketplace because it will be the right place to put
    your money.
        Madam President, I yield floor.
        The Presiding Officer. The Senator from Pennsylvania.
        Mr. Santorum. Madam President, I want to pick up on what
    the Senator from Idaho just said, which is, we were just
    meeting on the House side among the leadership. One of the
    messages that was very clear was, when this bill passes, the
    House is very eager to appoint conferees and to move forward to
    get a bill out as quickly and as responsibly as possible, to
    send all the right messages to the investing public and to Wall
    Street that Congress has seen the problem and that we are
    ready, willing, and able to act, and act in an expeditious way.
        I think it is important for us to act. I agree with that
    sentiment. The House, obviously, acted months ago in dealing
    with this problem. We have taken a little bit longer, which we
    have a tendency to do in the Senate--take a little longer to
    get things done. But we are now moving forward, and we should
    not delay in getting to conference. We should not delay in
    appointing conferees in the Senate. And we should have a
    process by which we engage in these meetings earnestly and come
    up with a product, if possible, by the August recess.
        It is little difficult. The House is going to be out a week
    before the Senate. So it is a pretty big task ahead of us, but
    we should go about it in earnest, and we should do our best to
    move this forward and send the signals that the Congress has
    moved as expeditiously as possible to meet the concerns of the
    investing public about the markets and the reliability of the
    numbers that corporations are sending out to the investing
    public.
        I have to say, as one of the four members of the committee
    who voted against this bill in the committee, I have some
    concerns about the underlying bill that came out of committee.
    I have some concerns about particularly the impact on some of
    the small companies that will be governed by this legislation.
        A lot has been made that this is a piece of legislation
    that just deals with publicly traded companies, and so we are
    talking about the big companies. As any of you who have watched
    the market for any length of time know, there are a lot of
    small companies that go into the equity markets and are
    publicly traded, particularly a lot of technology companies.
        A lot of the economic growth engines of our economy are
    small publicly traded companies. One of the concerns I have is
    this bill may be appropriate for large multinational
    corporations--such as General Motors or IBM; you can go down
    the list; Xerox, whatever--but it may not be particularly an
    appropriate vehicle of regulation for small-cap stocks.
        As you know, there are small-capital stocks, mutual funds,
    small-cap funds. To apply the same rigorous accounting
    standards and rules and regulations that very well may be
    appropriate for these large companies to these smaller
    companies could have a very significant negative effect on
    economic growth in our country.
        To put these kinds of rules and regulations in place for
    these small companies is going to be very expensive, very
    onerous, and make it very difficult for them to conduct
    business. And remember, folks, who is responsible for economic
    growth in America, job creation in America. Let me underscore
    this. We have job claims up again just last week. The economic
    engine for job creation is smaller businesses. A lot of them
    are these small publicly traded companies.
        It is a very grave concern to me that, yes, we look at
    these companies we are talking about here. These are big
    companies that have done a lot of things that, obviously, they
    should not have done, and with big accounting firms. We are not
    hearing about scandal in these smaller publicly traded
    companies that use small accounting firms in most cases. To
    apply these rules to these smaller companies is really
    problematic and has a negative effect on our economy.
        The last thing I want to see us do--yes, we want to
    strengthen confidence in the capital markets. Yes, we want to
    deal with the problems of fraud, and we want to hold people who
    commit fraud more accountable, and toughen punishments, which
    is what we have done on the floor. Those are very important
    things to do. But we should not do that at the expense of jobs
    and economic growth in our economy.
        I understand there is a provision in the bill that allows
    smaller--any company, I guess, to seek a waiver as to some of
    the provisions of this act. I know a lot of small businesses,
    and most of them do not have a lot of money to hire lobbyists
    and lawyers and other people to come here to Washington, DC, or
    to New York and plead their case that they should somehow be
    preempted from the provisions of this act.
        You are talking about 16,000 publicly traded companies,
    most of which--well over 75 percent--are relatively small in
    size. Imagine the burden of the regulators having to deal with
    petition after petition after petition.
        Senator Gramm has an amendment, which I presume he will
    offer on Monday. I am hopeful that the Senate will seriously
    consider giving the regulatory body some flexibility in
    providing blanket waivers to classes of companies, or based on
    some sort of rational scheme of determination of size and scope
    of a company, that we give a little flexibility to the
    regulators not to sort of throw all the babies in this one big
    basket, and understand that there are real significant
    consequences to jobs and future growth of this economy if we
    did that.
        So I know that is an issue on which we are going to have a
    discussion next week. But, to me, it is a very significant
    issue, one where you can be for tougher regulation, you can be
    for increased accountability, you can be for tougher
    penalties--all those things, setting up this governing board,
    having standards in place--you can be for all these things in
    the bill, but you have to understand that General Motors and
    ABC Tech Company in Scranton, PA, are fundamentally different
    entities and should not be treated the same way.
        It really is important for us to have some sort of
    provision for the regulatory body to exempt some of these
    smaller entities, where some of these regulations do not really
    apply or misapply, from this scheme of regulation that is in
    this bill.
        So with that, it looks as if we have another Member who
    might be interested in offering an amendment or giving a
    speech.
        I am happy to yield.
        The Presiding Officer. The Senator from Maryland.
        Mr. Sarbanes. Madam President, later I want to address a
    couple of points made by the Senator from Pennsylvania, but the
    Senator from Delaware is in the Chamber and wishes to speak. So
    I yield the floor.
        The Presiding Officer. The Senator from Delaware.
        Mr. Carper. Madam President, I know the Senator from
    Maryland is getting tired of receiving all these bouquets, but
    he deserves them. Senator Enzi is not on the floor, but he
    deserves one or two as well, along with others of our
    colleagues, not just on the Banking Committee but other Members
    as recently as this morning who offered amendments to this
    legislation which improve it materially, especially the
    amendment offered by the Senator from Missouri, Mrs. Carnahan.
    It is all well and good that we say to those who are senior
    officials within companies, if you have a stock transaction,
    you have to report it. Give them the paperwork, they report it,
    and it goes somewhere where few people ever have a chance to
    see it or be aware of it. It is quite another thing to list
    that transaction, do it electronically so anyone who has access
    to the Internet can find out about it. Senator Carnahan's
    amendment includes this electronic disclosure, and that is a
    very good improvement to the legislation.
        I like what the Senator from North Dakota, Mr. Dorgan, has
    offered today, with respect to the process where we have
    companies normally registered and incorporated here in a State
    in America who somehow slip off to Bermuda and incorporate. We
    actually provide an incentive; if we don't adopt the Dorgan
    amendment, we provide an incentive for that kind of behavior.
    Not only does that have an adverse effect on States such as New
    York or Delaware or Maryland or Pennsylvania, it also has an
    adverse effect on shareholders because the heads of companies
    that are registered or incorporated in a place such as Bermuda
    would otherwise not have to sign off and vouch for the
    financial statements they are providing.
        Even as recently as this morning, a good bill has gotten
    better.
        I appreciate the amendment offered earlier by Senator Lott
    on behalf of the President and the addition of a number of
    provisions in the bill that the administration supports, and,
    frankly, I think we all should.
        I came across an interesting column this week. I didn't
    know if I would read it, but given that the Senator from New
    York is presiding, I have to at least read the first paragraph.
    This is a column by a fellow who writes in the LA Times and is
    syndicated across the country, Ronald Brownstein. I will read a
    paragraph and perhaps ask unanimous consent that the entire
    column be printed in the Record.
        There being no objection, the material was ordered to be
    printed in the Record, as follows:
                  Bush Needs to Drop the Velvet Glove Approach
                             (By Ronald Brownstein)
        It's easy to imagine the frenzy that would be engulfing Washington
    if it was President Clinton now revising his explanation of a
    controversial 12-year-old stock deal.
        Bush Limbaugh would be roaring in outrage. Robert H. Bork would be
    decrying the loss of moral authority in the Oval Office. Sen. Arlen
    Specter, R-Pa., would be demanding a special prosecutor. Congressional
    committees would be subpoenaing the president's old business partners.
        President Bush probably will be spared all that, even after
    suddenly altering his explanation for why he was eight months late in
    reporting to the Securities and Exchange Commission his 1990 sale of
    stock in Harken Energy Corp., a company on whose board he sat, shortly
    before it announced large losses. (For years he blamed it on the SEC;
    now he's fingering Harken's lawyers.)
        After the fanatical ethics wars of the Clinton years, few in
    Washington have much stomach for a full-scale confrontation--though the
    Washington Post raised eyebrows by revealing Bush's former personal
    attorney was the SEC general counsel at the time commission cleared him
    of wrongdoing in the stock sale. The attorney, James Doty, says he
    reused himself.
        The demands of the war against terrorism also will discourage a
    political firefight over the sale. But even so, the disclosures were
    still creating awkward moments for Bush as he prepared to call for
    greater corporate responsibility.
        Actually, the focus on Bush's behavior 12 years ago may frame the
    wrong debate. It's likely that the dominant argument in Washington will
    be over whether it's credible for Bush to demand better corporate
    behavior while facing these personal questions. The more relevant issue
    is whether it's credible for Bush to threaten a crackdown now after his
    administration spent its first 18 months promising business kinder and
    gentler enforcement of the range of Federal laws against corporate
    misconduct--from the environment to the stock markets to the workplace.
        In other words, can Bush plausibly shake the iron fist after
    stroking the Fortune 500 for so long with a velvet glove?

                               BUSINESS AS USUAL

        For all the nouvelle elements of Bush's thinking on social issues
    such as education or home ownership, he's always been a conventional
    conservative on government oversight of business. As governor of Texas,
    presidential candidate and president, Bush has focused more on
    intrusive government than irresponsible corporations.
        His consistent message has been that, in pursuing its goals and
    enforcing its laws, government should be more cooperative and less
    coercive. During the 2000 campaign, he crystallized his view on
    government's relationship with business when he insisted: ``I do not
    believe you can sue you way or regulate your way to clean air and clean
    water.''
        Bush has put flesh on that philosophy by staffing many Federal
    agencies with alumni of the industries they now regulate. The Interior
    Department is crowded with former lobbyists for the coal and oil
    industries. A former timber lobbyist is watching the national forests
    Harvey L. Pitt, the SEC chairman, came from the accounting industry;
    Bush already has appointed another accounting industry alum to the
    five-member commission and nominated yet a third. (That means Bush is
    seeking to construct an SEC, for the first time, with a majority of
    commissioners tied to accounting.)
        To monitor safety in the workplace, Bush found an executive from
    the chemical industry. To monitor safety in the mines, he appointed an
    executive from the mining industry. The list goes on.
        In chorus, Bush's appointees have sung the same tune. At her
    confirmation hearing last year, Environmental Protection Agency
    Administrator Christie Whitman promised more negotiation and less
    litigation against recalcitrant companies. ``Instilling fear does not
    solve problems,'' she insisted.
        Over at the Occupational Safety and Health Administration, director
    John Henshaw as late as last month told a business audience:
    ``Hopefully we can put the days of OSHA as an adversary behind us.''
        And before Enron and WorldCom and Martha Stewart forced the SEC
    chair to try to morph into Harvey Pitt-bull, he was sending the same
    message, telling the accounting industry last fall that he viewed them
    as the agency's ``partner'' and pledging ``a new era of respect and
    cooperation'' after the confrontations of the Clinton years.
        Partnership with industry has its place. But enforcing Federal law
    to police the market place isn't it. No cop anywhere would agree with
    Whitman; they instead would argue that the best way to discourage drug
    dealing or street crime is to instill fear--of relentless enforcement.
    The same is true in the boardroom. Polluters or stock swindlers are
    more likely to stop because they fear being caught than because
    Washington asks them nicely.

        Mr. Carper. Here is the first paragraph:

        It's easy to imagine the frenzy that would be engulfing
    Washington if it was President Clinton now revising his
    explanation of a controversial 12-year-old stock deal. Rush
    Limbaugh would be reacting in outrage. Robert Bork would be
    decrying the loss of moral authority in the Oval Office. [One
    of our Senators] would be demanding a special prosecutor.
    Congressional committees would be subpoenaing the president's
    old business partners.

        This is a whole lot more important than trying to find
    political advantage in a particularly difficult debate and a
    difficult time in this economic recovery. This is about the
    economy.
        As a Nation, we are trying to come out of a recession.
    There is a fair amount of financial data which suggests we are
    heading in the right direction. The number of people being laid
    off is slowing. Manufacturing activity is increasing. Even
    economic activity among some of the most hard-hit sectors of
    the economy, technology sectors, is showing signs of life. I am
    encouraged by that.
        If you look at the stock exchange for much of the last
    several weeks and months, it does not really reflect the
    returning, emerging vibrancy in the rest of the economy. That
    is not a good thing.
        One of the reasons why it is so important for us to pass
    this legislation is to send a clear signal to investors not
    just around the country, but around the world that the United
    States is a good place in which to invest. Our trade deficit
    last year was about $300 billion. This year it is going to be
    even more than $300 billion.
        We are starting to see the value of American currency, the
    dollar, which was robust and strong for the last several years,
    deteriorate. The worst thing that could happen for us, at a
    time when we need to attract foreign investments, would be to
    send a message that the United States is not a good or safe
    place in which to invest. When we are looking to much of the
    rest of the world to help finance a trade deficit of over $300
    billion, it is important that we send a strong message
    throughout the world that the U.S. remains the best place in
    which to invest.
        There are a number of provisions. I will not go through
    this bill provision by provision. I want to talk about some of
    the groups that have the greatest interest, the most at stake,
    what our obligation is to them, and how this legislation seeks
    to make sure that we not only recognize that obligation but
    that we act on it.
        Shareholders of companies, publicly traded companies,
    should have confidence. They should have confidence not only in
    the CEOs and top officials, but they should have confidence in
    the board of directors whose job it is to represent the
    interest of the shareholders and to know that that board is
    indeed independent. Shareholders should have confidence in the
    audit committees of the board. Investors should know that the
    audit committees of the board are comprised of independent-
    minded board members, knowledgeable board members who will act,
    not as a lap dog, but as a watchdog every day as they serve on
    the audit committee.
        Shareholders should have confidence that there are rigorous
    auditing standards that exist in this country and not that
    there are rigorous auditing standards that are on a piece of
    paper somewhere, but there is a strong, independent,
    knowledgeable entity that is going to make sure that those
    auditing standards are enforced.
        How about the auditors of publicly traded companies? We
    should take away from them the temptation to look the other way
    or give the benefit of the doubt to a company that they are
    auditing because of the temptation from some other part of the
    auditing company which deals with consulting services; in many
    cases, these are lucrative services. We want to make sure the
    folks doing the audits of publicly traded companies are
    interested in doing a good job because that is their
    responsibility. Auditors should not be interested in cutting
    corners, looking the other way because doing so might enable
    their accounting company to attract and to retain lucrative
    consulting services.
        This bill goes a long way--some would say too far--toward
    curtailing that activity. To me, it strikes the right balance.
        Most of us know of someone who used to work for one of the
    big eight, then big five, now the big four accounting firms who
    actually went to work for one of the companies that they
    audited. I do. I suspect all of us could think of someone who
    has made that transition in their lives. There is nothing wrong
    with that. However, the revolving door can be more troublesome
    when the person moves from the auditing company one day, the
    company responsible for doing the audit, and the next day, the
    next week, the next month ends up as a senior official of the
    company that last week, last month they were auditing.
        This measure doesn't completely stop that revolving door,
    but it slows it down.
        Another area that this bill tries to address is the
    question: How often is it appropriate to have a fresh set of
    eyes in charge of those independent auditors doing that
    independent audit of a publicly traded company? Under current
    standards every 7 years we say that the lead partner of an
    audit should be changed. This measure takes it down to 5 years.
    Not everyone agrees with that. Some would like to have a change
    in auditing companies, requiring auditing companies to rotate
    every 5 or 7 years. I don't think that is a good idea. I do
    believe the approach we take in this measure, moving from 7 to
    5 years the period of time after which the lead auditor, the
    lead partner has to be changed, is sound.
        How about investors? I talked about shareholders, about the
    auditors themselves. How about investors? The investors in this
    country and other countries need to be comforted by the
    knowledge that when they hear an analyst on television or read
    of an analyst's recommendation of a particular stock or stocks,
    when an analyst says buy, they mean buy. When an analyst says
    sell, they mean sell. When an analyst says hold, they mean
    hold.
        Investors have the right to know that the analysts whose
    advice they are following or attempting to follow are not being
    pressured to color their recommendations of a buy, sell, or
    hold by what is happening on the investment banking side of the
    business, and to know that the analyst's compensation is going
    to be derived more from how well the analyst does his job,
    providing good analysis and investment advice, and not about
    how much new business that analyst can help bring to the
    investment banking side of their company.
        How about the CEOs and senior management? When they break
    the law, they should be fully prosecuted under the law, and if
    what they have done is an offense for which they can be
    imprisoned, they ought to be. Our job in the Congress is to
    pass laws and to say what the crime or penalty should be when
    people violate those laws.
        It is the job of the Justice Department to fully
    prosecute--with the help of the SEC and the other watchdog
    agencies--people who violate the laws. Senator Leahy, on behalf
    of a number of Senators, earlier this week--yesterday, I
    believe--offered legislation that provides a new law that says
    not only can we prosecute some of the corporate wrongdoers--I
    am tempted to call them criminals, but I won't--who violate the
    trust, and to not only say you have to go after them under the
    mail and fraud provisions of the criminal code, but to broaden
    that--which is sometimes difficult to do--and make the
    prosecutions more easily done and with very tough penalties
    under another part of the code.
        CEOs should not be allowed to profit from financial
    misinformation or from manipulation of their books. I commend
    the President and those who have worked on this legislation to
    say, to the extent that this does happen--a CEO or senior
    official benefits financially from tampering or cooking the
    books--they would be compelled to give that money back.
        I mentioned earlier the legislation offered by Senator
    Carnahan of Missouri which would actually make sure there is a
    disclosure of sale when a CEO or senior official sells their
    stock; that the transaction would not only have to be reported
    to the SEC, but disclosed electronically.
        Another provision in the bill that I think is especially
    good and timely, given what has gone on at WorldCom, where
    apparently a senior official of that company received a $360
    million loan from the company--a loan which I don't believe the
    shareholders ever knew about--at least when they found out
    about it, it was too late for a lot of them. That kind of
    information should be fully disclosed promptly and through a
    medium that allows those who have some need to know--investors
    and shareholders--to have that information in a timely way.
        Finally, a word about the employees who work for some of
    these companies that have gone through, or are going through, a
    meltdown. They need, I think, recourse when they are urged, on
    the one hand, by senior officials to buy company stock for
    their 401(k) investment plans at the very time when senior
    officials are bailing out of the company stock. There should be
    some kind of recourse for employees when that happens. In the
    belief of what is good for the goose is good for the gander,
    employees should never again face the situation that Enron
    employees faced where, during a lockdown period of time,
    employees could not sell their stock while senior officials
    were able to bail out and sell their stock. What is good for
    the goose is good for the gander. To the extent that employees
    in a lockdown period are not able to sell their company stock
    in their 401(k) plan, the senior officials of the company
    should not be able to enter into transactions involving their
    stock either.
        There is one thing I don't believe we address in this bill;
    the others I mentioned, we do. One area we do not address--and
    I suspect it comes later--and a member of the staff will tell
    me if I am mistaken. One of the problems we have with 401(k)s
    for the employees, the investors, is that they don't get very
    good advice. The companies don't want to be held liable if they
    provide bad advice when all is said and done. And when we move
    on to other issues, I hope we will have agreed on a way to
    better ensure that the employees who are not getting very good
    advice do get that good advice.
        I worry about the concentration of assets and investments.
    I know some people believe there should be a cap and that they
    should not be able to invest any more than half or a quarter in
    company stock for your 401(k). If I am an employee and I am
    buying company stock, maybe I should have to sign a form that
    is an acknowledgment that I am about to do something very
    stupid--something similar to what the employees did at Enron,
    where they put all their eggs in one basket--and acknowledge
    that is not a bright thing to do, and acknowledge that I am
    doing that unwise thing myself. Maybe that is needed here. In
    addition to that kind of disclosure, I think we do need to
    address the need for better advice for employees.
        I will go back to where I started; that is to say, a lot is
    riding on this legislation--a whole lot more than we would have
    guessed 6 months ago. Six months ago, as we saw Enron melt down
    and the disclosures come forward, we thought it was one company
    that was poorly run, maybe fraudulently run. A lot of people
    were hurt who worked at that company. A lot of people who
    worked for the auditor, the accounting firm, Arthur Andersen,
    have lost their jobs and were, frankly, fully innocent, but
    they have been harmed. Six months ago, there was a full sense
    of outrage at Enron and the people who led it to its fall.
        We know now that what happened at Enron may not be
    precisely the same as other companies, but it is symptomatic of
    the behavior in other companies, where the people who run those
    companies do not meet their obligations to the shareholders, to
    the employees, and where greed has corrupted too many people.
    While it is difficult for us to pass a law outlawing greed, we
    can try to outlaw fraud. But it is tough to do that; I
    acknowledge that.
        With the developments within a whole host of other
    companies--disclosures of financial mismanagement and
    misstatements, misrepresentation of performance of other
    companies in recent months--the importance of what we are doing
    this week and next has grown. We need to get this economy
    moving in the right direction. I believe that, underneath, a
    lot of the fundamentals are pretty sound. If you look at
    growth, and productivity, and the manufacturing activity to
    which I alluded earlier, there is some good news. The troubling
    news is what is going on in the stock market, as investors are
    skittish, and that is understandable.
        We can begin to restore, in a very meaningful and tangible
    way, the confidence of those investors in America and in
    American companies, and we ought to do that.
        The last word I will say is this. I commend Chairman
    Sarbanes. He is not presently on the floor. I also commend the
    committee staff and personal staffs for the kinds of hearings
    that have been held this year which have led us to this day.
    Chairman Sarbanes is not the sort of person who is interested
    in rushing out and being on television every night. He is not
    interested so much in seeing his name or picture in the
    newspaper. He is interested in getting at the truth. I think
    the hearings that were held over many months have led us to
    finding the truth and, maybe just as important, to finding the
    right course for us to take as a Nation, to be able to right
    some of the wrongs that have been done and to reduce the
    likelihood that further wrongs will occur in the future.
        I know some have been impatient for us to get to this day
    and to take up this legislation, pass it, and to send it to the
    President. I think it has been worth the wait. I acknowledge
    that not everything that needs to be done ought to be done by
    the Congress. The stock exchanges have made a number of
    excellent changes, and they are to be commended. Many companies
    and many corporate boards, that have sort of been tarred with
    the same brush, and senior officials and CEOs who are doing a
    good job in acting and behaving in a most important way, have
    been tarred and feathered with the same brush.
        A lot of companies have said, themselves, they have taken a
    look in the mirror--boards of directors, audit committees, and
    others--and said: We can do better. And they have adopted
    reforms. Shareholders--market forces--have come to bear on
    companies, their boards of directors, as they should, and that
    is helpful as well.
        In the end, there are some things the Congress can do and
    ought to do, maybe not all of them, but a lot of them are
    included in this legislation before us. I am proud to have
    participated as a member of the Banking Committee in its
    development and proud to be a witness to the work that is going
    on in this Chamber to make a good bill even better. I yield the
    floor.
        The Presiding Officer. Who yields time? The Senator from
    Michigan.
        Mr. Levin. Madam President, in a moment I am going to ask
    unanimous consent that the pending amendment be set aside and
    that I be allowed to call up amendment No. 4283. This amendment
    relates to stock options. The amendment is one line. It says
    that the standard-setting body for accounting principles that
    is set up in this bill shall review the accounting treatment of
    employee stock options--just review it--and shall within a year
    of enactment of this act adopt an appropriate generally
    accepted accounting principle for the treatment of employee
    stock options. They shall review it within a year and adopt an
    appropriate standard.
        There has been a huge amount of debate about stock options.
    Recently the Republican Senate staff of the Joint Economic
    Committee issued a report about ``Understanding the Stock
    Option Debate.'' In that report, it concluded that, ``Basic
    principles of financial accounting imply that stock option
    awards should be treated as a cost in corporate financial
    statements, and this cost should be recognized at the time of
    grant.''
        We have a Republican Senate staff report which, after
    reviewing all of the pros and cons, concludes that stock option
    awards should be treated as costs in financial statements. It
    is a very strong document. It is an analysis that I recommend
    to people to read.
        Our amendment, however, does not do that. Our amendment,
    which is an amendment I am offering on behalf of myself,
    Senator McCain, and Senator Corzine, simply says that the board
    we are funding in this bill should review the accounting
    treatment of employee stock options and adopt an appropriate
    standard.
        How anybody can be opposed to the proper accounting board
    doing a review and coming up with an appropriate standard is
    something beyond my understanding. I can understand the
    arguments, the pros and the cons. I have been through them for
    10 years. I have argued that we ought to treat stock options
    like any other form of compensation, and I believe we should.
    But I do not set accounting standards. That is not my job. That
    is the job of this newly independent board to set accounting
    standards, and we should urge them to take a look at this. This
    is where this matter should be referred and at a minimum, Madam
    President, I ought to be allowed to get a vote on this
    amendment.
        This is a germane amendment. We are in a postcloture
    situation, and I do not know of a time--there may be; I have
    not been around here as long as some--but I do not know of a
    time when a germane amendment postcloture has not been
    permitted to go to a vote.
        Apparently, that is what is going to happen, from what I
    hear. I hope it is not true, and I do not want to be unfair to
    my good friend from Pennsylvania. He may not object. But I
    think it is a misuse of our rules now I am going to get to a
    process issue--to not permit a germane amendment postcloture to
    be voted on. And this amendment is germane.
        On the stock option issue, we have everyone from Alan
    Greenspan to economists. Let me read the list of some of the
    people who support a change in stock option accounting: Alan
    Greenspan; Paul Volcker; Arthur Levitt; Warren Buffett; TIAA-
    CREF, one of the largest pension funds in the United States for
    teachers; several economists; Paul O'Neill; Standard & Poors;
    Council for Institutional Investors; Citizens for Tax Justice;
    Consumer Federation of America; Consumers Union; AFL-CIO; on
    and on. They believe that stock options are a form of
    compensation, they have value, and they should be part of the
    expenses on the books of a corporation just as they are taken
    as a tax deduction at this point.
        One of the driving factors in the corporate abuses that we
    have seen are the huge gobs of stock options which have been
    handed out to executives. Then executives push accounting
    principles beyond any comprehension to raise the value of the
    stock and then exercise their options and sell the stock. We
    have seen this situation repeated in corporation after
    corporation, and I believe we ought to try to put an end to it,
    but that is not what this amendment does. This amendment simply
    says: We are creating a newly independent board. This
    independent board should decide on what the appropriate
    standard is. That is why we are providing independent funding
    for it.
        I want to read a part of a Washington Post editorial of
    April 18, 2002:

        Alan Greenspan, perhaps the Nation's most revered
    economist, thinks employee stock options should be counted,
    like salaries, as a company expense. Warren Buffett, perhaps
    the Nation's foremost investor, has long argued the same line.

        Skipping down:

        The London-based International Accounting Standards Board
    recently recommended the same approach. In short, a rather
    unshort list of experts endorses the common-sense idea that,
    whether you get paid in cash or company cars or options, the
    expense should be recorded. . . .

        Why does this matter? Because the current rules--which
    allow companies to grant executives and other employees
    millions of dollars in stock options without recording a dime
    of expenses--make a mockery of corporate accounts. Companies
    that grant stock options lavishly can be reporting large
    profits when the truth is that they are taking a large loss. In
    2000, for example, Yahoo reported a profit of $71 million, but
    the real number after adjusting for the cost of employee stock
    options was a loss of $1.3 billion. Cisco reported $4.6 billion
    in profits; the real number was a $2.7 billion loss. By
    reporting make-believe profits, companies may have conned
    investors into bidding up their stock prices. This is one cause
    of the Internet bubble.
        Then this editorial goes on:

        But nobody wants to ban this form of compensation; the goal
    is merely to have it counted as an expense.

        Madam President, that is what most of the accounting
    profession, economists, and business people, other than those
    executives who are taking such huge amounts of stock options,
    want to do. This is what the Accounting Standards Board wanted
    to do in 1993, but then were beaten down so badly that they had
    to come up with an alternative instead called disclosure.
        Even when the accounting board decided to do that--which
    was not an independent accounting board because it did not have
    an independent source of financing, unlike this accounting
    board will have after we enact this bill--and now to read their
    report of 1994. The board issued an exposure draft called,
    ``Accounting for Stock-Based Compensation,'' and they decided
    that stock option values should be expensed. Then they said the
    draft was extraordinarily controversial, and the board not only
    expects but actively encourages debate on issues. Then they
    pointed out in the FASB document that the controversy escalated
    throughout the exposure process.
        Then in paragraph 60 of their findings, the FASB board said
    the following, that ``the debate on accounting for stock-based
    compensation unfortunately became so divisive that it
    threatened the board's future working relationship with some of
    its constituents. The nature of the debate threatened the
    future of accounting standards-setting in the private sector.''
        This is an extraordinary document and everybody should read
    it so people understand the kind of pressure that not only that
    board was under--hopefully, the newly independently funded
    board will not be under--but the kind of pressure which exists
    in this Congress. We have, in essence, a new board, because it
    has an independent source of funding. We ought to let that
    board reach an independent conclusion on one of the most
    controversial, contentious issues we have before us.
        This is a tremendous bill we are voting on. But it can be
    strengthened. It is not a perfect bill, and from the point of
    view of pure fairness and deliberation, this Senate should be
    allowed to vote on a germane amendment postcloture.
        I will read one additional paragraph from the FASB document
    report to set out the extent of the pressure which exists in
    this area and why it is so important there be a review of this
    whole matter by an independent board.
        In December 1994, the board said it decided that ``the
    extent of improvement in financial reporting that was
    envisioned when this project was added to its technical agenda
    was not attainable.''
        Why was it not attainable, the FASB said? Because the
    ``deliberate, logical consideration of issues that usually
    leads to improvement in financial reporting was no longer
    present.'' These are incredible words. This is from the board
    that is supposed to set accounting standards in this country.
    They wrote in their report that when their proposal to expense
    stock operations was issued, it was not attainable because the
    ``deliberate, logical consideration of issues that usually
    leads to the improvement in financial reporting was no longer
    present.''
        Why was it no longer present? Because the debate had become
    so divisive, in their words, that it threatened the board's
    future working relationship with some of its constituents.
        The nature of the debate, they wrote, threatened the future
    of accounting standards-setting in the private sector.
        Finally, the board, beaten down, threatened with
    extinction, said this: ``The board chose a disclosure-based
    solution for stock-based employee compensation to bring closure
    to a divisive debate on this issue, not because it believes the
    solution is the best way to improve financial accounting and
    reporting.''
        That was in 1994. We have seen what has happened in terms
    of stock option abuses because this board, if it had proceeded
    in the way it thought best, would have gone out of existence.
        This bill creates a newly independent board, a board that
    has an independent source of revenue. This bill, it seems to
    me, is not complete, is not strong, unless we now say to this
    country that the newly independent board should review this
    accounting standard and reach an appropriate conclusion.
        This amendment, which is cosponsored by Senators McCain and
    Corzine, does not say what that conclusion is. It does not,
    unlike the McCain amendment which was not allowed a vote
    yesterday, conclude that stock options should be expensed. It
    does say we have an independently funded board which should
    review this matter and reach the appropriate conclusion.
        Mr. Reid. Will the Senator yield for a question?
        Mr. Levin. I would be happy to.
        Mr. Reid. I am just curious. I am not sure I should get
    involved at this stage because the Senator knows the subject so
    well, but this board that is set up in this proposed law, they
    would not have authority to do that on their own?
        Mr. Levin. They would.
        Mr. Reid. Why do we need your amendment?
        Mr. Levin. Because this Congress has been on record as
    saying what the accounting standard should be. In the early
    1990s we took a position. This neutralizes that position. This
    says, the accounting board is the right place. The Senate is on
    record by a vote of 88 to 9 as saying there should not be the
    expensing of stock options. What this amendment says is that
    the board should decide. It should review this matter. It takes
    a neutral position, thereby clearing the record as to what the
    position of this Senate is.
        As of now, all we have on record is that stock options
    should not be expensed. What this amendment would say is, you
    should review this and reach an appropriate standard.
        Mr. Reid. My question to the Senator was, If we did not
    have the Senator's amendment, would the board not have that
    authority anyway?
        Mr. Levin. They could do it, but all that there would be on
    the record would be our last statement saying they should not
    expense. That same kind of pressure we put on them would still
    be on the record, and I think that should not be the last
    statement this Senate should make on this subject.
        The last statement we ought to make on this subject is that
    the accounting board is the appropriate place to make that
    decision, not the Senate.
        Mr. Reid. I still ask my friend for the third time, if we
    have no Levin amendment, it would seem to me this newly created
    board would still have authority to do what the Senator is
    talking about.
        Mr. Levin. Under the cloud we created in 1994. I would
    refer my friend to the debate in this body back on May 3, 1994,
    where the Senate reached a conclusion that it is the sense of
    the Senate, that was approved by, again, a vote of 88 to 9 or
    something like that, that the Financial Accounting Standards
    Board should not change the current generally accepted
    accounting treatment of stock options.
        Mr. Sarbanes. Will the Senator yield?
        Mr. Levin. I am happy to yield.
        Mr. Sarbanes. I asked the Senator to yield because I do
    want to underscore that the legislation that is before us takes
    a major step in trying to guarantee the independence of the
    Financial Accounting Standards Board in terms of how it
    provides for its funding, and that is a dramatic improvement of
    the situation because heretofore the standard board had to seek
    voluntary funding. So the standards board ended up going to the
    people for whom it was establishing the standards in order to
    get money to fund its operations. Well, when it came to the
    crunch--and this issue was one such crunch as far as the
    Financial Accounting Standards Board was concerned--the people
    from whom they were voluntarily getting the money said we are
    not going to give you any money. You are not going to be able
    to carry out your activities.
        So we moved in this legislation because one of the things
    we require is that the issuers pay a mandatory fee. If you are
    an issuer, you are registered with the SEC and you have to pay
    a fee. That goes into a fund and that fund pays for the budget
    of the Public Accounting Oversight Board and the budget of the
    Financial Accounting Standards Board, so they are assured a
    revenue source.
        I urge people to stop and think about that because it is a
    very important step to ensuring the independence of both
    boards. But here we are talking about the Financial Accounting
    Standards Board, and the dramatic change from its previous
    situation.
        So it really will have, at least on the budget side, the
    independence to go ahead and make these decisions as they
    choose to call them. The issue that becomes involved in all of
    this otherwise is the question, Should the Congress of the
    United States be itself actually establishing accounting
    standards? Of course, as the Senator indicated, when an opinion
    was voiced on that a few years ago, it went in one direction.
    And now people want the Congress to come along and express an
    opinion in another direction. I have some sympathy. Obviously,
    we have seen things happen. Most people might have sympathy.
        But we come back to the basic question, whether the
    Congress should be doing this. We set up this accounting
    standards board so it could make independent judgments.
    Unfortunately, there is no question about the fact that
    previously the standards board was subjected to tremendous
    pressure which affected its ability to make an independent
    judgment. It got tremendous pressure from industry groups,
    pressure from Congress reflecting the pressure of industry
    groups, and of course this exposure on its budget.
        We have tried in the legislation to address this very basic
    question of making sure this board has its independence. That
    does not reach to the specific issue the Senate is now
    addressing, but I wanted that on the record. It is important
    that be understood.
        Mr. Reid. Mr. President I ask unanimous consent I be
    allowed to speak using my own time for up to 2 minutes.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Levin. I will conclude, but I need to reclaim the floor
    because apparently all time otherwise is counted against my
    allotted time postcloture.
        Mr. President, I ask unanimous consent the pending
    amendment be set aside and that I be allowed to call up the
    amendment I filed at the desk relative to this subject which I
    understand has been ruled germane.
        The Presiding Officer. The Senator from Pennsylvania.
        Mr. Santorum. Reserving the right to object, I want to make
    a couple of points.
        No. 1, the Senator from Michigan suggested that all
    amendments that are germane postcloture should be allowed to be
    offered. I wish that were the case. I wish we had the
    opportunity to do that in all situations, but that has not been
    the case in this Senate, or has not been necessarily the
    history of the Senate. There have been many instances where
    germane amendments have not been allowed to be offered
    postcloture.
        No. 2, I make a point and reiterate the point that the
    chairman of the committee has made. The Senator from Michigan
    has made the point that FASB has been compromised because it
    wanted to do things and it felt constrained by the constituency
    which funds it. We have set up an independent funding source
    for FASB now, and I think that would allow a lot more
    independence to be able to deal with these accounting issues,
    such as the way we treat stock options, in a way that allows an
    independent judgment.
        Finally, while we do have a sense of the Senate that is 8
    years old on this issue, the Congress has never directed FASB
    to study an issue of accounting. This is precedent setting.
    There is nothing in this bill that directs FASB to do anything.
    It is an independent board. It sets up the accounting
    standards. I think there is no question that it will in all
    likelihood review this issue.
        For the Congress to begun to weigh in--even 8 years ago, we
    did not direct FASB to do this; we simply expressed our
    opinion. To direct FASB to do something would be a very bad
    precedent to set.
        I object.
        The Presiding Officer. The objection is heard.
        The Senator from Michigan.
        Mr. Levin. Mr. President, I see no reason that a vote
    should not be permitted on this amendment. That is what this
    objection leads to. I urge we come back on Monday, or whenever
    we do come back, and I will make this motion again because this
    is a critical issue, that is not addressed in this bill, which
    is a big part of the lack of credibility we have right now in
    our markets. It needs to be addressed in some way. This is a
    neutral way to do it.
        The arguments given by our friend from Pennsylvania are
    reasons to vote no on an amendment. They are not reasons to
    prevent an amendment from being called up and being offered.
        I will say again, I don't know where an amendment that is
    ready to be offered is not permitted to be offered because
    postcloture one side of the aisle has decided it is going to
    leave a first-and second-degree amendment standing out there
    without a vote in order to prevent other germane amendments
    from being voted on. I don't think that has ever happened.
    Obviously, we have reached the end of the 30 hours at times and
    there are still germane amendments that are pending. But this
    is not that situation.
        There is no further debate on the Carnahan amendment that I
    know of. Why not vote on the Carnahan amendment? There is no
    further debate--or if there is, let the debate take place so
    that other people can offer their germane amendments. That is
    being precluded here. I believe it is a misuse of postcloture
    rules to do that.
        That being the situation, I will be offering a unanimous
    consent at this time that my amendment be made in order at 2
    p.m. on Monday.
        The Presiding Officer. Is there objection?
        Mr. Santorum. I object.
        Mr. Levin. I thank the Chair, and I will make a unanimous
    consent request again on Monday that we be allowed to offer
    germane amendments in the time that remains on Monday and that
    we not be precluded by a blocking action which, it seems to me,
    is a distortion and a misuse of the postcloture rules which are
    intended to allow 30 hours to consider germane amendments. If
    that 30 hours is being used up and either being sworn off or
    not used, it seems to me that then precludes consideration of
    highly relevant--indeed, germane--amendments which are
    important to strengthening this bill.
        I thank the sponsors of this bill. It is a strong bill.
    There is no reason we should not be able to vote on a way to
    make it stronger.
        I yield the floor.
        Mr. Graham. Mr. President, I appreciate the chance to speak
    about the Public Company Accounting Reform and Investor
    Protection Act. I would like to strengthen section 302 of this
    legislation which is entitled, ``Corporate Responsibility For
    Financial Reports.''
        I have discussed several ideas with Senator Sarbanes and
    greatly appreciate his leadership on this legislation. He has
    been tireless in his efforts to strengthen corporate
    accountability and protect the American investing public.
        My first area of concern involves companies that have
    chosen to move their headquarters overseas. This legislation
    requires that CEOs and CFOs sign a statement saying that the
    financial documents they have filed are fair and accurate. This
    is consistent with an order just issued by the Securities and
    Exchange Commission, SEC, that requires CEOs and CFOs to attest
    to the accuracy of their company's most recent financial
    statement.
        But there is a glaring omission to this recent SEC order.
    Only companies that are U.S.-based would be required to send in
    these signed documents. If a company once based in the U.S. has
    fled our shores and gone overseas for tax reasons, they now
    just received a reward for leaving our Nation. Those CEOs and
    CFOs would not have to sign financial documents and attest to
    their accuracy.
        The SEC has also overlooked the accuracy of future
    financial documents by non-U.S.-based companies. Under a
    proposed rule, that is in the ``open comment period,'' foreign
    based companies are again enjoying a lesser standard of
    accountability. This is wrong, and unfair to American
    companies.
        In the proposed rule, the SEC does invite comments on how
    to cover overseas-based companies. However, this could be a
    case of ``too little too late.'' If companies are being
    publically traded in the United States, regardless of where
    their headquarters are located, they ought to be required to
    meet the same level of accountability that we are establishing
    for everyone else in this legislation.
        Let's not give U.S.-based companies one more reason to
    leave our Nation and incorporate someplace else. We need to
    hold all companies in our markets to the same high standard--
    there should be no reward of a lower standard if your company
    leaves the U.S. for a new overseas headquarters.
        My staff placed a call to the SEC to uncover the reason why
    foreign based companies were excluded from their recent order.
    To the credit of the SEC, they wanted to act quickly. They
    thought that the quickest way to promulgate this order was to
    cover only U.S. based companies. However, in doing this
    quickly, they ended up sending the wrong message. U.S. based
    CEOs and CFOs are ``on the hook'' in signed statements.
    Foreign-based CEOs and CFOs, simply put, are not.
        Senator Dorgan and I want to change this. We want it to be
    clear in the statute that no matter where your company is
    based, you must comply with this obligation. Senator Dorgan has
    filed an amendment to correct this, amendment No. 4125.
        I appreciate the consideration that the floor managers,
    Senator Sarbanes and Senator Gramm, have given our amendment
    and I encourage all my colleagues to support us in this effort.
    I look forward to seeing it in the final legislation.
        Mr. Johnson. Mr. President, I rise today to urge my
    colleagues to take swift and decisive action to stem the tide
    of corporate greed that is eroding the integrity of America's
    capital markets. I am a strong believer in the free enterprise
    system, and I am proud of America's leadership in creating
    tremendous economic opportunity for all investors, big or
    small, domestic or foreign. However, it is time that Congress
    curb the appalling corporate excesses and misinformation that
    have hurt investors, employees and taxpayers. Passage of the
    Public Company Accounting Reform and Investor Protection Act is
    a critical step in addressing these concerns.
        It is tempting to blame the problems corporate America is
    facing on just a few bad actors. For the most part, America's
    business men and women are industrious, innovative, and honest
    people who work hard to build our economy and provide jobs for
    our communities. However, we simply cannot ignore the shocking
    number and size of failed or failing companies, the marked
    increase in earnings restatements, and the profound toll this
    has taken on hard-working Americans. In fact, state pension
    funds have plummeted more than $1 billion from the WorldCom
    restatement and billions more from other companies involved in
    the scandals.
        In light of these inexcusable revelations, it is hard to
    believe that these problems are just isolated instances. Almost
    daily discoveries of accounting irregularities at some of
    America's largest and most highly respected companies, such as
    Enron, WorldCom, Tyco, and Xerox, to name just a few, clearly
    demonstrate the need for systemic accounting and corporate
    governance reform. Just recently, in fact, the Wall Street
    Journal reported that the drug company Merck may have
    understated revenue by over $12 billion.
        We must address systemic problems that are undermining the
    efficiency and transparency of our free market system, and
    which are eroding the faith of everyday Americans in the
    fundamental fairness of American business practices. We must
    clean up the current corporate culture that rewards misleading
    financial reporting and lax or corrupt corporate governance. We
    need strong legislation that will end the conflicts of interest
    and lack of disclosure that have misled investors and shaken
    their faith in America's financial markets. And we need to
    ensure that the SEC has the tools and money it needs to become
    a strong and formidable enforcer of securities laws. A kinder
    and gentler SEC serves only those corporate executives who have
    something to hide.
        The Public Company Accounting Reform and Investor
    Protection Act addresses these problems in a way that limits
    regulatory burden but provides affirmative measures to restore
    the integrity of our free market system. I support the bill's
    creation of a strong Public Company Accounting Oversight Board
    and restrictions on non-audit services accounting firms can
    provide to public company audit clients. Further, the bill
    imposes tough new corporate responsibility standards and
    implements controls over stock analyst conflicts of interest.
    Also, the bill requires public companies to quickly and
    accurately disclose financial information, so that high-level
    executives don't have a head start over small investors in
    bailing out when a company is in trouble. Finally, the bill
    ensures that the SEC has the resources to accomplish its
    mission of regulating the securities markets.
        On this last point, I was disappointed that President
    Bush's budget did not include money that the Banking Committee
    authorized last year that would have strengthened the SEC. The
    SEC has long been hobbled by its inability to compete for top-
    notch employees because of a pay scale that was out of line
    with other financial regulators. Late last year, Congress
    passed, and the President signed, H.R. 1088, which provided pay
    parity for SEC employees. Unfortunately, the President's budget
    did not allocate additional funds, making it difficult if not
    impossible for the SEC to carry out its enforcement mission. I
    am pleased that President Bush is now calling for additional
    funding for the SEC, which should be better able to police
    public companies with adequate resources.
        Without the threat of real consequences, however, dishonest
    corporate executives have little to fear from being caught with
    their hands in the cookie jar. For this reason, Congress must
    implement a plan to hold irresponsible corporate executives
    responsible for their actions. We must not allow these
    criminals to hide behind the corporate veil, while stealing
    millions of dollars from hard-working Americans. In that vein,
    I support provisions contained in the Corporate and Criminal
    Fraud Accountability Act, sponsored by Senator Leahy. The bill
    would provide stronger criminal penalties for corporate
    managers who defraud investors of publicly traded securities,
    criminal prosecution of persons who alter or destroy documents
    related to investigations, and protection for corporate
    whistleblowers against retaliation by their employers, among
    other provisions designed to protect investors from corporate
    greed.
        Finally, I believe that we should take a strong stance
    against another form of corporate greed: corporations that
    profit from American consumers, yet intentionally dodge U.S.
    taxes by moving their headquarters abroad. It is outrageous
    that these so-called ``American'' companies take advantage of
    the benefits of operating in this country and yet shirk even
    the most basic responsibilities of corporate citizenship.
    That's why I strongly support the Tax Shelter Transparency Act,
    sponsored by Senator Baucus, which would close the loopholes
    that allow corporate executives to use evasive accounting
    tactics to enrich themselves on the backs of American
    taxpayers.
        Before I close, I would like to thank Chairman Sarbanes for
    his leadership on this important issue. I also want to thank
    the Chairman as well as the Banking Committee staff for
    conducting a series of ten inclusive and comprehensive hearings
    on the issues addressed in his bill. The content of those
    hearings provided a conceptual foundation for our subsequent
    discussions of Senator Sarbanes' bill and a previous bill
    proposed by Senators Dodd and Corzine. In addition, our work
    has been enhanced by the fine contributions of Senator Enzi,
    who is the Senate's only Certified Public Accountant. The
    deliberative process used to develop this legislation has led
    to an appropriate, thoughtful, bipartisan bill that makes great
    strides in addressing the problems in our financial markets and
    restoring investor confidence.
        Ms. Landrieu. Mr. President, I would like to voice my
    strong support for S. 2673, the Public Company Accounting
    Reform and Investor Protection Act. This legislation will bring
    accountability to our corporate boardrooms and end the
    accounting abuses that threaten to undermine the free
    enterprise system.
        The hallmark of our economic system is free, fair, and open
    competition. The system rewards innovation, efficiently, and
    hard work. It allows individuals to take an idea, a dream, or
    an invention; build a business around it; and turn it into a
    livelihood. Some of our greatest corporations today started
    with just one idea.
        The recent revelations from Wall Street have thrown much of
    this in doubt. For the Enrons, and WorldComs of the world,
    success was based on hiding losses, misstating earnings,
    destroying documents, and getting cozy with their so-called
    ``independent'' auditors and the stock analysis who are
    supposed to give the stock buying public objective information.
    Instead of winning through open competition, these companies
    and others won through accounting sleight-of-hand.
        The price of this deception has been too high. While much
    has been made in the media about how far the Dow, the NASDAQ,
    and the S & P 500 have fallen on Wall Street, the real pain is
    being felt on Main Street--in retirement plans, pensions, and
    the investment portfolios of hard working people in our
    country. The pain is being felt by the very wealthy and people
    with modest means. Fortunately no Louisiana-based corporation
    has been caught up in this mess and hopefully that will remain
    the case, but many Louisiana investors were not so lucky.
        Many have said that all of these problems have been caused
    by a few bad apples. But when we hear about corporations hiding
    losses, creating off-book partnerships, insider trading, and
    inside loans to corporate officers, it means that something may
    be wrong with the whole tree: the tree is rotten because of
    loopholes in regulations and limited oversight.
        My State of Louisiana is home to a large number of small
    businesses--94,000 of the employer businesses in my state
    employ fewer than 500 people--and they employ about 54 percent
    of the state's workforce. This does not include the estimated
    135,000 self-employed people in my state. I find myself
    wondering what small business owners think of all of the news
    reports about these big, sophisticated corporations and their
    crooked accounting?
        Small business owners work hard to keep clean books. They
    do not have a team of creative accountants that turn losses
    into gains. The small business does not create sham, off-book
    partnerships to hide losses. I have never heard of a small
    business being forced to restate its earnings. Small business
    grow by playing by the rules. Many small business owners dream
    of taking the honest approach to turning their ideas and dreams
    into big businesses. How disheartening must it be for them to
    see that in the world of big corporate business the way to get
    ahead is by cheating.
        The bill before us today will help restore faith in the
    free market. It creates a strong oversight board that will set
    auditing standards for public companies backed up with the
    power to investigate abuses. It gets rid of the inherent
    conflict of interest faced by accounting firms that provide
    management consulting services to their auditing clients. Here
    on the floor we have added tough criminal penalties to this
    bill and given greater protections to whistles blowers. The
    whistle blower protections are an especially needed reform. We
    want the honest people in business to know that there is still
    a place for them.
        We must take this opportunity to restore confidence in the
    free market. I urge my colleagues to vote in favor of this
    legislation and I want to commend the chairman of the
    Committee, Mr. Sarbanes, for bringing this legislation to the
    floor.

                                VOTE EXPLANATION

     Mr. Kerry. Mr. President, due to a longstanding
        commitment I was necessarily absent for the vote on cloture
        on the Public Company Accounting Reform and Investor
        Protection Act of 2002 (S. 2673). Although my vote would
        not have affected the outcome, had I been present, I would
        have voted for cloture on the bill.

              VOLUME 148, MONDAY JULY 15, 2002, NUMBER 95,
                          PAGES [S6734-S6793]

      Public Company Accounting Reform and Investor Protection Act of 2002

        The Presiding Officer. Under the previous order, the Senate
    will now resume consideration of S. 2673, which the clerk will
    report.
        The assistant legislative clerk read as follows:

        A bill (S. 2673) to improve quality and transparency in
    financial reporting and independent audits and accounting
    services for public companies, to create a Public Company
    Accounting Oversight Board, to enhance the standard setting
    process for accounting practices, to strengthen the
    independence of firms that audit public companies, to increase
    corporate responsibility and the usefulness of corporate
    financial disclosure, to protect the objectivity and
    independence of securities analysts, to improve Securities and
    Exchange Commission resources and oversight, and for other
    purposes.

        Pending:

        Edwards modified amendment No. 4187, to address rules of
    professional responsibility for attorneys.
        Reid (for Carnahan) modified amendment No. 4286 (to
    amendment No. 4187), to require timely and public disclosure of
    transactions involving management and principal stockholders.

        The Presiding Officer. Under the previous order, the
    Senator from Michigan, Mr. Levin, is recognized.
        Mr. Levin. Mr. President, I wonder if I might inquire as to
    how much time I have on my allotted time under postcloture
    rules.
        The Presiding Officer. The Senator has 36 minutes
    remaining.
        Mr. Levin. I thank the Chair.
        I will at a later time ask unanimous consent that the
    pending second-degree amendment be laid aside so I can offer a
    germane second-degree amendment relative to stock options.
        My amendment, which is at the desk, would direct the
    independent accounting standards board to review the accounting
    rule on stock options and adopt an appropriate rule within 1
    year.
        It should not be necessary to seek unanimous consent. The
    whole purpose of our postcloture rules is to allow those of us
    who have germane amendments such as this one to offer that
    amendment, to have it voted on. It is a frustration of the
    clear intent of our rules to not allow germane amendments to be
    voted on after cloture is invoked.
        We have a strict rule. It is called cloture. It ends
    debate. When cloture was invoked, I had pending an amendment
    which would have given the Securities and Exchange Commission
    greater powers to impose civil fines administratively. It is an
    important addition to SEC powers. They now have that power over
    brokers, but they don't have it over corporate directors. They
    don't have it over corporate managers. They ought to have the
    power to impose civil fines administratively--subject, of
    course, to appeal to the courts--relative to corporate
    directors and corporate officers.
        That amendment, as relevant as it is to this bill, was
    frustrated when cloture was invoked and when all the time up to
    that vote was utilized so that my SEC amendment was not allowed
    to come up for a vote.
        Now we are in postcloture. Now we are under postcloture
    rules. The question is whether or not the intent of those rules
    is going to be carried out, which is to allow those of us who
    have germane amendments to have a vote on those amendments.
        The amendment on which I would like to have a vote cannot
    be voted on because there is a pending first-degree amendment
    and a pending second-degree amendment. So the second-degree
    amendment would have to be laid aside in order to allow a vote.
    As long as the opponents of this stock option accounting
    amendment don't allow the first- and second-degree amendments
    that are pending to come to a vote, we are foreclosed from
    offering germane amendments.
        That is not the intent of our postcloture rule. I believe
    it is an abuse of the intent of our postcloture rule. I hope it
    will not happen here. I am hoping against hope that there will
    not be an objection to my unanimous consent request so that
    this most critical issue can be addressed by the Senate.
        If we don't address this issue, it seems to me we are
    leaving a significant gap in the reforms we are struggling so
    hard to adopt to try to restore honesty to accounting rules.
        In 1994, the Financial Accounting Standards Board issued a
    tentative rule which said that stock options should be expensed
    like all other forms of compensation. That is what they decided
    was the right thing to do.
        Well, Congress intervened. The executives intervened
    strongly, beat back FASB with huge pressure, all set out in the
    FASB account of its rule. By the way, one of the most
    extraordinary documents I have ever read, as a matter of fact,
    in 24 years in the Senate, is that Financial Accounting
    Standards Board history of their effort to bring honesty to
    accounting for stock options, in their judgment, and how that
    effort was beaten back by pressure from executives and from
    Congress so that their very existence was at stake if they
    proceeded in a way which they thought was right. All set forth
    in the record. It is quite an amazing document.
        So what FASB did was, they said: We can't survive if we do
    what we think is right. So what we will do instead is we will
    urge people to expense options. We will urge corporations to
    expense their options, but we will not mandate it.
        FASB said: If you don't expense options, at least disclose
    the cost of the options as a footnote in your financial
    statements.
        That was the way they decided to survive. This body voted,
    put some of the pressure on FASB, basically told them to leave
    stock option accounting alone. So we intervened on an
    accounting issue with a vote of something like 90 to 10 or
    thereabouts.
        The executives weighed in. I was at one of the meetings in
    Connecticut when the executives weighed in heavily on this
    issue. So I saw the pressure that was brought to bear on what
    should be an independent accounting standards board.
        Now we are doing something different in this bill. We are
    saying to the board that we are going to give you an
    independent source of funding. We are not going to make you
    dependent directly for your funding from the very people you
    are seeking to regulate through your accounting standards. So
    we are making some progress now by giving them an independent
    source of funding.
        What my amendment would do is take what is the most
    significant post-Enron issue that is left open, which is
    accounting for these huge amounts of stock options that go
    mainly to executives, and direct this board that now has an
    independent source of funding to review--``review'' is the key
    word--this matter and make an appropriate decision within 1
    year.
        Mr. McCain. Will the Senator yield for a question?
        Mr. Levin. I wonder if I can yield on the time of the
    Senator from Arizona, because time is so limited here that I am
    going to have very little. I think the Senator has a half hour
    and, assuming that the Senator can be recognized, I believe
    that I only have about 10 or 15 minutes of time remaining. I
    wonder if the Senator from Texas would permit that I be allowed
    to yield to the Senator from Arizona, if the Senator from
    Arizona is willing to ask a question to be taken out of his own
    time.
        Mr. Gramm. Reserving the right to object, the Senator
    started out with a unanimous consent request and then launched
    into a speech.
        The Presiding Officer. There is no request pending.
        Mr. Gramm. Maybe if the Senator would do his unanimous
    consent request and then yield, that would be fine.
        Mr. Levin. I would rather do my unanimous consent request
    at the end of the time, rather than at the beginning of the
    time. I make a parliamentary inquiry. If I make a unanimous
    consent--
        Mr. Gramm. I don't object to the Senator yielding. I wanted
    to be sure we had the time we were supposed to have.
        Mr. Levin. I ask unanimous consent that the Senator from
    Arizona, if he is willing, be able to ask a question on his
    time. I yield to the Senator from Arizona for that question and
    then I retain the floor.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. McCain. Mr. President, I will be very brief, due to the
    shortness of time. I wonder if the Senator from Michigan
    remembers my comments last Thursday when I referred to an old
    boxing term, ``the fix is in.'' There was no vote allowed on my
    amendment, which is a clearcut, absolutely unequivocal
    statement about the use of stock options for accounting. Does
    the Senator really believe that, since my amendment was blocked
    by that side, his amendment is not going to be blocked by this
    side?
        The fix is in, I say to the Senator from Michigan. I hope
    he knows that. This is a terrible mistake, a terrible mistake,
    because we are not addressing what every observer knows is a
    vital and critical aspect of reforming this system, which
    continues to so badly erode the confidence of the American
    people, the investors, which is over half of the American
    people.
        I wonder if the Senator from Michigan remembers what I said
    last week, that the fact is the fix is in. I didn't get a vote
    on my amendment and the Senator from Michigan won't get one on
    his. Very frankly, since that side blocked my vote, I can
    understand them blocking this vote. I think it is wrong on both
    sides.
        The American people deserve to know how we stand on the
    issue of stock options. Does the Senator understand that?
        Mr. Reid. Will my friend yield for a question on my time?
        Mr. Levin. I am happy to.
        Mr. Reid. The Senator will recall the Senator from Arizona
    talking about the fix being in, and the Record will clearly
    reflect that the Senator from Arizona asked that his amendment
    be in order postcloture, and, as the Senator from Michigan will
    recall, I objected to that because at that time we had 56 other
    amendments that were pending. They also wanted them to be in
    order.
        Mr. McCain. If the Senator will yield, that is not correct.
    Mine was a motion to recommit.
        Mr. Reid. I am talking about the objection about which I
    was involved, and does the Senator from Michigan recall that
    objection to the unanimous consent request by the Senator from
    Arizona?
        Mr. Levin. I believe I do recall the objection to the
    request, and I would rather let the Record speak for itself as
    to the other matters because I think the issue before us is a
    somewhat different issue than we faced on the McCain-Levin
    amendment last week. Now we have a Levin-McCain-Corzine
    amendment, which is somewhat different. I supported Senator
    McCain's amendment, and, indeed, I have been very active in
    trying to get this accounting rule adopted in the way the
    independent accounting board wants to have it adopted. That is
    the key emphasis.
        Mr. Sarbanes. Will the Senator yield on my time for a
    question?
        Mr. Levin. I am happy to yield.
        Mr. Sarbanes. As I understand the Senator's amendment--the
    one he will be seeking to offer.
        Mr. Levin. I will be seeking unanimous consent to have the
    second-degree amendment laid aside so that I can do so.
        Mr. Sarbanes. As I understand it, this amendment is not the
    Congress trying to legislate what the accounting standard
    should be; is that correct?
        Mr. Levin. The Senator is correct.
        Mr. Sarbanes. I think that is important because I, frankly,
    do not think that the Congress should get into the business of
    trying to legislate accounting standards. I don't think we have
    the expertise or the competence to do it. And it turns
    established accounting standards into a straight-out political
    exercise, and I don't think that is wise.
        As I understand the Senator's amendment, it would simply
    reference the issue of the treatment of stock options to the
    financial accounting standards board, for them to make their
    own independent judgment as to how this matter should be
    treated, is that correct?
        Mr. Levin. The Senator is correct.
        Mr. Sarbanes. And I understand that the terms of reference
    are such that it does not presuppose a particular substantive
    conclusion; it is, in effect, left open, or even level, however
    you want to describe it--a level playing field for FASB, the
    expert body that has been established to make these judgments
    to make its own independent judgment as to how these matters
    should be addressed, is that correct?
        Mr. Levin. The amendment directs FASB to review the issue
    and adopt an appropriate standard. Those are the words in the
    amendment. I must tell my good friend from Maryland, however,
    that there is a history here that cannot be ignored.
        The history is that FASB tried to adopt a standard in 1994.
    They said what the right standard was. They were beaten back
    and brow-beaten and pressured, so they had to give up what they
    believed is right. That is in their own history. Then they
    recommended to corporations to expense options, because that is
    the right thing to do. But they offered an option to
    corporations to simply disclose the value of options in their
    financial statement in a footnote. They left that option open.
        So I have two hopes here. One is that there will not be an
    objection to a vote on this amendment. For the life of me, I
    cannot see how anybody can object to a vote on an amendment,
    which simply tells the independent accounting standards board
    to reach an appropriate decision.
        Now, we did intervene 8 years ago, and I believed it was
    wrong for us to intervene. Nine of us voted no; 90 voted yes.
    We told them: Do not change the rule; do not expense options.
        In my judgment, it was wrong procedurally and it was wrong
    in terms of the substance. But it is my hope that, No. 1, we
    will be allowed to have a vote, and, No. 2, it would be my
    expectation, however, if it is left to the independence of
    FASB, that FASB would continue to do what they said was the
    right thing, which is to expense options.
        It is left to their independent judgment to reach an
    appropriate conclusion under the language of my amendment.
        Mr. Sarbanes. So it would be FASB's call?
        Mr. Levin. It would be FASB's call.
        Mr. Sarbanes. Mr. President, I simply want to say I am
    supportive of this amendment. I think this is the right way to
    go about it.
        Let me repeat, I do not think the Congress itself should be
    in the business of legislating accounting standards, but this
    amendment does not do that. It references the issue to the very
    body that has been established to accomplish that, which has
    the expertise and the competence. The amendment also helps to
    underscore the independence of FASB and a Congressional
    perception that they should call it as they see it. I hope at
    the appropriate time the Senator will be able to obtain
    permission to bring his amendment before the body.
        I thank the Senator for yielding.
        The Presiding Officer. The majority leader is recognized.
        Mr. Daschle. I am sorry. I think the Senator from Michigan
    has the floor.
        The Presiding Officer. The Senator from Michigan has the
    floor.
        Mr. Levin. I ask unanimous consent that I yield to the
    majority leader for whatever time he wishes to take and that
    time not be taken from the few minutes I have remaining, and
    that the floor be returned to me at that time.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Daschle. Mr. President, I will use my leader time so as
    not to take any time still allotted to the Senator from
    Michigan.
        I hope we can get the unanimous consent request that the
    Senator from Michigan is propounding. I will also say that this
    is not a question of if he can get consent and ultimately bring
    the amendment to the floor. One way or the other we will have a
    vote on the Levin amendment. It may not be on this bill this
    afternoon if we fail, but our colleagues need to know we will
    have a vote on this amendment. This will occur. If I have to
    offer it myself, we will have a vote on this amendment. So we
    can do it this afternoon, we can do it tomorrow, or we can do
    it next week. We are going to have a vote on this amendment.
    Senators need to take that into account before they object.
        Let me say as strongly as I can, this amendment belongs on
    this bill. This is exactly what I think we ought to be doing,
    and I think on a bipartisan basis there is strong support for
    what Senator Levin is proposing.
        I want to speak briefly this afternoon, in my leader time,
    on the amendment itself. I think it is important, as my
    colleagues have been noting, that the Levin amendment contains
    precisely the right solution to the difficult problems of
    determining the proper accounting treatment for stock options.
    It reserves that judgment for the appropriate body, the
    Financial Accounting Standards Board. They are the ones given
    the authority, they are the ones with the credibility, they are
    the ones with the standing to make the right decisions about
    this very important and complex matter.
        I argue this is the heart of our ability to deal with the
    accounting reforms that are in the Sarbanes and Leahy bills.
        It has become all too clear that accounting standards are
    complex and can be easily manipulated by aggressive and
    sometimes unscrupulous corporate executives. Unfortunately,
    FASB's weak, dependent condition has contributed to those
    manipulations. In fact, it is arguable that the undermining of
    FASB's independence was the necessary precondition to the
    crisis in confidence afflicting our capital markets today.
        One of the many virtues of the Sarbanes bill is that it
    corrects that situation. It provides for a new, improved FASB,
    giving it for the first time full financial independence from
    the accounting industry. That certainly is the first and most
    vital improvement we need with respect to establishing clarity
    and regularity of accounting standards.
        Another needed improvement is for those of us in Congress
    to allow FASB to do its job. In 1994--and my colleagues have
    referenced this--when this issue was last taken up by the
    Senate, I am proud to say I was one of nine Senators who voted
    against the Senate intruding itself on FASB's decisionmaking
    process. That is the only reason I opposed my colleague's
    amendment last week. As well intended as it is, in my view it
    did the same thing on the other side that they were trying to
    do 9 years ago. It asserts Congress's authority to undermine
    the independence of that board. I opposed it 9 years ago, and I
    oppose it today, but for obviously different
    results.
        At the same time, the Senate was coming at the options
    issue from the direction of prohibiting expenses back in 1994,
    and as I said today the momentum is the opposite, but the right
    course is the same. Let the experts on the accounting standards
    board do their job and make the appropriate decision. Eight
    years ago, the technical accounting questions were essentially
    the same as they are today, although obviously 8 years have
    given us an entirely different perspective than the one we had
    back then. Nonetheless, the questions are still real.
    Accountants still debate the relative merits of the opposing
    sides. We still have expert opinion going both ways. On the one
    hand, the argument is made that if options are not expensed,
    bottom lines look far more attractive than they actually should
    be, and the investors can be deceived by the distorted
    financial pictures that result.
        On the other hand, we hear that it is inherently impossible
    to value options with no concrete reality behind what the
    options will actually be worth when they are exercised. There
    is also a real debate about the incentive effects of options.
        Supporters argue that they better align an employee's
    interests with the company's. Opponents contend they result in
    a ``pump and dump'' mentality, with senior executives seeking
    to inflate their stock prices at any cost so they can quickly
    and cynically enrich themselves.
        In contrast to those complex questions, the Levin amendment
    is simplicity itself. It is one sentence. It says that FASB
    shall:

        Review the accounting treatment of employee stock options
    and shall, within one year of enactment, adopt an appropriate
    generally-accepted accounting principle for the treatment of
    employee stock options--

        End of issue.
        The business of setting accounting standards is lodged, by
    the Levin amendment, in the board that the Sarbanes bill
    expressly seeks to strengthen and improve. I fully support the
    Levin amendment and the philosophy behind it. Congress should
    not be engaged in setting technical accounting rules. We should
    be seeking to do the reverse: Establish an independent FASB
    that can help restore confidence in the accuracy of financial
    information.
        I observe in this context that because of that principle,
    as I said a moment ago, while well intended, I believe the
    McCain amendment went too far and did exactly what we were
    trying to do in 1994 but on the flip side. Restoring
    independence to the accounting standards is one of the
    overriding objectives of the Sarbanes bill, and that is one of
    my main reasons for supporting it as strongly as I do. That was
    my primary reason for voting in 1994 against a previous attempt
    to direct FASB in its decision about expensing, and it is the
    primary reason for supporting the Levin amendment today.
        So I will end on this particular issue where I began. There
    will be a vote on the Levin amendment. It will be today,
    tomorrow, next week, or at some point in the future, but
    Senators should not be misled. If there is an objection today,
    it by no means ends the debate. We might as well have it. We
    might as well get it. We might as well include it in the
    Sarbanes bill because it will be included in one fashion or
    another, ultimately, before the work has been done in the
    Senate on this very important, complex, and comprehensive
    challenge we face.
        The Presiding Officer. The Senator from Michigan is
    recognized.
        Mr. Levin. How much time do I have remaining?
        The Presiding Officer. The Senator has 25 minutes
    remaining.
        Mr. Levin. Mr. President, I quote from a few observers what
    the stakes are in this vote and what the stakes have been in
    terms of the way in which stock options have not been expensed,
    have been stealth compensation, have fueled the incredible
    increase in terms of executive pay, and have been a driving
    force behind the deceptive accounting practices which have
    bedeviled this Nation and undermined public confidence in the
    credibility of our financial statements.
        Robert Samuelson, an economist, said the following:

        The point is that the growth of stock options has created
    huge conflicts of interest that executives will be hard-pressed
    to avoid. Indeed, many executives will coax as many options as
    possible from their compensation committees, typically composed
    of ``outside'' directors. But because ``directors are
    [manipulated] by manage-
    ment, sympathetic to them, or simply ineffectual,'' the amounts
    may well be ex-
    cessive. . . .
        Stock options are not evil, but unless we curb the present
    madness, we are courting continual trouble.

        This is what a retired vice president at J.P. Morgan and
    Company said: There can be no real reform without honest
    accounting for stock options. A decade ago, the Financial
    Accounting Standards Board recommended options be counted as a
    cost against earnings like all other forms of compensation, but
    corporate lobbyists resisted and Congress did their bidding.
    Alan Greenspan and Warren Buffett, among others, are calling
    for the same change now, but it remains to be seen whether the
    accounting profession can act without congressional
    interference. Treating options like other forms of pay would
    make executive compensation transparent, diminish the
    temptation to cook the books, and make managers less inclined
    towards excessive risk taking.
        Warren Buffett, who was quoted by Senator McCain last week,
    said the following: If options aren't a form of compensation,
    what are they? If compensation isn't an expense, what is it? If
    expenses shouldn't go into the calculation of earnings, where
    in the world should they go?
        A New York Times editorial of March 31 of this year stated:

        We have no quarrel with the business lobby's claim that
    stock options have helped fuel America's entrepreneurship,
    particularly in Silicon Valley. But in the interest of truthful
    accounting and greater financial integrity, options should be
    treated as what they are, a worthy form of compensation that
    companies must report as an expense.

        Robert Felton, director of McKinsey & Company's Seattle
    office, said:

        Because they have so much at stake with these huge grants,
    options are likely to have encouraged some managers to cheat
    and cook the books.

        Allan Sloan of Newsweek:

        . . . options are a free lunch for companies. . . .
        I'm all in favor of employees becoming millionaires via
    options--I'm an employee, after all--but I'm also in favor of
    companies providing profit-and-loss statements that show the
    real profit and loss. Ignoring options' costs and low-balling
    CEO packages are simply outrageous. When campaigns start
    expensing options and disclosing true CEO and director
    compensation numbers, I'll believe that they've seen the light.
        According to the Economist, last year, stock options
    accounted for 58 percent of the pay of chief executives of
    large American companies. So over half the compensation of our
    CEOs of major companies now comes from stock options. To leave
    that expense off the financial statements' bottom line is to
    distort what is going on at companies. It is part of the reason
    we have not had accurately reflective financial statements at
    our corporations. It is part of the reason for the soup we are
    in right now.

        Where financial statements have been giving a false picture
    of what a company's financial situation is, it has provided
    stealth compensation in huge amounts to executives, it has
    watered down the value of stock to the owners of a corporation.
    That is why now we have such tremendous support from the
    organizations which represent stockholders.
        That is why, for instance, TIAA-CREF, the largest pension
    fund in the United States for teachers is supportive of
    changing the accounting for stock options. It is why the
    Council for Institutional Investors, which is the leading
    shareholders organization for pension funds, now favors
    expensing stock options in order to give an accurate reflection
    of what a company's financial statement is. It is why the AFL-
    CIO supports the amendments offered last week and the amendment
    which hopefully will be offered today if we are allowed to have
    a vote on this.
        Alan Greenspan says this is the top post-Enron reform.
    Expensing stock options is the top post-Enron reform. That is
    the Chairman of the Federal Reserve. Paul Volcker, former
    Federal Reserve Chairman, supports a change in stock option
    accounting. Arthur Levitt, former SEC Chairman, supports the
    change; Warren Buffett, as we mentioned; and a host of
    economists. Standard & Poor's believes you have to expense
    stock options if you are going to show an accurate earnings
    calculation; Citizens for Tax Justice; Consumer Federation of
    America; Consumers Union, and on and on.
        The Washington Post of April 18 says the following:

        . . . expert consensus favors treating options as a
    corporate expense, which would mean that reported earnings
    might actually reflect reality. . . . But nobody wants to ban
    this form of compensation; the goal is merely to have it
    counted as an expense.

        That is the end of that particular quote. I would like the
    entire quote printed in the Record, and I ask unanimous consent
    that all the editorials and comments that I referred to be
    printed in the Record in full.
        There being no objection, the material was ordered to be
    printed in the Record, as follows:

                   [From the Washington Post, Jan. 30, 2002]

                              Stock Option Madness

                            (By Robert J. Samuelson)

        As the Enron scandal broadens, we may miss the forest for
    the trees. The multiplying investigations have created a
    massive whodunit. Who destroyed documents? Who misled
    investors? Who twisted or broke accounting rules? The answers
    may explain what happened at Enron but not necessarily why. We
    need to search for
    deeper causes, beginning with stock options. Here's a good idea
    gone bad--stock options foster a corrosive climate that tempts
    many executives, and not just those at Enron, to play fast and
    loose when reporting profits.
        As everyone knows, stock options exploded in the late 1980s
    and the '90s. The theory was simple. If you made top executives
    and managers into owners, they would act in shareholders'
    interests. Executives' pay packages became increasingly skewed
    toward options. In 2000, the typical chief executive officer of
    one of the country's 350 major companies earned about $5.2
    million, with almost half of that reflecting stock options,
    according to William M. Mercer Inc., a consulting firm. About
    half of those companies also had stock-option programs for at
    least half their employees.
        Up to a point, the theory worked. Twenty years ago,
    America's corporate managers were widely criticized. Japanese
    and German companies seemed on a roll. By contrast, their
    American rivals seemed stodgy, complacent and bureaucratic.
    Stock options were one tool in a managerial upheaval that
    refocused attention away from corporate empire-building and
    toward improved profit-ability and efficiency.
        All this contributed to the 1990's economic revival. By
    holding down costs, companies restrained inflation. By
    aggressively promoting new products and technologies, companies
    boosted production and employment. But slowly stock options
    became corrupted by carelessness, overuse and greed. As more
    executives developed big personal stakes in options, the task
    of keeping the stock price rising became separate from
    improving the business and its profitability. This is what
    seems to have happened at Enron.
        The company adored stock options. About 60 percent of
    employees received an annual award of options, equal to 5
    percent of their base salary. Executives and top managers got
    more. At year-end 2000, all Enron managers and workers had
    options that could be exercised for nearly 47 million shares.
    Under a typical plan, a recipient gets an option to buy a given
    number of shares at the market price on the day the option is
    issued. This is called ``the strike price.'' But the option
    usually cannot be exercised for a few years. If the stock's
    price rises in that time, the option can yield a tidy profit.
    The lucky recipient buys at the strike price and sells at the
    market price. On the 47 million Enron options, the average
    ``strike'' price was about $30, and at the end of 2000, the
    market price was $83. The potential profit was nearly $2.5
    billion.
        Given the huge rewards, it would have been astonishing if
    Enron's managers had not become obsessed with the company's
    stock price and--to the extent possible--tried to influence it.
    And while Enron's stock soared, why would anyone complain about
    accounting shenanigans? Whatever the resulting abuses, the
    pressures are not unique to Enron. It takes a naive view of
    human nature to think that many executives won't strive to
    maximize their personal wealth.
        This is an invitation to abuse. To influence stock prices,
    executives can issue optimistic profit projections. They can
    delay some spending, such as research and development (this
    temporarily helps profits). They can engage in stock buybacks
    (these raise per-share earnings, because fewer shares are
    outstanding). And, of course, they can exploit accounting
    rules. Even temporary blips in stock prices can create
    opportunities to unload profitable options.
        The point is that the growth of stock options has created
    huge conflicts of interest that executives will be hard-pressed
    to avoid. Indeed, many executives will coax as many options as
    possible from their compensation committees, typically composed
    of ``outside'' directors. But because ``directors are
    [manipulated] by management, sympathetic to them, or simply
    ineffectual,'' the amounts may well be excessive, argue Harvard
    law professors Lucian Arye Bebchuk and Jesse Fried and attorney
    David Walker in a recent study.
        Stock options are not evil, but unless we curb the present
    madness, we are courting continual trouble. Here are three ways
    to check the overuse of options.
        (1) Change the accounting--count options as a cost.
    Amazingly, when companies issue stock options, they do not have
    to make a deduction to profits. This encourages companies to
    create new options. By one common accounting technique, Enron's
    options would have required deductions of almost $2.4 billion
    from 1998 through 2000. That would have virtually eliminated
    the company's profits.
        (2) Index stock options to the market. If a company's
    shares rise in tandem with the overall stock market, the gains
    don't reflect any management contribution--and yet, most
    options still increase in value. Executives get a windfall.
    Options should reward only for gains above the market.
        (3) Don't reprice options if the stock falls. Some
    corporate boards of directors issue new options at lower prices
    if the company's stock falls. What's the point? Options are
    supposed to prod executive to improve the company's profits and
    stock price. Why protect them if they fail?
        Within limits, stock options represent a useful reward for
    management. But we lost those limits, and options became a kind
    of free money sprinkled about by uncritical corporate
    directors. The unintended result was a morally lax, get-rich-
    quick mentality. Unless companies restore limits--prodded, if
    need be, by new government regulations--one large lesson of the
    Enron scandal will have been lost.

                                   ----------

                   [From the Washington Post, April 18, 2002]

                                  Money Talks

        Alan Greenspan, perhaps the Nation's most revered
    economist, thinks employee stock options should be counted,
    like salaries, as a company expense. Warren Buffet, perhaps the
    Nation's foremost investor, has long argued the same line. The
    Financial Accounting Standards Board, the expert group that
    writes accounting rules, reached the same conclusion eight
    years ago. The London-based International Accounting Standards
    Board recently recommended the same approach. In short, a
    rather unshort list of experts endorses the common-sense idea
    that, whether you get paid in cash or company cars or options,
    the expense should be recorded. Yet today's Senate Finance
    Committee hearing on the issue is likely to be filled with
    dissenting voices. There could hardly be a better gauge of
    money's power in politics.
        Why does this matter? Because the current rules--which
    allow companies to grant executives and other employees
    millions of dollars in stock options without recording a dime
    of expenses--make a mockery of corporate accounts. Companies
    that grant stock options lavishly can be reporting large
    profits when the truth is that they are taking a large loss. In
    2000, for example, Yahoo reported a profit of $71 million, but
    the real number after adjusting for the cost of employee stock
    options was a loss of $1.3 billion. Cisco reported $4.6 billion
    in profits; the real number was a $2.7 billion loss. By
    reporting make-believe profits, companies may have conned
    investors into bidding up their stock prices. This is one cause
    of the Internet bubble, whose bursting helped precipitate last
    year's economic slowdown.
        It is not surprising, therefore, that the expert consensus
    favors treating options as a corporate expense, which would
    mean that reported earnings might actually reflect reality. But
    the dissenters are intimidated by neither experts nor logic.
    They claim that the value of options is uncertain, so they have
    no idea what number to put into the accounts. But the price of
    an option can actually be calculated quite precisely, and
    managers have no difficulty doing the math for the purposes of
    tax reporting. The dissenters also claim that options are
    crucial to the health of young companies. But nobody wants to
    ban this form of compensation; the goal is merely to have it
    counted as an expense. Finally, dissenters say that options
    need not be so counted because granting them involves no cash
    outlay. But giving employees something that has cash value
    amounts to giving them cash.
        The dissenters include weighty figures in both parties.
    Sen. Joe Lieberman (D-Conn.) is the chief opponent of options
    sanity in the Senate, and last week President Bush himself
    declared that Mr. Greenspan is wrong on this issue. What might
    be behind this? Many of the corporate executives who give
    generously to politicians are themselves the beneficiaries of
    options--often to the tune of millions of dollars. High-tech
    companies, an important source of campaign cash, are fighting
    options reform with all they've got. But if these lobbyists are
    allowed to win the argument, they will undermine a key
    principle of the financial system. Accounting rules are meant
    to ensure that investors get good information. Without good
    information, they cannot know which companies will best use
    capital, and the whole economy suffers in the long run.

                   [From the New York Times, March 31, 2002]

                             Stock Option Excesses

        In his Congressional testimony last month, Jeffrey
    Skilling, Enron's former chief executive, offered a primer on
    the misuses of stock options. Options, he said, are the most
    egregious way for companies to pump up their profits
    artificially. They also netted him a tidy $62.5 million in 2000
    and helped Enron pay no income taxes in four of the last five
    years.
        Stock options, in theory, aren't a bad idea. By giving
    employees the chance to buy a company's stock in the future at
    today's price, corporations can provide an extra incentive for
    hard work and can augment compensation. The New York Times
    Company awards option to its top executives. But like other
    rational business practices that got out of hand during the
    boom years of the late 1990's, options have been abused by some
    companies and are in need of reform.
        A good place to start would be for Congress to end the
    conflict between how the tax laws and the accounting rules
    treat employees options. Alan Greenspan, the Federal Reserve
    chairman, has identified that as one of the most pressing post-
    Enron reforms affecting corporate governance.
        That conflict creates a loophole that has allowed companies
    to treat stock options as essentially free money during the
    recent dot-come bubble. A company does not have to report
    grants of stock options as an expense on its profit-and-loss
    statements, as it does with other forms of compensation, but it
    can deduct the options as an expense from its tax liability
    when employees exercise them.
        As a result, corporate executives can award themselves
    oodles of stock options without fear of denting their profit
    reports. Once the options are exercised, the company can treat
    the appreciation in the shares' value--the employees' profit--
    as an expense for tax purposes. At Enron, stock option
    deductions alone turned what would have been a Federal income
    tax bill of $112 million in 2000 into a $278 million refund.
    Mr. Greenspan said last week that Federal Reserve Board
    research found that the average earnings growth rate of the S&P
    500 companies between 1995 and 2000 would have been reduced by
    nearly a quarter if the companies had reported their stock
    options as expenses on financial statements.
        A decade ago, the accounting industry proposed a sensible
    rule to make companies report options as expenses, but it was
    beaten back by fierce corporate lobbying. Now Senators John
    McCain and Carl Levin have proposed a bill that would end the
    double standard, disallowing the tax deduction for any company
    that fails to report options as an expense.
        They are backed in that effort by investors like Warren
    Buffet and big institutions like pension plans, which are
    rightly incensed by abusive executive compensation schemes.
    They are tired of unseemly practices like the repricing of
    options to ensure that executives still get windfalls if the
    stock price falls. Making interest-free loans for executives to
    acquire stock (often forgiven if the bet does not pay off) is
    another dubious compensation practice.
        We have no quarrel with the business lobby's claim that
    stock options have helped fuel America's entrepreneurship,
    particularly in Silicon Valley. But in the interest of truthful
    accounting and greater financial integrity options should be
    treated as what they are: a worthy form of compensation that
    companies must report as an expense.
        Congress must end the dot-com-era notion that options equal
    free money. That would be a first step toward reassuring
    investors that top executives cannot treat publicly traded
    companies as Ponzi schemes created for their own enrichment.

                                   ----------

                         [From Newsweek, May 20, 2002]

                         Show Me the Money (All of it)

                                (By Allan Sloan)

        Watching corporate America these days is like watching
    drunks at a revival meeting. They're vowing to sin no more, to
    tell shareholders the straight truth instead of playing
    accounting games, to embrace ``transparency'' so outsiders can
    see what's going on. But talk is cheap. When it comes to action
    on two key reforms--accounting for stock options, and showing
    the value of chief executives' compensation packages--
    corporations are as opaque as ever.
        The accounting first. As things stand now, options are a
    free lunch for companies--employees place a high value on them,
    but companies can issue as many as they want without hurting
    corporate profits. That's because companies don't have to count
    options value as an expense. With reform in the air because of
    Enron, old-math types like Warren Buffett and Alan Greenspan
    are pushing to change accounting rules to force companies to
    count the value of stock options as an expense in their profit-
    and-loss statements. Accounting rule makers proposed this a
    decade ago, but backed down under political pressure generated
    by corporations, especially in options-happy Silicon Valley.
    Then there's a second, little-known aspect of the options-
    accounting debate. If companies have to count the value of
    options as an expense, they would come under huge pressure to
    report their value as compensation to the CEO, and to members
    of the board. Under current rules, a company has to show
    shareholders a table that includes how much it gave the CEO in
    salary, bonus, long-term compensation and other benefits. But
    the table has to show only the number of options granted to the
    CEO, not their economic value. To find that, you have to hunt
    on other pages--and you may not find it at all if the company
    opts to report a different way. ``The original idea was to have
    the value of options in the table, not the number of options,''
    says Graef Crystal, a compensation expert who worked on the
    disclosure rules. But, he says, the SEC backed down after
    companies objected.
        It's easy to see why companies would have been upset at
    having to count options as compensation. In most pay filings I
    see these days, the economic value of CEO and directors'
    options exceeds their cash payments. So counting options would
    more than double the typical package.
        To see how this works, let's look at Dell Computer and
    Knight Ridder, two companies I just happen to have looked at
    recently. Dell's most recent statement shows that Michael Dell,
    its billionaire owner and founder, earned $2.6 million in
    salary and bonus. Not starvation wages, but not much for a big-
    time CEO. On a different page, you see that he got options the
    company valued at $26 million. That's major moolah. Dell
    directors were paid a $40,000 annual retainer fee, but also got
    options on $850,000 worth of Stock. The option's economic
    value: around $300,000. Note that I'm not accusing Dell of
    hiding anything--it's following the rules.
        Dell shows why options have economic value when they're
    granted, even if the stock subsequently falls. The directors
    got their options when Dell stock was about $52, double today's
    price. By getting options on $850,000 of stock rather than
    buying 16,298 shares, directors avoided losing money--and
    didn't have to tie up $850,000. Meanwhile, they had the same
    upside as regular investors who risked $850,000. The company
    says its compensation packages are skewed toward options, so
    that employees and directors don't make out unless regular
    stockholders do.
        Now to Knight Ridder, which has been on a cost-cutting kick
    for years. Last year chairman Tony Ridder got $935,720 in
    salary and no bonus. He also got options on 150,000 shares.
    Knight Ridder values the options at about $1.6 million, but by
    most rules of thumb, they were worth twice that much. Knight
    Ridder directors got a $40,000 annual fee--and 4,000 options.
    The options were worth about $42,500 by Knight Ridder's math,
    about $85,000 by conventional math. Knight Ridder says its
    figures are lower because it assumes its options are exercised
    much quicker than other analysts assume.
        I'm all in favor of employees becoming millionaires via
    options--I'm an employee, after all--but I'm also in favor of
    companies providing profit-and-loss statements that show the
    real profit and loss. Ignoring options' costs and low-balling
    CEO pay packages are simply outrageous. When companies start
    expensing options and disclosing true CEO and director
    compensation numbers, I'll believe they've seen the light.
    Until then, I'll assume that they're still on the bottle.

                                   ----------

                  [From the Wall Street Journal, May 3, 2002]
                             Accounting for Options
                            (By Joseph E. Stiglitz)
        Deja vu. The post-Enron imbroglio over stock options is a reminder
    that history--if forgotten--does indeed repeat itself. Eight years ago,
    while serving on President Clinton's Council of Economic Advisers, I
    was involved in a heated debate over information disclosure. The
    Financial Accounting Standards Board had proposed a new standard that
    would require firms to account for the value of executive options in
    their balance sheets and income statements.
        When FASB made its proposal for what would have clearly been an
    improvement in accounting practices, Silicon Valley and Wall Street
    were united in their opposition. The arguments put forward then are the
    same as those put forward today, and they are as specious and self-
    serving now as they were eight years ago.
                                   outrageous
        The most outrageous argument--but the one that had the greatest
    impact--was that disclosing the information would adversely affect
    share prices. That is, if people only knew how much their equity claims
    on the firm could be diluted by options, they would pay less for their
    shares! True, and that is precisely why the disclosure is so important.
    Markets can only allocate resources efficiently when prices accurately
    reflect underlying values, and that requires as good information as
    possible. If markets overestimate the value of a particular set of
    ventures, resources will mistakenly flow in that direction. This is
    partly what caused the dot-com and telecom bubbles. Irrational
    exuberance played its part, but so too did bad accounting--i.e.,
    distorted information.
        To be sure, information will never be perfect and asymmetries of
    information are pervasive. But one of the key insights of the modern
    theory of information is that participants do not always have an
    incentive to disclose fully and accurately all the relevant
    information, and so it is important to have standards.
        This is where the second specious argument enters: Critics of
    FASB's proposal claimed that it is impossible to value options
    accurately, and accordingly, it would be misleading to include the
    options within the standard accounting frameworks. To better understand
    the falsity of this argument, let's take a closer look at how stock
    options really work.
        The basic economics of stock options are simple. Issuing stock
    options does not create resources out of thin air. Executives like
    stock options because they have value. But the value however measured,
    comes at the expense of other shareholders. The right of managers to
    buy shares is the right to dilute the ownership claims of existing
    shareholders. When markets work well--when information is good--the
    market will value today the issuance of a right to dilute, even when
    that dilution may never occur, and if it does occur, would happen
    sometime in the future.
        The existing owners of the firm will participate less in the upside
    potential of the market them they would have in the absence of the
    options. In principle, they can calculate the circumstances when the
    executives are likely to exercise their options, and therefore can
    calculate the diminution in their potential gains from owning shares in
    the company. That is why when this information is disclosed in ways
    that can easily be understood by investors, it will lead to a fall in
    the company's share price.
        Making such calculations, however, is not easy or costless. In
    principle, each shareholder could go through each of the items in the
    firm's accounts to construct his own ``estimates'' but that would be a
    foolish waste of resources, and the transaction costs would put a major
    damper on capital markets and the market economy. That is why we have
    accounting standards. Such information is like a public good: Better
    standards--more transparency--lead to better resource allocation and
    better functioning markets; and if participants have more confidence in
    markets, they will be more willing to entrust their money to markets.
        Which brings us back to the argument that it is ``impossible'' to
    value options. Companies do, of course, have ways of calculating the
    value of options and do it themselves all the time for their own
    internal planning purposes.
        AS for the question of whether an estimate based on a publicly-
    disclosed formula would be misleading, because it is only an estimate,
    that is true of many line items that are central to our accounting
    frameworks, such as depreciation, `Calculations about the value of
    options would be just as, or even more, accurate than standard
    depreciation estimates are of the market value of the declines in asset
    values that come with use and obsolescence--something which is a line
    item on every accounting framework in corporate America and most of the
    world. Of this much we can be sure: zero, the implied valuation used by
    companies now when describing the cost of options in their balance
    sheets and income statements, is a vast underestimate.
        Those who argue against including options within the standard
    accounting frameworks try to have it both ways: They believe that
    market participants are smart enough to read through dozens of
    footnotes to figure out the implications of options for the value of
    their shares, but so dumb that they would be misled by the more
    accurate numbers that would be provided under the reform proposals, and
    unable to redo the calculations themselves.
                                  transparency
        There is one more reason for the U.S. to be resolute in improving
    our accounting standards by including better accounting for options.
    During the East Asia crisis the U.S. preached the virtues of
    transparency but then refused to do anything about regulating the murky
    world of offshore banking. America also preached the virtues of our
    accounting standards only to find that the world was laughing at Enron
    and Arthur Andersen. Tightening our rules on accounting of options
    would signal that the U.S. is serious about openness, serious about
    improving its accounting standards--despite the special interests
    opposed to changes--and willing to learn from its mistakes.
        Many of the same forces that allied themselves in the 1990s against
    changes in accounting for options are now trying to suppress this
    attempt to make our market economy work better. In the earlier episode,
    the National Economic Council, the U.S. Treasury, and the Department of
    Commerce intervened in what was supposed to be an independent
    accounting board, and put pressure on FASB to rescind its proposed
    regulations. They won, and the country lost. Today, there is a risk
    once again of political intervention. At least this time, the voices of
    responsible economic leadership, such as Alan Greenspan, are speaking
    out. I only hope that this time they will succeed.

                                   ----------

        Mr. Levin. Mr. President, the Republican staff of the Joint
    Economic Committee put out a report called, ``Understanding the
    Stock Option Debate.''
        They have gone through a lengthy analysis dated July 9,
    2002, in which they conclude the following:

        Existing accounting principles provide an unambiguous
    answer. Stock option awards should indeed be treated as a cost
    in financial statements.

        It is quite clear to me that two things are true. No. 1,
    that how we treat stock options is an essential part of the
    post-Enron reform effort. That is No. 1. No. 2, it seems clear
    to me that there is at least a likelihood that a majority of
    this body, if allowed to vote on this amendment, will vote to
    refer this matter to an independent accounting standards board
    which has its own source of revenue, free from the kind of
    pressure which it was under in 1994 and 1995, to reach an
    appropriate conclusion.
        Do I believe that conclusion will be the same as they
    reached in 1994? I do. It is very clear to me they would reach
    such a conclusion and should reach such a conclusion. But as
    our colleagues have pointed out, that is up to the board under
    this amendment. We would not be adopting a standard.
        In all honesty, I expect they would continue on the same
    course they were on 8 years ago when they were violently thrown
    off course by people who had control over the purse strings of
    the organization. I would expect that would happen. But under
    this amendment, it is their call, not ours.
        I support the McCain amendment because I believe, as I
    believed then, that the accounting standards board wanted to
    expense options and that we, in executive pressure, interfered
    with that decision on their part. That is why I believe Senator
    McCain's amendment is also appropriate. But we cannot even get
    a vote on that amendment. Last week, we were not able to bring
    that amendment to a vote.
        But this amendment is different. This amendment says to the
    independent board: review this issue. Make an appropriate
    decision within a year.
        For the life of me I not only do not see how folks--
    regardless of the side of this particular issue that they are
    on--could vote against such an amendment when it does not tell
    them what to do but just asks them to review it and decide
    within a year as to what the appropriate accounting method is.
    I do not understand why, in the middle of a debate on the
    reforms which are essential to restore public confidence after
    the Enron fiasco, this Senate should not be allowed to vote on
    this issue on this bill.
        When the majority leader announced that one way or another
    we will get to a vote on this amendment, I was glad to hear
    that. I didn't know he was going to say that, but I certainly
    was glad he said that. But it seems to me that adds a reason we
    ought to vote for this amendment on this bill.
        This is the right place. Surely it is the right time. There
    has perhaps never been a more critical moment in our economic
    history in the last few decades than we are facing right now,
    to help us restore public confidence. It will be an additional
    contribution to that restoration of public confidence if we
    take this action. If we say yes, 8 years ago we did intervene,
    but now we don't want to tell the accounting standards board
    that they should not expense options. That was 8 years ago.
    What we are telling them now is: Do the right thing.
        We know what they tried to do 8 years ago. It is laid out
    in the record by them. They wanted to do what they believed was
    the right thing. If they had done so, they would have been put
    out of business.
        Now we have an opportunity, it seems to me, to do the right
    thing ourselves, which is to tell the board that has the
    responsibility to adopt accounting standards, to adopt what
    they believe is the appropriate standard. That is the right
    thing to do.
        Mr. Reid. Will the Senator yield for a question on my time?
        Mr. Levin. I will be happy to.
        Mr. Reid. Is the Senator aware that the stock market, the
    Dow as of now is down 338 points as of today?
        Mr. Levin. I was not aware of that. But it surely adds an
    additional urgency, if we need additional urgency, for why we
    should do everything in our power to restore public confidence
    in the financial systems in this country.
        I left off one of my cosponsors before. Senator Biden is a
    cosponsor of the amendment, which is at the desk.
        I will ask unanimous consent we be able to vote on that at
    a later moment.
        I wonder if I could ask the Chair how much time I have
    remaining.
        The Presiding Officer. The Senator has 12 minutes
    remaining.
        Mr. Levin. I understand Senator McCain would like to speak
    at this time. I see the Republican manager on the floor, so I
    do not know if this fits his particular timetable or not.
        I ask unanimous consent I be allowed to yield to Senator
    McCain on his----
        Mr. Reid. I object.
        The Presiding Officer. Objection is heard.
        Mr. Levin. Mr. President, at this time I ask unanimous
    consent to lay aside the pending second-degree amendment, No.
    4286, and call up for consideration my amendment 4283, on stock
    options, which is a second-degree amendment to the Edwards
    amendment No. 4187.
        The Presiding Officer. Is there objection?
        Mr. Gramm. Mr. President, reserving the right to object,
    let me say there is something on which I agree with the
    majority leader. That is, at some point we are going to make a
    judgment on this issue. But we are currently in a situation
    where we have 97 first-degree amendments that have been filed.
    We have 24 second-degree amendments. We have 3 different
    approaches to this issue.
        Senator McCain wants to make a decision and set a policy.
        Senator Levin, as I read it, wants a fair trial and then a
    hanging.
        And Senator Enzi and others would simply like to have a
    fair trial.
        What is the right outcome? I think that is subject to
    debate. That is why I think we ought to have the debate. The
    idea that when we have three different approaches, we are going
    to decide that one of them is going to be debated on, voted on,
    but not all three of them is something we should not expect to
    happen.
        I do not support Senator McCain's amendment, but he has
    every right, it seems to me, to have it considered. And I am
    certainly willing to vote on it. There may be people who do not
    want to vote on this issue, but I am not one of them. So I
    certainly do object. I object.
        The Presiding Officer. Objection is heard.
        Several Senators addressed the Chair.
        The Presiding Officer. The Senator from Michigan has the
    floor.
        Mr. Levin. Mr. President, the only way we are going to get
    to debate and votes is if we allow the pending amendments which
    are the first- and second-degree amendments to be voted on so
    we can move to other amendments without having one gatekeeper
    denying opportunity for all the others on this floor to offer
    amendments and have them voted on. That is not the intention of
    cloture and postcloture.
        I do not believe this process has been used in this way
    before, where, postcloture, germane amendments are supposed to
    be taken up and voted on, where first- and second-degree
    amendments have not been disposed of so they can be used, not
    with the consent of their sponsors, but they are used by others
    to block consideration of the amendments.
        The Senator from Texas says he would like to have a debate
    and vote. There is one way to do it. Let's dispose of the
    second-degree amendment, take up the Carnahan amendment and
    vote on it, take up the Edwards amendment and vote on it.
        Mr. Gramm. Will the Senator yield?
        Mr. Levin. I will be happy to yield on the Senator's time.
        The Presiding Officer. Is there objection?
        Mr. Dorgan. Reserving the right to object, Mr. President,
    the Senator from Michigan is claiming his 1 hour. I understand
    he has been yielding back and forth. I assume we could, under
    these circumstances, have one Senator run the entire 30 hours,
    as long as they keep yielding to other Senators.
        There are others of us, of course, who want to be heard and
    who want to offer amendments.
        Mr. Gramm. I think that is fair. I withdraw my request.
        Mr. Levin. I yield the floor.
        The Presiding Officer. The Senator from Texas is
    recognized.
        Mr. Gramm. Mr. President, I think if we want to deal with
    this issue today, probably the way to deal with it is to have a
    unanimous consent agreement and have a vote on all three
    amendments--have a vote on Senator McCain's amendment, have a
    vote on the Levin amendment, have a vote on Senator Enzi's
    amendment so that we would have the full range of choices. But
    to suggest that nothing is standing in the way except a few
    obstacles to everybody having their will is to neglect the fact
    that 97 amendments have been filed as first-degree amendments
    and 24 second-degree amendments.
        So, therefore, by definition, I assume if I suggest and ask
    unanimous consent that each and every amendment be voted on,
    someone would object since our leadership has plans for this
    week and next week. I think it might be possible if we want to
    deal with this issue today to have a unanimous consent
    agreement where Senator McCain would get a vote on his
    amendment, where the Senator from Michigan would get a vote on
    his amendment, and where Senator Enzi would get a vote on his
    amendment. Then we would have a range of choices.
        I would be amenable to such an agreement if the Senator
    wanted to shop that around on his side of the aisle. We could
    do a hotline and see if it would fly. But in the absence of
    some agreement where the other two gradations on this spectrum
    of opinion would have their day to debate this amendment and
    have it voted on, I don't think we are going to be able to do
    that. It might very well be that we need a separate bill to
    deal with this issue. If a Senator were to offer this amendment
    in earnest, I would want an opportunity to amend it. I think
    having FASB look at this issue--which they are certainly going
    to do after this bill is agreed to because this is going to be
    a self-funded agency, and they are going to have greater
    independence--I think having them look at it is something that
    we ought to do. But I think we shouldn't pretend to ourselves
    that the Levin amendment is a neutral amendment.
        Asking them to look at it when it mandates by law after
    having looked at it that within 12 months they adopt in
    appropriate generally accepted accounting principles for the
    treatment of employee stock options--there is nothing neutral
    about that; in other words, study it and within a year adopt a
    rule.
        As I understand it, Senator Enzi and others would have the
    SEC do a study and make a recommendation based on their study.
        If this amendment were going to be dealt with in isolation,
    I would want an opportunity to at least leave it to FASB as to
    what they determine rather than mandating that they ought to
    issue a new accounting principle. It may be that they would
    determine not to do that.
        Let me reiterate that I don't have any concern about voting
    on this issue. Maybe I should reserve my time. I want to speak
    on this at some point. We have several Members here who are
    going to speak. I have to be here for the whole time.
        I reserve the remainder of my time.
        The Presiding Officer. The Senator from Nevada is
    recognized.
        Mr. Reid. I don't think this is necessary. But so there is
    no question about it, I ask unanimous consent that the time
    Senator Daschle used be counted against the 30 hours.
        The Presiding Officer. Is there objection?
        Mr. Gramm. Reserving the right to object, I did not hear.
        Mr. Reid. I wanted Senator Daschle's time to be counted
    against the 30 hours.
        Mr. Gramm. Yes.
        The Presiding Officer. Without objection, it is so ordered.
        The Senator from North Dakota.
        Mr. Dorgan. Mr. President, we are in a postcloture period
    of some 30 hours. I understand we will complete that at 6
    o'clock or so this afternoon.
        What is happening here is really an outrage, from my
    standpoint. We are in postcloture. I have a germane amendment.
    I have been here every single day since this bill came to the
    floor of the Senate prepared and ready to offer my amendment.
    Now, post-cloture, I have a germane amendment. And the only
    way, apparently, that I can offer my amendment is if the
    Senator from Texas is willing to allow me to offer it. That is
    not the way the Senate should work.
        I want to briefly describe my amendment.
        My amendment requires the disgorgement of profits, bonuses,
    incentives and so on that the CEOs of corporations receive 12
    months prior to bankruptcy.
        That is not in the bill at the present time. It ought to be
    in the bill.
        The bill contains a disgorgement provision requiring the
    return of incentives and bonus payments received prior to a
    restatement of earnings. I support that being in the bill, but
    there is nothing about the requirement to divest all those
    bonuses and incentive payments 12 months prior to bankruptcy.
    That ought to be in this bill.
        Let me describe some of the problems that we are dealing
    with. We have been holding some hearings over in the Commerce
    Committee on the subject of Enron. Here is what some Enron
    officers got before Enron went bankrupt:
        Kenneth Lay, $101 million; Ken Rice, $72.7 million; Jeffrey
    Skilling, $66.9 million; Stan Horton, $45 million; Andy Fastow,
    $30.4 million.
        They did pretty well at the top. Of course, they have
    already filed bankruptcy with their corporation.
        Should some of this be given back?
        I have a constituent in North Dakota who wrote to me and
    said: I worked for Enron for a good many years. I built up a
    retirement fund of $330,000. It is now worth $1,700. That was
    my family's retirement fund. What am I to do? I have lost it
    all.
        But not everybody lost it all with respect to Enron. Those
    close to the top made a fortune, and the folks at the bottom
    lost their shirts. Most of the investors and employees lost
    everything.
        The question I ask with my amendment is, Should we include
    a provision in this bill that requires the give-back of this
    unwarranted compensation in the form of bonuses, incentives,
    and various things 12 months prior to bankruptcy? The answer
    is, of course, we should require it. We ought not to be
    debating this. This amendment ought to be accepted.
        Let me describe some of the other folks who believe this
    ought to be done.
        Mr. Richard Breeden, former SEC Chairman from 1989-1993
    says:

        We have long required officers and directors to disgorge
    ``short-swing'' profits for purchases and sales within a six-
    month period . . . we should consider disgorgement to the
    company of any net proceeds of stock sales or option exercises
    within six-months or a year prior to bankruptcy filing.

        That is Mr. Breeden, former SEC Chairman.
        Henry Paulson, CEO, Goldman Sachs, who worked in the Nixon
    Administration, said:

        The business community has been given a black eye by the
    activities of and behavior of some CEOs and other notable
    insiders who sold large numbers of shares just before dramatic
    declines in their companies' share prices . . . in the case of
    CEOs and other inside directors, we should raise the bar and
    mandate a one year ``claw-back'' in the case of bankruptcy,
    regardless of the reason.

        He is right. This bill doesn't require it. There is no
    ``claw-back'' in this bill. There ought to be 1 year prior to
    bankruptcy.
        I don't mean to diminish the importance of other issues
    that we have just discussed. The other issues are very
    important. On the issue of how stock options are treated, in
    1994, I was one of nine Senators who voted against the proposal
    back then that would handcuff FASB. I come to that issue with
    fairly clean hands.
        Let me say that while that issue is important, I have been
    here every single day this bill has been on the floor to offer
    this simple amendment on disgorgement in the face of
    bankruptcies. If there are people in corporations at the top of
    those companies who make $100 million or $70 million or $50
    million, and then the company files for bankruptcy, do you not
    believe that some of that ought to be required to be given
    back? The folks at the bottom lost everything they had. They
    lost their life savings. They lost everything, and the folks at
    the top got rich. Shouldn't there be a requirement in this bill
    to disgorge those profits? Does anybody think that is
    unreasonable?
        The Senator from Texas left the Chamber as I was beginning
    to speak. I was hoping I might get his attention. But as I
    understand where we are, we have a first- and a second-degree
    amendment. The first-degree amendment is the Edwards amendment.
    It is followed by a second-degree amendment, which is the
    Carnahan amendment.
        In order for anyone to offer an amendment postcloture
    today, we must ask consent to set aside these amendments so we
    can offer our amendment. My understanding is, if someone here
    does not agree with that, then he can prevent that from
    happening. My understanding is that that is precisely what
    would happen.
        So the result is, for the next 5 hours, we will have
    gatekeepers who require us to say: Captain, may I? May I offer
    an amendment? And they will say: No, you may not. We will not
    allow the setting aside of the pending amendments.
        So we will limp along to the end of the 30 hours not being
    able to offer germane amendments to this bill. It is
    outrageous, simply an outrageous process that puts us here. I
    think there will be a good number of Members of the Senate who,
    in the future, will consider this and find ways to avoid our
    being put in this position again.
        But what I would like to do is have a debate about this
    amendment at some point. And perhaps there are people in the
    Senate who want to stand up and say: Do you know what I think?
    I think if somebody takes home $50 or $80 million 6 months
    before bankruptcy, in the form of incentive payments and
    bonuses, they ought to be able to keep it, even if they drove
    this company right straight into the ground.
        Is there one person who will stand up in the Senate today
    to support that? Does one person want to support that position?
    Well, we will see.
        In the year before the Enron Corporation filed for
    bankruptcy, Kenneth Lay, the chairman of that company, and 140
    other company officials received $310 million in salaries,
    bonuses, long-term incentives, loan advances, and other
    payments.
        Does anybody here want to stand up and say: ``That makes a
    lot of sense.''? Anybody? Does anybody agree they should keep
    all that money? Do we hear nothing because they don't have the
    floor, or is it that nobody here believes the top officials of
    Enron should keep $310 million prior to filing for bankruptcy,
    where their employees lost they jobs, lost their life savings
    in their 401(k)s, their investors lost their money?
        How about NTL, Incorporated? It is a Manhattan TV cable
    operator that filed for bankruptcy in May, just several months
    after it gave its chief executive officer $18.9 million. It
    made him one of the 30 highest paid CEOs in New York, putting
    him ahead of IBM's Louis Gerstner. That company had $14 billion
    in losses. And the CEO, Mr. Knapp, had a salary of $277,000, a
    bonus of $561,000, and stock options worth $18 million.
        So does anybody here think he ought to keep all that money,
    just let the investors and the employees lose, but the people
    at the top keep it--just walk away on some gilded, golden
    carpet?
        There are plenty of other examples, of course.
        In recent months, we have heard all of these discussions
    about what has happened at the top in the boardroom by
    companies that wanted to find the line, and then go right to
    it, and then go across it, if they could. And there are
    accounting firms that were the enablers, who said: Yes, go
    ahead and do that. And the law firms were on the side,
    collecting big fees, saying: Yes, go ahead and do that--and the
    CEOs without moral conscience. The result is, they got rich and
    the little folks got broke.
        My amendment is very simple. My amendment says that 1 year
    prior to bankruptcy, if you are getting the big bucks, big
    bonuses, big incentives, big stock options, and you want to
    take off with $50 or $100 million, and leave everybody else
    flat on their back, you cannot do it; you have to give it back.
    Very simple.
        No one can misunderstand the amendment. This amendment is
    not strange or foreign to anyone. This bill will fall short of
    the mark, this bill will be incomplete, if we just proceed now
    to the final vote this afternoon and we are told: You cannot
    offer this amendment. We will not consider this amendment. And
    we do not want to require the give-back of millions of dollars
    by CEOs who receive that money prior to bankruptcy.
        If that is the message this Senate sends from this bill
    this afternoon, this Senate has a lot of explaining to do.
        We came to this debate with great promise. I have been to
    the floor a couple of times complimenting the Banking
    Committee, complimenting all on the Banking Committee who
    worked to put this bill together. But I said there were areas
    where it needed to be improved. This is one of them. This is
    the lightest load you will ever be asked to carry, in my
    judgment, to support an amendment of this type: The
    disgorgement of ill-earned profits by CEOs who led their
    corporations to bankruptcy but waltzed off with millions of
    dollars in their pockets and left everyone else--the
    bondholders, the stockholders, the employees--holding the bag.
        This is not heavy lifting, to do this amendment. It is
    absurd if the Senate says: No, we will have nothing to do with
    that. Our position is, let's call this corporate
    responsibility. Let's change the accounting standards. But, by
    the way, let's let those people who essentially looted the
    corporation from the top--drove it into bankruptcy, and then
    left town--let's give them a big wave and say: So long, God
    bless you, and I hope your future is a good one with all those
    millions of dollars. If we do that, this Senate has a lot of
    explaining to do.
        A good many corporate leaders, respected business officials
    in this country, have said this must be in a bill, this should
    be in a bill, there is no excuse for it not being in a bill.
        So I have amendment No. 4214 at the desk. Let me ask
    unanimous consent that we set aside the Carnahan amendment,
    which is a second-degree amendment to the Edwards amendment,
    for the purpose of allowing consideration of amendment No.
    4214. Let me make the first unanimous consent request first.
        I ask unanimous consent that we set aside the Carnahan
    second-degree amendment for the purpose of considering my
    amendment.
        The Presiding Officer (Mr. Wyden). Is there objection?
        Mr. Enzi. On behalf of the ranking member of the Banking
    Committee, I object.
        The Presiding Officer. Objection is heard.
        Mr. Dorgan. Mr. President, let me say, again, I think the
    process is an outrage--an outrage. We are in a situation today
    where we have 4 or 5 hours left postcloture, and we are told
    that no one in the Senate has a right to offer an amendment
    because someone has set himself up as a gatekeeper saying: I
    will object to setting aside the Carnahan second-degree
    amendment.
        What kind of a way is that to legislate? Is someone afraid
    he will lose on this amendment, that he will lose the vote? Is
    that the purpose of the objection, that he is afraid we will
    have a vote, Senators will vote for my amendment, and therefore
    he will lose, so the words ``I object'' become a proxy for
    avoiding a loss on an important amendment?
        How many votes do you think would exist in the Senate for
    saying: We want to enable CEOs, who ran the corporation into
    the ground and took $20 million out and then filed bankruptcy,
    to keep the money; we want them to keep the bonus, to keep the
    stock option, to keep the commission payment, to keep the
    money? How many votes do you think exist for that? Ten, maybe
    12? Probably zero.
        I think the Senator from Virginia is correct. Probably no
    one would stand up and support that proposition. So the
    question is why are we not allowing amendments to be voted on
    this afternoon? I would be happy to yield to someone to answer
    that. Is there someone who can answer that? Perhaps we could
    find out on whose behalf the Senator from Wyoming objected.
        How much time do I have remaining?
        The Presiding Officer. The Senator from North Dakota has 29
    minutes remaining.
        Mr. Dorgan. Parliamentary inquiry: Are we entitled, as a
    Senator, to 1 hour postcloture, those of us who are recognized?
        The Presiding Officer. The Senator from North Dakota is
    correct.
        Mr. Dorgan. Several of my colleagues wish to speak. I want
    them to be able to speak. I hope they will offer amendments.
        I will guarantee them this: I will not be objecting to an
    amendment if they want to offer them. They have a right to
    offer an amendment today. They have a right to get a vote on
    the amendment. I will not object to that.
        The parliamentary inquiry is, I have just made a unanimous
    consent request that has been objected to. Am I prevented from
    making an identical request following the presentation by the
    two Senators on the floor?
        The Presiding Officer. The Senator is not prevented from
    making unanimous consent requests.
        Mr. Dorgan. That will give me some time then to snoop
    around the cloakrooms and the corners and the nooks and
    crannies in the Capitol to find out who won't come to the floor
    and answer the question I have asked.
        Why will we not get a vote on the simple proposition that
    those corporate leaders who run their corporation into
    bankruptcy and who take $10, $20, $30, or $50 million out of it
    just prior to bankruptcy--why will we not allow a vote on an
    amendment that would require them to disgorge themselves of
    that profit? Why should that ill-gotten gain not be used to
    help the employees, help the investors, help others recover,
    who lost everything? Why should one group in this circumstance
    walk off into the sunset with a pocketful of gold, leaving
    everyone in their wake, employees, investors, and others who
    lost everything they had?
        Perhaps in the next hour or so, I will find someone in the
    Chamber or in the anterooms who will say: I am the one who
    decided you should not get a vote because I believe that those
    CEOs ought to be able to get away with that money; that is the
    American way.
        My guess is the Senator from Virginia was right when he
    shook his head. I think this amendment passes 100 to nothing or
    very close to that, and I hope he and others will help me get
    it to a vote before 6 o'clock.
        Obviously I am a little irritated about the process. It
    stinks. That is not a genteel way to say that. But postcloture,
    if we have germane amendments, we should be able to be here to
    offer those amendments. That is not now the case.
        I will be here the next couple of hours trying to see if we
    can find a way to cause enough trouble in as short a time as
    possible to allow these amendments to be offered.
        I yield the floor.
        The Presiding Officer. The Senator from Virginia.
        Mr. Allen. Mr. President, I would like to use a portion of
    my 1 hour of time to say I agree with the purpose and the
    intent of the Dorgan amendment. I understand Senator Grassley
    of Iowa has a similar amendment that would disgorge or claw
    back into some ill-gotten gains of executives for the benefit
    of creditors and victims of their malfeasance or illegal acts.
        I wish to speak not on process. Although, process seems to
    drive a lot of what happens in this body.
        I would like to talk to my colleagues and the American
    people about the merits of certain ideas or the demerits of
    certain ideas that have been raised. There have been several
    measures dealing with the issue of stock options.
        Senator McCain's measure was a direct hit. I don't like it,
    but it was an accountable approach in getting rid of or killing
    stock options. We had Senator Levin's amendment, with Senator
    McCain, which was more of an indirect or ricochet killing of
    stock options by granting that study to FASB, when everyone
    knows what FASB's position is.
        There is another option regarding stock options which I
    would like to discuss as the approach that ought to be taken.
    The majority leader, Senator Daschle, mentioned that we may
    have a vote on it today. We may have a vote on it tomorrow, but
    some day we will have a vote. There ought to be a full and fair
    discussion of the approach we ought to take as well as what the
    potential adverse impacts could be if either the study by FASB
    or the direct killing of stock options, as far as requiring the
    expensing of them, were to occur.
        The more wise and prudent approach is one that was chiefly
    sponsored by my good friend Senator Enzi of Wyoming, along with
    Senators Lieberman, Boxer, myself, and others who joined with
    us, Senators Murray, Cantwell, Bennett, Wyden, Lott, Burns,
    Frist, Craig and Ensign. Our amendment is a more comprehensive,
    reasonable alternative that has the Securities and Exchange
    Commission review and make regulatory or legislative
    recommendations to Congress.
        Clearly, in today's climate, with the stock market dropping
    again today, with the scandals from Global Crossing, Enron, the
    crisis at WorldCom, it is axiomatic that there is a pressing
    need for accounting reform to address the corporate abuses and
    accounting firm malfeasance. The bill, as it is presented, is a
    very good bill. I think it addresses the two key areas that
    need to be addressed.
        It is focused, number one, on transparency. That means that
    people can readily and easily discern the true financial
    condition of a company in which they may want to invest.
        Secondly, you need deterrence, stiffer criminal and civil
    sanctions for illegal actions by corporate officers. There may
    be a few things added to make it better, but this bill
    essentially addresses those two focused goals. Indeed, enhanced
    transparency and improved corporate governance may restore some
    investor confidence and foster proper disclosure for investment
    decisions. More stringent penalties will provide a deterrence
    and substantial disincentive for the corporate wrongdoing that
    has led to this understandable firestorm of skepticism as a
    fallout from the scandalous, fraudulent misrepresentations by
    executives in many companies.
        In our effort to reform, we must not enact measures that
    stifle innovation and endanger the American entrepreneurial
    spirit. Congress should not harm future opportunities for
    employees to own a part of their company for whom they work.
    Unfortunately, the Levin-McCain amendment does just that by
    unjustifiably upsetting the current tax treatment of stock
    options. It is unnecessary and unwise to change these
    particular accounting policies.
        It is virtually impossible to accurately determine the
    worth or value of a stock option.
        Now, how are you going to predict the future performance of
    a company? How are you going to predict the future share value
    of a company, especially with the vicissitudes of the stock
    market these days? For example, somebody is granted a stock
    option by a company--a new company--and the stock is trading,
    after an IPO, at $5 a share. The option to this employee is to
    be able to purchase 1,000 shares of that company at $10 a
    share.
        Now, nobody is going to exercise a stock option until the
    share value reaches the strike price, or $10, and it may never
    get to $10. It may take 5 years before that share value gets
    above $10 a share, where somebody would exercise the option. So
    it is very difficult to determine what is the actual value of
    that stock option when it is granted.
        The amendment Mr. Levin has proposed will affect current
    law. Currently employers are not required to expense stock
    option grants on their financial statements. But they are
    permitted to deduct the employees' gains at exercise--that is,
    down the road--as a compensation expense.
        Now, this makes good sense. After all, a stock option grant
    does not require a cash outlay like other expenses such as
    wages.
        Moreover, there is no transparency problem with failing to
    expense stock option grants because they are disclosed on the
    company's financial statement. If somebody says there ought to
    be better disclosure, or it should be in bolder print, or it
    should be highlighted more and the disclosure needs to be more
    clear, that is fine. But I don't think it is necessary, in the
    midst of better disclosure and transparency, to kill this
    otherwise largely salutary idea and beneficial idea of stock
    options. Nonetheless, the amendments by Senators McCain and
    Levin mandate that any company taking a deduction must report
    the stock option as an expense on their income statement,
    profit and loss statement, and the deduction may not exceed the
    reported expense.
        Mr. Levin. Will the Senator yield for a question?
        Mr. Allen. I yield.
        Mr. Levin. Is the Senator aware that the Levin-McCain
    amendment he is referring to is not the amendment being offered
    at this time? There is another amendment, and they are totally
    different matters involving the taxation issue. This is not a
    taxation amendment at all. Hopefully, it will come before the
    Senate today.
        Mr. Allen. Mr. President, I say to the Senator from
    Michigan, I understand his amendment offered today was one to
    have FASB study the issue. Senator McCain's amendment was one
    to require the expensing of stock options. I realize they are
    two different matters.
        Mr. Levin. And that neither one addresses tax issues. That
    is a totally separate bill, not in either the McCain-Levin or
    the Levin-McCain accounting standard.
        Mr. Allen. I say to the Senator that in the event you, in
    effect, require the expenses of stock options, that does affect
    the tax treatment and the desirability of stock options.
        Mr. Levin. Thank you.
        Mr. Allen. I thank the Senator from Michigan.
        Now, the problematic aspect of these ideas is that, if you
    take away the current method of accounting and taxation of
    stock options, a company can only take a deduction up to the
    amount they expense at the time of the grant. Since the expense
    would be taken at the time of the grant, the tax deduction
    would be taken at the time of the exercise. If the value was
    too low at the time of the grant, then you are not going to get
    the full extent of your deduction. So the point is that if we
    are not careful here, with all these approaches of changing the
    tax treatment, changing the expensing rules, or having it be
    done by FASB, the result is a convoluted tax increase on
    companies.
        Now, what will happen if these tax increases or this
    inability to actually determine the value of the stock option
    occurs, which may or may not be exercised at some unknown
    future date, all of this consternation, inaccuracy,
    unpredictability--the potential of actually a tax increase, in
    effect--many companies will find this tax and accounting scheme
    is so onerous they will discontinue offering options to all but
    maybe a few senior executives who can bargain for them.
        I think the idea of doing away with stock options, or
    making them less desirable, is a substantial detrimental impact
    on not only companies but many, particularly those companies in
    the high-tech sector and small startups. New businesses have
    powered our economy in the last decade and, hopefully, they
    will do so in the future. Small companies motivate employees
    with stock options. That is the way they keep employees.
    Especially the startups who will get folks to serve on the
    board and pay them for that service in stock options.
        I think it is a good idea for people to care about a
    company doing well in the future; not only looking for a
    paycheck, but also caring about how well a company will do.
        Indeed, in the last 10 years, the number of workers who
    received stock options has grown dramatically--from about 1
    million in 1992 to 10 million today. First, as I said, the
    benefits of stock options has enabled companies to recruit and
    keep quality workers. Absent stock options, many smaller
    companies lack the capital. They don't have the money to
    attract top-notch talent. Investors will be less likely to
    invest in companies that retain stock option plans because the
    company's earnings will be artificially deflated by this
    phantom expense.
        Finally, and perhaps most important, stock options enhance
    productivity by providing employees with a greater stake in
    their company's performance.
        Mr. President, these options are particularly important to
    rank and file employees who receive relatively modest salaries
    and wages. There is one company that has a pretty good presence
    in Virginia--Electronic Arts--which recently told me that stock
    options enabled many of its employees to purchase their first
    homes, to send their children to college, or to provide for
    their aging parents. Thus, the desirability of stock options as
    incentives is readily apparent, and we should not adopt any
    measure that would effectively eliminate their use as a form of
    employee compensation.
        That is not to say that I oppose all stock option reform.
    In fact, I fully support President Bush's proposal that
    requires shareholder approval for stock option plans. I think
    the idea of equitable treatment in the exercise of options by
    employees or executives is well founded. But I am joining with
    Senators Lieberman, Boxer, Enzi, and others in offering the
    amendment that directs the Securities and Exchange Commission
    to conduct a comprehensive study and to make recommendations
    regarding the accounting treatment of stock options, which is
    the way to go.
        We may introduce this proposal as a free-standing bill.
    Maybe we will not vote on it today but here is the approach
    that we ought to take. The SEC will conduct an analysis and
    make regulatory and legislative recommendations on the
    treatment of stock options in which the Commission shall
    analyze the following: No. 1, the accounting treatment for
    employees' stock options, including the accuracy of available
    stock option pricing models; No. 2, the adequacy of current
    disclosure requirements to investors and shareholders on stock
    options; No. 3, the adequacy of corporate governance
    requirements, including shareholder approval of stock option
    plans; No. 4, any need for new stock holding period
    requirements for senior executives; No. 5, the benefit and
    detriment of any new option
    expenses rules on, A, the productivity and performance of
    large, medium, and small companies and startup enterprises and,
    B, the recruitment and retention of skilled workers.
        The Commission shall submit its regulatory and legislative
    recommendations to Congress and supporting analyses of those
    matters as far as any changes indicated in the treatment of
    stock options within 180 days.
        In my view, this is the reasonable alternative we ought to
    be taking. I urge my colleagues to support this approach rather
    than adopting, whether it is today or in the future, Senator
    McCain's measure that he introduced last week or Senator
    Levin's study today. I think either of those would be harmful
    and damaging to both American industry and to working men and
    women.
        The Senator from Michigan mentioned evidence, or
    observations, of others as to the impact of his recommendations
    and his amendment. I think it is very good for us to look at
    what people who will be affected say about the measures that
    are passed in the Senate. I think it is important that we be
    accountable to those who are affected and we should listen to
    them.
        I have some other observations, as far as the issue of
    stock options is concerned. This first I will share is the
    views of the Information Technology Industry Council. They
    expressed their support for the potential alternative amendment
    cosponsored by Senators Lieberman, Enzi, Boxer, and Allen that
    would direct the Securities and Exchange Commission to examine
    the accounting treatment of stock options and make
    recommendations.
        The Information Technology Industry Council stated that, in
    particular, those entrepreneurial high-tech companies that are
    willing to take the risk in the pursuit of technological
    innovation have offered stock options as an incentive to
    attract and retain employees.
        Unfortunately, the expensing of options would end the
    practice of providing most employees with stock options. The
    result would be a reversal of the trends toward employee
    ownership and a significant reduction in financial
    opportunities for thousands of workers.
        Let me share another observation, and this comes from the
    Telecommunications Industry Association, and I read, in part:

        This sense of personal ownership referring to stock options
    helps develop the innovative entrepreneurial spirit that has
    characterized the high tech industry over the last decade.
    Should the rules for options suddenly change and be treated as
    a cash expense, the number of employees that receive the
    benefit would be drastically reduced, most likely leaving only
    members of the top management as recipients.

        They conclude with this comment:

        Adoption of this type of measure is a knee jerk reaction to
    situations such as occurred with Enron, which is not what we
    need. It is not in the best long-term interest of our country.

        Another observation from a large group of trade
    associations: American Electronic Association, Bankers
    Association, Alabama Information Technology Association, the
    Arizona Software and Internet Association, Biotechnology
    Industry Organization, Business Software Alliance, Information
    Technology Association of America, National Association of
    Manufacturers, the Retail Federation, Semiconductor Equipment
    and Materials International, as well as the Semiconductor
    Industry Association, Software and Information Industry
    Association, Software Finance and Tax Executives Council, the
    Tax Council, the Technology Network, and the U.S. Chamber of
    Commerce wrote me and said that the stock options tax bill--not
    the Levin amendment but, rather, the tax treatment changes--
    that legislation would, if enacted, discourage broad-based rank
    and file access to stock options. It would lead to investor
    confusion, less accurate financial statements, and raise taxes
    on companies issuing stock options.
        Now we have heard also some scholarly points of view. It is
    nice to hear what some of these esteemed individuals may say
    from time to time on the issue of stock options. Others in the
    body have quoted from Warren Buffett, a person for whom we all
    have a great deal of respect. But in another scholarly work
    from two gentlemen, economics professors at Princeton
    University and New York University, Dr. Malkiel, professor of
    economics at Princeton, and Dr. Baumol, professor of economics
    at New York University, say this:

        Warren Buffett and other critics suggest that the income
    statement should reflect an expense to the firm measured by the
    cash equivalent value of options. There are two problems with
    these views. First, if we were to consider the expense of
    options to be equivalent to that of cash wages, there is no way
    to measure that cost, the value of options at the time they are
    issued, with any reasonable precision. The Nobel Prize winning
    Black-Scholes model does an excellent job of predicting the
    prices at which short-term options trade in the market, but the
    Black-Scholes formula does not provide reliable estimates for
    longer term options such as those lasting 6 months to one year,
    and market prices often differ substantially from predicted
    values. Because employee stock options have durations of 5 to
    10 years, are complicated by not investing immediately, are
    contingent on continuing employment and subject to various
    restrictions, it is virtually impossible to put a precise
    estimate on the options value. Moreover, employees' options
    cannot be sold, violating one of the key Black-Scholes
    assumptions.

        They conclude by saying that by targeting all stock options

    rather than stock option abuses, politicians are risking
    destruction of equity compensation instruments that have been
    engines of innovation and entrepreneurship.
        Finally, an observation today from the Software Finance and
    Tax Executives Council. They call themselves by the acronym
    SoFTEC.

        SoFTEC believes that Senator Levin's amendment essentially
    dictates a pre-determined result without requiring the FASB to
    analyze other relevant issues surrounding stock options. Rather
    than mandate FASB to achieve a predetermined result, SoFTEC
    believes that the SEC currently has the ability and authority
    to properly study all of the issues surrounding stock options
    and make recommendations based upon not only the technical
    accounting issue but the public policy implications as well.

        So I will conclude my time by requesting of my colleagues,
    whether we vote on it today, this afternoon, this evening, or
    in the future, that we act responsibly. It is fine to be
    worrying about the details of procedure and accounting minutia,
    but it is important also to understand the impact of this on
    our free enterprise system. While we are doing a lot of good as
    far as greater scrutiny, greater transparency, and greater
    punishment for wrongdoers are concerned, let us make sure we do
    no harm because the way that this stock market is going to
    change is with more investment, more risk taking, more jobs
    being created, and that entrepreneurial spirit that rewards
    people who take risks, who are creative, who are innovative.
    That is what is going to improve our economy, our
    competitiveness as a country, as well as the stock market
    eventually.
        The point is we do not need to come up with new, convoluted
    ways to increase taxes on companies that we want to invest in
    and improve our country, and I hope we will support the free
    enterprise system and, in doing so, look at reasonable,
    logical, wise, and fully comprehended decision-making as we
    move forward in these very uncharted waters of making major
    changes in stock options.
        The bill as it stands now is an outstanding bill. There can
    be improvements made to it, such as the amendments of Senator
    Grassley and Senator Dorgan, but let us not have the perfect be
    the enemy of the very good, and let us make sure we do no harm.
    By fouling up stock options for many men and women working in
    this country, it would certainly do a great deal of harm.
        I yield the floor.
        Several Senators addressed the Chair.
        The Presiding Officer. I think the Senator from Delaware
    was first to seek recognition.
        Mr. Biden. Mr. President, I say to my friend from Iowa if
    he has a time constraint, I will yield to him. Just so he
    knows, I was in the Chamber before he came. I took a phone call
    and came back. But if the Senator has a time constraint, I have
    10 to 12 minutes, but I will be happy to yield.
        Mr. Grassley. If I only have to listen to a 10- or 12-
    minute speech, I will be glad to wait.
        Mr. Biden. I hope the Senator listens very closely. He may
    learn something. I know I learn when I listen, and I do not
    always listen enough.
        Mr. President, let me begin where the Senator from Virginia
    ended, and that is that I think the bill fashioned by Senator
    Sarbanes and this committee does exactly what the Senator from
    Virginia was suggesting. That would be balanced; we do not do
    more harm than good.
        If you look at other times--and I have been a Senator for a
    while--we faced crises such as this, we have had occasion to
    overreact. We have found sometimes that the cure is worse than
    the disease. I note we probably did that in my early days here
    with Senate campaign financing and other issues.
        There is a real balance that the Senator from Maryland has
    struck. I compliment the Senator. I cannot think of any Senator
    better positioned to be chief spokesman for the Senate and
    Congress on this issue, not only for the American people but
    all our allies and the investors worldwide.
        The dollar now has weakened drastically. In my capacity as
    chairman of the Foreign Affairs Committee, I have had occasion
    to meet with leading government officials from European
    countries and from Asia, asking me, as if I were some kind of
    broker: Can we continue to invest in your market? Is it real?
    What is going on? How much more is coming?
        We are fortunate to have the steady and always cautious
    voice of the Senator from Maryland, whose background
    academically as well as politically suits him well, and in this
    moment, as probably no one else in this place is better
    prepared, to take on this issue. I compliment the Senator and
    his quiet, reasoned voice, and his profound understanding of
    the problem we face as well as his determination to move ahead
    and try to restore confidence. It is a welcome circumstance at
    the moment. I compliment the Senator.
        I realize from listening to him and knowing him as well as
    I do, as a point of personal privilege, some will discount my
    remarks because they know the Senator and I are close personal
    friends and I admire him as much as anyone I have served in all
    my years in the Senate. I understand there are other things
    that he may or may not have wanted to put in the bill to
    strengthen our position and the Nation's position and the
    economy, but he wants to make sure there is consensus and
    overwhelming support of whatever we do. This is not a
    circumstance of questioning motives and wondering whether it is
    more for show than for serious reconstruction of the
    circumstances.
        I say at the outset, I have one disagreement with the
    President of the United States. Although there probably, pray
    God, are only a ``few really bad apples''--I think that was his
    phrase--in the corporate world, I do think we have a systemic
    problem. The marvel is that there are so many men and women in
    corporate America who have high moral standards and have
    overcome a fairly overwhelming temptation that exists in the
    way business is being done, the way in which we have loosened
    some of the not regulations, loosened some of the oversight on
    corporate America. It is a testament to the fact that there are
    so many honorable people running America's major corporations
    and multinational corporations.
        The fact is, we have a systemic problem which leads me to
    my friend from Michigan, Senator Levin. Senator Levin, Senator
    McCain, Senator Corzine, Senator Edwards, myself, and several
    others, in varying degrees, think what this debate is all about
    is fundamental fairness and efficiency of our economy. A lot of
    what we read about these days is focused on corporate scandals,
    individual villains, their schemes, their greed. There is
    plenty of that and maybe more than I can remember any time in
    my Senate career.
        I believe we need to focus on the behavior of corporate
    executives who have betrayed their positions of power,
    recklessly endangering the careers of tens of thousands of
    employees and the savings of millions of Americans. That is why
    it was so important the Senate unanimously adopted my amendment
    last week and the amendment which was contained in that of the
    Senator from Vermont for stronger penalties for corporate
    crime.
        In the hearings I have held in my criminal law subcommittee
    in the Judiciary Committee, I made clear from the outset--and I
    try never to overpromise what criminal law can do, even though
    we are only now finally beginning to rectify and make our
    criminal justice system reflect our values more clearly--that
    is not a solution. It is a part of a solution. The Senator from
    Iowa and I conducted hearings in that subcommittee. We have
    asked for stronger penalties. We have passed them. One small
    example: If you were to violate the Federal law relating to
    pension security, ERISA, it is a misdemeanor that could cost
    someone their entire pension or 1,000 people their pensions,
    totaling hundreds of millions of dollars. It is a misdemeanor.
    All you get is up to 1 year in jail. Yet if you steal my
    automobile--I live 2 miles from the Pennsylvania State line, in
    Delaware--and you drive across the State line into
    Pennsylvania, you get 10 years under Federal law. Something is
    awry.
        Criminal penalties are not the answer. They are just
    rectifying this incredible inequity within our system.
    Hopefully we are beginning to reestablish some sense of faith
    in the system where average people think big guys get away with
    it and little guys go to jail.
        Punishing and deterring corporate crime, although it is a
    major part of our response to excesses committed by some of the
    most privileged and powerful corporate executives, is not
    enough. We face another fundamental problem. It is the loss of
    trust in our system, most apparent, perhaps, in the recent drop
    in the stock market. More than 200 off the DOW in the days
    following the President's speech, and when I came to the floor
    the DOW was down 300 points. I don't know where it is right
    now. I hope and pray to God it has moved up.
        The fact is, there is a profound lack of confidence at the
    moment in our economy. There used to be a chairman of the board
    of the Dupont Company, a big, old farm boy from Ohio. He had
    great big hands. I remember, he was a wonderful guy, a first-
    rate chemist, first-rate scientist, as well as corporate
    executive. I was meeting with him one day and said: We have a
    problem; we are in the hole. And he turned and looked at me and
    said: My father always said, Joe, when you get in the hole,
    stop digging.
        Maybe the President should stop making speeches for a
    couple of days. He has spoken twice and the market went down
    500 points while he was speaking. It is not because of a lack
    of anything in the President, but people are looking for real
    change. They assume that if there is any rhetoric, it must not
    be likely to be followed by something real.
        The Senator from Maryland has done something real. What the
    Senator from Utah and his committee has done is real. This is
    real. This underlying bill is real; it is positive; it is
    substantial. The bottom line is, no pun intended, there is a
    profound lack of confidence at the moment and that our economy
    can be shaken right now to the very foundations of our market
    democracy. For a market democracy to work, we have to have
    faith in our economy that will continue to create opportunities
    for job advancement and that our Government will continue to
    promote, as our Constitution requires, the general welfare.
        In recent months, to be reminded how much we have in
    common, how much of our unique blessings we have come to take
    for granted prior to September 11, we were reminded that in the
    end we are all in this thing together. Among those blessings we
    had come to take for granted was the most dynamic economy in
    the world, that had just come off the longest, strongest
    expansion in history. In the new economic arena, we are now
    reminded how much we depend on trust in each other to make our
    markets work.
        That sounds silly. No one was using the word trust before
    when we talked of the market economy. We talked innovation, the
    new economy, productivity, et cetera, but when you cut it all
    aside, it is all based upon trust, which is based upon
    transparency. If you cannot get out there and make your
    judgment to invest or not invest in a corporation with a clear
    sense that you have been told everything that is reasonable to
    tell you about the state of affairs of that company, then you
    might as well play the lottery.
        You might as well come on over to Delaware and play the
    slot machines at Delaware Park. You have about the same shot,
    unless you are on the inside.
        The task we are debating today is how to restore the
    strength of our economy, which is to restore the trust. At the
    core of that task is revival of confidence that consumers and
    investors, including foreign investors, need to get back into
    the market.
        This is going to turn around, Mr. President. You and I both
    know it. I am absolutely sure it is going to turn around. The
    question is, how many bodies will be littered along the way;
    how many pensions will be lost; how many jobs will be lost; how
    long is it going to take? It will turn around.
        I am sure the greatest strength of our system continues to
    be its resiliency: Our ability to see change as opportunity. I
    am sure of that because we have met this kind of adversity
    before. Every time we have come out stronger.
        I remember when the Senator from Maryland and I were on the
    Banking Committee in those dark days of the savings and loan
    crisis. We made it through. We made some very difficult
    decisions that, I might add, Japan and other countries have not
    made, and it resulted in an even stronger economy. So I am
    confident we can come out of this stronger.
        After the glare from all the glitter during the boom phase
    and as our vision becomes a lot clearer, we know that our
    economy is, in fact, fundamentally stronger than it was,
    notwithstanding what is going on now. Productivity gains were
    real. Information technology and corporate reorganization
    created real growth. It was not imaginary. It was not like
    these profit margins that people were suggesting they had on
    the balance sheets that were a lie. There actually was growth.
        The economy, the marketplace has created real growth. In
    what economists like to call the real economy where jobs are
    created, where goods are produced, the real economy is faster
    and more efficient today than it was a decade ago. Even old
    industries in our manufacturing sector have gained from
    advances in new materials, as well as improvement in
    information sharing and organization.
        We also know that a lot of what looked like growth,
    particularly in the financial sector, was only paper profits
    and a lot of it was written in disappearing ink. Profits and
    paper valuations were all too often inflated by wishful
    thinking, by self-dealing analysts, by accounting gimmicks, and
    by outright fraud.
        The amendment I am proud to support offered by Senators
    Levin and Corzine and others addresses one of the most glaring
    problems behind those inflated profit statements that fueled
    the stock boom that is now unwinding.
        Stock options are, as advocates tell us, a useful device.
    They can reward employees when companies are so young that they
    have little else to offer. Of course, we all want to encourage
    startup companies in every responsible way we can. Also, stock
    options in theory, and sometimes in practice, keep employees'
    and corporate officers' incentives tied to the growth of their
    companies, but unlike virtually every other kind of
    compensation the firm can give its employees, stock options do
    not have to be listed on annual reports as an expense, and that
    means the more stock options you give, the less compensation
    you have to report, the lower your reported expenses, the
    higher your reported bottom line.
        That part is simple, and that is a big reason stock options
    became so attractive not only for the good things they can do,
    but also for the convenient way they inflated earnings
    statements and I would even say, if I want to go overboard and
    defend corporate America, even defending those corporate
    executives who when they take the train up to Wall Street and
    have some 30-year-old or 35-year-old guy sitting around a table
    saying: OK, what are you going to do next quarter? And giant
    companies that are strong and mature would say: We are going to
    do as well as last quarter. That is not good enough. We are
    going to downgrade your stock and your company.
        I remember one CEO of a major Fortune 10 company telling
    me, I have to do one of three things: I have to say, so be it,
    and keep on the long-term course or go out there and find some
    new product on the shelf, which I wish I had, that could
    increase productivity and profit, or go home and do something.
    The ``do something'' usually meant go home and cut the number
    of employees you have, cut expenses.
        Guess what. I do not think these are bad, evil, and venal
    people. They went home, and there is an easy way to do it.
    Let's make sure compensation is not reflected as an expense. So
    instead of paying the top executives an additional $15 million
    in compensation, give them stock options. Guess what. The
    bottom line looked $15 million better than it did before.
        That is not rocket science, and it may have been produced
    by Wall Street's desire for immediate gratification, immediate
    response. Whatever the reason, it turned out to be as much of a
    liability in the literal sense, as much as a damaging impact as
    the good things it could do by tying the employees' fate as
    well as the CEO's fate to their company.
        I see my friend from Utah standing. Does he want to ask me
    a question?
        Mr. Bennett. Mr. President, will the Senator yield for a
    question?
        Mr. Biden. I will be happy to yield.
        Mr. Bennett. Mr. President, the Senator is going into
    territory I will deal with in my statement, but to keep it all
    in context as he is talking, I must raise this question. The
    Senator is one of the historians of the Senate. He has been
    around a good long time and probably will be around for longer
    than I will.
        Does the Senator from Delaware remember that in 1993 when
    we increased taxes in the Clinton tax increase, we also put a
    limit of $1 million on the total amount of deductions a company
    could take for salary for its employees?
        In other words, that CEO could not be paid over $1 million
    for his or her services and have the company deduct that as a
    legitimate expense for tax purposes.
        Mr. Biden. To be honest with the Senator, I do not remember
    that.
        Mr. Bennett. Will the Senator agree that might have been
    part of the reason why companies, in an effort to attract and
    hold the best executive talent, would have moved away from
    traditional compensation, that the Senator and I both
    understood when we were growing up and applying for jobs, and
    into the more esoteric area of stock options because stock
    options were, in fact, not deductible; whereas, good old-
    fashioned pay for services rendered was given a tax
    disadvantage as a result of the Clinton tax bill?
        Mr. Biden. In response to the Senator, I have to check more
    closely. I have great respect for my friend from Utah. Based on
    what he says, it seems to me it would have had a negative
    impact rather than a positive impact. That is one of the things
    we talk about at the front end.
        Whatever we do here should have a positive impact. There is
    something else stock options do, too. Because stock options are
    predominantly awarded to top executives, they are a great way
    to give yourself a sweetheart deal, with a powerful incentive
    for executives to look for ways to inflate stock prices so
    their stock options, at least for a while, are worth millions,
    even hundreds of millions of dollars.
        Here is what Business Week said about stock options back in
    March:

        Options grants that promised to turn caretaker corporate
    managers into multimillionaires in just a few years encourage
    some to ignore the basics in favor of pumping up stock prices.

        And pump they did. Here is how much stock options distorted
    the bottom line for some of the biggest and best companies in
    America. One study by a London-based consulting firm, Smither
    and Company, looked at the use of stock options by 145 of the
    largest U.S. companies.
        They found that those firms overstated profit by 30 percent
    in 1995, 36 percent in 1996, 56 percent in 1997, and 50 percent
    in 1998.
        Other analysts, including the Federal Reserve, have found
    the same thing.
        These are huge distortions in the picture the public was
    given about these companies and a huge distortion in
    information investors were using to allocate capital. That kind
    of distortion was clearly a big factor, maybe in addition to
    what my friend from Utah says, in driving up those stock prices
    that are now falling back to Earth.
        This is no simple problem. The 200 biggest firms now
    allocate more than 16 percent of their stock in options. Let me
    repeat that.
        The 200 biggest firms now allocate more than 16 percent of
    their stock in options, mostly for their very top executives.
        The potential for distortion and the temptation to distort
    is great.
        Remember these stock options are predominantly given to top
    executives.
        One study in 1998 found that 220 of the top managers at
    Fortune 500 firms received an average of 279 times the number
    of stock options awarded to each of the firms' other employees.
        Two hundred and seventy-nine times what ordinary employees
    got.
        Despite the increased use of stock options this is clearly
    a device top management has largely preserved for itself, and
    the kind of incentives they created are now all too clear.
        This amendment takes what I believe is the most restrained
    and most careful approach to the problem of stock options.
        It does not legislate accounting standards, and it does not
    dictate outcomes.
        It tells the Financial Accounting Standards Board that it
    is given new resources and new independence by the underlying
    Sarbanes amendment. It provides for FASB to come up with
    appropriate techniques to account for stock options, it does
    not dictate a one-size-fits-all at this moment, and it gives
    them a year to do it.
        This is not about Government intervention this is about
    getting us out of the way of what every expert from Alan
    Greenspan to Warren Buffett and FASB itself says should be
    done.
        It does nothing to interfere with the issuing of stock
    options.
        It is about giving shareholders and investors the
    information they need to reassert their control over America's
    corporations. That will help to promote companies' long-term
    value, and reduce the temptation to pump up short-term stock
    prices.
        This amendment can help promote a stronger form of
    stockholder democracy, to cure a system that a greedy few have
    turned to their own personal advantage. That kind of democracy
    needs openness and clarity--honest information to make informed
    decisions.
        This amendment is real reform, and I urge my colleagues to
    support it.
        I thank my friend from Utah for his intervention, and I
    thank my friend from Iowa for listening.
        I yield the floor.
        The Presiding Officer. The Senator from Iowa.
        Mr. Grassley. I yield to the Senator from Virginia, just to
    make a unanimous consent request.
        The Presiding Officer (Mr. Nelson of Nebraska). The Senator
    from Virginia.
        Mr. Allen. Mr. President, I yield the remainder of my hour
    to Senator Gramm, the Senator from Texas, who is the Republican
    manager of this bill.
        The Presiding Officer. The Senator has that right. Time is
    yielded. The Senator from Iowa.
        Mr. Grassley. Before I forget, Mr. President, I make the
    request that the unused portion of my hour that I will not be
    using here, I would like to also have given to the Senator from
    Texas.
        The Presiding Officer. The Senator has that right.
        Mr. Grassley. Mr. President, I have five amendments I
    filed: (i) An amendment providing for a team of oversight
    auditors, (ii) an amendment providing for prebankruptcy bonuses
    paid to top executives be pulled back into the bankrupt
    corporation's estate, (iii) an amendment providing the
    Securities Exchange Commission with disgorgement remedies, (iv)
    an amendment providing that auditors who sell tax shelter
    products cannot opine on the financial effects of the tax
    shelter deal; and, (v) last, an amendment providing
    whistleblower protection to the accountants and others who want
    to disclose financial statement misconduct.
        I am pleased, in regard to the last amendment I just
    announced about whistleblowers, Senators Leahy and Hatch
    accepted that proposal as part of their amendment which has
    been adopted.
        I am not going to speak about the other four. I am just
    going to speak about one of those. It is the first amendment I
    put on my list, an amendment providing for a team of oversight
    auditors.
        As I said, I congratulate my colleagues, Senators Sarbanes
    and Enzi on their hard work in moving S. 2673 out of Committee
    and bringing the bill to the floor for further debate. The
    reform bill is a great step in the right direction for tackling
    some of the difficult accounting problems our Nation currently
    faces. Nevertheless, I believe the reform bill isn't quite
    tough enough on several issues and should be strengthened
    further, consequently, the amendment.
        In my view, the recent rash of accounting scandals did not
    result from incompetency or lack of rigorous training of
    accounting professionals. Neither has the problem lied
    principally with misguided auditing standards known as GAAS or
    ill-considered accounting rules known as GAAP.
        The Worldcom debacle, among others, further demonstrated
    that the problem does not rest entirely with a company's
    external auditors--whose best efforts may not detect financial
    misrepresentations if fraud is repeatedly covered up by
    corporate insiders or contrived to defeat established internal
    controls. Instead, each of the most recent corporate accounting
    scandals appear to have arisen from egregiously bad behavior of
    corporate insiders and internal accountants--with varying
    degrees of complicity by those companies' external auditors.
        Thus, as a matter of principle, I agree with the ``bad
    apples'' theory being offered by many. However, I believe
    addressing those bad apples requires additional oversight--and
    not just of a company's external accountants but of the
    internal accounting function itself.
        To that end, I further respond to the President's call for
    increased oversight and would like to offer an amendment that
    would strengthen the provisions Sarbanes-Enzi bill by expanding
    the powers of the oversight board to require the performance of
    ``spot audits.'' The underlying bill which focuses on
    monitoring external auditors woud be amended to provide
    additional board oversight of internal corporate accounting.
        Specfically, my amendment would charge the Board with
    responisibility for conducting oversight audits or ``spot
    audits'' of public companies. The board would serve in a role
    analogous to the Internal Revenue Service or the Federal Bank
    Examiner. The IRS, for example, achieves voluntary public
    compliance through review of a very limited number of Federal
    tax returns each year. The IRS does not verify each and every
    tax return. Similarly, the Federal Bank Examiner sporadically
    and randomly audits various banks throughout the country. Such
    ``spot auditing'' has been an extremely effective oversight
    tool for the banking industry and one which has resulted in
    higher levels of regulatory compliance. In similar fashion, I
    believe that accountants and corporate America will prepare
    more carefully their financial statements if exposed to the
    risk of compliance review by the board's oversight auditors.
        Even in self-regulated form, the accounting industry has
    long recognized the need for a second level of review. To that
    end, 24 years ago the ACIPA established the peer review process
    by which one accounting firm would review audit work of another
    accounting firm. For example, Deloitte & Touche was for many
    years the assigned peer reviewer of Arthur Andersen. Industry-
    wide self-checking on top of industry self-regulation seems
    ill-conceived and has been widely critized for its
    effectiveness by lawmakers and the SEC.
        Over the past 25 years, a Big Five accounting firm has
    never issued a qualified report against another Big Five
    accounting firm at the end of any peer review despite the
    subsequent discovery of numerous irregularities including
    numerous conflicts of interest from stock ownership in audit
    clients. This recognized need for a second level of review is
    longstanding although the mechanism originally established by
    the accounting industry seems to have proven largely
    inadequate.
        Some may ask why the Board should be granted powers which
    may be exercised currently by the SEC. The answer is simply
    resources. Providing an effective mechanism for spot checking
    the books of various issuers requires a dedicated audit staff
    to carry out those purposes. Having resources dedicated to a
    regulatory review process would allow the oversight board to
    take a proactive approach in reviewing for accounting
    irregularities and take the SEC out of a purely reactive
    posture with respect to corporate accounting fraud. The SEC has
    done a great job of investigating corporate scandals once
    detected. Unfortunately, by the time many of the recent
    scandals were discovered, things had progressed too far. We
    were unable to salvage the companies and the life savings of
    thousands of employees and shareholders. I believe the
    oversight auditor would provide a deterrent to committing fraud
    when coupled with tougher criminal sanctions. I further believe
    that earlier detection could prevent the absolute destruction
    of companies in which fraud remains uncovered for too long a
    period of time.
        I note that the concept of an oversight auditor within the
    public oversight board was rejected in the accounting reform
    proposal offered by the SEC and Harvey Pitt on June 20. The
    draft emphasized that the SEC's vision of a newly created
    public oversight board reassured corporate America that the
    newly-created oversight board would require the cooperation of
    audited corporations ``only to the extent necessary to further
    . . . reviews or proceedings regarding the [audit
    corporation's] accountant.'' The draft further promised that
    the new oversight board would not conduct ``roving
    investigations'' of audited corporations nor would the board
    sanction those corporations. It occurs to me that by shifting
    exclusive focus and responsibility to accounting firms, we
    ignore the underlying behavior of corporate wrongdoers who have
    principal responsibility for fair and accurate financial
    reporting to corporate shareholders.
        Under my proposal, the newly created oversight board would
    be charged with reviewing the financial statements of issuers
    and focusing its resources on highest-risk audit areas and
    questionable accounting practices of which it is aware from the
    SEC Division of Enforcement or other sources such as
    whistleblowers under provisions I heartily supported.
        Upon discovery, the board would refer findings of possible
    accounting or auditing irregularity to the Division of
    Enforcement with respect to issuers or other appropriate
    Federal and State enforcement officials such as the President's
    newly-created Fraud Task Force within the Department of
    Justice. This referral mechanism would ensure that those
    agencies continue to have primary authority and responsibility
    for conducting comprehensive corporate investigations of
    possible wrongdoing. The oversight board, of course, would have
    authority to conduct investigations of possible wrongdoing with
    respect to the involvement of accounting firms within its
    jurisdiction.
        That is a basic summary of what this amendment would
    accomplish. I urge my colleagues to support establishment of an
    oversight auditor as a means of improving the compliance of
    corporate issuers and their external accounting firms and
    detecting irregularities at a much earlier point in the system
    when a shareholder value remains salvageable.
        It seems to me that my amendment comes down to just a
    simple case of common sense. As I think proven so many times
    before, auditors need to be audited in the same way the IRS
    does it for tax returns and in the same way bank examiners do
    it in the case of bank audits. If auditors know their work will
    itself be audited, they will think twice about looking the
    other way on shady deals, as we have seen.
        My amendment would put some very specific teeth in the
    Sarbanes-Enzi bill.
        At this point, I was hoping the Senator from Texas was
    going to be here because I have done so much for him on a lot
    of Finance Committee bills. I'm referring to tax bills,
    including the recent CARE bill and the recent energy bill. I
    have helped him with so many amendments that he wanted. I was
    sure he would be willing to help me get unanimous consent to
    get my amendment up, particularly in light of the fact that
    last week I was assured when it wasn't on the list that it
    would be on the list. Then I came back and found that it meant
    being last on the list.
        Now we are getting down to the end. I would like to have
    what I consider kind of a commitment, although it probably is
    not an ironclad commitment, that I be on the list, and,
    obviously, I would be able to get a vote on my amendment.
        At this point, I ask unanimous consent that the pending
    amendment be laid aside for the purpose of taking up my
    amendment just described, which is amendment No. 4232.
        The Presiding Officer. Is there objection?
        Mr. Enzi. In light of the discussions, I have to object.
        Mr. Grassley. Was the President going to put my unanimous
    consent before the Senate?
        The Presiding Officer. I did.
        Mr. Grassley. I did not hear the President do that.
        The Presiding Officer. The Senator from Wyoming objects.
        Mr. Grassley. Mr. President, before I yield the floor, I
    would like to have just a short discussion of something that
    bothers me. In the Senate we have a right to be, and a
    responsibility to be, intellectually honest about these issues
    with which we are faced here.
        I have heard so much during this debate--not so much during
    the debate, because that wouldn't be fair, but more probably in
    news conferences held by Senators on the other side of the
    aisle--about the Democrats wishing to use Enron and WorldCom
    events very much as, I think, political issues. I think maybe
    the Democrats are hoping for a ``November storm'' in which our
    economy is weak and no progress is made on accounting reforms.
        As this bill goes through the Senate, through conference,
    and comes back, I hope we will realize that there is enough
    blame to go around. But, most importantly, I think it is wrong.
    For instance, the distinguished majority leader on ``Face the
    Nation'' recently attributed the current crisis to the alleged
    ``permissive'' attitude in the Bush administration towards
    business. I didn't see any ``permissiveness'' in the
    President's speech last week. I don't think very many people
    did.
        But I think we also need to remember, while a lot of this
    mischief was going on by corporations, that during the decades
    of the 1990s and now in the 21st century there were 2 years in
    which Democrats controlled Congress. In those two years, we had
    a Republican President. That was the first Bush Presidency.
    There was a period of time when the Democrats controlled both
    Houses of Congress and the White House. That was 1993-1994.
    Then there were 6 years that Republicans controlled the
    Congress--1994-2000, and the Democrats controlled the
    Presidency. Then there were 135 days last year that Congress
    was controlled by Republicans, and the President of the United
    States, but only 135 days out of a 12-year period of time, if
    you want to use the 1990s plus now. And what has happened has
    happened on the watch of both Republicans and Democrats.
        I think that to say a President has been President 18
    months and this crisis before us is because of a ``permissive''
    attitude in the Bush administration towards business just
    doesn't hold water.
        I have a chart behind me. I hope I am very clear in making
    this more accurate than what I just said. The yellow is the 2
    years of the Bush administration going back to 1994, and the
    other color covers the Clinton administration. But let's forget
    about the Bush administration and the Clinton administration.
    Let's just realize what the facts are.
        In the case of Enron, it became public in the year 2001,
    but the restated earnings and the mischief went on all the way
    back to at least the beginning of 1997 because 1997, 1998,
    1999, 2000, and the first two quarters of 2001 were restated
    earnings.
        Adelphia: Half of 1998, all of 1999, all of 2000--before
    they were public in 2001--but restated earnings for all those.
        Go down to Xerox. It was found by the end of the year 2000
    everything that was done wrong in Xerox. The restated earnings
    of 1997, 1998, 1999, and 2000 came before there was ever a
    President George Bush.
        There were restated earnings for Rite Aid for 1998, 1999,
    and 2000. You can go down the list. What the chart says, better
    than I can say, is that it is not a permissive attitude by this
    President that has put us in this position. It is because of
    the lack of transparency that was implied in what the
    accounting profession and audit committees and boards of
    directors, who ought to be watching management, were doing, and
    the Securities Exchange Commission under the spirit of the 1933
    law of what they should have been doing. I suppose there are a
    lot of others as well.
        But now politics should be put to the side. We should not
    be making these statements. We ought to be correcting the
    situation so that people have confidence and so that the crooks
    who are running our corporations and doing these things that
    are evidenced here. When I say ``crooks running our
    corporations,'' I mean the ones who would do this sort of thing
    to their stockholders and to the country and to the economy--so
    that they cannot get away with that in the future.
        That is what this bill is all about. I complimented Senator
    Sarbanes and Senator Enzi about this bill. I think it would
    have been improved with my amendment. But, quite obviously,
    that is not the way the game is being played. So I am sorry
    that my amendment could not be put to a vote.
        The Presiding Officer. The Senator from Utah.
        Mr. Bennett. Mr. President, I have spent most of the
    afternoon in the Chamber listening to this debate, which I have
    found to be illuminating, occasionally informative. I want to
    do what I can to perhaps add to the information, if not to some
    of the light.
        I made reference, in my colloquy with the Senator from
    Delaware, to the decision that was made by the Congress back in
    1993 to put a limit on the amount of compensation that
    executives could receive in terms of traditional dollar salary.
    And the limit was $1 million.
        I remember some of the rhetoric that flew around this floor
    at that time, filled this Chamber--how terrible it was that
    people were being paid these outlandish salaries and that
    somehow it would benefit the people at the bottom of our
    economic ladder if there was a limit placed on those salaries.
    And so recognizing that they could not outlaw the salaries,
    Congress could do the next best thing--or, if I might say, the
    next worst thing--and say: All right, they can pay themselves
    these big salaries, but, by George, we will not allow a tax
    deduction for anything over $1 million.
        Then, recognizing that would probably produce all kinds of
    difficulty, Congress said: Except in a number of areas. And one
    of the areas of exceptions was that nonsalary compensation
    could exceed $1 million and be expensed if it were approved by
    the shareholders.
        In my view, this was a strong incentive to move towards
    stock options. After all, if you are running a public company
    and your services are worth $5 million or $10 million on the
    open market, you are not going to stay with a company that will
    only pay you $1 million in cash if a competing company will
    come along and offer you the $5 million or $10 million you
    think you are worth in the form of other compensation.
        So as we get lyrical around here about how terrible stock
    options are, and how stock options lead to all kinds of excess,
    we should remember that Congress, in its excess of enthusiasm
    for a form of wage and price controls, helped contribute to
    this situation.
        We do not like to have institutional memory. We do not like
    to be held accountable for our actions 4 or 5 years after those
    actions are taken. But, in this case, I think it is appropriate
    for us to remember the past while we are getting so exercised
    about what it is we plan to do in the future.
        If I might, Mr. President, be a little autobiographical for
    a moment, I would like to trace my own experience with stock
    options. I have reflected on this, and I think it has perhaps
    some value in this debate.
        I was working for the JC Penney Company in the mid-1960s. I
    was interested, when I went to work for the Penney Company, to
    find out that company had a tremendously innovative and
    singular form of compensation; that is, no one in the company
    was paid more than $25,000 a year--no one. The president, the
    chairman of the board, none of the vice presidents--no one was
    paid more than $25,000 a year.
        There was a pool of profits that was created, and in
    addition to your $25,000 salary, you were given points in the
    pool. It was assumed that the pool was divided up in such a way
    that any one point in the pool was worth $1. So when I went to
    work for the Penney Company in 1964, my salary was, as I
    recall, $10,000 a year. I was not important enough to get to
    the exalted $25,000 a year stage. But I was given 2,500 points
    in the pool, which meant that if the company met its earnings
    objectives, I would get another $2,500; in other words, my real
    salary would be $12,500.
        So I did everything I could to make sure that every point
    in the pool was, in fact, worth $1. I did what I could to turn
    off the lights. I did what I could to save expenses. I did what
    I could to drive sales so that the company would meet its goal.
        My memory is that in one of those years each point was
    worth 93 cents; that is, the company fell 7 percent short of
    its projection. And every one of us in the company who was
    having that kind of a salary circumstance felt that 7 percent
    hit. In the example I have just given, instead of getting
    another $2,500 at the end of the year, I would have that $2,500
    shaved by 7 percent. I would get my $10,000 salary, plus 93
    percent of the additional $2,500.
        There were stories in the Penney Company that were
    legendary about managers who would get transferred from one
    Penney store to another. At the time, as I recall, the limit
    was not $25,000, it was $10,000. So $10,000 per year was the
    maximum anyone in the company was paid. A store manager who was
    transferred from a relatively small store to a relatively large
    one in a large city was sure he was going to get a big raise.
    He got his first check, and it was for $10,000 a year. And he
    said: But my expenses are higher. I am running a store that is
    two or three times bigger. It doesn't matter; you get $10,000 a
    year. At the end of the year, when they added up the profits of
    that store, he got a bonus based on the profits of the store he
    was managing, and the bonus was about $100,000. Well, he had an
    obvious incentive to see to it that store was profitable.
        What does any of this have to do with stock options? That
    system that was followed by the Penney Company that helped
    drive its growth all those years--where compensation was tied
    to performance, not only your personal performance as in the
    case of the store manager I described but in the company's
    performance, as in my own case--that program was scrapped. We
    went to a more traditional kind of compensation. As part of the
    traditional kind of compensation, we had stock options.
        I got a little comfortable with the old system because I
    remember 1 year where each point in the pool was worth $1.23.
    The company did much better than it had anticipated, and I got
    a 23 percent upward kick in my compensation.
        I questioned: Why are we getting away from this because it
    seems to me this works?
        The answer was: Wall Street requires it.
        Well, that wasn't enough of an answer for me. I said: What
    do you mean Wall Street requires it?
        They said: The analysts at Wall Street have said to us,
    until you give stock options, we are not going to believe that
    you are serious about the future of your company because stock
    options are not tied to immediate profits. Stock options are
    tied to future profits. And until you put some of your
    compensation to your executives and key employees in the form
    of stock options, we will not believe that you believe the
    future of your company is as bright as you say it is. We want
    them to have a stake in the future.
        So as it was explained to me, in the scrapping of this
    unique compensation plan that I think the JC Penney Company was
    the only company in the country, if not the world, that
    followed it, in the scrapping of that plan, you had to adopt
    some form of stock options. So they did adopt stock options.
        I didn't stay around long enough to take advantage of them.
    I entered the Nixon administration in 1969 and gave up my
    vesting in a number of circumstances at the Penney Company.
    Frankly, I was a little nervous about that because I thought I
    had a bright future financially if I had stayed at the Penney
    Company. And again, as I say, at the end of the year, when they
    sent me the money that had been accumulating in my behalf
    during the part of the year I worked there, each point was
    worth $1.23. That said to me, once again, how much more money I
    would have had if I had stayed with Penney instead of coming
    with the Government. That is a separate issue. I will not go
    down that road any further. I am glad I made the decision I
    made. I probably would not be a Senator if I had not.
        The point is, the compensation of employees should be tied
    to the future and benefit and prosperity of the company, and
    stock options were created with that in mind. What we have seen
    them become, since 1993, when they were not available as part
    of an intelligent compensation mix, but they were made more
    valuable by tax treatment by the Congress making an accounting
    decision, what we have seen is that stock options have
    accumulated the bad name we have been hearing about here on the
    floor. I am not sure I agree with everything that has been said
    about how terrible stock options are, but I do recognize they
    have led to some excesses.
        In the New York Times, on July 12, there was an editorial
    signed by Walter Cadette, senior scholar at the Levy Institute
    of Bard College and retired vice president of J.P. Morgan. With
    a background at J.P. Morgan, in my view, he has a little bit
    more credibility than some of the people who write editorials
    for the New York Times. But he made the same point that has
    been going around the floor here in some of the rhetoric when
    he says:

        Options . . . hold out the promise of wealth beyond
    imaging. All it takes is a set of books good enough to send a
    stock price soaring, if only for a while. If real earnings are
    not there, they can be manufactured--for long enough, in any
    case, for executives to cash out. This, in essence, is what
    happened at Enron, WorldCom, Xerox--indeed, at quite a long
    list of companies.

        That is not congruent with the explanation about stock
    options I received back in the 1960s, when I had my first
    opportunity to participate in stock options in a Fortune 500
    company. That is something that is new, that has come along.
        So we are back to the fundamental question of this bill,
    which is, How do we account for the performance of a company in
    a way that will allow investors to make an intelligent judgment
    about the value of the company?
        That is the fundamental issue here. It is fundamental
    enough that I think I ought to repeat it: How do we account for
    the performance of the company in an accurate enough manner to
    allow investors to make an intelligent decision about the
    future of that company?
        Some will say to us: That is a very easy question to
    answer. Congressman Gephardt has been quoted in the press as
    suggesting that accounting is a science. It is a simple matter
    of black and white, of adding 1 and 1 and getting 2.
        That is not the case, however much we would like to believe
    that is the case. Yes, when you are talking about some aspects
    of accounting for a company's performance, it is a simple
    matter of adding up the numbers and reporting them. But in a
    company as complex as today's modern industrial corporation,
    there are a whole series of judgment calls that must be made.
    It is not just a matter of adding up all of the sales. It is
    not just a matter of adding up all of the costs.
        Back to my example of the JC Penney Company, this is a
    matter of a judgment call being made. What is the judgment of
    the value of this company if it does not trust its executives
    enough with stock options?
        Analysts on Wall Street who are trained and experienced
    came to one judgment call: that the Penney Company was not
    worth as much without stock options as it would be with them--
    nothing whatever to do with the bottom line, nothing whatever
    to do with how many socks we sold or how many shoes we sold or
    how many shirts we sold. It was a judgment call on the value of
    the company based on accounting decisions.
        Are we going to account for compensation strictly on the
    basis of the Penney Company's system or are we going to make a
    judgment call based on stock options?
        Well, the Penney Company did what it believed it had to do
    under those circumstances and, of course, went forward in its
    history.
        The point here is that there are judgment calls to be made
    every day in every circumstance with respect to accounting, and
    they will determine how the public, the investing public, will
    respond to the company that makes them.
        That raises the question of what should those calls be and
    who should determine what those calls should be.
        There is a term we use. It is called GAAP. It stands for
    generally accepted accounting principles. The very phrase
    itself defines what it is we are talking about. If we want to
    make an accounting decision as to what something is worth, we
    should make the decision within the parameters of GAAP; that
    is, we should make the decision on the basis that is generally
    accepted.
        Let me give an example of what happens when you go outside
    the basis of what is generally accepted accounting principles.
    I was involved with an investor and he put out appropriate
    balance sheets, accounting information, profit and loss
    statements, and so on. He got a very angry call from one of the
    subinvestors. This was the kind of man who would sell shares in
    his overall project primarily to doctors and dentists.
        He said to me once:

        I will not sell shares to lawyers.

        I said:

        Why not? Isn't a lawyer's money just as good as a doctor's
    or a dentist's money?

        He said:

        No, because lawyers are trained to find problems and I
    don't want sub-investors who spend all of their time looking
    for problems.

        Well, he got a phone call from a physician who said to him:

        I have looked at your financial information and you are
    lying to me.

        He said:

        What do you mean I am lying to you?

        He said:

        It is right here in your documents. You said this
    particular venture made X hundreds of thousands of dollars last
    year. Now you have given me your financial statements and I
    have found out you didn't make a penny.

        The man said:

        What are you talking about?

        He said:

        I have it right here. Here is a list of your assets and a
    list of your liabilities and they match each other to the exact
    cent. You didn't make any money.

        Well, generally accepted accounting principles say that a
    balance sheet always has to balance, that the number on one
    side and the number on the other side must equal each other to
    the penny. This man did not understand generally accepted
    accounting procedures, he wanted to keep books a different kind
    of way, and he was misled. The solution, of course, was to
    educate him on what those generally accepted accounting
    procedures ought to be. Once he generally accepted what those
    procedures were, he could read the profit and loss statement,
    the balance sheet, and he could discover that the man, in fact,
    was not lying to him and that, in fact, the venture had made
    several hundreds of thousands of dollars that year.
        Now, let's come to Wall Street, let's come to Enron, let's
    come to all of the things that we are talking about here. One
    of the things we have heard in many of the hearings that I have
    attended on this subject is that if you were a sophisticated
    analyst of financial statements, you could, in fact, find all
    of the information that you needed in the footnotes of the
    various financial statements that were published. You did not
    need the kinds of disclosure that this bill is calling for.
        Well, I examined that, listened to that testimony, listened
    to the people who made that point, and came to the conclusion
    that they are right. If you are sophisticated enough to be able
    to go through every single footnote, examine every single side
    comment, and plow through all of the boilerplate that makes up
    a standard financial release, you could create an accurate
    picture of that corporation--except in those cases where there
    was outright fraud. In my opinion, Enron was a case of outright
    fraud, not a case of hiding things in footnotes; it was a case
    of lying.
        Quite frankly, there is nothing we can do in this Chamber,
    or anywhere else in a legislative forum, to stop people who
    determine that they are going to lie, who are determined they
    are going to commit fraud. That will happen no matter what kind
    of a bill we pass. We can raise the penalty and thereby
    discourage it a little more--and there are proposals to do
    that--but we cannot stop it. If someone is determined he is
    going to break the law, and he thinks he can lie and get away
    with it, he will still do it regardless of the bills that we
    pass here.
        But what we can do, what we should do, and what this bill
    is crafted to do is to make it easier for the ordinary investor
    to understand what a company is worth, make it so that the
    generally accepted accounting principles conform with generally
    understood activities with respect to the business world.
        The question is, how can we establish accounting rules that
    will make it possible for the ordinary investor to understand
    what is going on and not restrict understanding to those who
    can read the footnotes, who can decipher all of the
    boilerplate. I don't think we will ever get there in a perfect
    world. Life being what it is, with the lawyers coming in and
    requiring careful terms of art to be spelled out, we will never
    get to the point where someone who does not have any kind of
    legal understanding of the terms of art can read this as easily
    as he or she could read Harry Potter. However, we can move in
    that direction, and I feel this bill does so move.
        The one thing that we should be most careful of, however,
    is to avoid having Congress set the accounting rules. Why? If
    Congress sets the accounting rules, it will--to use a phrase we
    use here derisively sometimes--take an act of Congress to turn
    that around. And having set the rules, Congress is very
    reluctant to come back in an act of Congress and change them.
    But if the rules are set by the regulatory bodies over which
    Congress exerts some oversight responsibility, they can be
    changed much more easily as more information comes along and as
    people begin to discover that what they did previously maybe
    doesn't make as much sense.
        I offer as exhibit A Congress's action to outlaw the
    deductibility of cash compensation above a million dollars--
    something that, in retrospect, now looks like it was a pretty
    stupid thing for us to have done. But we have done it, and the
    chances of trying to get a bill through that would undo it are
    very slim. If we stay out of the business--we in Congress--of
    making these kinds of accounting decisions, we will be better
    off, the economy will be better off, more people will keep
    their jobs, et cetera.
        Let me close on that particular subject with that
    particular idea in mind, and that is that Congress from time to
    time wants to step into the marketplace, repeal the law of
    supply and demand, and assert our judgment over the judgment of
    the marketplace. I have said many times, and will say many
    times hence, if I could add to what we have carved in marble
    around here, I would say: ``You cannot repeal the law of supply
    and demand.'' But we keep trying to do it with wage and price
    controls. We keep trying to repeal the law of supply and
    demand.
        We tried to do it in 1993 when we said we will do something
    about the excessive compensation of executives. We won't say
    that the marketplace and the law of supply and demand will
    determine what people get paid; we will legislate it. We will
    legislate it with tax policy. We will do some social
    engineering through tax policy. We keep trying to do that all
    the time, and it almost always produces a perverse effect.
        Let me address this question of overwhelmingly big salaries
    and compensation--as if there was something really evil about
    that, really corrupting about that. Maybe there is, in terms of
    the impact that that sort of compensation has in the lives of
    an individual, but it is the marketplace at work.
        Let me give an example with which I think everybody might
    be familiar. I am not talking about Jack Welch, the CEO of GE.
    I am not talking about Ken Lay at Enron. Let's talk about
    somebody with whom most people can identify. Let's talk about
    Wayne Gretzky.
        Wayne Gretzky has been called, accurately in my view, the
    greatest hockey player who ever lived. Along with that, Wayne
    Gretzky is the highest paid hockey player who ever lived. At
    the time the decision was made by the hockey team that brought
    Wayne Gretzky into the United States and paid him an incredible
    sum of money, there was a great hue and cry: How can one
    individual be worth this much money? For what? Knocking a solid
    piece of whatever hockey pucks are made out of around on the
    ice, for that he is worth $20 million, $30 million, $50
    million--whatever it was--a year?
        The owner of the team came out of some obscurity long
    enough to say: Yes, he is worth that much money, and let me
    explain to you why. Then he outlined what the ticket sales for
    his team were the year before he hired Wayne Gretzky and what
    the ticket sales for his team were the year he announced the
    hiring of Wayne Gretzky. The number was several times the total
    amount that Wayne Gretzky was being paid.
        The owner said: On a percentage basis, he is a bargain. He
    is a steal at the price I got him.
        These numbers are representative rather than absolute, but
    they stick in my memory that they were paying Gretzky something
    like $40 million or $50 million and the increase in ticket
    sales was going to be something like $120 million to $150
    million.
        The owner said: If I had to, I would pay him twice as much
    because I am getting the benefit.
        People say: But that is measurable. Michael Jordan did the
    same thing for the Washington Wizards. We can figure that out
    with accounting. But what these chief executive officers are
    being paid is obscene.
        If you are a shareholder of General Electric, Mr.
    President, and you looked at what Jack Welch, the CEO of
    General Electric, did with that company during the time he had
    it in his stewardship, would you look back on that total period
    and say we paid Jack Welch too much money? Or would you look
    back on the amount of the value of General Electric that was
    generated under his stewardship and say he was a bargain; he
    was a steal; we could have paid him twice what we paid him and
    still come out well ahead?
        You say: But look at all of the executives who flew their
    companies right into the sea. Look at the executives who
    destroyed their firms. Yet they got this same amount of money.
        If I may go back again to the sports world, have we not
    seen sports teams pay very large salaries, responding to the
    law of supply and demand, for coaches who had losing seasons?
    For quarterbacks who ended up being on the waiver list? Those
    of us in the Washington, DC, area have had a lot of experience
    with quarterbacks. Does that mean we are going to stop trying
    to get the right quarterback for the Washington Redskins by
    saying we will pay them average salaries in the National
    Football League so that there will not be any more of these
    obscene salaries and failures?
        Several things will happen if the Washington Redskins take
    that point of view. No. 1, they will start to lose even more
    than they have lost in the past. And, No. 2, the fans will stop
    coming and the savings that you will make in buying a
    quarterback that you can get for $400,000 or $500,000 a year,
    compared to the one that you are gambling $10 million or $20
    million on will all disappear as the ticket sales fall off, the
    television revenue disappears, and people do not want to come
    anymore.
        Yes, there have been corporate executives who have been
    vastly overpaid. There have been CEOs who have been hired on
    the basis of their reputation, just as football coaches who
    have been hired on the basis of their reputation, who, to lure
    them into the company, have been given great packages and then
    failed to deliver. But there are also the Jack Welches of this
    world who have turned out to be bargains no matter how much
    they were paid.
        Who should make the decision as to how much they should be
    paid? The answer is, The marketplace should do it. The law of
    supply and demand should do it. Someone who has demonstrated
    that he or she has the capacity to build, maintain, and expand
    a corporation with tremendous value for the shareholders is
    someone who can demand very high salaries because he or she is
    in very short supply.
        We can complain all we want to about the social inequity of
    a CEO who is earning $20 million, $30 million, $40 million a
    year and someone who is working in that company for minimum
    wage, but it is the same principle as saying: Look at the
    difference between Wayne Gretzky down on the ice earning $20
    million, $30 million, $40 million a year and someone selling
    hot dogs in the stands. If Wayne Gretzky were not on the ice,
    there would not be anybody in the stands to buy the hot dogs.
    Wayne Gretzky and his skills are in much shorter supply than
    someone who can stand in the stands and sell hot dogs.
        We should not in our frenzy in this whole debate get so
    carried away with our desire to deal with those who have
    damaged the system by their failure to live up to their
    responsibilities that we, once again, make any statements that
    would cause us to try to repeal the law of supply and demand.
        I see my colleagues are seeking recognition. I have carried
    on long enough. I leave with this one last thought: If we are
    going to deal with these issues, we should deal with them in
    the way this bill deals with them and not in the proposal that
    Congress itself should set accounting standards or should set
    wages or caps or compensation.
        Past history tells us Congress can act in a hurry but
    repent at great leisure.
        Mr. Gramm. We have a unanimous consent request and a
    request for the yeas and nays that I want to make while we have
    at least a handful of Members here. I ask for the yeas and nays
    on the Edwards amendment.
        The Presiding Officer. It is not in order to request the
    yeas and nays.
        Mr. Gramm. I ask unanimous consent that it be in order to
    request the yeas and nays on both pending amendments.
        The Presiding Officer. Is there objection?
        Without objection, it is in order to seek the yeas and nays
    at this point.
        Mr. Gramm. I ask for the yeas and nays on the pending
    Edwards amendment.
        The Presiding Officer. Is there a sufficient second?
        There is a sufficient second.
        The yeas and nays were ordered.
        Mr. Gramm. I now ask for the yeas and nays on the Carnahan
    amendment.
        The Presiding Officer. Is there a sufficient second?
        There is a sufficient second.
        The yeas and nays were ordered.
        Mr. Gramm. The Democrat floor leader had a unanimous
    consent request he wants to propound.
        Mr. Reid. Mr. President, we are in the process of working
    that out now. I think we will be able to do that later.
        Several Senators addressed the Chair.
        The Presiding Officer. The Senator from Nevada.
        Mr. Ensign. Mr. President, I ask unanimous consent that I
    be allowed to speak for up to 10 minutes as in morning
    business, with the time consumed counting against the
    postcloture debate.
        The Presiding Officer. Without objection, it is so ordered.
        The Senator from Nevada.
        Mr. Reid. Mr. President, it is also my understanding that
    the Senator from Nevada is going to yield an hour to the
    manager of the bill; is that right?
        Mr. Ensign. If you require the 50 minutes that will be left
    against.
        Mr. Reid. Or whatever time is left.
        Mr. Ensign. Yes.
        Mr. Reid. Mr. President, I understand he has a right to do
    that; is that true?
        The Presiding Officer. The Senator has a right to yield
    time. The manager of the bill may receive up to 44 additional
    minutes. The Senator from Nevada.
        Mr. Ensign. Mr. President, at the end of my remarks, I will
    yield whatever time the Senator from Texas can receive.
        Mr. President, I want to talk about something a little
    different than what we have been talking about today, although
    I have very strong feelings about the bill and think that both
    the managers of the bill, along with Senator Enzi from Wyoming,
    have done a terrific job in addressing some very serious
    problems out there. I still believe there are a few problems
    with the bill we need to clean up in conference.
        I do think the overall legislation has some positive
    reforms that must be implemented to try to restore some
    confidence back in the investing public.

                               PRESCRIPTION DRUGS

        Mr. Ensign. Mr. President, what I want to talk about is
    something we are going to be dealing with later this week--as
    early as tomorrow from what I understand--and that is the whole
    idea of prescription drugs within Medicare. Earlier today,
    Senators Hagel, Gramm, Lugar, Inhofe, and I all introduced a
    new prescription drug bill. It is the compilation of work
    mainly that Senator Hagel and I have been doing for the last
    couple of years. We think it is a proposal that deserves the
    attention of our colleagues, and I encourage them to study this
    proposal.
        I want to start by reading an e-mail I received from a
    senior citizen back in Nevada. This e-mail came in at 11:21
    p.m. Pacific standard time, so obviously this person was up
    late at night thinking about the whole issue of prescription
    drugs. Let me read it:
        I urge you to ponder very honestly the proposed
    prescription coverage with Medicare. Many social problems arise
    due to the fact that many persons who need medication to
    maintain some sort of life existence are not able to purchase
    the needed medications. Must we continue to choose housing or
    our medications? Please step back and consider if an elderly or
    disabled person in your own family were in this precarious
    situation. Would you not step up to the moral plate and fight
    to find funding for Medicare covered prescriptions?
        I think this person summed up very well what a lot of
    seniors are feeling: They are having to choose sometimes
    between the type of food they eat and prescription drugs;
    sometimes between whether they can turn their air-conditioner
    on in the summertime or their heat on in the wintertime and
    prescription drugs; sometimes between rent and prescription
    drugs.
        There are several proposals, and I commend the people who
    have been working on their proposals, but, frankly, the reason
    we decided to introduce this bill is that some of the other
    bills, especially when one looks into the outyears, are so
    costly that they literally could bankrupt the Medicare system
    in and of itself.
        Our bill does a few things. First, it is available to every
    beneficiary, and it is also available faster than any of the
    other prescription drug proposals. Our bill can be implemented
    as early as January 1, 2004, whereas the earliest the other
    proposals can be implemented is 1 full year later.
        Our bill is also the most affordable bill, especially to
    the taxpayer. We are waiting for the final score from CBO, but
    we think it is going to come in somewhere around $150 billion
    over the next 10 years. The next cheapest proposal, that we are
    aware of, is around $370 billion, and when one looks at the
    full cost of a 10 year program, other programs can be up to a
    trillion dollars.
        A trillion dollars is not something this country can
    afford, especially under current economic conditions, and
    especially when we think about young people who would like to
    see Medicare as a benefit to them someday.
        So we must enact a reform that not only America can afford
    but also senior citizens can afford, and we think we have come
    up with that balance. Basically, the way the program would work
    is, every senior on a voluntary basis would be able to get a
    prescription drug discount card. For a $25 annual fee, they
    would sign up and get this prescription drug discount card.
    They would then go buy their prescription drugs, and all
    seniors would save because of volume discount buying. We would
    use the private sector to do this. They would save, on average,
    25 to 40 percent on their drugs. That is a huge savings right
    upfront that every senior could achieve.
        On top of that savings, seniors up to 200 percent of
    poverty would next spend, on average, about $100 a month out-
    of-pocket; then after that, other than a very small copay, the
    Federal Government would cover the rest of their prescription
    drug costs.
        This is what seniors are looking for. In my campaign in the
    year 2000, I took this plan all over the State of Nevada and
    talked to low-income, moderate-income, and higher income
    seniors groups about it. I told them that people who are in the
    lower income bracket are going to get most of the benefit, and
    for people in the higher income bracket, it is going to cost
    them more money, as it should.
        In some of the other programs, no matter whether one is a
    lower income or higher income senior, they basically are
    treated the same. I personally do not think Ross Perot or
    somebody in his income category should be treated the same as
    somebody who makes $15,000 a year. There should be some
    difference. Under our bill, there is a great difference in the
    way those two categories of people would be treated.
        The reason our bill is less costly to the taxpayer is one
    simple fact: All the other bills give a percentage of first
    dollar coverage. Whether it is 50 percent or whatever the
    coverage, after a very small deductible, they all start
    covering right away. Our bill says the senior is going to pay
    about the first $100 a month out of pocket, and then after
    that, our coverage kicks in.
        About 50 percent of the seniors do not have $1,200 worth of
    prescription drug costs per year, so about half the seniors,
    other than the discounts they will get because of the
    prescription drug discount card, actually will not use it. But,
    frankly, most seniors can afford about $100 a month for
    prescription drugs. It is for that diabetic patient or that
    heart patient or that cancer patient who has maybe about $500,
    or $300, or $400, or whatever it is, a month that they are
    paying in current prescription drug costs. These are the people
    that really cannot afford their prescription drugs, and our
    bill helps that person much more than most of the other plans.
        The reason our bill saves so much money is that we keep the
    patient accountable for the drugs they are getting. They do not
    have somebody else paying for it and as they get the benefit.
    That is one of the biggest problems we have with our current
    health care system: There is no accountability with patients.
    They are receiving the benefit regardless of the cost, and so
    they do not think about shopping because somebody else is
    paying the bill.
        We do not have market forces working in the health care
    field today, and if we enact a prescription drug benefit
    without utilizing market forces, someday we are really going to
    regret it because we will have severely out of control costs.
        The bill we have introduced, we believe, is more fiscally
    responsible and targets most of the benefit for those who truly
    need it the most. We can enact it a lot more quickly than some
    of the other programs, and it is permanent. It is because of
    those factors that we believe this bill is the bill that our
    colleagues should take a look at supporting.
        We would be happy to meet with anybody to talk to them
    about the bill and possibly about cosponsoring the bill. Do not
    be turned off because one political party may be offering one
    bill and the other party offering another bill. We are offering
    an alternative to either of those bills, and we think this
    bill, with its fiscal responsibility to the taxpayer, is the
    bill that people should support.
        In closing, I look forward to engaging in a meaningful
    debate on prescription drugs after we deal with this accounting
    reform issue--and this issue is so important, and I see my
    friend from Wyoming who has done so much work on the bill, and
    I applaud him and the others who have worked on this bill. But
    later in the week as we are debating this prescription drug
    benefit proposal, we need to take a serious look and not play
    politics because seniors cannot afford for us to play politics
    with the prescription drug issue. We need to work together in a
    bipartisan, rather, in a nonpartisan fashion, so seniors can
    get the help they so deserve.
        I ask unanimous consent that under the provisions of rule
    XXII, I may yield whatever time I can yield back to Senator
    Gramm. I understand it is 44 minutes, and I yield that amount
    of time to Senator Gramm.
        The Presiding Officer (Ms. Cantwell). The Senator has that
    right.
        The Senator from Georgia.
        Mr. Kennedy. Will the Senator yield?
        Mr. Cleland. I am happy to yield.
        Mr. Kennedy. We have had two speakers from the other side.
    I ask unanimous consent to follow the Senator from Georgia.
        The Presiding Officer. Without objection, it is so ordered.
        The Senator from Wyoming.
        Mr. Enzi. Reserving the right to object, and I will not
    object, some of us have been on the floor all this time waiting
    to speak, as well. We hope for a chance to speak before we
    reach the end of the day.
        I will not object.
        The Presiding Officer. The Senator from Georgia.
        Mr. Cleland. Madam President, I ask recognition to discuss
    my amendment No. 4236. This amendment addresses the
    accountability of corporate officers and directors. I strongly
    support the legislation before us which addresses the critical
    need to create an environment of accountability within
    corporate America. We need to send a strong message to
    corporate executives that the days of living large while lying,
    cheating, and stealing from the American people are over.
    Control of a company certainly has its advantages, but it also
    carries important obligations and duties. My amendment would
    address a situation like Enron where officers cashed in on
    bonuses, severance packages and millions of dollars in stock
    sales as they saw the light of the train coming through the
    tunnel. Unfortunately for thousands of Enron employees and
    investors, they had no similar warning and were not able to
    bail themselves out before many lost not just their jobs, but
    their life savings as well. My amendment would make sure that
    officers and directors who know what is happening, who know
    that financial reports are being manipulated, can't cash in on
    this knowledge while leaving employees and investors holding
    the bag. It is the duty of officers and directors to know what
    is happening in the corporation and to blow the whistle when
    they know there is wrongdoing.
        In the case of Enron, 10 executives or directors joined CEO
    Ken Lay and Chief Financial Officer Andrew Fastow in siphoning
    off company proceeds and reaping millions of dollars when they
    sold their Enron shares high. Together these 12 individuals
    made stock profits totaling more than $30 million before the
    company took a public nose dive at the end of last year. These
    corporate high rollers were reaping huge profits at the same
    time thousands of hard working Americans were losing more than
    a billion dollars in retirement savings, including $127 million
    in lost retirement savings in my home State alone by teachers
    and State employees.
        Corporate greed, should not be rewarded. The underlying
    bill requires that when a corporation has to file a restated
    financial report because of misconduct in the original report,
    the CEO and CFO have to give back any profits they have made
    from bonuses and stock sales for a year after the original
    report. My amendment would expand on the bill by calling into
    account all officers and directors who know about the
    misconduct in filing the financial report and through that
    knowledge abuse the company's trust and the trust of their
    employees. It would also mandate that officers and directors
    who have knowledge of wrongdoing in their financial reports
    would not only have to give up bonuses and profits but also
    their severance packages. Why should someone like Jeff Skilling
    get a parachute as he bails out of a disaster he helped to
    create?
        This amendment, my amendment, deserves support. It is
    endorsed by Arthur Levitt, one of this Nation's most
    distinguished financial authorities. It is high time we call
    corporate executives on the carpet and hold them accountable.
    It is time we create an atmosphere that encourages responsible
    behavior and restores the confidence of the American people in
    the economy of this country.
        The Presiding Officer. Under the previous order, the
    Senator from Massachusetts is to be recognized.
        Mr. Kennedy. I am happy to yield.
        Mr. Reid. I will take a couple of minutes.
        Mr. Kennedy. I guess I just yielded the floor.
        I yield to the Senator and ask recognition afterwards.
        Mr. Reid. We have had some very long speeches by those on
    the other side and I thought it appropriate we respond.
        The ranking member of the Finance Committee had all these
    charts indicating that all the problems were not the problems
    of this administration. The fact is, we realize there is a lot
    of blame to go around. With do not try to whitewash this issue.
        The fact is, the President of the United States appointed
    the SEC Commissioner, who stated in the hearings he wanted a
    friendlier, a more gentle Securities and Exchange Commission.
        That statement speaks for itself.
        We also have to understand that actions speak louder than
    words. What I mean is, we have a Federal Government today, this
    administration, that is basically run like corporate America.
    That has to change. That is what this legislation is all about.
        When there is a situation where the President of the United
    States is being written up in editorials all over the country
    and news articles throughout the country over his dealings with
    stock, borrowing money that basically he did not have, to pay
    back the principle until you sell your stock--no one else gets
    deals like that. The commentators are looking at that, as they
    should. Of course, the dealings that the Vice President had
    with Halliburton, we would like to know more about that. But
    the Vice President is treating that like he treated his energy
    task force: in complete secrecy, contrary to how we should be
    running this Government.
        I believe we have a situation that cries out for passing
    this legislation as quickly as possible. This administration
    must step forward and recognize they are part of the problem,
    until they start talking about supporting this legislation, as
    I understand the President did today. I think that is
    wonderful. I understand he is going to help us get this through
    conference. I think that is important. I would like to see it
    before the August recess. It is important this legislation move
    forward.
        Actions speak louder than words. This administration has to
    do more than talk about what needs to be done. They have to
    work with us in solving the problems of corporate America
    today.
        The Presiding Officer. The Senator from Massachusetts.
        Mr. Kennedy. Madam President, there are many important
    provisions in the legislation before the Senate to increase
    corporate accountability. I had hoped to offer an amendment to
    make workers' retirement plans whole again when the corporate
    executives cheat.
        After the collapse of Enron--the largest bankruptcy in U.S.
    history--the President and many Republicans in Congress
    suggested that it was an isolated example of corporate
    wrongdoing. Since that time, the Nation has witnessed a
    continuing series of corporate scandals which have demonstrated
    otherwise.
        The lack of corporate responsibility in the United States
    has undermined the credibility of our markets and devastated
    the retirement savings of millions of Americans. This
    widespread abuse of corporate power has also jeopardized our
    Nation's economic recovery and hurt the legitimacy of our
    fundamental institutions. We must take bold action this week to
    ensure that corporations are made accountable and that workers
    and investors are protected against these abuses.
        In the past month, we have seen a jury criminally convict
    the Arthur Andersen accounting firm for engaging in the
    obstruction of justice to cover up the Enron debacle. We have
    seen WorldCom admit that it wrongly reported its true financial
    condition by nearly $4 billion. Just last week, the Wall Street
    Journal reported that Merck recorded $12.4 billion in revenue
    from a subsidiary that it never actually collected.
        In response to these scandals the President gave a speech
    last week, which the White House likened to the words of former
    President Teddy Roosevelt. Unlike our Nation's great trust-
    buster, the President failed to lay out a comprehensive plan to
    restore America's confidence in our economic system.
        Hard-working Americans and their families have suffered
    immensely as a result of these scandals and the failure of the
    Administration to take decisive action. Workers have lost their
    jobs, their health benefits, and their retirement savings.
    Today, over 47 million workers rely on 401(k) plans and the
    stock market for retirement security. We can't wait for the
    next report of corporate fraud, the next round of layoffs, and
    retirement losses before we take serious action.
        This wave of corporate scandals is undermining the
    confidence of investors in the U.S. economy. Mutual fund
    investors have lost about $700 billion in just the last 15
    months. In May of this year, new investments in stock funds
    declined by nearly two-thirds from the previous month. As
    foreign investors lose confidence in the transparency of U.S.
    corporations, these investors are pulling out of the U.S.
    market and the value of the dollar is now falling against
    foreign currency. With an unemployment rate of 5.9 percent,
    America's workers can ill afford to have their economic
    prospects dimmed by corporate corruption.
        Its time--in fact its long past time--to pass tough new
    laws to prevent future abuses of corporate power. We must
    reform our accounting system, enact criminal penalties for
    corporate wrongdoers, and pass new protections for workers.
        Senator Sarbanes' accounting bill is critical to reforming
    our public accounting system and ensuring transparency and
    accountability for corporations in the United States. The
    legislation creates an independent oversight board; it
    restricts the non-audit services than an accounting firm can
    provide to the public companies that it audits; it holds
    corporate executives responsible for the accuracy of corporate
    financial statements; it requires corporate insiders to report
    stock sales and corporate loans to the SEC; and it provides
    additional resources to the SEC to improve its investigation
    and enforcement capabilities. We all owe a debt of gratitude to
    our colleague, Senator Paul Sarbanes, for shepherding this
    legislation through the Banking Committee and bringing it
    before the Senate.
        In addition to these accounting reforms, we must hold
    corporate executives accountable when they mislead workers and
    undermine their retirement security. At Enron, executives
    cashed out more than a billion dollars of stock while Enron
    workers lost nearly a billion dollars from their 401(k)
    retirement plans. Thousands of Enron workers lost virtually all
    of their retirement savings. Enron executives got rich off
    stock options even as they drove the company into the ground
    and systematically misled workers about the true financial
    state of the company. Ken Lay now has a pension of nearly half
    a million dollars a year for life. Many Enron workers have
    nothing at all.
        These are all statements that were made by Mr. Lay. Ken
    Lay's lies encouraged workers to buy Enron stock at $49. He
    ``never felt better about the prospects of the company.'' He
    predicted to employees a ``significantly higher stock price,''
    saying it was ``an incredible bargain'' as it was going down.
    Mr. Lay has a pension of nearly half a million dollars a year.
    At WorldCom, the workers lost more than half of their
    retirement savings as the stock dropped from $60 to just 6
    cents. Workers across the country also lost big as a result
    corporate wrongdoing at WorldCom. The brave firefighters and
    police officers of New York City lost $100 million from their
    pension fund. Over 20,000 workers have been laid off in the
    last few weeks because of the actions of WorldCom executives.
    Yet, those same executives made out like bandits. Former
    WorldCom CEO Bernie Ebbers is guaranteed a million and a half
    dollars for the rest of his life while WorldCom workers face a
    bleak financial future.
        Sadly, Enron and WorldCom are not just isolated tales of
    corporate greed that hurt America's workers. At Kmart, 22,000
    workers were laid off. At Lucent, 16,000 workers were laid off.
    At Xerox, over 13,000 workers were laid off. At Tyco, almost
    10,000 workers were laid off. At Global Crossing, over 9,000
    workers were laid off.
        These corporate debacles reveal a much deeper crisis of
    corporate values. In America, people who work hard all their
    lives deserve retirement security in their golden years. It is
    wrong--dead wrong--to expect Americans to face poverty in
    retirement after decades of working and saving.
        For far too long, corporate executives have been obsessed
    with their own compensation instead of the long-term health of
    the companies they lead. Executives, like those at Enron and
    Wordcom, should not put their own short-term gain ahead of the
    long-term interests of workers and shareholders. They must not
    be rewarded for doing so. At Enron, workers were systematically
    misled by Enron executives about the financial situation of the
    company. For years, Enron, like many other companies, pushed
    its workers to buy company stock with their own 401(k)
    contributions.
        Until the bitter end, Enron executives continued to promote
    Enron stock to workers in a series of e-mails. On August 14,
    Enron CEO Kenneth Lay told workers that he ``never felt better
    about the prospects for the company.'' On August 27, Lay
    predicted to workers a ``significantly higher stock price.''
    And on September 26, Lay called Enron stock ``an incredible
    bargain.'' Even as they promised the moon, Lay and other
    executives were cashing out their stock for a billion dollars.
        If Enron and WorldCom scandals teach us anything, it's that
    we must stop rewarding corporate misbehavior.
        Our amendment--it is cosponsored by Senator Gregg of New
    Hampshire--makes it clear that executives who give workers
    misleading information about the company stock in their 401(k)
    plans face serious penalties. The amendment is the civil law
    parallel to the Leahy criminal provisions, which punish
    executives for defrauding investors. The amendment is also the
    ERISA civil law parallel to the Biden amendment, which
    increases the ERISA criminal penalties. When executives lie and
    mislead workers about company stock, they must face real
    penalties.
        Under current pension law, Enron executives, like Ken Lay,
    and Arthur Anderson, cannot be held responsible for workers'
    losses in their 401(k) plan. The amendment makes a corporate
    ``insider''--an officer or director or the independent public
    accountant--responsible under pension law if the insider
    misleads workers about the company's stock.
        America's workers need this amendment to hold Ken Lay and
    other executives engaged in wrongdoing accountable. The
    amendment empowers workers to seek restitution when executives
    knowingly abuse workers' pensions. If workers lose their
    retirement savings due to deliberate corporate mismanagement,
    then they should have the right under our laws to hold those
    top executives accountable in a court of law, and recover what
    they lost. This right could make the difference for a family
    between an impoverished retirement and a comfortable retirement
    that they earned.
        The economic health of our Nation depends on reigning in
    the abuses of corporate power which we have witnessed in recent
    months. Restoring the credibility of accounting standards, as
    the Sarbanes bill would do, is critical to restoring confidence
    in our markets. At the same time, we must also restore basic
    fairness to our system.
        When corporations like Enron fail because of executive
    wrongdoing, corporate executives get golden parachutes but
    workers are left with a tin cup when it comes to their
    retirement. Corporate criminals must be made to pay for their
    misdeeds.
        We see from this chart what has happened: Ken Lay, $457,000
    a year for life, retirement savings were decimated, 4,200
    layoffs; former WorldCom CEO, Bernard Ebbers, $1.5 million a
    year, retirement savings decimated, 20,000 layoffs; Richard
    McGinn, $12.5 million lump sum pay for Lucent, retirement
    savings decimated, layoffs for 16,000; Charles Conway, $9
    million lump sum pension, retirement savings decimated 22,000
    layoffs.
        This has to stop. Today we have a critical opportunity to
    protect workers and investors against future abuses of
    corporate power. We must not let these hard-working Americans
    down.
        Madam President, I ask unanimous consent to temporarily lay
    aside the pending amendment in order that I may offer the
    Kennedy-Gregg amendment, which I send to the desk at this time.
        The Presiding Officer. Is there objection?
        Mr. Gramm. I object.
        The Presiding Officer. Objection is heard. The Senator from
    Massachusetts retains the floor.
        Mr. Kennedy. Madam President, I have heard objection. We
    tried to get this amendment up during the period of the last
    week and were closed out. It is a simple amendment. It is an
    amendment that can do more to protect workers' interests than
    many other proposals. I think we ought to have some
    accountability for those who willingly mislead, willingly and
    knowingly mislead workers, and then benefit from insider
    information.
        It would just give them a cause of action, a specific case,
    no punitive damages. It would be a factual situation which
    would have to be decided in the courts of law. But it does seem
    to me to offer a real meaningful opportunity to protect workers
    and the savings of workers from the kind of gross abuse we have
    seen currently here in the Senate.
        Mr. Dorgan. Madam President, will the Senator yield for a
    brief question?
        Mr. Kennedy. I am glad to yield for a question.
        Mr. Dorgan. Madam President, the Senator from Massachusetts
    has just propounded a unanimous consent request on an amendment
    that makes good sense to me, and it certainly should be added
    to this bill. I assume it is a germane amendment. We are
    postcloture. At the very least, he should have gotten a vote on
    the amendment. But I wonder if the Senator from Massachusetts
    knows that this has gone on all afternoon. I offered an
    amendment a couple of hours ago that was simple and germane. It
    should have had a vote. It said that if the CEOs and directors
    of a corporation waltz out the door with millions of dollars of
    bonuses, stock options, and incentive pay, and then the company
    goes bankrupt, they have to give it back. I couldn't get that
    amendment up for a vote because of the same objection.
        I wonder if the Senator from Massachusetts might conclude
    from this that the things here in the final hour which are
    germane have a right to be considered and heard on behalf of
    the workers and the shareholders and the folks who didn't get
    rich but the folks who lost everything. I wonder if there is
    not a pattern here that the Senator from Massachusetts sees and
    that others see to shut down those amendments and protect the
    folks at the top while the folks at the bottom lost everything.
        Mr. Kennedy. Madam President, this amendment is relevant.
    But under the strict rules of the Senate, it would not be
    considered germane, although I think a commonsense evaluation
    or review of the amendment's purpose and what the underlying
    bill is about would certainly appear to I think most people to
    be an important strengthening provision if we are interested in
    corporate responsibility and protection for workers. It is
    certainly relevant, but under the technical rules it is not
    germane.
        But I think anyone who knows what this bill is really all
    about understands what is happening in these circumstances.
    This would certainly be a very strengthening provision in the
    underlying provisions. We were unable to get the opportunity to
    have the consideration because we were foreclosed from that
    opportunity at the end of last week and we are getting
    objections this week.
        I think that is unfortunate. As I understand it, the most
    current support for this is overwhelmingly among Republicans
    and Democrats alike across this country. They understand. It
    doesn't take a lot of debate or discussion to understand what
    accountability is all about. Under the existing laws, they can
    only have accountability, not for those who are at the CEO
    level, who are really the ones making these judgments and
    decisions upon which workers are
    relying, but they would only be able to sue lesser figures in
    the corporate ladder. Therefore, this is not an effective
    remedy for workers.
        We are trying to provide an effective remedy for workers
    who are being shortchanged. It makes eminently good sense. It
    is eminently fair. It is eminently responsible. It is eminently
    relevant. But there has been objection to it.
        I want to give assurance to the Senator that we look
    forward to offering this amendment at another time at the first
    opportunity.
        Mr. Reid. Madam President, I ask unanimous consent that
    Senator Byrd be recognized today at 5 until 15 after the hour
    to speak.
        The Presiding Officer. Is there objection?
        Without objection, it is so ordered.
        Mr. Reid. Madam President, I suggest the absence of a
    quorum.
        The Presiding Officer. The clerk will call the roll.
        The assistant legislative clerk proceeded to call the roll.
        Mr. Reid. Madam President, I ask unanimous consent the
    order for the quorum call be rescinded.
        The Presiding Officer. Without objection, it is so ordered.

                                INSIDER TRADING

        Mr. Gramm. S. 2673 includes provisions prohibiting insider
    trading of company stock during so-called blackouts--or periods
    during which pension plan participants are unable to exercise
    control over the assets in their accounts. In order to
    implement the insider trading prohibition, it was necessary to
    provide a definition of a blackout period. The Banking
    Committee also provided a 30-day notice requirement prior to a
    blackout, so workers and executives alike would know when the
    insider trading prohibition would be effective.
        Mr. Grassley. Mr. President, there appears to be broad
    consensus that pension plan administrators should be required
    to provide 30 days' notice to affected plan participants before
    limiting their ability to exercise the rights provided through
    their pension plans. These advance blackout notices will become
    integral requirements for how pension plans will operate in the
    future. Because of this, notice requirements were included both
    in the pension bill reported by the Health, Education, Labor,
    and Pensions, HELP, Committee on March 21, and in the bill
    reported by the Finance Committee unanimously on July 11.
        Mr. Gregg. I agree with the Senator from Iowa. Although the
    general concepts are agreed upon, however, there are
    differences between these provisions in all three bills that
    affect the operations of pension plans, and will clearly need
    to be worked out before the bill is sent to the President's
    desk. Harmonizing these requirements will require a careful
    balance between the rights of pension participants and the
    financial burdens on plan administrators.
        Mr. Kennedy. I certainly agree with the remarks of my
    colleagues. My bill provides pension plan participants with
    written notice 30 days before a plan blackout begins, and
    prohibits blackouts from continuing for an unreasonable time.
    This important disclosure to pension plan participants is
    within the jurisdiction of the HELP Committee.
        Mr. Baucus. I also agree with the remarks of my colleagues.
    As chairman of the Finance Committee, which also has
    jurisdiction over pension plans, I join the chairman of the
    HELP Committee and the ranking members of both the Finance and
    HELP Committees in urging the chairman and ranking member of
    the Banking Committee to work with us as you go to conference
    on S. 2673, to ensure that the blackout provisions are drafted
    in such a way as to ensure the proper operation of the pension
    system.
        Mr. Sarbanes. I look forward to consulting with both the
    Finance Committee and the Health, Education, Labor, and
    Pensions Committee as we go to conference to make sure the
    provisions are appropriately drafted.

                 CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS

        Mr. Graham. Section 302 of S. 2673 involves Corporate
    Responsibility for Financial Reports. I am concerned that in
    subsection (b), where the CEO and CFO sign documents to verify
    the accuracy of financial reports, the bill's language says
    they shall ``certify'' the accuracy of the financial documents.
    In my view, this language should read ``certify under oath'' in
    order to be consistent with current Securities and Exchange
    Commission, SEC, regulations. You can clearly see that the SEC
    currently requires that these statements to be under oath.
    Let's not create a lower standard in this bill than currently
    exists in regulation.
        Mr. Sarbanes. I appreciate the Senator's interest, and I
    hope his concerns can be addressed in conference.
        Mr. Graham. I thank the Senator for his assistance on this
    issue and his leadership on this legislation.
        I ask unanimous consent that Exhibit A of the order be
    printed in the Record.
        There being no objection, the material was ordered to be
    printed in the Record, as follows:

    [From SEC website www.sec.gov, June 27, 2002, OMB Number: 3235-0569;
        Expires: January 31, 2003]

    Exhibit A--Statement Under Oath of Principal Executive Officer and
            Principal Financial Officer Regarding Facts and Circumstances
            Relating to Exchange Act Filings
        I, [Name of principal executive officer or principal financial
    officer], state and attest that:
        (1) To the best of my knowledge, based upon a review of the covered
    reports of [company name], and, except as corrected or supplemented in
    a subsequent covered report: no covered report contained an untrue
    statement of a material fact as of the end of the period covered by
    such report (or in the case of a report on Form 8-K or definitive proxy
    materials, as of the date on which it was filed); and no covered report
    omitted to state a material fact necessary to make the statements in
    the covered report, in light of the circumstances under which they were
    made, not misleading as of the end of the period covered by such report
    (or in the case of a report on Form 8-K or definitive proxy materials,
    as of the date on which it was filed).
        (2) I [have/have not] reviewed the contents of this statement with
    [the Company's audit committee] [in the absence of an audit committee,
    the independent members of the Company's board of directors].
        (3) In this statement under oath, each of the following, if filed
    on or before the date of this statement, is a ``covered report'':
        [identify most recent Annual Report on Form 10-K filed with the
    Commission] of [company name];
        all reports on Form 10-Q, all reports on Form 8-K and all
    definitive proxy materials of [company name] filed with the Commission
    subsequent to the filing of the Form 10-K identified above; and
        any amendments to any of the foregoing.

                    GUIDANCE TO STATE REGULATORY AUTHORITIES

        Mr. Ensign. Mr. President, the purpose of this amendment is
    to ensure that State regulators do not automatically apply the
    provisions of this bill to accounting firms, particularly small
    accounting firms and firms that service small businesses
    without first looking at the possible harmful unintended
    consequences to those small businesses. The standards applied
    by the board under this act could create undue burdens and cost
    if applied to nonpublic accounting companies and other
    accounting firms that provide services to small business
    clients.
        Mr. Gramm. I agree with my friend, the Senator from Nevada,
    and want to add that what we need to avoid is a possible
    cascading effect, starting with the Federal Government, that
    could eventually hurt the small accounting businesses in this
    country.
        Mr. Ensign. Many of these small businesses rely on their
    CPA or auditor to provide objective, trusted advice and counsel
    on a broad range of tax and business related issues. Without
    this amendment, we will end up harming thousands of American
    accounting firms and their small business clients.
        Mr. Gramm. Mr. President, I think the Senator from Nevada
    is right about the harmful affects this legislation could have
    on small businesses, not only the small accounting firms in
    this country, but also the small business clients of those
    companies. This amendment says to the State regulators to look
    very carefully at the effects this legislation could have for
    smaller and medium-sized firms, and also on small businesses
    that may rely on larger firms for their audit work.
        Mr. Ensign. I thank the Senator from Texas for his
    comments.
        Mr. Kohl. Mr. President, as a businessman, I have been
    deeply concerned about the reports of fraudulent and even
    criminal behavior at prominent American corporations. When I
    worked in business on a daily basis, this is not the kind of
    behavior I saw or expected from my peers. It is imperative that
    we respond to the corporate malfeasance which has been roiling
    our markets. The impact of these acts, all for the sake of
    boosting short-term profits, has been broad, costing many their
    jobs and others their savings.
        The free market is the underpinning of our economic system,
    the key to the growth and development of our Nation in the last
    two centuries. The many creative and dynamic businesses which
    make up our democratic capitalism make important contributions
    in the form of good paying jobs and the taxes which pay for
    critical services, such as our National defense. Above all,
    these businesses are good citizens in their communities. As a
    result, businessmen are important and highly valued people in
    our society. The vast majority of businessmen act in good faith
    and with integrity. It is the bad apples who give the rest a
    bad name.
        Our system has been abused. Unfortunately, those who have
    raped the system have reaped financial gain, while the rest
    have lost jobs, savings and pensions. They and their boards
    violated the public trust.
        Those who are lucky enough to be in positions of leadership
    have an enormous responsibility to enhance and not damage our
    economy. Unfortunately, the current system of regulation has
    not been sufficient to prevent bad actors from abusing their
    positions. That is why we are taking action today. We must
    build more accountability into our economy because the bad
    actors--even if they are not in great numbers--have impacted
    our whole economy. The stock market is no longer the playground
    of the rich: We are now in an era when as many as 50 percent of
    the American people have some of their assets in the stock
    market, meaning enormous repercussions if companies are
    misrepresenting their financial positions.
        I agree with the President that ethical behavior and
    corporate responsibility are essential if we are to restore the
    confidence of the American people in our free markets. However,
    the colossal corporate wrongdoing we have seen uncovered--in
    2001 alone, 270 public companies had to restate the numbers in
    their financial statements--requires that we step up to the
    plate and address some of the structural problems which have
    allowed these frauds to occur.
        That is why I support S. 2673, the Public Accounting and
    Corporate Reform Investor Protection Act of 2002.
        There are those who have said this legislation is too
    strong. I disagree. This legislation will not have a negative
    impact on people doing their jobs as they should. We have an
    obligation to protect investors, employees, citizens. We are
    saying to CEOs, their fellow executives, and their boards: We
    expect you to do your jobs correctly, with integrity, and if
    you don't, you will be held accountable.
        It is not enough to challenge corporate America to do
    better. We must make clear that there is a cost to engaging in
    accounting and securities fraud. That is why I supported the
    Leahy amendment, a version of the Corporate and Criminal Fraud
    Accountability Act. This amendment strengthens existing
    criminal penalties for corporate crime, creates a securities
    fraud felony punishable by up to 10 years in prison, and
    creates a new crime for schemes to defraud shareholders. The
    amendment also would establish a new felony antishredding
    provision and would protect corporate whistleblowers.
        The strength of the Sarbanes bill is not in the penalties
    alone. The bill addresses conflicts of interest which have
    permitted these crimes to occur and is a balanced approach
    which will help prevent corporate fraud from occurring in the
    first place.
        The bill sets up a strong, independent, and full-time
    oversight board with broad authorities to regulate auditors of
    public companies, set auditing standards, and investigate
    violations of accounting practices. The Public Accounting
    Oversight Board proposed in the bill is a better alternative to
    the part-time board currently being pushed by the SEC. That
    board would leave standard setting to the accounting profession
    and would most likely perpetuate the status quo. It is the lack
    of clear standards coming from the current system of self-
    regulation which has been the root of many of the frauds being
    revealed today.
        The Sarbanes bill also restricts the nonaudit services a
    public accounting firm may provide to its clients that are
    public companies. These consulting services are clear conflicts
    of interest for independent auditors. We cannot rely on
    auditors to serve as the watchdogs of publicly traded companies
    if they are deeply invested in these same companies. If we
    cannot rely on the auditors, than how are we to rely on the
    markets?
        Finally, the Sarbanes bill addresses the problem of stock
    analyst conflicts of interest. The Merrill Lynch case recently
    settled in New York is an egregious example of stock analysts
    pushing stocks that they actually thought had little value.
    Most often the motive for pushing stocks of questionable value
    is to boost their own investment banking departments which are
    underwriting these stocks. The bill before us today addresses
    this problem and requires the SEC to adopt rules designed to
    protect the independence and integrity of securities analysts.
        I have no illusions that one bill will be the panacea for
    all that currently ails corporate America. For example, I
    believe there is more we should do, beyond the corporate
    disclosures in this bill, to address problems with corporate
    boards. We have a responsibility, however, to restore
    confidence in our markets and in the solid businesses which
    make up these markets so that our economy can thrive. Only
    decisive action can prevent this fraud on the American people
    from happening again.
        Mrs. Murray. Mr. President, over the past year as Americans
    have worked hard to restart our economy, we have been hit by
    report after report of irregularities, misconduct, and blatant
    conflicts of interest by corporate executives, auditors, and
    brokerage firms.
        The current corporate and auditing scandals are hurting
    American families. Thousands of jobs and retirement accounts
    have disappeared. Millions of current investors have watched
    their gains evaporate. Our economic recovery looks more
    distant. And most importantly for our long-term prosperity,
    investors are no longer confident that the financial
    information provided by public companies and their auditors is
    accurate.
        Congress cannot restore the jobs and retirement savings
    caused by this wave of corporate and auditing scandals. It can
    act to strengthen oversight of the accounting industry, to
    demand greater responsibility from corporate executives, and to
    address conflicts of interest in brokerage firms.
        Today I am voting for reform. We need to send a strong
    message to working and retired Americans, to investors, and to
    the executives and auditors of publicly held companies that
    this Senate will act to restore accountability and faith in our
    free market system. The Senate's bipartisan accounting reform
    bill will do just that.
        First, the bill limits its scope to publicly held
    companies. The bill does not attempt to Federalize accounting
    oversight. Instead, it strengthens the Federal Government's
    historic role of regulating publicly traded companies and their
    auditors. The State boards of accountancy will continue their
    important role of regulating accountants who audit private
    companies.
        Second, the legislation establishes a strong, independent
    Public Company Accounting Oversight Board. The board is
    empowered to set auditing, quality control, and ethics
    standards, to inspect registered accounting firms, to conduct
    investigations, and to take disciplinary actions. As a check on
    the board's power, its decisions are subject to oversight and
    review by the Securities and Exchange Commission, SEC.
        Third, this bill seeks to ensure that auditors are
    fulfilling their public duties by ending potential conflicts of
    interest. Large accounting firms typically provide both audit
    and nonaudit services to their public company clients. The
    legislation would prohibit auditors from performing specific
    nonauditing services, unless those services are approved on a
    case-by-case basis by the Public Company Accounting Oversight
    Board. All legal nonaudit services would need to be approved by
    a public company's audit committee.
        Fourth, the Senate legislation demands that corporate
    leaders take greater responsibility. The bill requires that
    chief executive officers, CEOs, and chief financial officers,
    CFOs, certify financial reports, outlaws fraud and deception by
    managers in the auditing process, prevents CEOs and CFOs from
    benefitting from misstatements made in their financial reports,
    and prohibits corporate decisionmakers from selling company
    stock at a time when their employees are prohibited from doing
    so.
        Fifth, the Senate bill would limit the growing pressure and
    conflicts of interest that affect the independence of stock
    analysts. Just as investors need to know that a company's
    financial reports are accurate, so should investors expect
    objective opinions from stock analysts.
        Finally, the bill would authorize additional funding for
    the SEC and would establish independent sources of funding for
    the new oversight board and FASB. As a member of the Senate
    Appropriations Committee, I will support full funding for the
    SEC.
        We need to work to prevent future scandals. We also need
    stronger criminal laws and penalties to address fraud and abuse
    by corporate executives and auditors. During last week's debate
    I voted for three amendments, including an amendment by Senator
    Leahy, that would close gaps in current law.
        I know some of my constituents in the accounting and
    business communities are concerned by a few of the steps in the
    Senate bill. As I talk to certified public accountants in my
    State, they have emphasized that it is critical to encourage
    greater competition in the public accounting field. I agree
    investors would be better served by more competition. The bill
    requires the Comptroller General, in consultation with various
    agencies and organizations, to identify the factors that have
    led to the consolidation of public accounting firms since 1989,
    the impact of consolidation, and ways to address it. While a
    study does not guarantee action, I look forward to reviewing
    its findings.
        It is time to restore confidence in corporate financial
    statements. It is time to hold people accountable who violate
    the public trust. I urge my colleagues to join me in supporting
    this legislation.
        Mrs. Boxer. Individual investors, saving for their
    retirement or their children's education, count on business
    leaders to play by the rules. They also count on financial
    industry professionals including accountants and research
    analysis to produce reliable, professional, and honest work.
        But recent business scandals at Enron, Tyco, Merrill Lynch,
    WorldCom and others are proving that without strong government
    oversight and regulation, greed will lead executives,
    accountants, and investment analysts to abuse the trust that
    American workers and investors have placed in them.
        We have to restore that trust. This bill is a good first
    step. It has the necessary teeth to clamp down on corporate
    irresponsibility. First, it creates a full-time independent
    board to set ethical auditing standards. Second, it prevents
    companies from providing most consulting services for the very
    same companies that they audit. Third, if enforced, it would
    send corporate executives who mislead shareholders to jail.
    Fourth, it forces Wall Street investment research analysts to
    disclose any conflicts of interest that they or their financial
    institution might have in the investment recommendations that
    they make. And finally, it protects whistleblowers who reveal
    unethical acts by the companies for which they work.
        I support this bill and would have supported even stronger
    legislation. I remain concerned that the public members on the
    board created in this bill are not chosen according to specific
    independence standards. I am also concerned that disclosure
    requirements do not include the holdings of family members of
    influential research analysts on Wall Street. And most
    importantly I had hoped we could do more to get funds to
    workers who lose their jobs as a result of executive
    misconduct. Those concerns aside, this bill is a good first
    step in restoring confidence in the system.
        Unfortunately, the House recently passed a bill that is
    weak and will not get the job done. It fails to establish a
    full-time board to design and enforce auditing standards, does
    not mandate jail time for securities fraud, and fails to
    protect whistleblowers. On the conflicts of interests that
    investment analysts are forced to disclose in the Senate bill,
    the House bill calls only for a study of the issue.
        I urge the President to go beyond rhetoric and endorse the
    Senate accounting reform bill so that we can get a strong bill
    out of conference. I also urge the President to join us in
    fighting for meaningful pension reform to ensure that
    American's retirement savings are protected.
        Mr. Smith of Oregon. Mr. President, I rise today to take a
    few moments to praise the Banking Committee for bringing the
    Public Company Accounting Reform and Investor Protection Act of
    2002 to the floor and all the hard work they have done in the
    past week. In the weeks before this bill came to the floor I
    thought that what we needed was some type of Investors' Bill of
    Rights.
        I had worked with colleagues on both sides of the aisle to
    come up with bipartisan goals to prevent corporate abuse and
    protect investors. I feel that much of the bill on the floor
    fulfills these goals. I feel that there are a few things that
    investors should see happen when we pass this bill. I believe
    that much of this bill will help, and in other areas we may
    have to work further.
        I believe that investors must have access to information
    about a company. We should ensure that every investor has
    access to clear and understandable information needed to judge
    a firm's financial performance, condition and risks. The SEC
    will have the power to make sure companies provide investors a
    true and fair picture of themselves. A company should disclose
    information in its control that a reasonable investor would
    find necessary to assess the company's value, without
    compromising competitive assets.
        I believe that investors should be able to trust the
    auditors. Investors rely on strong, fair and transparent
    auditory procedures and the concept of the Oversight Board in
    the Sarbanes bill is a sound one.
        I believe investors should be able to trust corporate CEOs.
    Unlike shareholders or even directors, corporate officers work
    full-time to promote and protect the well-being of the firm. A
    CEO bears responsibility for informing the firm's shareholders
    of its financial health. I support the concept of withholding
    CEO bonuses and other incentive-based forms of compensation in
    cases of illegal and unethical accounting. Further, I do
    believe that CEOs must vouch for the veracity of public
    disclosures including financial statements.
        I believe that investors should be able to trust stock
    analysts. Investors should be able to trust that
    recommendations made by analysts are not biased by promises of
    profit dependent on ratings. It is only common sense that there
    should be rules of conduct for stock analysts and that there
    must be disclosure requirements that might illuminate conflicts
    of interest.
        Finally, I believe that we should be able to rely on the
    Securities and Exchange Commission to protect investors and
    maintain the integrity of the securities market. Current
    funding is inadequate and should be increased to allow for
    greater oversight, ensuring investors' trust in good
    government.
        During the debate on this bill my attention has been called
    to the plight of public pension systems, such as Oregon's
    Public Employment Retirement System, known by the acronym PERS.
    PERS you see was invested in both Enron and WorldCom stock and
    has been hit hard by the debacles that occurred in each
    company. The PERS system lost about $46 million after Enron
    self-destructed and another $63 million following the WorldCom
    scandal.
        These losses occurred because false profits were inflated
    and corporate books were doctored. Under the PERS system, an 8
    percent rate of return is guaranteed for the 290,000 Oregon
    active and retired members of PERS. Oregon taxpayers have to
    make up the difference following an ENRON debacle or WorldCom
    scandal, and my State's budget is not prepared for this kind of
    loss.
        While this bill goes far in creating accountability, I am
    interested in finding out if there is more we can do and am
    asking the General Accounting Office, in consultation with the
    Securities and Exchange Commission and the Department of Labor,
    to report to Congress on the extent to which Federal securities
    laws have led to declines in the value of stock in publicly
    traded companies and in public and private pension plans.
        I believe this study is necessary because many public and
    private pension plans continue to rely on the continued stock
    growth in publicly traded companies, much like the PERS system.
    I hope this study will provide the needed information so public
    and private pension plans can reevaluate future investments in
    publicly traded companies.
        We cannot stand by and watch our hard working Americans
    ruin their pension systems while corrupt corporate executives
    take advantage of investors. I am proud of the work the Senate
    has done in the last week in creating accountability and
    responsibility in corporate America and look forward to working
    on this issue in a way that will help the investors and
    pensioners in the PERS system in Oregon.
        Mr. Akaka. Mr. President, I rise today to express my
    support for the Public Company Accounting Reform and Investor
    Protection Act of 2002. I thank Chairman Sarbanes for his
    leadership and the Banking Committee's staff for their efforts
    which have resulted in a measure which is fair, realistic, and
    protects investors. The steady disclosure of accounting
    scandals and corporate misdeeds underscores the need for
    legislation to protect investors and to restore public trust in
    the accounting industry and financial markets. Chairman
    Sarbanes has been the leading voice for reform. Our Banking
    Committee held ten hearings on accounting and investor
    protection issues in February and March. These hearings
    produced extremely valuable information from which S. 2673 was
    developed.
        Public confidence has been shaken by the incidences of
    fraud and misrepresentations revealed in the financial
    statements of companies. Enron, Xerox, and WorldCom are just a
    few examples of corporations which have misled investors with
    their financial statements. Since 1997, there have been almost
    1,000 restatements of earnings by companies. Investors have
    suffered substantial financial losses and are unsure of the
    validity of the audits of public companies. There is a
    lingering fear that there will be additional revelations of
    corporate fraud or misrepresentation. This has already harmed
    investor confidence and could continue to have an adverse
    impact on the financial markets.
        I support this bill because it takes the appropriate steps
    to help restore public trust in the accounting industry and
    financial markets. S. 2673 would create an independent Public
    Accounting Oversight Board to provide effective oversight over
    those in the accounting industry responsible for auditing
    public companies. Previous attempts at regulation have been
    complex and ineffective. As the numerous auditing failures
    demonstrate, there is a need for an independent Board with
    authority to adopt and enforce auditing, quality control,
    ethics, and independence standards for auditors.
        The legislation also requires additional corporate
    governance procedures to make Chief Executive Officers and
    Chief Financial Officers more directly responsible for the
    quality of financial reporting made to investors. After the
    numerous misstatements and corporate abuses that have occurred,
    this is a necessary step to ensure that corporate executives
    are held accountable for the financial statements of their
    companies. A particularly important provision in the bill would
    require that CEOs and CFOs forfeit bonuses, incentive-based
    compensation, and profits from stock sales if accounting
    restatements result from material noncompliance with SEC
    financial reporting requirements.
        Rules to limit and disclose conflicts of interests for
    stock analysts are included in the legislation. There is a
    concern that firms pressure their analysts to provide favorable
    reports on current or potential investment banking clients.
    This provision would provide protection to those individual
    investors who often depend on analysts for making investment
    decisions without being aware of the potential conflicts of
    interest that the analysts may have with companies whose stock
    they evaluate.
        The Public Company Accounting Reform and Investor
    Protection Act also authorizes additional appropriations for
    the Securities and Exchange Commission in order to provide the
    resources necessary to protect investors. According to the
    General Accounting Office, approximately 250 positions were
    vacant last year because the Commission was unable to attract
    qualified candidates. Additional funding is needed to attract
    and retain qualified employees. S. 2673 would authorize
    appropriations of $776 million for the Commission, which is
    much greater than President Bush's original budget request of
    $467 million. I am pleased that the President is moving closer
    to supporting the dollar amount included in the bill.
        I also want to thank Chairman Sarbanes for including an
    amendment in the bill which I have worked closely with the
    Committee staff in developing. The amendment would require the
    General Accounting Office, GAO, to conduct a study of the
    factors that have led to consolidation in the accounting
    industry and the impact that this has had on the securities
    markets. Since 1989, the Big 8 accounting firms have narrowed
    down to the Big 5 and may soon become the Final 4. This study
    is necessary to evaluate the impact that consolidation has had
    on quality of audit services, audit costs, auditor
    independence, or other problems for businesses. In addition,
    the study is necessary to determine what can be done to
    increase competition among accounting firms and whether Federal
    or State regulations impede competition.
        I am pleased that the Senate has worked in a strong
    bipartisan fashion to strengthen this bill. Extremely valuable
    amendments have been added to the original committee bill. In
    particular, the Leahy and Biden amendments strengthen penalties
    for corporate fraud. These two amendments will help provide
    much needed additional protection for investors and retirement
    plan participants.
        I encourage my colleagues to support the Public Accounting
    Reform and Investor Protection Act of 2002 to restore public
    trust in the accounting industry and the financial markets.
        Mrs. Feinstein. Mr. President, I rise to offer my support
    and cosponsor an amendment to S. 2673 offered by the senior
    Senator from New York, which would prohibit all loans by a
    corporation to its directors or executive officers.
        Among the abuses committed by senior executives and
    directors at companies such as WorldCom, Enron, and Global
    Crossing is the practice of issuing large, favorable loans to
    those executives and directors.
        Those loans can create conflicts of interest that limit
    that the ability of outside directors, in particular, to voice
    their criticism of the institution.
        Many years ago, I served on the board of directors of a
    bank, and noted that at the time, several of the directors had
    hundreds of thousands of dollars worth of outstanding loans at
    that bank.
        At the time, this occurred to me to be wrong, and I could
    not understand why these directors did not take out loans at
    another bank, thereby avoiding any conflicts of interest.
        The only conclusion I could draw was that the loans to
    these directors were either easier to procure or made on more
    favorable terms than loans from another bank would be.
        I see no justification for providing loans to corporate
    directors or executive officers. The goal of the reforms that
    we are currently debating should be to create an environment in
    which outside directors and major corporate officers act in as
    pure and honest a manner as possible.
        They should not enter into any appearance of conflict, such
    as the conflict that occurs when the corporation that they
    serve extends them a personal loan.
        When an individual investor chooses to buy a stock, he or
    she does so with the full knowledge that it might turn out to
    be a bad investment. The stock may appreciate in value, but it
    might also go sour.
        Anyone who makes that investment knows that the only way to
    be sure not to lose any money is to keep the money in cash or
    buy a T-bill.
        But that is not the way it worked for the CEOs and
    directors of some of the largest public companies in this
    country.
        For example, Bernard Ebbers, the former CEO of WorldCom,
    took out $430 million in loans from his company between
    September 2000 and the end of 2001.
        When the SEC began investigating WorldCom earlier this
    year, $343 million in loans were still outstanding, most of
    which may never be recovered by WorldCom's investors.
        Those loans to Ebbers are far from unique in corporate
    America today. One of the most egregious examples of this type
    of abuse recent months is the disclosure of $3.1 billion in
    loans extended to family members and affiliated business
    interests of the Rigas family by Adelphia Communications, a
    publicly traded company controlled by the Rigas family.
        These loans were never disclosed to shareholders, and were
    apparently used to shore up a wide variety of business deals
    involving Rigas family members, including a golf course and an
    infusion of cash into the Buffalo Sabres hockey team.
        On July 9, President Bush went to Wall Street and called
    for, among other things, ``an end to all company loans to
    corporate officers.''
        I believe that the President was right, and have
    cosponsored this amendment with that goal in mind.
        Investors have a right to know exactly how much of their
    dividends are going to pay for excessive pay packages. They
    also have a right to expect that the board of directors is
    truly independent and that no directors are tied too closely to
    the corporation they serve because of loans they have received
    from it.
        Ms. Snowe. Mr. President, I rise today to speak in support
    of the legislation we are considering, S. 2673, the Public
    Company Accounting Reform and Investor Protection Act of 2002.
        Last fall, we watched as a company once in the top 10 of
    the Fortune 500 imploded from the weight of its own complex
    efforts to mask debt and hide losses. We watched as the company
    stock-laden retirement plans of Enron's loyal employees
    dwindled by $1 billion. Meanwhile, company executives cashed
    out their own shares while these employees were barred from
    doing so. And finally, in Congressional hearings, we watched
    and listened as former Enron executives either chose to remain
    silent, or pointed fingers of blame at everyone's actions
    except their own.
        Tragically, the bankruptcy of Enron was no anomaly in the
    business sector. Rather, it was only the beginning. It
    ultimately proved to be a watershed event, as several other
    companies have reevaluated their own business and accounting
    methods, and found significant indiscretions. Global Crossing,
    a telecommunications company, is being investigated by the SEC
    and FBI in regard to questionable accounting practices used to
    artificially inflate revenue. Adelphia Communications, a cable
    company, is now in bankruptcy proceedings due to investigations
    by the SEC and two Federal grand juries for off-balance sheet
    loans to the company's founders.
        More recently, Xerox announced that it would restate 5
    years of results which could affect the true nature of what had
    been reported as $6 billion in revenues. And on June 25,
    WorldCom announced that it had misrepresented $3.8 billion in
    expenses over five quarters, therefore allowing the company to
    report financial gain, when in reality, the company was
    experiencing a net loss.
        While the downward spiral of each of these companies was
    unique, common threads are woven through each of their
    failures. First, the insistence by executives that, above all
    else, stock price remain high was an integral part of the
    creation of the financial woes of each company; in essence,
    this short-term focus compromised the long-term viability of
    these entities.
        What has also been disturbing as these revelations have
    come to light is the role played by the so-called independent
    auditors of the companies under investigation. While the
    accountants are not the sole perpetrators of the financial
    deception that has occurred, the apparent lack of scrutiny of
    the financial statements of the aforementioned companies has
    created an inherent mistrust in the accuracy and integrity of
    the true nature of corporate earnings.
        Furthermore, the practice of allowing auditing companies to
    perform non-audit services can have the ultimate effect of
    allowing such companies to audit the work of their own
    personnel. This practice defeats the purpose of having an
    unbiased entity objectively reviewing the merits and accuracy
    of financial statements.
        The legislation we are considering in the Senate includes
    crucial provisions that will play a pivotal role in restoring
    confidence in our market system, and enhancing the public and
    private sector controls that are in place to monitor the
    relevant entities. The legislation creates a Public Accounting
    Oversight Board, which will be an entity solely focused on
    companies that audit and account for publicly traded firms.
    This oversight authority will include the ability to
    investigate and punish any wrongdoing by companies under SEC
    jurisdiction as well as their auditors. The bill also disallows
    simultaneous auditing and consulting, while providing for the
    Board to approve certain exceptions to non-specified non-audit
    services under this rule.
        The pending legislation also makes important strides in
    ensuring that any gain made by company executives be subject to
    retrieval if the company has to prepare an accounting
    restatement due to certain noncompliance with SEC regulations.
    As Treasury Secretary Paul O'Neill so aptly states in response
    to the actions of Enron executives, ``I really do believe that
    the CEO is in effect the steward for all the people who work in
    their organization. And that with that responsibility goes a
    commitment that the people come first and that the practices
    are open and above board and without reproach.'' These
    executives should not be able to leave their beleaguered
    companies, pockets stuffed with profits from cashed out stock
    options, while investors and employees suffer the consequences
    of questionable company practices.
        With the unanimous passage of the Leahy amendment, the
    Senate recognized the need to strengthen penalties for the
    punishment of those involved in corporate crime. For example,
    the amendment created a new felony for persons involved in the
    destruction of evidences--to address in the future such
    indiscretions as the document shredding perpetrated by Arthur
    Andersen's Enron Audit team. In addition, the Leahy amendment
    grants important whistleblower protections to company
    employees--like Enron's Sherron Watkins--who bravely report
    wrongdoing occurring within their own corporation.
        The bottom line is that integrity and trust are at the core
    of a successfully functioning market system. These recent
    business scandals have severely damaged this foundation. And as
    with any foundation in disrepair, leaving unaddressed the
    damage caused by lost faith in the system will lead to
    continued instability, or worse.
        Therefore, we in Congress have an obligation to do what we
    can to maintain and build investor confidence and faith in our
    free market system. I believe that the legislation we are
    considering today is a crucial first step toward that end, as
    well as ensuring the full rebound of our floundering economy.
        Mrs. Feinstein. Mr. President, I rise in support of S.
    2673, the Public Company Accounting Reform and Investor
    Protection Act of 2002.
        Nearly every day, it seems, the front pages of our
    newspapers are awash in stories about the latest corporate
    accounting scandal. Just 3 weeks ago we learned that WorldCom
    hid $3.8 billion in expenses in the last five quarters alone.
        And WorldCom is merely the latest member of an increasingly
    large group of public corporations that have knowingly deceived
    shareholders, directors, and, in some cases, their own
    auditors. WorldCom, Enron, Tyco, Global Crossing, Xerox--the
    list goes on and on.
        Much attention has been focused on the huge sums that CEOs
    and other senior executives have extracted from these companies
    in the form of incentive pay, but even those large sums pale in
    comparison to the total shareholder value that has been
    destroyed as a result of these disclosures. At its peak,
    WorldCom's market capitalization exceeded $190 billion, making
    it, for a time, the most valuable telecommunications services
    company in the world. Now, WorldCom shares are effectively
    worthless.
        Despite a slowdown in the telecom industry, some of the
    value of those shares might have been preserved had its
    executives relied on sound management, instead of deceptive
    accounting, to make their numbers.
        Who will suffer most from the immense value decline
    associated with WorldCom and other companies that have deceived
    their investors? Not the senior executives, most of whom have
    stashed away enough of their pay to let them spend the rest of
    their days in comfort. The people who will really suffer are
    the thousands of employees whose retirement savings were
    proudly invested in company stock; or the millions of public
    employees whose pension funds held shares in these companies.
    Those are the people who will bear the brunt of this value
    decline.
        CalPERS, the pension fund set up to invest the retirement
    savings of 1.3 million public employees in my home State, has
    estimated that it suffered a $580 million loss on WorldCom
    stocks and bonds. That means that the average California public
    employee lost over $440, not including any investments in
    WorldCom they may have held independently.
        To give you some perspective on that amount, the amount of
    money lost by California public employees due to the WorldCom
    fraud alone is likely to exceed the entire sum of the tax
    rebate checks they received as part of the President's tax cut
    last year.
        In fact, every American who invests in our stock markets
    will suffer as a result of these scandals, because every
    scandal further tarnishes the reputation of American corporate
    honesty for investors around the world. In recent months, those
    investors have pulled billions of dollars in investments out of
    our country, further reducing the value of stocks and weakening
    the dollar.
        The only way that we can turn this culture around is by
    fostering a corporate environment that rewards honest
    management by senior executives and severely punishes
    fraudulent activities. That is exactly what would be achieved
    by the bill proposed by Senator Sarbanes.
        The Sarbanes bill tackles many of the major problem areas
    associated with recent corporate scandals. Most importantly,
    the bill would make it much more difficult for public companies
    to bypass or trample over auditors in attempt to produce
    inaccurate or deceptive financial statements.
        For the first time, the Sarbanes bill creates a truly
    independent accounting oversight board, staffed with objective,
    unbiased overseers, who can enforce rules and prosecute
    violators without having to vet their decisions elsewhere.
    Unlike the Public Oversight Board, which depended on fees from
    the very auditors it was meant to regulate, this new board will
    be funded by mandatory fees paid by all public companies. These
    are fees that cannot be withheld at the whim of those who have
    the greatest interest in undermining the work of the board.
        The Sarbanes bill does not stop at the creation of this new
    board, however. Rather, the bill strengthens areas of the law
    that have proven inadequate to prevent the fraudulent corporate
    behavior that has become so prevalent today.
        The Sarbanes bill prevents auditors from controling the
    entire financial reporting system at an individual company by
    both designing the internal audit system, and then purporting
    to offer an unbiased external audit. The bill will also stiffen
    the resolve and oversight of board of director audit committees
    by requiring, among other provisions, that all committee
    members be independent and that they be given free reign to
    question auditors without executive officers present.
        But rather than rely solely on increased oversight, the
    bill moves to reduce conflicts of interest at their source, by
    requiring the CEO and CFO of a company that has had to restate
    its financial accounts to disgorge any bonuses or other
    incentive pay they received in the year prior to the
    misstatement.
        Moreover, under an amendment sponsored by Senator Schumer
    and myself, company loans to executive officers are now
    prohibited, sharply limiting the types of ``hidden''
    compensation that can be offered to executives without being
    fully disclosed to shareholders. Our amendment passed by a
    voice vote and will go a long way toward preventing the types
    of loan-related abuses prevalent at WorldCom, Global Crossing,
    and other companies now under investigation by the SEC for
    loan-related abuses.
        When Senator Sarbanes drafted this bill, he focused on the
    single reform that matters most: increased transparency.
    Unfortunately, we may witness more corporate failures like
    those of Enron or WorldCom. These are failures that are brought
    on by over-investment, the accumulation of excessive debt, or
    an ill-conceived belief in markets or services that never live
    up to expectations.
        What we cannot abide by, and what the Sarbanes bill goes a
    long way toward preventing, is the ability of senior executives
    to hide those bad decisions in misleading financial statements.
    By ensuring true auditor oversight, creating meaningful
    penalties for senior executives who defraud investors, and
    putting in place new disclosure requirements, this bill will
    dramatically increase the quality and timeliness of the
    information available to individual investors.
        The United States is blessed with the best-regulated
    markets in the world, and for that we have been rewarded with
    tremendous foreign investment and a leadership position in
    world financial markets.
        A vote in favor of this legislation is a vote to strengthen
    our position and avoid a wholesale loss of investor confidence
    that would be perilously difficult to restore.
        Mr. Hatch. Mr. President, I wish today to express my
    support for S. 2673, the Public Company Accounting Reform and
    Investor Protection Act of 2002. I am pleased that the Senate
    is acting decisively to impose harsh, swift punishment on those
    corporate executives who exploit the trust of their
    shareholders and employees while enriching themselves. The
    recent corporate scandals demonstrate just how important it is
    to hold corporate executives accountable. I believe it is
    equally important for prosecutors to be provided with the tools
    necessary to aid in the investigation of these forms of fraud.
        During this debate, our colleagues on both sides have
    consistently called for increased penalties for corporate fraud
    offenses. This week, as the Dow Jones index plummeted nearly
    300 points--representing the biggest single day point drop
    since the week following the attacks of September 11 we voted
    unanimously to adopt a series of amendments that will
    strengthen criminal fraud penalties and create new criminal
    fraud offenses. I cosponsored an amendment with Senator Biden
    to enhance white collar penalties. And I supported an amendment
    offered by Senator Lott, which incorporated the President's
    proposal by enhancing white collar penalties, supplementing
    existing criminal laws, and increasing the Security and
    Exchange Commission's administrative powers to enforce this
    Nation's securities laws. I also supported Senator Leahy's
    amendment, a measure I worked to improve in committee. This
    amendment includes new criminal and civil provisions that I
    believe will also assist in deterring and punishing future
    corporate wrongdoing.
        Further, I am glad to see the Senate finally considering
    legislation that will overhaul government regulation of the
    accounting industry. I agree with my distinguished colleague
    from Maryland that there is an inherent conflict of interest
    between internal and external auditing. The same people should
    not be installing the internal control system, performing the
    internal audits, and then reporting on the financial
    statements. The external auditor sometimes has to be tough as
    nails, and willing to disagree with its client's top
    executives. It is hard to be the bad cop when you are also the
    personal trainer.
        However, Congress cannot always second-guess the desires of
    investors. In some cases, stockholders, bondholders, and other
    stakeholders will be worse off if Congress imposes too strict a
    barrier between consulting and auditing. This is especially
    true for small businesses that may not be able to afford to
    hire both a consulting firm and a separate accounting firm.
    And, as the President has noted, in our fast-changing economy,
    Congressionally-imposed barriers between different business
    practices can end up becoming Congressionally-imposed barriers
    to productivity growth.
        I think the bill before us represents an effort to strike a
    good balance between these two competing goals of auditor
    independence and business innovation. It prevents internal and
    external audit work from being done by the same firm, and it
    establishes clear lines of responsibility and accountability.
    At the same time, the corporation's independent audit committee
    will be permitted to authorize certain consulting services if
    they are convinced it is in the shareholders' best interest.
    This audit committee, consisting of members of the client's
    board of directors, will be required by law to be completely
    independent of the corporation itself. This will mean that if
    the CEO and other top corporate officials believe it is in
    their company's best interests to have their accounting firm
    help with, for example, tax consulting and preparation, the
    corporate officials will have to argue the merits of their case
    before the independent audit committee. That kind of
    independence makes good sense, and it makes good law.
        The Federal Government needs to help investors whether
    banks, pension funds, or individual investors in their quest
    for accurate information about the financial condition of
    America's businesses. Doing so is crucial for our economic
    long-term health. While Enron's and WorldCom's financial
    shenanigans contain many differences, the similarities are far
    more important. These were both firms that borrowed too much
    money during the expansion years of the late 1990s. And when it
    started getting tough to make the debt payments, both firms
    tried to hide their financial difficulties through creative
    bookkeeping, cooked up at company headquarters. They succeeded
    for a time, but the combination of investor vigilance, media
    investigations, and government scrutiny are eventually bringing
    the facts to light.
        If there had been real financial transparency, both current
    stockholders and potential investors could pierce the veil of
    bookkeeping to immediately see these companies' true financial
    situation. This may not have prevented the painful layoffs and
    tragic loss of retirement assets by thousands of employees.
    However, with more accurate and timely information, investors,
    directors, analysts, financial institutions, and others could
    have intervened earlier and helped to restructure these firms
    before all-out catastrophe threatened. When it comes to
    business information, knowing sooner is always better than
    knowing later.
        And even more importantly, if corporate officials had faced
    the threat of serious jail time and the certain knowledge that
    their financial and accounting capers would be exposed to the
    world, they would have been much less likely to have
    overborrowed and underdisclosed in the first place. Mr.
    President, the bill on which we will vote today, on which
    Senator Sarbanes and many of our colleagues have worked so
    hard, contains solid provisions that I believe will put real
    fear of serious consequences into the minds of corporate
    wrongdoers.
        Does this bill represent a perfect solution to the
    corporate accountability issues presently facing our country?
    Of course not. I would have written a different bill in several
    respects. However, I believe that the bill is a good attempt to
    balance competing interests and different political
    philosophies. As the bill goes to conference with a House-
    passed bill that has some significant differences, I expect the
    balance to improve even further.
        Strengthening corporate accountability is crucial to our
    Nation's long-term welfare. If Congress and the President can
    act together to help increase corporate transparency and
    restore investor confidence, then businesses will be better
    able to raise investment capital. Greater access to capital
    will enable U.S. businesses to fund the groundbreaking research
    and to purchase the high-tech equipment that is the foundation
    of America's long-term prosperity. And Americans from all walks
    of life will reap the rewards.
        Mr. McCain. Mr. President, I rise today as a proud
    cosponsor of amendment No. 4283 that is being offered by
    Senator Levin. The amendment says that the standard-setting
    body for accounting principles that is set up in this bill
    shall review the accounting treatment of employee stock options
    and shall within a year of enactment of this act adopt an
    appropriately generally accepted accounting principle for the
    treatment of employee stock options.
        Unfortunately, this body is not going to get the
    opportunity to vote on this reform or the reform I proposed
    last week requiring the expensing of stock options. We want to
    help restore investors' confidence for the long run, but we are
    being denied an opportunity to do this. A simple vote on this
    amendment is all we ask. And yet, we are being denied, and that
    is truly regrettable. I see no reason that a vote should not be
    permitted on this amendment, but let's face it--the fix is in.
        I want to talk more about the expensing of stock options.
        Americans have heard from the President and practically
    every Member of the Senate about the vital need to restore
    trust and transparency in business practices so we can begin to
    repair investors' faith in the honesty of our companies and in
    our markets. We need more transparency on a company's books so
    that any person wanting to invest their hard-earned money has a
    true financial picture of the company they are planning to
    invest in.
        This issue of expensing stock options is not going to go
    away. Look at what has just happened. Coca-Cola, a Fortune 100
    company, just announced that it will begin in the fourth
    quarter to treat all employee stock options as an expense. And
    I believe more companies will follow Coca-Cola's lead. It is
    only a matter of time.
        Before I yield the floor, I would like to read a quote from
    a July 22, 2002 Weekly Standard article, ``Big Businesses Bad
    Behavior,'' in which economist Irwin Stelzer, Director of
    Regulatory Studies at the Hudson Institute, eloquently explains
    why governmental action is needed to restore faith in our
    financial institutions. The ``opposition of important segments
    of the business and accounting communities to reform,'' he
    writes, ``means that government must take on the burden of
    revising the institutional framework within which business
    operates--setting the rules of the game that will allow markets
    to do their job of allocating human and financial capital to
    its highest and best uses. As Milton Friedman, no fan of big
    government, has written, society needs rules and an umpire `to
    enforce compliance with rules on the part of those few who
    would otherwise not play the game.' '' I couldn't agree more.
        I ask unanimous consent that the following articles be
    printed in the Record.
        There being no objection, the material was ordered to be
    printed in the Record, as follows:
                   [From the Weekly Standard, July 22, 2002]
                          Big Business's Bad Behavior
                             (By Irwin M. Stelzer)
        No sensible person can quarrel with what the president told the
    Wall Street biggies he addressed last week. Crooks should be forced to
    disgorge their ill-gotten gains, and should go to a jail for extended
    periods. Enforcement agencies should be given adequate resources.
    Corporate executives should be held responsible for the accuracy of
    what they tell shareholders, disclose their compensation in annual
    reports ``prominently and in plain English,'' and explain what their
    ``compensation package is in the best interest of the company'' Board
    members should be independent and ``ask tough questions.'' Shareholders
    should speak up. Most important, chief executive officers should crate
    a ``moral tone'' that ensure the company's top managers behave in
    accordance with the highest ethical standards.
        The quarrel comes not with what the president said, but with what
    he didn't say. In the game of matching his laundry list of reforms
    against the inevitably longer list generated by the Daschle-Leahy-
    Sarbanes-Gephardt crowd the president inevitably loses, as last week's
    unanimous vote of Senate Republicans for the Democrat's bill proves.
    Longer sounds better if you're just compiling a laundry list of items
    aimed at punishing politically unpopular corporate bad guys. Only if
    there is a conceptual framework within which specific reforms can be
    created and defended is there any hope that a sensible corporate
    governance system will emerge from the congressional legislation
    factory.
        Start with the fact that it is important to distinguish the role of
    government from that of the private-sector institutions that monitor
    corporate America. The latter can be relied upon to act when the
    integrity of the system is threatened, not because these private sector
    players are a bunch of goodie-two-shoes, but for the more reliable
    reason that honest markets and accurate profit reporting are in their
    interest. Just as gamblers won't put their bets down when they know a
    wheel to be rigged, so investors won't put their money into shares if
    prices can be manipulated by inflated profit reporting or special
    treatment of insiders.
        Hence we have a stream of quite sensible reforms proposed by the
    Business Roundtable and the New York Stock Exchange, some going beyond
    those being pushed by the president. And we have companies scrambling
    to adopt governance rules and accounting practices that will reassure
    investors that the game is not rigged against them. No CEO wants to see
    his company's stock battered by investors who fear that share values
    will evaporate as profits are restated to eliminate the imaginative
    counting of revenues (claim them now, before the customers pays or even
    considers paying) and of costs (capitalize rather than expense every
    outlay, regardless of the life of the item purchased). Plummeting share
    prices are dangerous to the careers of chief executives.
        But, as the president recognized when he called for higher ethical
    standards, self-interest cannot be relied upon to produce honest
    business dealings unless that self-interest includes what Adam Smith
    called a ``desire to be both respected and respectable,'' and such
    esteem is seen to flow not from ``wealth and greatness'' but from
    ``wisdom and virtue.'' Which may be what Bush had in mind when he said
    that we need ``men and women of character, who know the difference
    between ambition and destructive greed'' to lead our major
    corporations. And it may be what he had in mind when, immediately after
    delivering talk, he returned to Washington to award the Presidential
    Medal of freedom--America's highest civilian honor--not to the Nations'
    richest (Intel founder Gordon Moore may have been the one exception),
    but instead to folks who have enriched our national life with their
    sharp iconoclasm (Irving Kristol), gentle humor (Bill Cosby), and quiet
    devotion of family and good causes (Nancy Reagan).
        Still, neither self-interest reform nor a new emphasis on business
    ethics can be relied upon to save capitalism from the capitalists.
    Immediately after the president's speech the White House was bombarded
    with calls from CEOs protesting his demand that they disclose their
    compensation packages in easily accessible terms. I well recall the
    reaction when, several years ago, I made a similar suggestion at a
    think-tank-sponsored meeting of top business and government officials.
    One captain of industry replied that he would not tell his shareholders
    how much he earns lest he encourage kidnappers (as if they would only
    become aware of his affluence if he revealed it in his company's annual
    report).
        Nor did anything the president said persuade the accountants to
    call off their lobbyists, who continue to oppose reforms that would
    make their devotion to the accuracy of their audit statements
    unambivalent. Or convince CEOs of Silicon Valley and other high-tech
    companies to bow to Alan Greenspan's call for them to report their
    share options as the expenses they most certainly are. Again, I recall
    a discussion that followed a similar proposal I made several years ago.
    One CEO said that he couldn't place a value on these options for
    purposes of reporting to shareholders, even though he could value those
    same options for the purpose of deducting their cost from his profits
    for tax purposes. Another claimed that if he treated options as an
    expense, he would wipe out his entire reported earnings, an argument, I
    suppose, for refusing to account for almost any expense that
    constitutes a threat to reported profits--what might be called the
    WorldCom excuse. (For the economy as a whole, experts estimate that
    expensing of options would reduce aggregate corporate profits by about
    8 percent.) Note that the issue is not whether companies, especially
    start-ups, should be allowed to use options to attract talented staff,
    but whether they should have to treat this compensation as an expense
    when reporting profits. As Greenspan points out, refusing to deduct the
    cost of options diverts capital and other resources from truly
    profitable to only apparently profitable firms.
        This opposition of important segments of the business and
    accounting communities to reform means that government must take on the
    burden of revising the institutional framework within which business
    operates--setting the rules of the game that will allow markets to do
    their job of allocating human and financial capital to its highest and
    best uses. As Milton Friedman, no fan of big government, has written,
    society needs rules and an umpire ``to enforce compliance with rules on
    the part of those few who would otherwise not play the game.''
        To keep rules to a Friedmanesque minimum, we need a conceptual
    framework for reform rather than competing laundry lists. The first
    step is to understand the limits of criminal sanctions. Yes, it makes
    sense for the Senate to insist, as it did unanimously last week, that
    the crimes perpetrated by some corporate managers and accountants be
    defined as precisely as possible. Yes, criminal sanctions can be used
    to make life miserable for those caught with their fingers in the till
    and to deter from evildoing those for whom Adam Smith's ``desire to be
    respectable and to be respected'' is insufficient inducement to decent
    behavior. But, as law professors David Skeel and William Stuntz
    recently pointed out in the New York Times, ``Criminal laws lead people
    to focus on what is legal instead of what is right. . . . In today's
    world, executives are more likely to ask what they can get away with
    legally than what's fair and honest.'' The Senate was pleased with
    itself for toughening the laws under which executives will operate, but
    criminalizing bad behavior is no guarantee of future good behavior--
    behavior that is not merely indictment-avoiding, but is efficiency- and
    wealth-enhancing.
        Instead, policymakers should turn to that trusty guideline, ``Get
    the incentives right.'' The problems we are facing stem from the fact
    that we have provided the four guardians of shareholder interests--
    auditors, analysts, directors, and corporate managers--with the wrong
    incentives.
        Auditors know that success or failure in their profession depends
    not so much on the accuracy and realism of their audits, as on their
    ability to conduct themselves so as not to imperil the flow of
    consulting fees to their firms. Enron paid Arthur Andersen as much or
    more in consulting than in auditing fees; Andersen's $12 million in
    consulting fees from WorldCom dwarfed its $4 million audit fee. It
    would have taken a brave auditor indeed to fly in the face of these
    clear incentives and tell Enron's management that placing some item
    off-balance-sheet might be technically legal, but would obscure the
    company's true financial condition, or to insist on access to documents
    that might have revealed WorldCom's recording of current expenses as
    capital investments. Rather than rely on such strength of character,
    some 70 percent of the directors surveyed by McKinsey & Co. now say
    they will in the future oppose the granting of such contracts, a policy
    that Arthur Levitt, Bill Clinton's SEC chairman, was unable to push
    through over the massed opposition of the accountants' lobbyists. All
    of which makes Bush's silence on this subject rather odd, and the
    Senate Democrats' insistence on a broader prohibition on consulting
    than is contained in the House Republicans' bill more likely to get the
    auditors' incentives lined up with shareholder interests.
        Once those incentives are in place, other provisions of the House
    and Senate bills become unnecessary. Both bills call for still more
    regulation of auditors, and create still another regulatory body to set
    and oversee accounting standards. One need not be an apologist for the
    accounting profession to suggest that such a move would merely continue
    the failed practice of attempting to control auditors by closely
    supervising them. There is no reason to believe that such supervision
    will be any more successful in the future than it has been in the past,
    especially since in the end auditors are required only to say that they
    followed often complex and arcane rules that necessarily involve the
    exercise of judgment.
        Instead of such ongoing regulation, including half measures that
    merely restrict auditors from engaging in some specified form of
    consulting activity, let's get the incentives right by complete,
    mandated separation of the audit and consulting businesses, as John
    McCain proposes. Lead the CPAs not into temptation, and reliance on
    porous Chinese walls becomes unnecessary. Auditors will compete for
    business on the basis of their ability to provide a product that gives
    investors confidence in the transparency and accuracy of the company
    accounts, with the uplifting effect that will have on the prices of
    their clients' shares. (Audit firms are unlikely to compete on price,
    since the risks associated with the audit business have risen. There
    are only four major firms, and rotation of auditors on something like
    the five-year basis favored by Senate Democrats, although necessary to
    prevent over-identification between client and auditor, is a classic
    cartel market-sharing arrangement--all legal, in this case.)
        Analysts are another group who now face perverse incentives.
    Investors may have been naive to believe that these students of income
    statements, balance sheets, and other economic data would provide
    honest advice about a company's financial condition and prospects. But
    they had a right to such a belief, since the commissions they pay their
    brokers are supposed to be in return for such advice. Along comes New
    York State Attorney General Eliot Spitzer and revelations that some of
    these supposed agents of the shareholders' interests are recommending
    stocks they know to be ``shitty'' in order to win investment banking
    business for their partners and increased compensation for themselves.
    All of this in the presence of Chinese walls erected to separate
    bankers from analysts. It took no Joshua-plus-trumpet to bring these
    walls down; the prospect of hefty banking fees was quite enough. Jack
    Grubman, the Salomon Smith Barney (a division of Citigroup) analyst
    famous for his enthusiastic recommendations of WorldCom stock, last
    week told the House Financial Services Committee, ``No one can sit here
    on Wall Street and deny to anybody on this committee that banking is
    not a consideration in the compensation of analysts of a full-service
    firm.'' Forget the double negative: Grubman was conceding that part of
    his salary, which reached $20 million per year, came from the $140
    million in underwriting fees that his firm received from WorldCom over
    the past five years.
        Again, get the incentives right. One way, now preferred on Wall
    Street, is to write contracts that make analysts' compensation
    independent of the fees flowing into the investment banking divisions
    of the large firms. But just how analysts can prosper if the banking
    division isn't earning enough to pay the rent is unclear. Besides,
    unless analysts suddenly become willing to issue ``sell''
    recommendations just when their investment banking partners are
    pitching a company for business, this proposed reform is unlikely to be
    effective, especially after the current heat is off and congressional
    attention turns to other matters. True or not, bankers believe that
    CEOs, being human (yes, most are), are likely to take into account what
    a firm's analysts are saying about their stock when selecting an
    investment banker. It would be an unusual CEO, indeed, who would
    cheerfully receive an investment banker after reading in the morning
    papers that the banker's analyst-partner had just downgraded his
    company's stock from a ``buy'' to a ``sell.'' Many investment bankers--
    not all, but many--will find ways to persuade their partner-analysts to
    be team players. Banking fees are large enough to give them an enormous
    incentive to do just that.
        So, let's get the incentives right and mandate a separation of the
    investment banking and stock-picking businesses, another McCain
    proposal. Analysts would then have an unambiguous incentive to make the
    best ``buy'' and ``sell'' recommendations they possibly can, so as to
    build reputations that will attract investors to them. And investors
    will get something in return for their commission dollars--honest
    advice from men and women expert in the analysis of corporate financial
    data, competing with one another to attract clients by creating a track
    record of picking winners.
        Which brings us to Directors. Again, we have a case of skewed
    incentives. Directors are hired by managers to protect shareholders
    from, er, those same managers. To make sure the directors remain
    friendly, executives often shower them with perks and consulting fees,
    the continuation of which depend on the goodwill of the CEOs they are
    supposed to be supervising. It is the rare director who chooses to
    feast on the hand that feeds him, not merely because he is venal, but
    because the courtesies lavished upon him genuinely persuade him that
    the CEO is a decent chap, deserving of every million he is paid.
        To get the incentives right, directors must be selected by
    vigorously participating shareholders, most especially institutional
    shareholders, from a slate of demonstrably independent people who,
    although well compensated, have reputations worth protecting.
    Nominations for that slate should come from sources other than the
    company management, to avoid a you-sit-on-my-compensation-committee-
    and-I'll-sit-on-yours, selection process. The directors should not
    accept anything within the gift of the CEO; their directors' fees
    should be compensation enough, and high enough to provide an incentive
    to accumulate a record that will persuade shareholders to reelect them
    at reasonably regular periodic intervals--perhaps throwing in term
    limits to make sure that directors and management don't develop too
    cozy a relationship.
        Finally, we come to the CEO's and top managers. How to create
    incentives to induce managers to act in the interests of the
    shareholders who own the business has bedeviled students of corporate
    governance ever since 1932, when Adolph A. Berle Jr. and Gardiner C.
    Means published their classic ``The Modern Corporation and Private
    Property,'' detailing the potential for managerial abuse created by the
    separation of ownership from control of large corporations. Managers
    placing self-interest above the interests of owners were immune to
    retaliation by far-flung and essentially powerless shareholders. That
    situation was partially corrected when Mike Milken and his debt-
    financed corporate raiders snatched control of many companies from the
    worst abusers of shareholders' interests, grounded fleets of corporate
    jets, sold off hunting lodges, and generally sweated the fat out of
    expenses--a wonderful example of markets working to correct abuses that
    seemed beyond the reach of regulators.
        But nowadays there aren't many people who want to be like Mike, so
    it is incumbent on policymakers to get managers' incentives right.
    President Bush's proposal for publication of compensation arrangements
    in an accessible format would be a step in the right direction, its
    effectiveness attested to by the howls of outrage it produced from some
    CEOs. Truly independent boards, created along the lines described
    above, would be another advance, since compensation committees not
    beholden to corporate managements are more likely to relate pay to
    performance than the supine committees that now exist on some boards.
    Add in the requirement that options be treated as profit-reducing
    expenses--another McCain proposal that so horrified senators that it
    has for now been derailed--and you will have a new parsimony that will
    keep salaries to levels commensurate with effort and performance. Under
    such a regime, executives would have a clear incentive to spend their
    time creating efficiencies and new markets, rather than figuring out
    how to cash in options, and how to persuade their boards to revalue
    options if poor company performance has driven the stock price below
    the price at which the options may be exercised, rewarding executives
    whether or not they have delivered long-term value for shareholders.
        This may sound like an awful lot of regulation. But it is of a
    special, self-liquidating sort. If we adopt policies that get the
    incentives of all the players right, government can then get out of the
    way so that the various actors can do their thing--audit, advise on
    investments, monitor management performance in the interests of owners,
    and manage the company in a world in which managers' interests coincide
    with those of shareholders. The right kind of regulation can be a model
    of minimal--and effective--government.
        Irwin M. Stelzer is a contributing editor to The Weekly Standard,
    director of regulatory studies at the Hudson Institute, and a columnist
    for the Sunday Times (London).
                                   ----------
                 [From the Wall Street Journal, July 15, 2002]
               Leading the News: Coke to Expense Employee Options
     move may spur others to follow and could shape current talks in senate
                                (By Betsy McKay)
        Atlanta--Coca-Cola Co. said it will begin in the fourth quarter to
    treat all employee stock options as an expense, a move that could
    accelerate debate in corporate boardrooms over whether to adopt that
    accounting practice.
        The beverage company's decision also could shape the outcome of
    discussions today in the Senate over whether to instruct a new
    accounting-oversight board to study the fate of stock options--in
    particular, whether they should be expensed as other forms of
    compensation.
        Republicans tried Friday to block the measure, offered as an
    amendment to an accounting-overhaul bill. But Democrats say they will
    try again before final passage of the underlying accounting bill,
    expected late today.
        ``We are in a new environment,'' Gary Fayard, Coke's chief
    financial officer, said in an interview. ``There had been a loophole in
    the accounting, and we thought it was the right time to step up to the
    plate.
        ``There's no doubt that stock options are compensation,'' he added.
    ``If they weren't, none of us would want them.''
        Coke said its decision, announced yesterday morning, will reduce
    earnings only slightly--by about a penny a share--for 2002. That
    reflects the fact that Coke doesn't grant options as extensively as do
    some other companies. And while Coke isn't the first public concern to
    make the accounting change--Boeing Co. and Winn-Dixie Stores Inc. in
    recent years began calculating stock options as an expense--its high
    profile could prompt other businesses to consider calls from investors,
    regulators and politicians for greater financial candor.
        Last week, AMB Property Corp., a San Francisco-based owner of
    industrial real estate, also said it would record stock options as an
    expense.
        Proponents of expensing say options are compensation and should be
    treated as such, especially since generous option awards dilute the
    value of shares outstanding. Opponents say options are difficult to
    value and argue that expensing would confuse investors, not enlighten
    them. Changing accounting rules would reduce earnings at some
    companies.
        In 1993, the Financial Accounting Standards Board tried to mandate
    the expensing of options but retreated in the face of stiff opposition
    from business leaders and Congress. The issue flared up again after
    Enron Corp's demise late last year and has taken on new life with
    recent disclosures of earnings misstatements at WorldCom Inc.
        Coke's Chairman and Chief Executive Douglas Daft raised the idea of
    recording stock options as an expense about two months ago, Mr. Fayard
    said, as news of financial scandals continued to unfold. About 10 days
    ago, with lawmakers calling for tougher accounting standards, Mr. Daft
    fielded the idea in phone calls to Warren Buffet and some other Coke
    directors. Mr. Buffett, Coke's largest shareholder, for years has been
    an outspoken proponent of expensing options.
        Mr. Daft pressed ahead with his proposal to make the accounting
    change last week after President Bush called in a speech for better
    corporate governance. Mr. Bush didn't embrace the idea of forcing
    companies to expense options, but numerous economists and financial
    experts, including Federal Reserve Board Chairman Alan Greenspan, have
    endorsed the move, and growing investor unease sent stocks plummeting
    last week.
        Mr. Daft convened a meeting at 7 a.m. Thursday in Sun Valley,
    Idaho, where he and several other directors were attending a
    conference. The discussion, over breakfast in the condominium of
    director Herbert Allen, was short. It wasn't hard to win the directors'
    support; Mr. Buffett, in particular, applauded the move.
        ``Our management's determination to change to the preferred method
    of accounting for employee stock options ensures that our earnings will
    more clearly reflect economic reality when all compensation costs are
    recorded in the financial statements,'' Mr. Daft said in a statement. A
    spokeswoman said he wasn't available for further comment.
        ``I'm delighted,'' Mr. Buffett said in a telephone interview.
    ``This tells shareholders what really happens in terms of costs.'' The
    new plan, he said, also eliminates bias in structuring compensation
    packages, encouraging Coke to design packages that fit its and
    employees' needs without regard for accounting.
        While Mr. Buffett said he never pushed Coke to treat stock options
    as an expense, he said he did encourage the company last week to take a
    further step and use independent investment banks to determine the fair
    value of stock options that Coke grants. The move is intended to ease
    concerns over whether options that are expensed are being properly
    valued. Coke will ask two investment banks, Goldman Sachs & Co. and
    Citibank, to price options, and will expense the option value based on
    the average of those firms' quotes.
        Coke said stock options will be expensed over the period in which
    they vest, based on the value the day they are granted. Coke's 2002
    options plan authorizes as many as 120 million shares, or 4.8 percent
    of the company's share outstanding. The company usually issues 25
    million to 30 million shares a year, however.
        For 2001, Coke's top five officers received options on 3.7 million
    shares, including options on one million shares for Mr. Daft. About
    8,200 of Coke's 38,000 employees received options during 2001.
        Mr. Buffett predicted Mr. Daft's move could make him ``unpopular''
    among other CEOs, but he also said that while business leaders had
    managed to quash efforts in 1993 to force expensing of stock options,
    the current environment could force them now to accept it.
        ``I'm sure a few others will do it,'' he said. ``It may be that
    good practices drive out the bad.''
        Sen. John McCain (R., Ariz.) issued a statement applauding Coke's
    decision and expressing hope that ``other companies will follow suit.''
        Judy Fischer, managing director of Executive Compensation Advisory
    Services, in Alexandria, Va., said she believes other corporations will
    follow Coke. ``If a corporation can do it without a lot of problems to
    their bottom line, I think a lot will follow suit,'' she said.
        However, it wasn't clear how other companies will react,
    particularly high-tech businesses that rely heavily on stock options. A
    spokesman for Santa Clara, Calif., semiconductor maker Intel Corp.,
    where all employees are eligible for stock options, said he couldn't
    comment on Coke's move. One lobbyist was skeptical. ``I doubt just
    because one company made this decision that other companies will follow
    suit,'' said Ralph Hellmann, top lobbyist for the Information
    Technology Industry Council, a high-tech trade association in
    Washington. ``Each individual company is going to make its own
    determination.'' Looking beyond 2002, Coke's Mr. Fayard said earnings
    per share will be reduced by about three cents in 2003, with the
    reduction gradually increasing to about nine cents a share by 2006, he
    said. But the change won't affect the company's cash flow, he said.

        Mr. Domenici. Mr. President, I rise first in support of our
    free market economy. The revelations over the last few months
    of corporate officials having betrayed the trust of their
    employees and their investors is simply unacceptable. These
    corporate officials must be prosecuted to the full extent of
    the law and if additional penalties are required, then we
    should enact them.
        But let us not forget, that despite these terrible,
    unconscionable acts perpetrated by some CEOs on their workers
    and investors, the principles of our free market economy remain
    the envy of the world. These principles have allowed our
    economy to be the most productive, most innovative, most
    creative system, that has created income and employment only
    dreamed of in other parts of the world.
        One of these principles is property rights. But it seems
    that some corporate managers have forgotten that the companies
    they run are not their personal property to operate however
    they see fit or for their own benefit. The exuberance of the
    1990s that Chairman Greenspan warned us about and the
    extraordinary income and wealth generated during that period,
    allowed for unethical persons in our business sector to exploit
    this time of growth for their own selfish purposes and to bend
    the rules for their own benefit.
        So as we pursue new rules to punish those who have betrayed
    a trust--and we must--let us not allow the pendulum to swing so
    far that it jeopardizes the innovation and vitality of our
    economic system for the future. Rather than working against the
    principles that make our economic system so great, our actions
    should affirm these principles.
        I am angry, shocked and extremely concerned about the
    revelations that have emerged in the past 6 months concerning
    the accounting practices of a number of public companies. To
    operate efficiently our free market system requires a high
    level of honesty and trustworthiness among its participants,
    especially among its key decisionmakers.
        In the long run our economy--our standard of living--
    reflects not only our inventiveness and hard work but our moral
    character. Corporate executives have to be worthy of the key
    role they play. With all their wealth and high position comes
    responsibility. Sadly, some executives were not worthy of this
    responsibility.
        Restoring the public's trust is of paramount importance.
    America's system of corporate governance and its trust in our
    financial reporting mechanisms have been shaken and restoring
    this trust is of critical importance. It will take more than
    words to restore that confidence and trust. It will take
    something that I, Senator Dodd and others have been lecturing
    on for many years, and this is something not easily legislated.
    It will take a renewed awareness of the ethics of
    responsibility. It will take a reaffirmation that ``Character
    Counts.''
        Reaffirming that ``Character Counts'' means not only
    encouraging our young people to live by the six pillars--
    trustworthiness, respect, responsibility, fairness, caring, and
    citizenship--but expecting that our corporate leaders adhere to
    these traits and conduct themselves accordingly.
        Cooking the books has hurt thousands and thousands of hard-
    working Americans. American companies must adhere to the
    highest standards of public accounting ethics. Despite these
    abuses, as I have said our economy remains strong and the vast
    majority of CEOs are honest and abide by the rules.
    Unfortunately, a few bad characters have tainted the reputation
    of our enterprise system.
        The President and the Congress are addressing reform. I
    will support these reform efforts that are aimed at regaining
    trust and confidence in our Nation's financial markets and
    ensure that American workers are protected from unscrupulous
    corporations. No violation of the public's trust can be
    tolerated.
        But I also believe more can be done, and this bill before
    us moves us in that direction. I support:
        Full and accurate disclosure: I endorse the SEC's proposals
    to require CEOs to certify that their financial statements
    completely and accurately reflect the true condition of the
    company.
        Trust and accountability: Corporate leaders must be held
    accountable for any abuse of public trust. I believe that
    executives should be required to return moneys they received as
    a result of fraudulent accounting practices, as embodied in the
    Senate bill.
        Independence: Boards of directors must exercise independent
    judgment and a substantial majority of board members must be
    independent of management.
        Auditing reform: Strong oversight of the accounting
    profession is essential if we are to ensure independence of
    auditors and credibility of the auditing process.
        Pension protection: I fully support steps that will protect
    the retirement savings of American workers. Workers should have
    freedom to diversify and monitor their own retirement funds,
    giving confidence that their investments will not fall prey to
    unethical executives.
        I urge the SEC to move forward with the implementation of
    its proposed reforms. And, I strongly believe that the NYSE and
    the NASDAQ must proceed to improve their listing standards. I
    support the reform that works to strengthen our free enterprise
    system. It is our obligation as a Congress and as a country to
    ensure that the unethical few that are causing hardship for so
    many hard-working Americans, be swiftly brought to justice and
    face jail time. We will restore faith in our economic system
    for it is the greatest in the world. I support passage of the
    Senate bill.
        Mr. Cochran. Mr. President, while I support the passage of
    this bill, I think we ought to recognize the role the
    Administration is already playing to deal with these serious
    problems of corporate responsibility.
        I was pleased that President Bush announced last week his
    suggestions for corporate accounting reform. The President
    forcefully argued that higher ethical standards are an
    imperative to restore confidence in corporate America. Those
    standards should, in his words, ``be enforced by strict laws
    and upheld by responsible business leaders'' and that
    ``corporations should not be disconnected from the values of
    our country.''
        I also support the President's executive order to create
    the Corporate Fraud Task Force. Combined with new criminal
    penalties for corporate fraud, this taskforce can help bring
    stability to our Nation's economy. The President has also asked
    the Securities and Exchange Commission to adopt new rules to
    make sure that auditors are truly independent from the
    businesses which they audit.
        We also need to be sure the SEC has the resources it needs
    to carry out its other important responsibilities.
        I am hopeful that the Appropriations Committee will be able
    to provide the necessary amount of funding for the SEC to hire
    the enforcement officers it needs and to acquire state-of-the-
    art technology that is necessary for the performance of its
    duties.
        With the passage of this bill by the Senate, we will be
    able, in conference, to work with the other body to produce a
    good bill that deals effectively with the problems in this area
    of very legitimate concern to our country.
        Mr. Leahy. Mr. President, I want to compliment the majority
    leader for turning to the Sarbanes bill and the issue of
    corporate responsibility. I also want to thank Chairman
    Sarbanes for his leadership on the impressive bill that he has
    produced in the Banking Committee.
        So many times all that the public hears about Congress is
    about turf and partisanship. This comprehensive reform effort
    disproves those claims. Thanks to the leadership of the
    Majority Leader and Senator Sarbanes, the bill that we are
    about to vote on is a tough, comprehensive reform package that
    enjoys broad bipartisan support in the Senate. It brought
    together the best ideas from many Senators, from many
    Committees, and from both parties.
        From my standpoint, as Chairman of the Judiciary Committee,
    this has been an opportunity to benefit once again from the
    wonderful partnership that we have forged between the Banking
    Committee and the Judiciary Committee. After September 11, our
    two Committees worked together to write the anti-terrorism
    provisions of the USA Patriot Act that dealt with money
    laundering. Here, with the 97-0 vote to adopt of the provisions
    of the Corporate and Criminal Fraud and Accountability Act, as
    a Leahy-McCain amendment to this bill, Senator Sarbanes and I
    have again united the forces and expertise of our Committees.
    This time we have done so to craft comprehensive laws to deal
    with financial wrongdoing, and again done so with bipartisan
    support in both Committees. I think that the final product is
    better and more complete because of our joint work. Thank you
    Chairman Sarbanes.
        But the joint effort did not stop with Senator Sarbanes and
    myself. Senators Biden, Hatch and the Minority Leader offered
    provisions that were also adopted by the Senate, adding aspects
    of the President's recent proposal. That is an impressive show
    of bipartisanship because those proposals were only made after
    the Senate had already begun debate on this bill. Despite the
    White House's refusal to help us shape our more comprehensive
    proposal, we did not hesitate to include the President's
    suggestions in our final product.
        The bill was further perfected by Senator Edwards'
    thoughtful amendment dealing with the conduct of corporate
    attorneys. Once again, we were able to draw on the expertise of
    a particular Senator to enlist the help of lawyers in stopping
    corporate fraud, not designing it. In short, we started with a
    fine bill from Senator Sarbanes, and have strengthened even
    further, never losing our strong bipartisan support.
        We need to remind ourselves of the underlying reasons for
    the bipartisan support behind these measures. Enron brought it
    to light, but it goes deeper. It's about a basic fairness and
    equity that transcends party lines. It's about rewarding people
    who play by the rules and punishing people who don't. It's
    about the basic American ideal of treating all people equally
    under the law.
        We cannot have a system where a pickpocket who steals $50
    faces more jail time than a CEO who steals $50 million. The
    integrity of our financial system depends on accountability.
    The mounting scandals and declining stock market have damaged
    the integrity of our public markets and we must restore it.
        I was proud that the Judiciary Committee, joined by the
    Majority Leader and a bipartisan group of Senators including
    Senator McCain and others was able to make such an important
    contribution to this effort by contributing the provisions of
    S. 2010, the ``Corporate and Criminal Fraud Accountability
    Act,'' as it was unanimously reported out of the Judiciary
    Committee in April, as an amendment to the Sarbanes bill. Both
    in Committee in April and again last week on the floor, not a
    single Senator from either party has voted against the
    provisions of the Corporate and Criminal Fraud Accountability
    Act.
        We worked hard to reach across party lines on this measure,
    and I hope that the House of Representatives acknowledges that
    fact. I was glad to see in last Friday's newspapers that
    Speaker Hastert also endorsed the joint Sarbanes-Leahy measure
    after its adoption. I hope that the President can follow the
    leadership of Speaker Hastert and support the Senate measure as
    this bill moves forward.
        Recent events have served as a stark reminder that we need
    to reexamine our laws to make sure that they reflect our
    important and shared values of honesty and accountability.
    Enron has become a symbol for the torrent of corporate fraud
    scandals that have hit the front pages and battered our
    financial markets. Tyco, Xerox, WorldCom, Adelphia, Global
    Crossings, the list goes on.
        The things that happened at Enron did not happen by
    mistake. They were not the result of one or two ``bad apples.''
    Senior management at Enron, assisted by an army of accountants
    and lawyers spun an intricate web of deceit. They engaged in a
    systematic fraud that allowed them to secretly take hundreds of
    millions of dollars out of the company. This kind of fraud is
    not the work of a lone fraud artist. Rather, it is symptomatic
    of a corporate culture where greed has been inflated and
    honesty devalued.
        Unfortunately, as I have said and as the experts warned at
    our February 6 hearing, Enron does not appear to have been
    alone. Each week we read of corporation after corporation that
    has engaged in misconduct, and these are not small or marginal
    corporations. These are major mainstays of corporate America.
    The web of deceit woven by such publicly traded companies
    ensnares and victimizes the entire investing public who depend
    on the transparency and integrity of our markets for everything
    from their retirement nest eggs to their children's college
    funds. That is why this comprehensive reform is urgently needed
    to restore accountability in our markets.
        The Leahy-McCain amendment to the Sarbanes bill, approved
    97-0 by the Senate, provided important provisions to ensure
    just such accountability.
        The Corporate and Criminal Fraud Accountability Act which I
    authored provides tough new criminal penalties to restore
    accountability and transparency in our markets. It accomplishes
    this in three ways:
        punishing criminals who commit fraud, preserving evidence
    to prove fraud, and protecting victims of fraud.
        Here are some of its major provisions as adopted by the
    unanimous Judiciary Committee in April and the unanimous Senate
    last week: It establishes a new crime of securities fraud, with
    a tough ten year jail sentence. It breaks the ``corporate code
    of silence'' by providing, for the first time, Federal
    protection for corporate whistleblowers who report fraud to the
    authorities or testify at trial. It closes loopholes and
    toughens penalties for shredding documents as we learned had
    occurred at Arthur Andersen. It requires audit documents to be
    preserved for 5 years and provides tough criminal penalties for
    their destruction. It protects victims the right to recoup
    their losses by preventing fraud artists from hiding in
    bankruptcy or concealing their crime and using an unfair
    statute of limitations to hide.
        With these bipartisan provisions and others incorporated,
    this bill we have produced is truly a comprehensive measure. It
    tightens regulation of corporate misconduct, but it now also
    provides an important deterrent to fraud artists. This bill is
    going to send wrongdoers to jail and save documents from the
    shredder, which sends a powerful and clear message to potential
    corporate wrongdoers ``don't do it.'' As a former prosecutor, I
    have discovered that nothing focuses attention to morality like
    the prospect of a long prison sentence.
        In the Senate, as we have been debating and shaping
    specific and comprehensive reform proposals, we had been trying
    for months unsuccessfully to get the President's support. The
    Administration had stayed on the sidelines during this
    important debate.
        For whatever reason, perhaps the mounting scandals or the
    declining market, the President decided last week to speak out
    against corporate fraud. He spoke again today on our economy. I
    welcome his participation and hope that he will follow up his
    speeches by supporting real reform. It is amazing to me that
    with such broad bipartisan support and now on the verge of
    Senate passage, that the Administration has still not given a
    clear statement supporting the bill on which we are now about
    to vote.
        Although I now understand that a White House official
    reportedly said that they agreed with the ``goals'' of this
    reform bill, I was disappointed that the President has not yet
    voiced his support for this bipartisan measure about to pass
    the Senate. Supporting the ``goals'' is a good first step but
    it is nonetheless a baby step. I read in the paper last week
    that the President does not want to ``tip his hand.'' This is
    not a game of poker, however. This is the time for Presidential
    leadership with the integrity of our markets at stake. When
    there are specific proposals passing the U.S. Senate by an
    overwhelming majority of Senators from both parties and the
    Speaker of the House is supporting the measures as well one
    wonders what it will take for the President to express his
    opinion.
        For those of us in the Senate, like myself, Senator
    Sarbanes, Senator McCain, Majority Leader Daschle, and others
    who have worked hard to come up with specific and bipartisan
    reform proposals, the ``goals'' have been clear for a long
    time. It is now time for comprehensive action.
        While the President's proposal was short on details, some
    of it did sound familiar to those of us on the Judiciary
    Committee. Three of the President's proposals are found in S.
    2010, the Corporate and Criminal Fraud Accountability Act,
    which we adopted 97-0 in the Senate: One, The President
    advocates for strengthening the laws punishing document
    shredding and obstruction of justice. That is in our bill. Two,
    The President wants the Sentencing Commission to raise
    penalties for corporate misconduct. That is in our bill. Three,
    The President wants the Sentencing Commission to raise the
    penalties for the existing fraud laws. That is in our bill as
    well.
        I am glad the President adopted three proposals from my
    bill, even if he will only say that he supports the `` goals.''
    As I said, we were also quick to write up his ideas into
    concrete proposals and include them in our bill. Unfortunately,
    the President's proposal failed to include many of the
    important provisions in the bipartisan Leahy amendment. It
    fails to create a new crime to punish securities fraud to
    directly punish corporate wrongdoers. It fails to provide
    whistleblowers with protection that will break the corporate
    code of silence. Remember, you can put whatever criminal laws
    you want on the books but unless there are witnesses who are
    not scared to help prosecutors prove what happened no one will
    be held accountable. It fails to protect victims of fraud by
    allowing them to recover their losses from a fraud artist who
    declares bankruptcy. It fails to establish a realistic statute
    of limitations to allow victims to recoup their losses when a
    fraud artist can manage to conceal his crimes for long enough,
    a change that has received strong bipartisan support dating
    back to the SEC under former President Bush.
        As I said, I was glad to hear the President finally join
    this reform debate. Now is not the time, though, for half
    measures. We need comprehensive action. We were glad to include
    the President's proposals in the Senate bill, but we
    unanimously agreed to more comprehensive reform, including the
    Leahy bill.
        Now I hope that the President will support such
    comprehensive reform as is found in this bill. I hope that his
    rhetoric is backed by action and that his generalities are
    backed with specifics.
        Speaker Hastert has now publicly supported the Sarbanes
    bill and the Leahy amendment. I hope that the President will
    support the bill's provisions as it moves forward to conference
    and will appeal to other Republican House members not to water
    it down. That will be the true test of his resolve to restore
    accountability to our markets.
        It is time for action, comprehensive action that will
    restore confidence and accountability in our public markets.
    The Sarbanes bill, including the unanimously approved Leahy-
    McCain amendment incorporating the Corporate and Criminal Fraud
    Accountability Act, provides just such action.
        Let's pass this comprehensive bill and send the President a
    strong measure to sign into law. Congress must act to restore
    integrity in our capital markets to strengthen our economy.
        Mr. Reid. Madam President, I ask unanimous consent that at
    5:45 p.m. today all time postcloture expire, and that all the
    time available, not counting the time available for Senator
    Byrd, be equally divided and controlled between the two
    managers or their designees; that without further intervening
    action, the Senate proceed to vote on or in relation to the
    Carnahan amendment No. 4286, to be immediately followed by a
    vote in relation to the Edwards amendment No. 4187, as amended,
    if amended; that upon disposition of these amendments, the bill
    be read a third time, and the Senate vote on passage of the
    bill; that upon passage, the Banking Committee be discharged
    from further consideration of H.R. 3763, the House companion,
    and that the Senate then proceed to its consideration; that all
    after the enacting clause be stricken and the text of S. 2673,
    as passed, be inserted in lieu thereof; that the bill be read a
    third time, passed, and the motion to reconsider be laid upon
    the table; that upon passage of H.R. 3763, the Senate insist on
    its amendment, request a conference with the House on the
    disagreeing votes of the two Houses, and that the Chair be
    authorized to appoint conferees on the part of the Senate; that
    all succeeding votes in this vote sequence, after the first
    vote, be limited to 10 minutes; that there be up to 2 minutes
    of explanation prior to each vote, with no further intervening
    action or debate, with the 2 minutes equally divided in the
    usual form.
        The Presiding Officer. Is there objection?
        Mr. Gramm. Madam President, reserving the right to object,
    I would like to propound a parliamentary inquiry. Under this
    agreement, when 5:45 comes, we would begin to vote on the two
    amendments, and then vote on final passage, and no other
    amendment would be in order under the agreement; is that
    correct?
        The Presiding Officer. The Senator is correct.
        Mr. Gramm. Madam President, I do not object. I think under
    this agreement we will have time to go back and forth. I would
    say that if it saves anyone time, we do not need a vote on the
    two pending amendments. We could do them by voice vote and
    proceed to final passage.
        Mr. Reid. We will be happy to discuss that after the UC is
    entered.
        The Presiding Officer. Is there objection to the request?
        Without objection, it is so ordered.
        Mr. Reid. Madam President, I ask unanimous consent that
    upon disposition of H.R. 3763, passage of S. 2673 be vitiated
    and the bill be returned to the calendar.
        The Presiding Officer. Is there objection?
        Without objection, it is so ordered.
        The Presiding Officer. The Senator from Texas.
        Mr. Gramm. Madam President, I want to begin by very briefly
    responding to Senator Kennedy. I was somewhat taken aback at
    his suggestion that we set aside the two amendments and allow a
    nongermane amendment to be offered when, in fact, on a
    bipartisan basis, earlier this week, we decided not to deal
    with pension reform.
        So I want to make it clear to my colleagues that I am
    perfectly happy to deal with pension reform. I think a
    bipartisan consensus is evolving on pension reform. But we made
    a decision, on a bipartisan basis, earlier this week, not to
    put pension reform on this bill. Its day will come. I want to
    make that clear.
        Madam President, let me try to respond to several points
    that were made earlier today. I will try to be brief so that my
    other colleagues will have an opportunity to speak on my side
    of the aisle.
        I want, first, to talk about stock options. Then I want to
    talk about the bill before us and where we go from here. And I
    will try to be brief on all of them.
        First, let me make it clear that stock options are pretty
    important to the American economy. More than 6 million
    nonexecutive workers in America receive stock options every
    year. So when we finally get around to having a policy set on
    stock options--which I hope will be done by FASB, the
    accounting board, based on logic and reason--we need to take
    into account that 6 million people who are not executives of
    companies get stock options every year.
        We want to be sure that we are not endangering their
    ability to own a piece of America with the reforms designed to
    deal with a few people who violated the law in some cases, who
    did not act honorably in some cases.
        We want to be sure we do not deprive or preclude 6 million
    workers who are not executives--or people who did not violate
    the law, did not act dishonorably--from the ability to get
    stock options.
        Let me also say, in areas such as biotechology and the
    computer programming industries, that 55 percent of rank and
    file employees get stock options.
        So I just want to urge, as we are going about our business
    here, with all this talk about people who have made millions,
    that we do not forget that millions of Americans benefit from
    this, and we need to be careful about what we are doing.
        Let me say, secondly--and Senator Bennett made the point
    today; I made it last week--if you listen to what is being said
    in this debate, a big point is made of the fact that in 1994 we
    saw an explosion in the use of stock options and low-interest
    loans and other nonconventional forms of executive
    compensation.
        What happened to trigger that is in 1993, as a gratuitous
    provision in the 1993 tax bill, we changed the law so that if
    you are compensating an executive in corporate America and you
    pay that executive more than $1 million a year, you cannot
    count that compensation as a business expense. Of the top 30
    companies in America, the level of compensation at that point
    was already substantially above the million-dollar mark. So
    because of what Congress did in 1994, having passed a law that
    said you could not pay people with a paycheck above a certain
    level and have it count as a business expense, we should not
    have been surprised that accountants and financial planners and
    people who were smart enough to make over $1 million a year
    found other ways to receive compensation.
        So I want to make it clear that the point I am making is,
    if you are looking for somebody to point the finger of blame at
    here--and many people are trying to do that--I think Congress
    is a good institution to point at because Congress eliminated
    the ability of companies to pay their executives the old-
    fashioned way.
        A lot has been made about who is at fault in all this. I
    would just simply make the following points. If somebody said
    to me: I know you don't know what caused all these current
    problems, but tell me; I am going to force you to tell me what
    you think the cause was. I would say: The inadequacy of GAAP
    accounting, which, in its current incarnation, works very well
    for old-style companies with assets that are written off.
        GAAP accounting fits the steel industry perfectly. It fits
    the automobile industry pretty well. But the problem in the
    1990s--when productive power became knowledge, when companies
    with relatively little in the way of assets gained huge market
    caps because of people's assessment of their know-how and the
    technology embodied by the company--was that GAAP accounting
    did not keep pace with the reality of the world that we live in
    today and that we lived in the 1990s.
        It is very complicated to try to figure out what the values
    of these companies actually are by any conventional method
    where you are adding up their acquisition cost of assets and
    depreciating those assets.
        This created a giant void in GAAP accounting in the 1990s,
    and people pushed the envelope within that void. In some cases,
    it appears they violated the law; in other cases, they have
    certainly violated standards of ethics.
        Nothing we are doing in this bill is going to solve the
    problem in GAAP accounting. I am confident that over time we
    will find new ways of developing generally accepted accounting
    principles that don't rely on concepts such as goodwill, which
    don't make a lot of sense economically. But I do believe the
    bill before us is a step in the right direction.
        There are differences of opinion. Before we go to final
    passage, I want to make clear what those differences are.
    Senator Sarbanes and I both believe that we should have an
    independent accounting board. We both believe that that board
    should set and enforce ethics standards. We both believe that
    part of setting ethics standards is looking at auditor
    independence.
        Senator Sarbanes believes that we should write in law in
    some great detail what is entailed in auditor independence. I
    believe the problem with that is that while the law might fit
    General Motors, there are 16,254 publicly traded companies in
    America, and I am concerned that there is no law that Congress
    can write that will fit all 16,254 companies.
        My second problem is, if you make a mistake in writing the
    law, then you have to go back and pass another law to correct
    it. If we had set out Glass-Steagall, separating banking and
    securities, by regulation, my guess is that by the mid 1950s,
    we would have concluded that that was a mistake, and we would
    have fixed it. But since it was written into law, it couldn't
    be fixed by regulation. Regulators tried to make marginal
    changes. We ended up with a very unstable system, and we were
    only able to fix it by law in 1999.
        A second problem with writing the details of these
    different standards such as auditor independence into law is if
    you make a mistake, it is hard to fix it; whereas if you set up
    a board and, based on their expertise, they set out a
    regulation, if they make a mistake, they can fix it.
        My final point on setting these standards by law is, one
    size fits all never works. What we need is the flexibility for
    this board to set a standard and then determine, based on the
    circumstance of the individual company, what makes sense.
        I intend to vote for the bill on final passage. There are
    probably 10 things in the bill I am opposed to. But we are
    going to conference with a House bill that is very different. I
    am confident that in conference we can write a bill that will
    be supported by both Houses of Congress and signed by the
    President. I think we can strengthen the bill where it needs to
    be strengthened. I think we can provide flexibility where it is
    needed to bring in reason and responsibility.
        Our objective has to be to fix what is broken in American
    capital markets and do it while minimizing the cost we impose
    on businesses, investors, and workers that did not violate the
    law and did not act in a nonethical manner.
        The sooner we can get to conference, the sooner we can
    write this bill and see the bill signed into law. We have
    reached the point where we have a bill before us that addresses
    the major issues that we decided to address.
        I know people have been unhappy about the inability to
    offer amendments today. The plain truth is, we have 97 first-
    degree amendments that have been filed and 24 second-degree
    amendments, and there was never any possibility that those
    amendments could be offered. We tried to come up with
    amendments that were agreed to and in the process, ended up
    excluding some people.
        Let me conclude my remarks, at least for the time being, by
    congratulating Senator Sarbanes on his leadership on this bill.
    Overall, he has done a good job. I do not agree with him on
    each and every part of it, but he has always been open. We have
    had many good discussions. I am confident that in the end we
    will write a bill that will be broadly supported and that will
    be in the interest of the country.
        The Presiding Officer. Under the previous order, the hour
    of 4:55 having arrived, the Senator from West Virginia is
    recognized.

                               SUPPLEMENTAL BILL

        Mr. Byrd. Madam President, there is a game being played
    with the critical issue of homeland security. It is a political
    game which could have disastrous consequences.
        The White House is talking big about homeland security,
    exhibiting strong presidential interest in homeland security,
    trotting out proposals for a whole new Department of Homeland
    Security, and publicizing alerts.
        It is strange, then, strange indeed that despite its public
    pronouncements on homeland security, the White House refuses to
    back the rhetoric up with resources.
        Twice--once last year, and currently--large bipartisan
    majorities in both Houses of Congress have withstood veto
    threats from this administration and insisted on significant
    funding increases for homeland security.
        President Bush's own appointees have all but begged the
    President's OMB Director for additional funds to fight the war
    on terrorism here at home. Many of these requests are urgent
    and quite compelling, yet the OMB has continually rejected a
    surprising number of these pleas. It is as if this
    administration has delivered an internal unfunded mandate to
    its own cabinet secretaries and Federal workers. Fight the war
    on terrorism on every front here in the homeland. Fight
    vigorously. Spare nothing, but make sure you do it on a
    shoestring. Protect our people here at home, but protect them
    on the cheap.
        The Department of Energy proposed a total of $380 million
    to fund projects to enhance the security of radioactive
    materials here at home and overseas, including: better security
    measures to safeguard the transport of nuclear weapons within
    the United States; improvements in the ways in which we secure
    and store plutonium; cleaning up, transporting, and protecting
    low-level radioactive materials that could be used in a ``dirty
    bomb.''
        For these and similar activities $380 million was asked for
    by the Secretary of Energy. But do you know what? That request
    fell on deaf ears at the Office of Management and Budget.
    Despite all of the worrying and nail biting about what would
    happen if some lunatic obtained radioactive material and
    detonated a ``dirty bomb'' on the mall in Washington or in some
    other large city, the OMB provided less than $27 million or
    about 7 percent of the Energy Department's request. Let me say
    that again: The OMB provided less than $27 million or about 7
    percent of the Energy Department's request. This urgent
    supplemental bill contains $361 million for the Department to
    dedicate to securing these dangerous and vulnerable materials.
    That is $334 million above the amount requested by the
    President.
        Another striking omission from the Bush supplemental
    request for homeland security involved efforts to deport those
    individuals who entered the country on visas that have now
    expired. Currently there are an estimated 8 million
    undocumented immigrants in the United States and only 2,000
    interior immigration enforcement officers nationwide. This is a
    very dangerous situation. We know that terrorists live and plot
    their crimes among us. The Immigration and Naturalization
    Service requested $52 million for analysts to help find, arrest
    and deport high-risk individuals who have disregarded the
    departure dates on their visas.
        OMB said no, nada, nix. It denied the entire request. The
    supplemental bill, now stuck in conference because of the
    administration's latest demands, contains $25 million that the
    Appropriations Committee believes the INS can usefully spend
    this year to address the need to locate some of these
    individuals. We also include $88 million for construction and
    equipping of border facilities, and for improved border
    inspections.
        Last fall, OMB denied $1.5 billion in funding which the FBI
    requested in the wake of the attack on the twin towers in New
    York. Part of the FBI's funding request was for acceleration of
    a new computer system that will be at the heart of all
    communications within the bureau. Also included in the request
    were funds to enhance the internal security of the FBI's
    systems and procedures; for ``cyber cops'' and for hazardous
    materials personnel. The Congress provided $212 million above
    the President's request to permit completion of the new
    computer system much earlier than would be allowed under the
    Bush plan. In addition, we have included--the Appropriations
    Committee--$175 million for cyber security and counter
    terrorism in the supplemental that the White House is now
    delaying--delayed at the last minute last Thursday evening.
        I could go on, but suffice it to say that this
    administration talks a good game about homeland security but it
    is unwilling to put its money where its mouth is.
        Over this past weekend, during his radio address, the
    President said that, ``Strengthening our economy and protecting
    the homeland and fighting the war on terror are critical issues
    that demand prompt attention.'' I agree. I only wish that the
    same message would be made clear to the Office of Management
    and Budget.
        We have worked diligently in the Congress to get these
    critical homeland security monies out to Federal and local
    personnel charged with protecting our people. Yet, we have been
    met by objection after objection by this administration.
        In March, the President insisted he needed more money for
    national defense in an urgent supplemental. We gave him every
    dollar he requested. In addition, the House and Senate provided
    more money for critical homeland defense needs.
        Instead of letting the House and Senate work out our
    differences and get the funding out, the White House started
    issuing veto threats before the Senate bill was even off of the
    floor. And last Thursday evening, just as all differences
    appeared to be worked out, the White House bomb throwers blew
    up the agreement with new demands.
        It makes one wonder how much the White House really needs
    that defense money and it certainly causes one to wonder how
    serious this administration really is about homeland security.
        Senator Stevens and I have beseeched the White House over
    and over again to have the Homeland Security Director come
    before our Committee to tell us about the needs for Homeland
    Security. Our requests were denied. We held days of hearings
    with administration officials, local firefighters, policemen,
    mayors and governors. We did our best and funded the needs as
    testimony we heard indicated.
        We wrote a good bill, and we were ready to convene the
    conference Friday. But our efforts were blown up by the OMB
    Director, suddenly and completely and with no warning until the
    very last minute, Thursday evening.
        So needs go wanting in our military and in our homeland
    defense effort. There is no excuse for such irresponsibility.
    Such tactics are not in the best interests of our people.
    Hollow rhetoric on homeland security will never replace solid
    funding for these needs.
        Political gamesmanship over issues so critical to our
    Nation and our people is irresponsible, arrogant and totally
    out of line.
        I deplore the arrogance with which the good faith efforts
    of both Houses of Congress have been treated by this White
    House. Apparently the security and safety of this Nation and
    its people have taken a back seat to gamesmanship by a White
    House that has no respect for the people's representatives or
    for the people's urgent needs.
        Under OMB Director Mitch Daniels' stewardship, the Federal
    budget has gone from a surplus of $127 billion in FY 2001 to an
    estimated deficit for the current fiscal year of $165 billion.
    This is a swing of $292 billion in just one year.
        The President is now threatening to veto the urgent
    national defense and homeland defense supplemental
    appropriations bill based on Mr. Daniels recommendation. Why?
    Because Mr. Daniels asserts that the bill spends too much
    money. Yet the conference report's spending levels that have
    been agreed to on a bipartisan and bicameral basis would
    increase the deficit by only about $600 million compared to the
    President's request.
        Mr. Daniels believes that the critical port security,
    border security, firefighting, law enforcement, nuclear
    security and other homeland defense programs funded in the
    supplemental can wait because the bill would increase the
    deficit by about $600 million, when his failed fiscal policy
    has resulted in a $292 billion swing in the deficit.
        The OMB Director seems to have forgotten, or perhaps never
    learned, that the appropriations process is about more than
    just numbers. Maybe at OMB, they can be bean counters, but here
    in Congress we are responsible for understanding what the
    numbers mean for the American people.
        Mr. Daniels is cynically focused only on the bottom line.
    In an effort to make the supplemental bill look smaller, he has
    proposed rescinding the balance of funds under the airline loan
    guarantee program. He asserts that this would produce $1.1
    billion of savings. Yet these funds under the law can not be
    spent. There are no real savings here. The Congressional Budget
    Office would not score savings for this proposal. This is the
    kind of phony accounting that is getting our Nation's
    corporations in trouble.
        This phony accounting is proof that Mr. Daniels does not
    care about homeland defense or about our national defense, or
    about fiscal discipline. This phony accounting proves that the
    President's veto threat is only about proving that he can force
    the Congress to hit some arbitrary bottom line. And the
    unmitigated gall of a high White House official coming to the
    Congress with an accounting gimmick at a time when that same
    White House is decrying phony accounting practices and scandals
    in the business community is beyond belief.
        We should not delay this conference one more day. There are
    some in Congress who suggest that we should throw our hands up
    on this bill and wait until the next fiscal year to address
    these priorities. Such statements ignore the critical needs
    facing the Nation for defense and homeland security. Our
    fighting men and women need this money to prosecute the war on
    terrorism. Dr. Dov Zakheim--the Defense Department
    comptroller--said in a briefing on Friday that the Defense
    Department is hitting a wall and that our people in uniform
    cannot be paid if the Supplemental Bill is not enacted by the
    August break. He said in that briefing that there is good will
    on Capitol Hill, and he is right. We are trying to do the right
    thing for our people here at home and our fighting men and
    women in the field. It is deplorable that good will, hard work,
    and good intentions can be trashed by OMB Director with
    reckless abandon. I do not think this President or this Nation
    are well-served by tactics and gamesmanship when the stakes are
    so high.
        Mr. President, I ask unanimous consent that a memorandum be
    printed in the Record which sets forth the highlights of the
    $7.2 billion for homeland defense in conference funding levels.
        There being no objection, the material was ordered to be
    printed in the Record, as follows:

               Highlights of $7.2 Billion for Homeland Defense in
                           Conference Funding Levels
        The tentative conference funding levels are $1.9 billion above the
    President's request. A summary of the $1.9 billion increase with
    examples of changes to the President's homeland defense proposal
    follows:
        $701 million for first responder programs, $343 million above the
    President's request, including:
        $150 million for firefighters, with the funds going directly to the
    local firefighters. The President did not request supplemental funds
    despite the fact that over $3.0 billion in applications from 18,000
    fire departments were received for the $360 million currently
    available.
        $100 million for State and local governments for improving
    interoperability of communications equipment for fire, police and
    emergency medical technicians, none of which was requested. The funding
    flows through existing FEMA and Justice program, rather than the new,
    centralized program at FEMA, proposed by the President for FY 2003. In
    addition, we are directing the National Institute of Standards and
    Technology to take the lead in developing uniform standards for
    interoperable State and local law enforcement, firefighting and
    emergency medical communications equipment.
        $151 million for the Justice Department, $151 million above the
    President's request to give to State and local governments for improved
    training and equipment for law enforcement personnel (rather than
    through FEMA). Funds would also be used to improve the processing of
    security clearances for State and local first responders so that State
    and local governments can have information on potential security risks
    and to promote mutual aid agreements to coordinate the response of
    State and local governments to a terrorist attack.
        $193 million, $134 million below the request for FEMA grants to
    State and local governments to update their emergency operations plans
    and to improve State emergency operations centers. $25 million is
    approved for a new, unauthorized program requested by the President,
    $25 million below the request. The proposal establishes a Citizen Corps
    within FEMA to promote volunteer service for emergency preparedness.
        $54 million, $22 million above the President's request for FEMA's
    search and rescue teams. Currently, there are 28 FEMA search and rescue
    teams around the country that can be deployed to major disasters to
    assist local first responders in search and rescue operations. Funding
    will be used to upgrade equipment and training for responding to events
    involving a biological, chemical or radiation attack.
        $37.1 million of unrequested funding for the National Institute of
    Standards and Technology for developing uniform guidelines for
    chemical, biological and radiation detection equipment ($17.1 million)
    and for developing best practice guidance for homeland security
    technologies ($20 million).
        $15.9 million for the Federal Law Enforcement Training Center to
    expand training capacity for law enforcement personnel of the new
    Transportation Security Administration.
        $739 million for port security programs, $465 million above the
    President's request, including:
        $125 million for port security grants through the Transportation
    Security Administration. Last Fall, Congress approved $93 million of
    unrequested funds for port security grants. DOT received $692 million
    of applications for the $93 million we provided. Despite this, the
    President did not request additional funds.
        $528 million for the Coast Guard for port and maritime security,
    $273 million above the President's request. Increased funds would be
    used to: expedite vulnerability assessments at our Nation's ports,
    rather than follow the Administration's current plan to do the
    assessments over the next five years; add two new maritime safety and
    security teams; purchase a total of six homeland security response
    boats; and expand aviation assets as well as the shore facilities to
    support them.
        $39 million for Customs to target and inspect suspect shipping
    containers at overseas ports before they reach U.S. ports. The
    Administration requested no funds for this activity.
        $19.3 million, as requested for 34 additional personnel for
    improved background checks for truck drivers, for improved fraud
    detection for truck licensing and for improved fraud detection for
    driver's licenses.
        $28 million of unrequested funding for the Safe Commerce program to
    develop better procedures for securing the contents of the 6 million
    containers that enter U.S. ports each year.
        $251 million for bioterrorism funding, $251 million above the
    President's request, including:
        $251 million for the Centers for Disease Control for improved and
    secure facilities, including toxicology and infectious disease labs, an
    emergency operations center and for information technology security.
        $235 million, $209 million above the President's request to improve
    security at our nuclear weapons facilities (Energy requested the funds,
    but the White House did not request them). Funding would be used to
    improve security of the nuclear weapons stockpile, the national nuclear
    labs and our nuclear weapons plants. Funds are included to establish a
    911 system for local first responders to call when confronted with
    nuclear hazzards, enhanced funding for the National Center for
    Combating Terrorism, expansion of radiological search teams, and
    establishment of a National Capital Area Response Team at Andrews Air
    Force Base. Funds would also be used to consolidate nuclear materials
    sites so fewer locations need to be protected. Several requested items
    that are approved include funds to improve security on the electrical
    grid and funds to improve our capability to detect radiation.
        $147 million, $128 million above the President's request for cyber
    security to help deal with the threat to Federal and private
    information systems. $82.6 million is provided to Justice to improve
    the investigation and prosecution of cyber crime, research to improve
    the detection of cyber crime, ``data warehousing'' and ``data mining''
    to help expose cyber crime and for information sharing. $20 million is
    provided to Commerce to develop unified Federal guidelines and
    procedures for system security certification and to develop guidelines
    and benchmarks for secure information systems. Funding is also provided
    to improve wireless intrusion detection systems. $25 million is
    provided to the Energy Department to improve cyber security at our
    nuclear weapons plants and labs. $19.3 million, as requested, is
    included for NSF for scholarships to develop cyber security skills.
        $120 million for border security, $78 million more than requested
    by the President, including $32 million for Immigration and
    Naturalization Service Construction to improve facilities on our
    Nation's borders, $25 million for better equipment for the additional
    personnel that are being hired with the funds Congress provided at Fall
    and $5.7 million for the Justice Department to deploy to 30 more ports
    the IDENT/IAFIS system for rapid response criminal background checks by
    the INS of suspect aliens prior to their admission into the country.
    $57 million for INS for identifying and removing immigration felons
    from the country and for information technology enhancements.
        $140 million of unrequested funding for the Department of
    Agriculture to enhance our Nation's food safety capabilities and to
    protect against devastating plant and animal disease; to increase
    support for the Food Safety and Inspection Service, especially to
    ensure the safety of imported products; for improved security at USDA
    labs in order to secure bio-hazardous materials; funding for the
    Extension Service to provide emergency training for first response in
    rural areas; for FDA to improve the ability to inspect imported
    products such as medical devices that contain or are susceptible to
    being contaminated with radiation; and for vulnerability assessments
    and security improvements to protect rural water systems.
        471 million of unrequested funding for airport security, including
    $150 million to insure that all small and medium hub airports have all
    of the funds necessary to implement the FAA's new airport security
    guidelines and that large airports have some additional funding to meet
    those requirements; $225 million is provided above the President's
    request for explosives detection equipment; $42 million is provided to
    improve the security of the FAA air traffic control system; $17 million
    is provided to improve airport terminal security for our Nation's
    airports; and $7.5 million is provided to FAA to repair long range
    radar systems that the Department of Defense believe must be continued
    for several years because these assets are the only FAA radar capable
    of continually tracking aircraft with disabled transponders. In
    addition, $15 million is provided for improved air to ground
    communications for the air marshals, $4 million for radiation detection
    equipment for air cargo and $10 million is included for improved
    technology for air cargo safety and other cargo modes.
        $100 million for unrequested nuclear non-proliferation programs.
    The best opportunity to stop a potential ``dirty'' bomb is to minimize
    the opportunity for terrorists to get their hands on nuclear material.
    Funds are included to protect fissile material abroad, purchase
    radiation detectors and to establish international standards for
    securing fissile material.
        $108 million of unrequested funding for the Corps of Engineers to
    improve security at Corps water projects.
        $92 million, $82 million above the President's request for the FBI
    for counter terrorism and information technology enhancements. In
    total, FBI receives $175 million when cyber security funding is
    included.
        $50 million of unrequested funds for EPA to provide funds to local
    governments to conduct vulnerability assessments on our drinking water
    systems.
        Examples of the remaining $273 million, most of which was
    unrequested include: $12 million for security at the Smithsonian; $17.7
    million for the National Park Service for installation of bollards at
    the Jefferson Memorial and an in-ground retaining wall at the
    Washington Monument (requested by the President in FY 2003); $26
    million for the U.S. Geological Survey for high resolution mapping and
    imagery of the Nation's major cities for use in developing
    vulnerability assessments of infrastructure and for expanded data
    storage capacity; $28.5 million to expand Secret Service capacity to
    combat electronic crimes; $23.6 million for the Legislative branch for
    Capitol Police and for the Library of Congress to cover part of the
    lost copyright fees from the slowed mail and for costs associated with
    cleaning up the Hart building after the anthrax attack; $19 million to
    improve response capacity to chemical attacks and for research on the
    impact of the release of toxic substances at the World Trade Center;
    $15 million for improved bus safety; $7.2 million for NOAA to develop
    back-up capacity for the supercomputers that support our weather
    forecasting system; $17 million for security and renovations of the
    Federal courts, $3 million above the request; and $44 million for the
    District of Columbia and the Washington Metro to improve security;
    consistent with the congressionally-mandated District emergency
    operations plan and FEMA's emergency plan for the National Capital
    Region, and to construct decontamination and quarantine facilities at
    Children's Hospital and the Washington Hospital Center.
        The conference funding levels include $4.1 billion for the new
    Transportation Security Administration, $331 million below the request
    ($439 million of which is for unrequested items highlighted under port
    security and airport security).
        The conference funding levels also include the $87 million
    President's Budget request for the Postal Service to improve protection
    of postal customers and postal employees from a bioterrorist attack,
    the $52 million President's Budget request for improved security of
    Federal buildings and $3.8 million for the Office of Homeland Security,
    $1.2 million below the President's request.

        Mr. Byrd. Mr. President, I yield the floor.
        The Presiding Officer (Mr. Carper). The Senator from
    Maryland is recognized.
        Mr. Sarbanes. Mr. President, I yield 10 minutes to the
    distinguished Senator from Connecticut.
        The Presiding Officer. The Senator from Connecticut is
    recognized.
        Mr. Dodd. Mr. President, I thank the chairman of the
    committee. Let me begin by stating that which I have said on
    several occasions: We are all deeply indebted to the Senator
    from Maryland for the tremendous work he has done as the
    chairman of the Banking Committee in fashioning this
    legislation. He has worked with many of us to put this bill
    together. My guess is that, within an hour or so, we will
    overwhelmingly pass this bill before us. The chairman will be
    largely responsible for the result.
        I also commend my colleague from Wyoming, Senator Enzi, and
    others who have worked very hard and have made it a bipartisan
    bill. Without his leadership, I don't think that would have
    happened. We may have had a partisan vote coming out of
    committee. That would not have bode well for the handling of
    this matter on the floor. So I commend him and others for
    reaching an accommodation that made this a strong, good bill.
        Mr. President, I want to take a few minutes toward the
    close of this debate to urge our colleagues to be supportive of
    this bill, and I hope Members of the other body will support
    what we have done in the Senate.
        The House passed legislation a number of weeks ago, prior
    to a lot of the events that have unfolded over the last 2 or 3
    weeks. The argument today for a stronger Senate bill hardly
    needs to be made in light of events that occurred over the past
    number of days. Just today, the Dow is down some 40 points;
    Nasdaq is even. But over the last week, we have seen a
    continued decline in investor confidence and, of course, how
    that is reflected in the stock markets.
        Investors, both domestic and foreign, are losing confidence
    in our financial markets. Investor trust is contagious. I also
    point out the corollary to that: Investor mistrust is also
    contagious. What we are watching is an erosion of trust that
    has begun and is almost impossible to stop once it gets
    rolling. Obviously, a lot of factors will contribute to
    stemming this tide of continued erosion of investor trust and
    confidence.
        One of the things we can do is what we are doing today.
    Other people will have to add their voices to the debate. In my
    view, the President still has to be stronger than he has been.
    The House will have to rise to the occasion as we have endorsed
    in large measure what we have accomplished here, but our step,
    the first step, is the one we are taking this afternoon.
    Therefore, I think this is critically important.
        This is not just another bill we are passing. This is far
    more important. In fact, the impact of how people react may be
    more important than the actual wording and language of the
    bill. It is critically important we have as strong a vote as
    possible.
        If we fail to enact serious reforms--and this bill is
    serious reform--then I believe we endorse dangerous and
    discredited accounting practices that we have seen in the last
    7 months alone cost shareholders and workers billions of
    dollars in their savings and pensions.
        The Nasdaq has fallen over 37 percent, and the Dow has
    fallen 17 percent since the beginning of the year. Both Nasdaq
    and the Dow have dropped over 10 percent each in the past week
    alone. So Congress must act today, Mr. President, and act with
    a very strong voice to stem the rising tide of investor
    apprehension.
        Passage of this bill will not and cannot of itself restore
    investor confidence. More must be done to win back consumer
    faith, but this bill is a critical piece of the overall effort
    and, therefore, it is essentially important we adopt it.
        The part of the rationale of the original securities law in
    the 1930s was to increase public trust in America's financial
    markets and reliability of disclosed corporate financial
    information. Those laws over the past 70-plus years were a part
    of the modern economic foundation of our Nation, and they were
    designed to promote market efficiency and inspire investor
    confidence.
        The resulting market confidence in the statements of
    financial health of publicly traded companies has paved the way
    for America's rise as an economic superpower.
        I could make a strong case that the vote we are going to
    take today is for one of the most important bills impacting the
    Nation's financial markets since the 1930s. I say that because
    this legislation will fundamentally change the way publicly
    traded companies will do business and how the accounting
    profession performs its statutorily required audit function.
        Much has been said about what this legislation does not
    accomplish. Briefly, I wish to focus my remarks on what it does
    do and repeat, we are not solving every problem with this bill.
    There are a lot of other issues that need to be addressed, but
    we have to begin the process, it seems to me, by getting the
    accounting part of this equation right, and we will not know
    ultimately whether we have done all we could, but I think this
    is a major step in that direction.
        The bill, we now know, creates a new independent regulator
    for the accounting profession. The new body will act as a
    strong, independent, full-time board with significant authority
    to regulate auditors of public companies. The independent board
    will have clear authority for setting auditor standards and
    important investigative standards. It strengthens audit
    reporting standards for the accounting profession and contains
    significant prohibitions for accountants performing nonaudit
    services for audit clients, and it addresses the growing
    conflicts of interest that have been too pervasive throughout
    the accounting profession.
        It provides for the first time an independent funding
    source for the Financial Standards Accounting Board, which I
    think is also extremely important and one of the major reforms
    in this bill.
        There are additional dollars to provide the SEC with more
    firepower, if you will, to have more cops on the street so we
    might avoid some of the problems that have occurred in the
    past.
        It also improves corporate governance requirements and
    improves corporate disclosures. The bill grants additional
    authority and responsibility to the audit committees of
    publicly traded companies.
        Those are very important steps. The provisions contained in
    the legislation were carefully considered. We had 10 hearings,
    and by a vote of 17 to 4, the committee--the Presiding Officer
    being one--passed out this very fine legislation.
        Additionally, during floor consideration of this bill,
    Senator Leahy of Vermont added new criminal penalties for
    securities fraud. I commend him and strongly endorse the
    provision that won the overwhelming support of the Members. I
    hope it will add to our efforts of restoring investor
    confidence.
        One of the last issues I would like to address, because it
    has been talked about so much, is the stock options issue,
    which involved a lot of debate and discussion of the last
    number of days. I commend our colleague from Michigan, Senator
    Levin, who has made an extraordinary effort to find a
    resolution to this issue we all can support. Obviously, this
    question inspires more questions than answers in many ways, but
    I commend him for his thoughtfulness and energy that he has
    brought to this debate.
        The issue of whether or not stock options should be
    expensed is not an issue that is going to go away. It has to be
    addressed. I must admit, I am swayed by those who have a great
    deal of expertise in this area: Alan Greenspan, Warren Buffett,
    Paul Volcker, all of whom support the expensing of stock
    options.
        I also recognize the danger when Congress begins the
    process of legislating accounting standards.
        My friend from Texas and I have been involved in the past
    when there have been efforts by people who wanted to have us
    vote on some of these matters. I recall 3 or 4 years ago the
    debate was over pooling and purchasing accounting standards. I
    was very sympathetic to the arguments made by those advocating
    pooling. Certainly, if I were a member of FASB, I think I would
    have voted to allow that accounting standard to go forward, but
    the idea that the Senate might vote by 51 to 49 to pick one
    accounting standard over another is just ludicrous on its face.
    We do not want to set a precedent, in my view, of the Congress
    of the United States deciding what accounting practices ought
    to be. That is why we set up these boards to do the job.
        The approach taken by having the Accounting Standards
    Board, the SEC, and others look at these matters and get back
    to us with their recommendations is the appropriate and proper
    way to go. Despite the temptation of others to want to
    legislate these matters explicitly on the floor, I remind my
    colleagues who have done that in the past, we inevitably regret
    doing it when we set precedents such as those and are only
    duplicated by other ideas that temporarily may be very popular,
    may be politically attractive, but may be terrible economics as
    well.
        I applaud the effort to approach the stock option issue in
    the manner in which it has been addressed. I mentioned Senator
    Enzi. I mentioned my colleague from Texas as well. He and I
    worked many years on a lot of matters affecting the financial
    services sector of our economy. He does not have that many days
    left with us, and I am going to miss him. I told him that
    privately, and I tell him publicly that he is a valued Member
    of this institution. Whether we agree or disagree on matters he
    always brings a great deal of thought to the debate. He has
    been a fine member of the Banking Committee, and I have enjoyed
    my service with him for many years. I do not want to be too
    complimentary. I will reserve any final glowing accolades for
    when we have completed the process. We have a conference to go
    through yet.
        Again, my compliments to Senator Sarbanes.
        What we are doing is important. This is extremely important
    legislation. I said earlier it may be more important what
    message it is we are sending; that we are not sitting in the
    bleachers, we are not just standing by as these events unfold.
    All Members of this Chamber can take great pride that the
    Senate of the United States has responded with a responsible
    bill we think is going to make a difference. I yield the floor.
        Mr. Sarbanes. What is the time situation?
        The Presiding Officer. The Senator from Maryland controls
    almost 14 minutes, and the Senator from Texas controls just
    under 12 minutes.
        Mr. Sarbanes. I yield 4 minutes to the Senator from
    Missouri.
        The Presiding Officer. The Senator from Missouri is
    recognized for 4 minutes.
        Mrs. Carnahan. Mr. President, my amendment requires that
    when corporate insiders, such as CEOs, trade the stock of the
    companies they manage, they must take reasonable steps to
    disclose those transactions to their shareholders. Current law
    requires that insiders file disclosure forms with the
    Securities and Exchange Commission. However, almost all of
    these forms are filed on paper and average investors have no
    practical way of seeing these disclosures. My amendment
    requires that these disclosure forms be filed electronically
    and that the SEC make these disclosures available to the public
    over the Internet.
        This amendment also requires that corporations disclose
    insider transactions on their own Web sites. Investors have a
    right to know if corporate officers are dumping their stock.
    However, it is meaningless to require these disclosures if
    investors have no practical way of ever seeing these
    disclosures. Without this amendment, the disclosure forms
    simply sit in a file cabinet at the SEC in Washington. My
    amendment ensures that investors have access to this important
    information.
        In the 3 years leading up to its bankruptcy, as Enron's top
    officers touted the company's stock, they sold more than $1.1
    billion worth of their own holdings. Ken Lay alone sold more
    than $100 million worth of Enron stock while telling others to
    buy it. Enron's vice president of human resources, Cindy Olsen,
    was asked by employees if they should invest 100 percent of
    their retirement funds in Enron. She replied: ``Absolutely.''
    But within 3 months she personally unloaded $1 million worth of
    Enron stock. Had Enron employees only known, they might have
    been skeptical about this advice.
        Investors are entitled to know how executives are acting
    with their own shares of their company's stock, and my
    amendment will ensure they will.
        I yield my remaining time back to the Senator from
    Maryland.
        The Presiding Officer. Who yields time?
        Mr. Gramm. Mr. President, I yield 8 minutes to Senator
    Enzi, and might I say on my time, not his 8 minutes, that I
    want to thank Senator Enzi for his contribution to this bill,
    for his work from beginning to end. He has been a major
    contributor to the bill. He has proven that knowledge sometimes
    is a nice thing to have.
        Our standard in Washington for objectivity is that you came
    in off the turnip truck and you know absolutely nothing and
    therefore you are objective, but I would say that Senator Enzi
    proves that it is nice every once in awhile to have somebody
    who knows what he is talking about. I think in many ways, large
    and small, the good things in this bill he has had a very
    positive impact on and the bad things in the bill he could not
    do anything about anyway--that was a joke, I would say to the
    Senator from Maryland.
        In any case, I do want to congratulate Senator Enzi for all
    the contributions he has made.
        The Presiding Officer. The Senator from Wyoming is
    recognized for 8 minutes.
        Mr. Enzi. I thank the Senator from Texas for his gracious
    comments.
        It has been mentioned several times today that there is
    nervousness in the stock market. There has been since we
    started debating this issue. I am very convinced that some of
    that is because people may read some of the amendments that
    have been suggested and recognize the legislative principle
    that, if it is worth reacting to, it is worth overreacting to.
    That ought to be enough to scare anybody.
        We have had extensive debate. In fact, one reporter I
    talked to asked me if we were going to pass the McCain bill.
    The reporter talked about the accounting reform, and I had to
    say, no, that is the Sarbanes bill we have been working on. It
    is not stock options, in spite of the threat we had the other
    day.
        We usually do bills the way we have done this one--with a
    lot of cooperative talk. We then make arrangements to develop
    the best possible outcome. The accounting reform bill before us
    is designed in such a way that we set up processes that people
    with accountability and responsibility and knowledge have to
    oversee. This bill does not tell them exactly how to do the
    details of accounting. It gives a fair process for accountants
    to be able to do the details of accounting.
        In past years, we have decided we knew more than the people
    who had the expertise in the area of accounting and we have
    given them direction on how to do it. We almost made that
    mistake again. For instance, the McCain amendment was very
    simplistic. In one paragraph it told people how to do
    accounting that may actually take about 500 pages to explain.
    It would have caused the most massive restatements in the
    history of the United States, and restatements right now make
    everybody nervous. People ought to realize that some
    restatements are caused by changes in rules, not by people
    doing things wrong. So investors should always review
    restatements and determine the actual cause. I certainly hope
    it is never Congress, but I suspect it very well could be.
        Another proposal that was going to be put before us was one
    telling FASB, this Financial Accounting Standards Board,
    exactly what they were supposed to examine next and what they
    were supposed to resolve in the next year. I have to say, FASB
    is working on some important things because they have been
    examining what Congress has been debating and they know in
    greater detail than we do what caused the massive restatements.
    I have to say, I do not believe it was stock options. It was
    likely a number of other things that need to be investigated.
        This Financial Accounting Standards Board is diligently
    looking at these issues. They are looking at some high-profile
    rules in the areas of accounting for intangibles and accounting
    for special purpose entities. We have talked a lot about
    special purpose entities, and our hearings showed that they may
    have been a cause for the Enron collapse. Also, they are
    looking at accounting for guarantees and examining a final rule
    on liabilities and equity. They are also studying whether to
    create a rule on revenue recognition.
        Those five things probably put one to sleep, but they are
    important to have resolved to make sure we do not have problems
    with companies in the future. We have to be careful now and in
    the days to follow that we ensure we use all of FASB's
    expertise, knowledge, and staff to resolve high publicity
    problems of accounting.
        In this bill, we have made the Financial Accounting
    Standards Board more independent. We have provided them with
    independent funding so they no longer must beg for donations
    and perhaps encounter a conflict of interest. Through this
    process, we should not insert ourselves and say we are going to
    tell them exactly what is important.
        I would like to thank Senator Sarbanes and Senator Gramm
    for the extraordinary work they have put into the process. Last
    week was an extremely difficult week. I thank them for the
    careful work and review they have done on every single one of
    the amendments that has been submitted, and the process they
    established to make sure this bill would not get out of hand,
    that it would not be an overreaction, and that when we finish
    it tonight and we can reassure America it is still okay to
    invest in the stock market.
        We are fortunate on the Banking Committee to have these two
    people I consider to be the finest public servants in Congress.
    They have worked long and hard to assure that the product that
    came out was bipartisan and reflected the views of as many
    Members as possible. I also thank the members of the staff who
    worked diligently on the bill.
        From my own staff, Katherine McGuire, Kristi Sansonetti,
    and Michael Thompson. From Senator Gramm's staff, Wayne
    Abernathy, Linda Lord, Stacie Thomas, and Michele Jackson. And
    from Chairman Sarbanes' staff, Steve Harris, Steve Kroll, Dean
    Shahinian, Marty Gruenberg, and Lindsey Graham and Vince
    Meehan. All of these staffers have spent many late nights and
    weekends working to build this legislation.
        This legislation is badly needed. The markets have been in
    a steady decline for several months now. While I do not believe
    it is Washington's job to step in every time the market is in a
    decline, I do believe that when markets move as a reaction to
    illegal or unethical acts, then we have obviously not made
    penalties severe enough to dissuade this type of behavior.
    Congress had to act in this climate.
        However, I would also like to comment on a few things
    happening outside of the real debate--namely the attacks on SEC
    Chairman Harvey Pitt. I have to say that Chairman Pitt and I
    may not always agree, but I believe the recent attacks on him
    to be unwarranted. Mr. Pitt has come under fire for having
    represented some of the accounting firms who have been
    criticized in recent restatements. I believe Chairman Pitt's
    work in the private sector is a great asset to investors. We
    need individuals who are willing to work in government who know
    and understand the industries they regulate. I do not want
    lifelong government bureaucrats monitoring these companies.
        These restatements did not all of a sudden appear when
    Chairman Pitt was confirmed. In most cases, they begun during
    the late 1990s when companies became intent on not seeing the
    Internet bubble burst. I have to ask what was going on at the
    SEC while these companies were filling all of these false
    financial statements? What I imagine happened was that the
    companies, who are very familiar with who is at the Commission
    and where the resources are being devoted, thought they could
    take advantage of the situation because no one was paying
    attention.
        Look at what has happened since Chairman Pitt has taken
    office. He has opened a record number of investigations of
    restatements filed by public companies. He has taken steps to
    break the relationship between research analysts and investment
    bankers. He has supported legislation that will increase
    penalties on corporate executives engaged in fraudulent
    behavior. And, he has indicated his support of this
    legislation, which by the way, I anticipate to be supported by
    the majority of the Senate later today.
        The numbers are clear. In Chairman Levitt's last year as
    Chairman, 503 total enforcement actions were filed. Already
    this year, Chairman Pitt has filed 415. Officer and Director
    Bars for 2000 were 38--this year so far 71. Subpoenaed
    enforcement proceedings in 2000 were 9--this year 18. The
    numbers go on and on. My point is that Chairman Pitt seems to
    be left cleaning up the mess his predecessor left in corporate
    America.
        I offer my support for these actions taken by Chairman
    Pitt. Instead of attacking him, I am more concerned about what
    was happening at the SEC that bred this climate where
    executives felt compelled to engage in this unethical behavior.
    Why weren't some of these actions taken three or four years
    ago? Did the SEC Chairman not see the potential conflicts that
    could arise out of research analysts getting compensation based
    on investment banking business?
        Therefore, I would say that I commend Chairman Pitt for the
    work he is doing. From what I understand, the actions he is
    taking at the SEC have struck fear throughout the corporate
    community that they had better get their act together.
        This legislation before us now will also go far in
    restoring faith in the markets. It will provide assurances to
    investors that we will not sit by and watch executives shatter
    the retirement dreams of workers while leaving themselves with
    millions of dollars. It will show the American people that we
    will work to make financial statements transparent and accurate
    to make sure they know as much about the company's financial
    state as possible.
        The legislation builds an accounting oversight board to
    oversee the accountants who prepare financial statements of
    public companies. This board will have broad authority to
    enforce and discipline rules by which accountants must live.
    The board will have full access to accounting firms' records
    and policies to require uniformity throughout the industry when
    it comes to ethics and independence. Accountants must know that
    someone is watching over them to require that their work is in
    the best interest of investors. This legislation will also
    provide for the SEC to have the resources they need to enforce
    the law.
        However, I also do not want this legislation to provide a
    payday for the trial lawyers. The competitiveness of the
    accounting industry is at stake and we can ill afford to lose
    another firm solely because we didn't offer proper protections
    in this legislation. I am in no way indicating that accounting
    firms should have new, special protections. The only thing I am
    asking is that accounting firms aren't exposed to more
    liability after this bill is enacted than they were before.
        I am not sure some Members truly understand the situation
    facing accounting firms. We are down to the final four firms.
    These are the only firms that have the expertise and resources
    to audit companies such as Microsoft, Coca Cola, and the
    thousands of other large companies. If we subject them to the
    will of the trial bar, it will only be a matter of time before
    we lose the rest of the firms one by one.
        I know that, given what has happened recently with the
    restatements, it is easy to be critical of accountants and easy
    to legislate them. I agree we do need legislation, but what
    also needs to be understood is that overlegislating could be
    drastic to the economy. In the long run, if we overlegislate,
    it could be detrimental for the future of capital formation in
    this country.
        Once again, I thank the Chairman for all of the work he and
    his staff have done with this legislation. I think it is a good
    bill, and I do intend to support it. I also think it will
    continue to improve through the Conference process and when all
    is said and done, investors will respond positively to passage
    of this legislation.
        I wish to speak about the Financial Accounting Standards
    Boards, known as FASB, which has been referenced many times
    throughout the course of discussion on the underlying
    accounting bill, the Public Company Accounting Reform and
    Investor Protection Act of 2002.
        Some of the pending amendments have referenced FASB and
    directed or mandated it to change how companies must expense
    stock options or to perform a study on how to expense stock
    options. In addition, the McCain amendment sets the accounting
    standard for expensing stock options, without allowing FASB to
    set rules on this form of expensing. The Levin amendment
    mandates FASB conduct a one-year study on expensing stock
    options, and then adopt a rule based on a narrow set of
    external parameters. The Levin amendment implicates a desire to
    have such expensing done.
        In order to understand some of the problems with these
    types of amendments, it is important to understand exactly what
    FASB does. Since 1973, FASB has been the designated
    organization in the private sector for establishing standard of
    financial accounting and reporting. In short, those standards
    govern the preparation of all financial reports.
        The mission of FASB is ``to establish and improve standards
    of financial accounting and reporting for the guidance and
    education of the public, including issuers, auditors and users
    of financial information.''
        To accomplish this mission, FASB acts to improve the
    usefulness of financial reporting; keep standards current to
    reflect changes in the methods of doing business and the
    economic environment; consider any significant areas of
    deficiency in financial reporting; promote the international
    convergence of accounting standards together with improving the
    quality of financial reporting; and improve the common
    understanding of the nature and purposes of information
    contained in financial reports.
        FASB follows certain precepts in its activities. One is to
    be objective in its decision making. Another is to carefully
    weigh the views of its constituents in developing concepts and
    standards. But its ultimate determination must be the Board's,
    based on research, public input and careful deliberation. It
    also aspires to promulgate standards only when the expected
    benefits exceed the perceived costs.
        Overall, FASB was created to serve as an independent agency
    with an independent agenda. However, FASB is currently funded
    by companies and accounting firms. The long standing concern
    was that FASB did not act wholly independently, and succumbed
    to industry pressures in order to get the funding it needed to
    operate. Back in 1993 and 1994, when expensing of stock options
    was an issue, some critics say FASB succumbed to pressure by
    industry and Congress when it created a dual method of either
    expensing stock options at the time of grant, or placing the
    information in a footnote as a form of public disclosure of
    possible stock dilution.
        The underlying accounting reform bill fixes this perceived
    problem of independence and autonomy by providing FASB with
    funding from both issuers and the accounting firms. Because of
    this change, FASB will be completely independent from the very
    companies it will set standards for in the future. This is a
    good start.
        It is also important to understand that, historically, FASB
    has never been directed by Congress through legislation to
    adopt one particular standard for accounting, including expense
    accounting. It has also never been directed by Congress to
    perform a study. FASB's role is not to perform studies for
    Congress and they should not be bogged down performing them for
    political purposes.
        Following that precedent, the Senate Banking Committee made
    certain nothing in the bill directs FASB to take any particular
    action. In other words, there is no Federal mandate to FASB,
    nor should there be, if it is to remain an independent
    authority. In addition, why should Congress, a body without
    expertise in accounting standards for publically traded
    companies, set these standards?
        I, and many other members, as well as Federal Reserve
    Chairman, Alan Greenspan, believe that Congress has no business
    setting accounting standards. Instead, the Securities and
    Exchange Commission and FASB are the entities with the
    expertise needed to make these types of determinations.
        Ordinarily, FASB establishes plans with milestones it works
    towards. Congress should not dictate what plans and milestones
    it should work towards or address. FASB also never sets
    artificial deadlines on when to reach a conclusion. As an
    independent agency, it carefully and deliberately makes its
    determinations and sets rules, without adhering to outside
    pressures or timetables. Just as Congress should not set
    accounting standards for FASB to follow, it also should not set
    artificial deadlines for FASB to adhere to either.
        Nevertheless, some members have filed amendments asking
    FASB to not only take a specific action, but instructing it as
    to a specific timetable. One amendment actually sets an
    accounting standard, thereby instructing FASB to immediately
    change expensing standards. Another mandates FASB complete an
    expensing study within a year. These amendment set unrealistic
    timetables and mandates.
        It is important to remember that FASB already has its hands
    full with important projects to help improve financial
    standards and reporting. It is currently working towards
    promulgating high profile rules in the areas of accounting for
    intangibles; accounting for special purpose entities;
    accounting for guarantees; and a final rule on liabilities and
    equity. FASB has also added to its agenda a project to research
    and create a rule on revenue recognition.
        Let us not forget that the improper use of special purpose
    entities played a role in the downfall of Enron. Stock options
    had nothing to do with Enron's bankruptcy.
        The projects FASB is concentrating on are important
    projects which will help clarify financial statements for
    investors. FASB itself needs to cue up and prioritize its
    projects based on what is more important to financial
    accounting and reporting. Congress should not dictate what
    those priorities should be or the timetable it must adhere to.
        If some of the amendments we are looking at are accepted,
    Congress will establish a bad precedent of setting up a
    timetable and prioritizing projects for FASB. Congress will be
    putting stock option expensing--an accounting standard which
    did not cause the collapse of Enron or the demise of other big
    companies--at the front of the cue.
        And another question we need to ask ourselves is whether
    FASB has the manpower to perform the mandates and timetables
    Congress would be providing through the McCain and Levin
    amendments. Already, FASB is shifting its personnel to
    different projects to try to timely promulgate needed rules.
    While the underlying accounting bill will help these staffing
    problems by providing independent funding, in the short term,
    FASB cannot possibly perform the mandates of some of the
    amendments within the time frames given.
        I hope I have given members some solid reasoning on why
    Congress should not begin setting accounting standards. Should
    we really be doing something we do not fully understand? There
    are already agencies to perform this type of rulemaking, and
    they are the SEC and FASB. They are fully aware of the debate
    surrounding stock options. We don't need to mandate FASB to
    make a new rule. I am certain if FASB deems it appropriate, it
    will be looking at this issue in the future.
        The Presiding Officer. Who yields time?
        Mr. Sarbanes. Mr. President, I yield 4 minutes to the
    junior Senator from North Dakota.
        Mr. Dorgan. Mr. President, in the final moments, I hope
    again to persuade my colleagues to accept by unanimous consent
    my amendment dealing with corporate bankruptcy. Let me again
    say what this amendment is.
        It says that during the 12 months preceding a bankruptcy,
    CEOs who have received stock options, bonuses and other
    performance-based payments shall not be able to keep that kind
    of compensation. If they ride a company down to bankruptcy,
    they know the inside details of that company and got incentive-
    based compensation, including stock options, they ought not
    ride off in the sunset with a pocketful of gold while the
    employees and investors lose everything they have. That is not
    the right thing. A bankruptcy disgorgement proposal ought to be
    part of this bill. Everyone in this Chamber knows it should be
    part of this bill. Former SEC Chairman Breeden, a Republican,
    says it ought to be in this bill. I quoted other CEOs who say
    it should. Pass this bill without it and this bill is
    incomplete.
        My colleague said he thought maybe the market, which has
    been so volatile recently, has been frightened by amendments
    that have been considered by Congress. I don't think so. I
    think the market has been volatile, up and down like a yo-yo,
    because we have story after story on the news in this country
    about financial crooks. These are crooks who have cooked the
    books of their corporations, cheated investors, pulled the rug
    out from under their employees, and ruined some good companies.
    They did it in broad daylight, under the nose of their
    accounting firms and law firms.
        It seems to me those CEOs who made millions, in some cases
    over $100 million prior to bankruptcy, ought to give that money
    back. That money ought to go to help those who lost their life
    savings and those who lost their jobs.
        We have in this bill a provision that says if there is a
    restatement of earnings, you have to give back some of these
    incentive-based compensation packages. However, the bill is
    silent on the issue of bankruptcy. What about top executives
    who ride their company right into the ground and run off with
    $50 million in their pockets and leave everyone else flat on
    their back? How about asking those executives to disgorge
    themselves of their ill-gotten gains? How about telling them in
    this legislation that they must give that money back? That is
    what my amendment would do.
        I want to talk about the SEC, but I don't have time at the
    moment. I will save that for another day.
        This process has been a travesty of the Senate, in my
    judgment, having someone as a gatekeeper and preventing us from
    bringing up germane amendments. It does not make sense. That is
    not the way the Senate is supposed to work.
        I ask unanimous consent to lay aside the Edwards and
    Carnahan amendments so I may offer amendment 4214 on bankruptcy
    disgorgement.
        Mr. Gramm. I object.
        The Presiding Officer. The Senator from North Dakota.
        Mr. Dorgan. How much time remains?
        The Presiding Officer. Forty seconds.
        Mr. Dorgan. Mr. President, this is, of course, the last
    chapter on amendments, and a pretty sad book. I know people
    will go up to the gallery--and I understand someone is at a
    press conference from the other side--claiming credit for this
    bill. I want to know who wants to run up to the press
    conference and claim credit for preventing an amendment that
    says you must disgorge ill-gotten gains, incentive-based
    compensation, if you ran a company into bankruptcy. I want
    somebody to go to the press gallery and take credit for
    blocking that kind of legislation. Tomorrow I want to read
    about it. Who takes credit? Someone ought to take credit for
    blocking an amendment that ought to be passed in the Senate by
    a 100 to zero vote.
        The Presiding Officer. Who yields time?
        Mr. Gramm. Mr. President, I will not get into a debate with
    the Senator. There is nothing ill-gotten in this amendment.
    This amendment does not belong in this bill.
        We have a provision in this bill. If you violate the law,
    then you have to give back what you have earned from the
    company in terms of any kind of incentive in bonus.
        But to say that people who work for a company that goes
    bankrupt has to give back compensation is to guarantee that a
    company that is in trouble would never get anybody to go to
    work for them. They would never have an opportunity to be
    saved. That amendment does not belong in this bill. It makes no
    sense in the logic.
        Mr. Dorgan. Will the Senator yield?
        Mr. Gramm. I will not yield.
        If you did something wrong, making you give back what you
    earned belongs in this bill. And it is in this bill. Not only
    belongs, it is here.
        But to simply say because somebody worked for a company
    that goes broke, that they have to give back compensation, that
    sounds great in the environment we are in, but, look, I have a
    company, we are in deep trouble, and we try to go out and hire
    a top-notch person to come in and save us, and we pay him a
    compensation to try to do it. To say we will take it back if he
    fails, as if that is an ill-gotten gain, I am sorry, I don't
    think that is good economic policy. I don't think it is smart.
    It has nothing to do with the provisions of this bill.
        Mr. Dorgan. Mr. President, perhaps the Senator from Texas
    would like a explanation.
        Mr. Sarbanes. I yield 1 minute.
        Mr. Dorgan. I deeply appreciate the Senator from Maryland
    yielding.
        What the Senator from Texas misses is we are talking about
    incentive-based compensation. Should someone who gets
    incentives for running the corporation into bankruptcy be able
    to keep that? I don't think so for somebody that gets a big
    bonus while he runs the company into bankruptcy, or for someone
    that gets big stock options while she runs the company into
    bankruptcy.
        The Senator tried to win a debate we were not having. He
    says we will take compensation away from someone who is engaged
    in working for a corporation that went into bankruptcy. No,
    this is about incentive-based compensation and profits. It is
    not about taking away their salary. It is about saying if you
    are paid on an incentive basis and you are running that
    corporation into bankruptcy, you ought not to be getting the
    bonus. If you did, you ought to give it back. You ought not get
    stock options; if you did, you ought to give it back.
        This is simply about something my friend has missed. It is
    about incentive-compensation and the fact that you ought not
    walk out of a corporation you ran into bankruptcy with a
    pocketful of gold while you left the employees and the
    investors flat on their back. This is not an amendment that is
    hard to understand.
        I regret very much it has been blocked. I regret especially
    we were not allowed to vote on this amendment. That is the
    travesty, in my judgment.
        Mr. Gramm. Mr. President, I think you could debate whether
    the amendment is understood or not. I think I understand it
    perfectly. In fact, there are people in this country who are
    turnaround specialists, who are hired to try to save companies.
    If somebody did something wrong, if they violated the law, then
    make them give back compensation. You put them to death, if you
    want to put them to death. But to simply say, if you hire
    somebody with an incentive package to save the company, and the
    company goes broke, that you are going to take it back, that is
    up to the bankruptcy court to decide.
        So this ill-gotten gain business is good rhetoric, but it
    has absolutely nothing to do with this amendment. I reserve the
    remainder of my time.
        The Presiding Officer. Who yields time? Just 29 seconds
    remain to the Senator from Texas, and 5\1/2\ minutes remain to
    the Senator from Maryland.
        Mr. Sarbanes. Mr. President, what is the time situation?
        The Presiding Officer. The Senator from Maryland has 5
    minutes remaining, the Senator from Texas has 30 seconds.
        Mr. Gramm. Mr. President, the Senator from Maryland should
    have the right to end the debate.
        I think we have two bills: One in the Senate, one in the
    House. We can come up with a better bill than either. I think
    America will survive under either bill. Given the environment
    we are in, that represents some achievement, and I am proud of
    it.
        I think we will come out of conference with a better bill
    than the House bill and a better bill than the Senate bill. I
    think people will be proud of what we did.
        If I were an investor today, and I had a lot of money, I
    would invest in the stock market today.
        The Presiding Officer. The time of the Senator has expired.
    The Senator from Maryland has 4 minutes 45 seconds remaining.
        Mr. Sarbanes. Mr. President, we have been trying to clear
    amendments. We have yesterday--not yesterday, but on Friday we
    adopted three amendments on the basis of a unanimous consent
    request. We have worked through two additional amendments. I am
    going to offer them now.
        One is an amendment by Senator Shelby for a study with
    respect to aider and abettor violations of the Federal
    securities law. I ask unanimous consent that the pending
    amendment be set aside; that the Shelby amendment, No. 4261, be
    called up and modified with a modification that I send to the
    desk; that the amendment as modified be agreed to; and then we
    then return to the regular order which, as I understand it,
    would be the Edwards as modified by the Carnahan amendment.
        The Presiding Officer. Is there objection? Without
    objection, it is so ordered.

                        AMENDMENT NO. 4261, AS MODIFIED

        Mr. Sarbanes. I send the amendment to the desk.
        The Presiding Officer. The clerk will report.
        The bill clerk read as follows:
        The Senator from Maryland (Mr. Sarbanes) for Mr. Shelby,
    proposes an amendment numbered 4261, as modified.
        The amendment is as follow:

    (Purpose: To require the SEC to conduct a study and submit a report to
        the Congress on aider and abettor violations of the Federal
        securities laws)
        On page 108 after line 15, insert the following:
        ``(c)(1) The Commission shall conduct a study to determine based
    upon information for the period from January 1, 1998 to December 31,
    2001--
        ``(A) the number of ``securities professionals,'' which term shall
    mean public accountants, public accounting firms, investment bankers,
    investment advisers, brokers, dealers, attorneys, and other securities
    professionals practicing before the Commission--
        ``(i) who have been found to have aided and abetted a violation of
    the Federal securities laws, including rules or regulations promulgated
    thereunder (hereinafter collectively referred to as ``Federal
    securities laws''), but who have not been sanctioned, disciplined, or
    otherwise penalized as a primary violator in any administrative action
    or civil proceeding, including in any settlement of such actions or
    proceedings (referred to hereinafter as ``aiders and abettors'') and
        ``(ii) who have been found to have been primary violators of the
    Federal securities laws;
        ``(B) a description of the Federal securities laws violations
    committed by aiders and abettors and by primary violators, including--
        ``(i) the specific provisions of the Federal securities laws
    violated;
        ``(ii) the specific sanctions and penalties imposed upon, such
    aiders and abetters and primary violators, including the amount of any
    monetary penalties assessed upon and collected from such persons;
        ``(iii) the occurrence of multiple violations by the same person or
    persons either as an aider or abetter or as a primary violator; and
        ``(iv) whether as to each such violator disciplinary sanctions have
    been imposed, including any censure, suspension, temporary bar, or
    permanent bar to practice before the Commission; and
        ``(C) the amount of disgorgement, restitution or any other fines or
    payments the Commission has (i) assessed upon and (ii) collected from
    aiders and abetters and from primary violators.
        ``(2) A report based upon the study conducted pursuant to
    subsection (c)(1) shall be submitted to the Senate Committee on
    Banking, Housing, and Urban Affairs no later than six months after the
    date of enactment of the ``Public Company Accounting Reform and
    Investor Protection Act of 2002.''.
        Page 78 strike lines 15-24 and insert the following:
        In supervising non-registered public accounting firms and their
    associated persons, appropriate State regulatory authorities should
    make an independent determination of the proper standards applicable,
    particularly taking into consideration the size and nature of the
    business of the accounting firms they supervise and the size and nature
    of the business of the clients of those firms. The standards applied by
    the Board under this Act should not be presumed to be applicable for
    purposes of this section for small and medium sized nonregistered
    public accounting firms.

        The Presiding Officer. Without objection, the amendment as
    modified is agreed to.
        The amendment (No. 4261), as modified, was agreed to.
        Mr. Sarbanes. Was the Ensign amendment also on that
    amendment?
        I urge the adoption of the amendments.
        The Presiding Officer. The amendments have been agreed to.
        Mr. Sarbanes. Mr. President, I move to reconsider the vote.
        Mr. Gramm. I move to lay that motion on the table.
        The motion to lay on the table was agreed to.
        Mr. Sarbanes. Mr. President, in the regular order we are
    back with the Edwards and Carnahan amendments pending?
        The Presiding Officer. That is correct.
        Mr. Sarbanes. I have a couple of minutes?
        The Presiding Officer. There remains 1 minute.
        Mr. Sarbanes. Mr. President, I think the Senate is about to
    take a major step to contributing to the restoration of
    investor confidence.
        This legislation establishes a strong independent board to
    oversee auditors of the public companies. The board can set
    standards, investigate, and discipline accountants. It will be
    overseen by the SEC, but it will have independent funding and
    membership. I think this marks the end of weak self-regulation
    with respect to public company auditors.
        It addresses pervasive conflicts of interest by ensuring
    auditor independence by restricting them from providing a
    defined list of consulting services. Other consulting services
    on the part of the auditor can be permitted if preapproved by
    the company's audit company.
        This legislation strengthens corporate responsibility. It
    establishes safeguards to protect investment /analyst
    conflicts, and it gives the SEC expanded staff resources so it
    has the resources to carry out its mandate of protecting
    investors in this critical time.
        It is no exaggeration to say the crisis in our markets has
    put the plans and hopes and dreams of millions of Americans at
    risk. To restore market integrity on which investor confidence
    depends, we should move expeditiously to move this legislation
    into law.
        I want to express my deep appreciation to my colleagues
    with whom we have worked for many weeks: To Senator Gramm, the
    ranking member of the committee with whom we interact in an
    interesting and, on occasions, exciting fashion; to Senator
    Enzi, who made a major contribution; to Senators Dodd and
    Corzine on our side of the aisle who played an essential role
    and introduced vital legislation on this issue very early on;
    to Senator Durbin who also introduced significant legislation
    on this subject, and to many other colleagues; and to Senator
    Reid, who has been extraordinarily helpful here on the floor of
    the U.S. Senate.
        Mr. Reid. Mr. President, I ask unanimous consent the 1
    minute Senator Carnahan has--she is not going to be using it--
    that it be given to the Senator from Maryland.
        The Presiding Officer. The Senator from Maryland has an
    additional minute.
        Mr. Sarbanes. Mr. President, we don't do this work by
    ourselves. We all know that very well. We rely very heavily on
    dedicated, absolutely dedicated staff members. I am going to
    take the closing time I have to simply read their names into
    the Record: Dean Shahinian, Steve Kroll, Lynsey Graham, Vincent
    Meehan, Sarah Kline, Judy Keenan, Jesse Jacobs, Aaron Klein,
    Marty Gruenberg and Steve Harris of the Banking Committee
    staff; Wayne Abernathy and Linda Lord of Senator Gramm's staff
    on the committee. There has also been the staff of the
    individual Members.
        I particularly want to acknowledge Mike Thompson and
    Katherine McGuire of Senator Enzi's staff, and Alex Sternhell
    and Naomi Camper, Jon Berger, Jimmy Williams, Catherine Cruz
    Wojtasik, Leslie Wooley, Margaret Simmons, Matt Young, Roger
    Hollingsworth and Matt Pippin.
        I express my very deep appreciation. The dedication these
    staff members demonstrated over the last few months was just
    extraordinary: Long nights, weekends, day in and day out. I
    hope very much they will take a measure of satisfaction in the
    sense that they have made a very important and significant
    contribution to better public policy in this country.
        I yield the floor.

                           VOTE ON AMENDMENT NO. 4286

        The Presiding Officer. All time has expired. The question
    is on agreeing to amendment No. 4286. The yeas and nays have
    been ordered. The clerk will call the roll.
        Mr. Nickles. I announce that the Senator from Idaho (Mr.
    Craig), the Senator from Idaho (Mr. Crapo), and the Senator
    from North Carolina (Mr. Helms) are necessarily absent.
        The result was announced--yeas 97, nays 0, as follows:

                          [Rollcall Vote No. 174 Leg.]
        Yeas--97: Akaka, Allard, Allen, Baucus, Bayh, Bennett, Biden,
    Bingaman, Bond, Boxer, Breaux, Brownback, Bunning, Burns, Byrd,
    Campbell, Cantwell, Carnahan, Carper, Chafee, Cleland, Clinton,
    Cochran, Collins, Conrad, Corzine, Daschle, Dayton, DeWine, Dodd,
    Domenici, Dorgan, Durbin, Edwards, Ensign, Enzi, Feingold, Feinstein,
    Fitzgerald, Frist, Graham, Gramm, Grassley, Gregg, Hagel, Harkin,
    Hatch, Hollings, Hutchinson, Hutchison, Inhofe, Inouye, Jeffords,
    Johnson, Kennedy, Kerry, Kohl, Kyl, Landrieu, Leahy, Levin, Lieberman,
    Lincoln, Lott, Lugar, McCain, McConnell, Mikulski, Miller, Murkowski,
    Murray, Nelson (FL), Nelson (NE), Nickles, Reed, Reid, Roberts,
    Rockefeller, Santorum, Sarbanes, Schumer, Sessions, Shelby, Smith (NH),
    Smith (OR), Snowe, Specter, Stabenow, Stevens, Thomas, Thompson,
    Thurmond, Torricelli, Voinovich, Warner, Wellstone, Wyden
        Not Voting--3: Craig, Crapo, Helms

        The amendment (No. 4286) was agreed to.
        Mr. Daschle. I move to reconsider the vote.
        Mr. Gramm. I move to lay that motion on the table.
        The motion to lay on the table was agreed to.
        The Presiding Officer (Mrs. Lincoln). The majority leader.
        Mr. Daschle. Madam President, under an earlier agreement,
    the next four votes will all be 10-minute votes. I urge
    Senators to stay in the well. We are going to cut it off at 10
    minutes. If you are not here in 10 minutes, you have lost the
    opportunity to vote. I urge Members to move forward, and we
    will take on the next vote.

              VOTE ON AMENDMENT NO. 4187, AS MODIFIED, AS AMENDED

        The Presiding Officer. The question is on agreeing to
    amendment No. 4187, as modified, as amended.
        The yeas and nays have been ordered. The clerk will call
    the roll.
        The assistant legislative clerk called the roll.
        Mr. Nickles. I announce that the Senator from Idaho (Mr.
    Crapo), the Senator from Idaho (Mr. Craig), and the Senator
    from North Carolina (Mr. Helms) are necessarily absent.
        The Presiding Officer. Are there any other Senators in the
    Chamber desiring to vote?
        The result was announced--yeas 97, nays 0, as follows:

                          [Rollcall Vote No. 175 Leg.]
        Yeas--97: Akaka, Allard, Allen, Baucus, Bayh, Bennett, Biden,
    Bingaman, Bond, Boxer, Breaux, Brownback, Bunning, Burns, Byrd,
    Campbell, Cantwell, Carnahan, Carper, Chafee, Cleland, Clinton,
    Cochran, Collins, Conrad, Corzine, Daschle, Dayton, DeWine, Dodd,
    Domenici, Dorgan, Durbin, Edwards, Ensign, Enzi, Feingold, Feinstein,
    Fitzgerald, Frist, Graham, Gramm, Grassley, Gregg, Hagel, Harkin,
    Hatch, Hollings, Hutchinson, Hutchison, Inhofe, Inouye, Jeffords,
    Johnson, Kennedy, Kerry, Kohl, Kyl, Landrieu, Leahy, Levin, Lieberman,
    Lincoln, Lott, Lugar, McCain, McConnell, Mikulski, Miller, Murkowski,
    Murray, Nelson (FL), Nelson (NE), Nickles, Reed, Reid, Roberts,
    Rockefeller, Santorum, Sarbanes, Schumer, Sessions, Shelby, Smith (NH),
    Smith (OR), Snowe, Specter, Stabenow, Stevens, Thomas, Thompson,
    Thurmond, Torricelli, Voinovich, Warner, Wellstone, Wyden
        Not Voting--3: Craig, Crapo, Helms

        The amendment (No. 4187), as modified, as amended, was
    agreed to.
        Mr. Sarbanes. Madam President, I move to reconsider the
    vote.
        Mr. Daschle. I move to lay that motion on the table.
        The motion to lay on the table was agreed to.
        The Presiding Officer. The question is on engrossment and
    third reading of the bill.
        The bill was ordered to be engrossed for a third reading
    and was read the third time.
        The Presiding Officer. The Senator from Maryland is
    recognized.
        Mr. Sarbanes. Madam President, I ask for the yeas and nays.
        The Presiding Officer. Is there a sufficient second?
        There is a sufficient second.
        The bill having been read the third time, the question is,
    Shall it pass?
        The clerk will call the roll.
        The legislative clerk called the roll.
        Mr. Nickles. I announce that the Senator from Idaho (Mr.
    Crapo), the Senator from Idaho (Mr. Craig), and the Senator
    from North Carolina (Mr. Helms) are necessarily absent.
        I further announce that if present and voting the Senator
    from North Carolina (Mr. Helms) would vote ``yea''.
        The result was announced--yeas 97, nays 0, as follows:

                          [Rollcall Vote No. 176 Leg.]
        Yeas--97: Akaka, Allard, Allen, Baucus, Bayh, Bennett, Biden,
    Bingaman, Bond, Boxer, Breaux, Brownback, Bunning, Burns, Byrd,
    Campbell, Cantwell, Carnahan, Carper, Chafee, Cleland, Clinton,
    Cochran, Collins, Conrad, Corzine, Daschle, Dayton, DeWine, Dodd,
    Domenici, Dorgan, Durbin, Edwards, Ensign, Enzi, Feingold, Feinstein,
    Fitzgerald, Frist, Graham, Gramm, Grassley, Gregg, Hagel, Harkin,
    Hatch, Hollings, Hutchinson, Hutchison, Inhofe, Inouye, Jeffords,
    Johnson, Kennedy, Kerry, Kohl, Kyl, Landrieu, Leahy, Levin, Lieberman,
    Lincoln, Lott, Lugar, McCain, McConnell, Mikulski, Miller, Murkowski,
    Murray, Nelson (FL), Nelson (NE), Nickles, Reed, Reid, Roberts,
    Rockefeller, Santorum, Sarbanes, Schumer, Sessions, Shelby, Smith (NH),
    Smith (OR), Snowe, Specter, Stabenow, Stevens, Thomas, Thompson,
    Thurmond, Torricelli, Voinovich, Warner, Wellstone, Wyden
        Not Voting--3: Craig, Crapo, Helms

        The bill (S. 2673), as amended, was passed.
        Mr. Sarbanes. Madam President, I move to reconsider the
    vote.
        Mr. Gramm. I move to lay that motion on the table.
        The motion to lay on the table was agreed to.
        The Presiding Officer. Under the previous order, the
    Banking Committee is discharged from further consideration of
    H.R. 3763, which the clerk will report by title.
        The legislative clerk read as follows:

        A bill (H.R. 3763) to protect investors by improving the
    accuracy and reliability of corporate disclosures made pursuant
    to the securities laws, and for other purposes.

        The Presiding Officer. Under the previous order, all after
    the enacting clause will be stricken and the text of S. 2673,
    as passed, is inserted in lieu thereof.
        The question is on the engrossment of the amendment and
    third reading of the bill.
        The amendment was ordered to be engrossed and the bill to
    be read a third time.
        The bill was read the third time.
        The Presiding Officer. The bill having been read the third
    time, the question is, Shall the bill pass?
        The bill (H.R. 3763), as amended, was passed, as follows:

        Strike out all after the enacting clause and insert:

    SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

        (a) Short Title.--This Act may be cited as the ``Public
    Company Accounting Reform and Investor Protection Act of
    2002''.
        (b) Table of Contents.--The table of contents for this Act
    is as follows:
    Sec. 1. Short title; table of contents.
    Sec. 2. Definitions.
    Sec. 3. Commission rules and enforcement.

               TITLE I--PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD

    Sec. 101. Establishment; administrative provisions.
    Sec. 102. Registration with the Board.
    Sec. 103. Auditing, quality control, and independence standards
    and rules.
    Sec. 104. Inspections of registered public accounting firms.
    Sec. 105. Investigations and disciplinary proceedings.
    Sec. 106. Foreign public accounting firms.
    Sec. 107. Commission oversight of the Board.
    Sec. 108. Accounting standards.
    Sec. 109. Funding.

                         TITLE II--AUDITOR INDEPENDENCE

    Sec. 201. Services outside the scope of practice of auditors.
    Sec. 202. Preapproval requirements.
    Sec. 203. Audit partner rotation.
    Sec. 204. Auditor reports to audit committees.
    Sec. 205. Conforming amendments.
    Sec. 206. Conflicts of interest.
    Sec. 207. Study of mandatory rotation of registered public
    accounting firms.
    Sec. 208. Commission authority.
    Sec. 209. Considerations by appropriate State regulatory
    authorities.

                      TITLE III--CORPORATE RESPONSIBILITY

    Sec. 301. Public company audit committees.
    Sec. 302. Corporate responsibility for financial reports.
    Sec. 303. Improper influence on conduct of audits.
    Sec. 304. Forfeiture of certain bonuses and profits.
    Sec. 305. Officer and director bars and penalties.
    Sec. 306. Insider trades during pension fund blackout periods
    prohibited.

                    TITLE IV--ENHANCED FINANCIAL DISCLOSURES

    Sec. 401. Disclosures in periodic reports.
    Sec. 402. Enhanced conflict of interest provisions.
    Sec. 403. Disclosures of transactions involving management and
    principal stockholders.
    Sec. 404. Management assessment of internal controls.
    Sec. 405. Exemption.
    Sec. 406. Code of ethics for senior financial officers.
    Sec. 407. Disclosure of audit committee financial expert.

                     TITLE V--ANALYST CONFLICTS OF INTEREST

    Sec. 501. Treatment of securities analysts by registered
    securities associations.

                  TITLE VI--COMMISSION RESOURCES AND AUTHORITY

    Sec. 601. Authorization of appropriations.
    Sec. 602. Appearance and practice before the Commission.
    Sec. 603. Federal court authority to impose penny stock bars.
    Sec. 604. Qualifications of associated persons of brokers and
    dealers.

                         TITLE VII--STUDIES AND REPORTS

    Sec. 701. GAO study and report regarding consolidation of
    public accounting firms.
    Sec. 702. Commission study and report regarding credit rating
    agencies.

            TITLE VIII--CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY

    Sec. 801. Short title.
    Sec. 802. Criminal penalties for altering documents.
    Sec. 803. Debts nondischargeable if incurred in violation of
    securities fraud laws.
    Sec. 804. Statute of limitations for securities fraud.
    Sec. 805. Review of Federal sentencing guidelines for
    obstruction of justice and extensive criminal fraud.
    Sec. 806. Protection for employees of publicly traded companies
    who provide evidence of fraud.
    Sec. 807. Criminal penalties for defrauding shareholders of
    publicly traded companies.

               TITLE IX--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS

    Sec. 901. Short title.
    Sec. 902. Criminal penalties for conspiracy to commit offense
    or to defraud the United States.
    Sec. 903. Criminal penalties for mail and wire fraud.
    Sec. 904. Criminal penalties for violations of the Employee
    Retirement Income Security Act of 1974.
    Sec. 905. Amendment to sentencing guidelines relating to
    certain white-collar offenses.
    Sec. 906. Corporate responsibility for financial reports.
    Sec. 907. Higher maximum penalties for mail and wire fraud.
    Sec. 908. Tampering with a record or otherwise impeding an
    official proceeding.
    Sec. 909. Temporary freeze authority for the Securities and
    Exchange Commission.
    Sec. 910. Amendment to the Federal sentencing guidelines.
    Sec. 911. Authority of the Commission to prohibit persons from
    serving as officers or directors.

                         TITLE X--CORPORATE TAX RETURNS

    Sec. 1001. Sense of the Senate regarding the signing of
    corporate tax returns by chief executive officers.

    SEC. 2. DEFINITIONS.

        (a) In General.--In this Act, the following definitions
    shall apply:
        (1) Appropriate state regulatory authority.--The term
    ``appropriate State regulatory authority'' means the State
    agency or other authority responsible for the licensure or
    other regulation of the practice of accounting in the State or
    States having jurisdiction over a registered public accounting
    firm or associated person thereof, with respect to the matter
    in question.
        (2) Audit.--The term ``audit'' means an examination of the
    financial statements of any issuer by an independent public
    accounting firm in accordance with the rules of the Board or
    the Commission (or, for the period preceding the adoption of
    applicable rules of the Board under section 103, in accordance
    with then-applicable generally accepted auditing and related
    standards for such purposes), for the purpose of expressing an
    opinion on such statements.
        (3) Audit committee.--The term ``audit committee'' means--
        (A) a committee (or equivalent body) established by and
    amongst the board of directors of an issuer for the purpose of
    overseeing the accounting and financial reporting processes of
    the issuer and audits of the financial statements of the
    issuer; and
        (B) if no such committee exists with respect to an issuer,
    the entire board of directors of the issuer.
        (4) Audit report.--The term ``audit report'' means a
    document or other record--
        (A) prepared following an audit performed for purposes of
    compliance by an issuer with the requirements of the securities
    laws; and
        (B) in which a public accounting firm either--
        (i) sets forth the opinion of that firm regarding a
    financial statement, report, or other document; or
        (ii) asserts that no such opinion can be expressed.
        (5) Board.--The term ``Board'' means the Public Company
    Accounting Oversight Board established under section 101.
        (6) Commission.--The term ``Commission'' means the
    Securities and Exchange Commission.
        (7) Issuer.--The term ``issuer'' means an issuer (as
    defined in section 3 of the Securities Exchange Act of 1934 (15
    U.S.C. 78c)), the securities of which are registered under
    section 12 of that Act (15 U.S.C. 78l), or that is required to
    file reports pursuant to section 15(d) of that Act (15 U.S.C.
    78o(d)), or that will be required to file such reports at the
    end of a fiscal year of the issuer in which a registration
    statement filed by such issuer has become effective pursuant to
    the Securities Act of 1933 (15 U.S.C. 77a et. seq.), unless its
    securities are registered under section 12 of the Securities
    Exchange Act of 1934 (15 U.S.C. 78c) on or before the end of
    such fiscal year.
        (8) Non-audit services.--The term ``non-audit services''
    means any professional services provided to an issuer by a
    registered public accounting firm, other than those provided to
    an issuer in connection with an audit or a review of the
    financial statements of an issuer.
        (9) Person associated with a public accounting firm.--
        (A) In general.--The terms ``person associated with a
    public accounting firm'' (or with a ``registered public
    accounting firm'') and ``associated person of a public
    accounting firm'' (or of a ``registered public accounting
    firm'') mean any individual proprietor, partner, shareholder,
    principal, accountant, or other professional employee of a
    public accounting firm, or any other independent contractor or
    entity that, in connection with the preparation or issuance of
    any audit report--
        (i) shares in the profits of, or receives compensation in
    any other form from, that firm; or
        (ii) participates as agent or otherwise on behalf of such
    accounting firm in any activity of that firm.
        (B) Exemption authority.--The Board may, by rule, exempt
    persons engaged only in ministerial tasks from the definition
    in subparagraph (A), to the extent that the Board determines
    that any such exemption is consistent with the purposes of this
    Act, the public interest, or the protection of investors.
        (10) Professional standards.--The term ``professional
    standards'' means--
        (A) accounting principles that are--
        (i) established by the standard setting body described in
    section 19(b) of the Securities Act of 1933, as amended by this
    Act, or prescribed by the Commission under section 19(a) of
    that Act (15 U.S.C. 17a(s)) or section 13(b) of the Securities
    Exchange Act of 1934 (15 U.S.C. 78a(m)); and
        (ii) relevant to audit reports for particular issuers, or
    dealt with in the quality control system of a particular
    registered public accounting firm; and
        (B) auditing standards, standards for attestation
    engagements, quality control policies and procedures, ethical
    and competency standards, and independence standards (including
    rules implementing title II) that the Board or the Commission
    determines--
        (i) relate to the preparation or issuance of audit reports
    for issuers; and
        (ii) are established or adopted by the Board under section
    103(a), or are promulgated as rules of the Commission.
        (11) Public accounting firm.--The term ``public accounting
    firm'' means--
        (A) a proprietorship, partnership, incorporated
    association, corporation, limited liability company, limited
    liability partnership, or other legal entity that is engaged in
    the practice of public accounting or preparing or issuing audit
    reports; and
        (B) to the extent so designated by the rules of the Board,
    any associated person of any entity described in subparagraph
    (A).
        (12) Registered public accounting firm.--The term
    ``registered public accounting firm'' means a public accounting
    firm registered with the Board in accordance with this Act.
        (13) Rules of the board.--The term ``rules of the Board''
    means the bylaws and rules of the Board (as submitted to, and
    approved, modified, or amended by the Commission, in accordance
    with section 107), and those stated policies, practices, and
    interpretations of the Board that the Commission, by rule, may
    deem to be rules of the Board, as necessary or appropriate in
    the public interest or for the protection of investors.
        (14) Security.--The term ``security'' has the same meaning
    as in section 3(a) of the Securities Exchange Act of 1934 (15
    U.S.C. 78c(a)).
        (15) Securities laws.--The term ``securities laws'' means
    the provisions of law referred to in section 3(a)(47) of the
    Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), as
    amended by this Act, and includes the rules, regulations, and
    orders issued by the Commission thereunder.
        (16) State.--The term ``State'' means any State of the
    United States, the District of Columbia, Puerto Rico, the
    Virgin Islands, or any other territory or possession of the
    United States.
        (b) Conforming Amendment.--Section 3(a)(47) of the
    Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)) is
    amended by inserting ``the Public Company Accounting Reform and
    Investor Protection Act of 2002,'' before ``the Public''.

    SEC. 3. COMMISSION RULES AND ENFORCEMENT.

        (a) Regulatory Action.--The Commission shall promulgate
    such rules and regulations, as may be necessary or appropriate
    in the public interest or for the protection of investors, and
    in furtherance of this Act.
        (b) Enforcement.--
        (1) In general.--A violation by any person of this Act, any
    rule or regulation of the Commission issued under this Act, or
    any rule of the Board shall be treated for all purposes in the
    same manner as a violation of the Securities Exchange Act of
    1934 (15 U.S.C. 78a et seq.) or the rules and regulations
    issued thereunder, consistent with the provisions of this Act,
    and any such person shall be subject to the same penalties, and
    to the same extent, as for a violation of that Act or such
    rules or regulations.
        (2) Investigations, injunctions, and prosecution of
    offenses.--Section 21 of the Securities Exchange Act of 1934
    (15 U.S.C. 78u) is amended
        (A) in subsection (a)(1), by inserting ``the rules of the
    Public Company Accounting Oversight Board, of which such person
    is a registered public accounting firm or a person associated
    with such a firm,'' after ``is a participant,'';
        (B) in subsection (d)(1), by inserting ``the rules of the
    Public Company Accounting Oversight Board, of which such person
    is a registered public accounting firm or a person associated
    with such a firm,'' after ``is a participant,'';
        (C) in subsection (e), by inserting ``the rules of the
    Public Company Accounting Oversight Board, of which such person
    is a registered public accounting firm or a person associated
    with such a firm,'' after ``is a participant,''; and
        (D) in subsection (f ), by inserting ``or the Public
    Company Accounting Oversight Board'' after ``self-regulatory
    organization'' each place that term appears.
        (3) Cease-and-desist proceedings.--Section 21C(c)(2) of the
    Securities Exchange Act of 1934 (15 U.S.C. 78u-3(c)(2)) is
    amended by inserting ``registered public accounting firm (as
    defined in section 2 of the Public Company Accounting Reform
    and Investor Protection Act of 2002),'' after ``government
    securities dealer,''.
        (c) Effect on Commission Authority.--Nothing in this Act or
    the rules of the Board shall be construed to impair or limit--
        (1) the authority of the Commission to regulate the
    accounting profession, accounting firms, or persons associated
    with such firms for purposes of enforcement of the securities
    laws;
        (2) the authority of the Commission to set standards for
    accounting or auditing practices or auditor independence,
    derived from other provisions of the securities laws or the
    rules or regulations thereunder, for purposes of the
    preparation and issuance of any audit report, or otherwise
    under applicable law; or
        (3) the ability of the Commission to take, on the
    initiative of the Commission, legal, administrative, or
    disciplinary action against any registered public accounting
    firm or any associated person thereof.

               TITLE I--PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD

    SEC. 101. ESTABLISHMENT; ADMINISTRATIVE PROVISIONS.

        (a) Establishment of Board.--There is established the
    Public Company Accounting Oversight Board, to oversee the audit
    of public companies that are subject to the securities laws,
    and related matters, in order to protect the interests of
    investors and further the public interest in the preparation of
    informative, accurate, and independent audit reports for
    companies the securities of which are sold to, and held by and
    for, public investors. The Board shall be a body corporate,
    operate as a nonprofit corporation, and have succession until
    dissolved by an Act of Congress.
        (b) Status.--The Board shall not be an agency or
    establishment of the United States Government, and, except as
    otherwise provided in this Act, shall be subject to, and have
    all the powers conferred upon a nonprofit corporation by, the
    District of Columbia Nonprofit Corporation Act. No member or
    person employed by, or agent for, the Board shall be deemed to
    be an officer or employee of or agent for the Federal
    Government by reason of such service.
        (c) Duties of the Board.--The Board shall, subject to
    action by the Commission under section 107, and once a
    determination is made by the Commission under subsection (d) of
    this section--
        (1) register public accounting firms that prepare audit
    reports for issuers, in accordance with section 102;
        (2) establish or adopt, or both, by rule, auditing, quality
    control, ethics, independence, and other standards relating to
    the preparation of audit reports for issuers, in accordance
    with section 103;
        (3) conduct inspections of registered public accounting
    firms, in accordance with section 104 and the rules of the
    Board;
        (4) conduct investigations and disciplinary proceedings
    concerning, and impose appropriate sanctions where justified
    upon, registered public accounting firms and associated persons
    of such firms, in accordance with section 105;
        (5) perform such other duties or functions as the Board
    determines are necessary or appropriate to promote high
    professional standards among, and improve the quality of audit
    services offered by, registered public accounting firms and
    associated persons thereof, or otherwise to carry out this Act,
    in order to protect investors, or to further the public
    interest;
        (6) enforce compliance with this Act, the rules of the
    Board, professional standards, and the securities laws relating
    to the preparation and issuance of audit reports and the
    obligations and liabilities of accountants with respect
    thereto, by registered public accounting firms and associated
    persons thereof; and
        (7) set the budget and manage the operations of the Board
    and the staff of the Board.
        (d) Commission Determination.--The members of the Board
    shall take such action (including hiring of staff, proposal of
    rules, and adoption of initial and transitional auditing and
    other professional standards) as may be necessary or
    appropriate to enable the Commission to determine, not later
    than 270 days after the date of enactment of this Act, that the
    Board is so organized and has the capacity to carry out the
    requirements of this title, and to enforce compliance with this
    title by registered public accounting firms and associated
    persons thereof.
        (e) Board Membership.--
        (1) Composition.--The Board shall have 5 members, appointed
    from among prominent individuals of integrity and reputation
    who have a demonstrated commitment to the interests of
    investors and the public, and an understanding of the
    responsibilities for and nature of the financial disclosures
    required of issuers under the securities laws and the
    obligations of accountants with respect to the preparation and
    issuance of audit reports with respect to such disclosures.
        (2) Limitation.--Two members, and only 2 members, of the
    Board shall be or have been certified public accountants
    pursuant to the laws of 1 or more States, provided that, if 1
    of those 2 members is the chairperson, he or she may not have
    been a practicing certified public accountant for at least 5
    years prior to his or her appointment to the Board.
        (3) Full-time independent service.--Each member of the
    Board shall serve on a full-time basis, and may not, concurrent
    with service on the Board, be employed by any other person or
    engage in any other professional or business activity. No
    member of the Board may share in any of the profits of, or
    receive payments from, a public accounting firm (or any other
    person, as determined by rule of the Commission), other than
    fixed continuing payments, subject to such conditions as the
    Commission may impose, under standard arrangements for the
    retirement of members of public accounting firms.
        (4) Appointment of board members.--
        (A) Initial board.--Not later than 90 days after the date
    of enactment of this Act, the Commission, after consultation
    with the Chairman of the Board of Governors of the Federal
    Reserve System and the Secretary of the Treasury, shall appoint
    the chairperson and other initial members of the Board, and
    shall designate a term of service for each.
        (B) Vacancies.--A vacancy on the Board shall not affect the
    powers of the Board, but shall be filled in the same manner as
    provided for appointments under this section.
        (5) Term of service.--
        (A) In general.--The term of service of each Board member
    shall be 5 years, and until a successor is appointed, except
    that--
        (i) the terms of office of the initial Board members (other
    than the chairperson) shall expire in annual increments, 1 on
    each of the first 4 anniversaries of the initial date of
    appointment; and
        (ii) any Board member appointed to fill a vacancy occurring
    before the expiration of the term for which the predecessor was
    appointed shall be appointed only for the remainder of that
    term.
        (B) Term limitation.--No person may serve as a member of
    the Board, or as chairperson of the Board, for more than 2
    terms, whether or not such terms of service are consecutive.
        (6) Removal from office.--A member of the Board may be
    removed by the Commission from office, in accordance with
    section 107(d)(3), for good cause shown before the expiration
    of the term of that member.
        (f ) Powers of the Board.--In addition to any authority
    granted to the Board otherwise in this Act, the Board shall
    have the power, subject to section 107--
        (1) to sue and be sued, complain and defend, in its
    corporate name and through its own counsel, with the approval
    of the Commission, in any Federal, State, or other court;
        (2) to conduct its operations and maintain offices, and to
    exercise all other rights and powers authorized by this Act, in
    any State, without regard to any qualification, licensing, or
    other provision of law in effect in such State (or a political
    subdivision thereof );
        (3) to lease, purchase, accept gifts or donations of or
    otherwise acquire, improve, use, sell, exchange, or convey, all
    of or an interest in any property, wherever situated;
        (4) to appoint such employees, accountants, attorneys, and
    other agents as may be necessary or appropriate, and to
    determine their qualifications, define their duties, and fix
    their salaries or other compensation (at a level that is
    comparable to private sector self-regulatory, accounting,
    technical, supervisory, or other staff or management
    positions);
        (5) to allocate, assess, and collect accounting support
    fees established pursuant to section 109, for the Board, and
    other fees and charges imposed under this title; and
        (6) to enter into contracts, execute instruments, incur
    liabilities, and do any and all other acts and things
    necessary, appropriate, or incidental to the conduct of its
    operations and the exercise of its obligations, rights, and
    powers imposed or granted by this title.
        (g) Rules of the Board.--The rules of the Board shall,
    subject to the approval of the Commission--
        (1) provide for the operation and administration of the
    Board, the exercise of its authority, and the performance of
    its responsibilities under this Act;
        (2) permit, as the Board determines necessary or
    appropriate, delegation by the Board of any of its functions to
    an individual member or employee of the Board, or to a division
    of the Board, including functions with respect to hearing,
    determining, ordering, certifying, reporting, or otherwise
    acting as to any matter, except that--
        (A) the Board shall retain a discretionary right to review
    any action pursuant to any such delegated function, upon its
    own motion;
        (B) a person shall be entitled to a review by the Board
    with respect to any matter so delegated, and the decision of
    the Board upon such review shall be deemed to be the action of
    the Board for all purposes (including appeal or review
    thereof ); and
        (C) if the right to exercise a review described in
    subparagraph (A) is declined, or if no such review is sought
    within the time stated in the rules of the Board, then the
    action taken by the holder of such delegation shall for all
    purposes, including appeal or review thereof, be deemed to be
    the action of the Board;
        (3) establish ethics rules and standards of conduct for
    Board members and staff, including a bar on practice before the
    Board (and the Commission, with respect to Board-related
    matters) of 1 year for former members of the Board, and
    appropriate periods (not to exceed 1 year) for former staff of
    the Board; and
        (4) provide as otherwise required by this Act.
        (h) Annual Report to the Commission.--The Board shall
    submit an annual report (including its audited financial
    statements) to the Commission, and the Commission shall
    transmit a copy of that report to the Committee on Banking,
    Housing, and Urban Affairs of the Senate, and the Committee on
    Financial Services of the House of Representatives, not later
    than 30 days after the date of receipt of that report by the
    Commission.

    SEC. 102. REGISTRATION WITH THE BOARD.

        (a) Mandatory Registration.--Beginning 180 days after the
    date of the determination of the Commission under section
    101(d), it shall be unlawful for any person that is not a
    registered public accounting firm to prepare or issue, or to
    participate in the preparation or issuance of, any audit report
    with respect to any issuer.
        (b) Applications for Registration.--
        (1) Form of application.--A public accounting firm shall
    use such form as the Board may prescribe, by rule, to apply for
    registration under this section.
        (2) Contents of applications.--Each public accounting firm
    shall submit, as part of its application for registration, in
    such detail as the Board shall specify--
        (A) the names of all issuers for which the firm prepared or
    issued audit reports during the immediately preceding calendar
    year, and for which the firm expects to prepare or issue audit
    reports during the current calendar year;
        (B) the annual fees received by the firm from each such
    issuer for audit services, other accounting services, and non-
    audit services, respectively;
        (C) such other current financial information for the most
    recently completed fiscal year of the firm as the Board may
    reasonably request;
        (D) a statement of the quality control policies of the firm
    for its accounting and auditing practices;
        (E) a list of all accountants associated with the firm who
    participate in or contribute to the preparation of audit
    reports, stating the license or certification number of each
    such person, as well as the State license numbers of the firm
    itself;
        (F) information relating to criminal, civil, or
    administrative actions or disciplinary proceedings pending
    against the firm or any associated person of the firm in
    connection with any audit report;
        (G) copies of any periodic or annual disclosure filed by an
    issuer with the Commission during the immediately preceding
    calendar year which discloses accounting disagreements between
    such issuer and the firm in connection with an audit report
    furnished or prepared by the firm for such issuer; and
        (H) such other information as the rules of the Board or the
    Commission shall specify as necessary or appropriate in the
    public interest or for the protection of investors.
        (3) Consents.--Each application for registration under this
    subsection shall include--
        (A) a consent executed by the public accounting firm to
    cooperation in and compliance with any request for testimony or
    the production of documents made by the Board in the
    furtherance of its authority and responsibilities under this
    title (and an agreement to secure and enforce similar consents
    from each of the associated persons of the public accounting
    firm as a condition of their continued employment by or other
    association with such firm); and
        (B) a statement that such firm understands and agrees that
    cooperation and compliance, as described in the consent
    required by subparagraph (A), and the securing and enforcement
    of such consents from its associated persons, in accordance
    with the rules of the Board, shall be a condition to the
    continuing effectiveness of the registration of the firm with
    the Board.
        (c) Action on Applications.--
        (1) Timing.--The Board shall approve a completed
    application for registration not later than 45 days after the
    date of receipt of the application, in accordance with the
    rules of the Board, unless the Board, prior to such date,
    issues a written notice of disapproval to, or requests more
    information from, the prospective registrant.
        (2) Treatment.--A written notice of disapproval of a
    completed application under paragraph (1) for registration
    shall be treated as a disciplinary sanction for purposes of
    sections 105(d) and 107(c).
        (d) Periodic Reports.--Each registered public accounting
    firm shall submit an annual report to the Board, and may be
    required to report more frequently, as necessary to update the
    information contained in its application for registration under
    this section, and to provide to the Board such additional
    information as the Board or the Commission may specify, in
    accordance with subsection (b)(2).
        (e) Public Availability.--Registration applications and
    annual reports required by this subsection, or such portions of
    such applications or reports as may be designated under rules
    of the Board, shall be made available for public inspection,
    subject to rules of the Board or the Commission, and to
    applicable laws relating to the confidentiality of proprietary,
    personal, or other information contained in such applications
    or reports, provided that, in all events, the Board shall
    protect from public disclosure information reasonably
    identified by the subject accounting firm as proprietary
    information.
        (f ) Registration and Annual Fees.--The Board shall assess
    and collect a registration fee and an annual fee from each
    registered public accounting firm, in amounts that are
    sufficient to recover the costs of processing and reviewing
    applications and annual reports.

    SEC. 103. AUDITING, QUALITY CONTROL, AND INDEPENDENCE STANDARDS AND
                        RULES.

        (a) Auditing, Quality Control, and Ethics Standards.--
        ``(1) In general.--The Board shall, by rule, establish,
    including, to the extent it determines appropriate, through
    adoption of standards proposed by 1 or more professional groups
    of accountants designated pursuant to paragraph (3)(A) or
    advisory groups convened pursuant to paragraph (4), and amend
    or otherwise modify or alter, such auditing and related
    attestation standards, such quality control standards, and such
    ethics standards to be used by registered public accounting
    firms in the preparation and issuance of audit reports, as
    required by this Act or the rules of the Commission, or as may
    be necessary or appropriate in the public interest or for the
    protection of investors.
        (2) Rule requirements.--In carrying out paragraph (1), the
    Board--
        (A) shall include in the auditing standards that it adopts,
    requirements that each registered public accounting firm
    shall--
        (i) prepare, and maintain for a period of not less than 7
    years, audit work papers, and other information related to any
    audit report, in sufficient detail to support the conclusions
    reached in such report;
        (ii) provide a concurring or second partner review and
    approval of such audit report (and other related information),
    and concurring approval in its issuance, by a qualified person
    (as prescribed by the Board) associated with the public
    accounting firm, other than the person in charge of the audit,
    or by an independent reviewer (as prescribed by the Board); and
        (iii) describe the scope of the auditor's testing of the
    system of internal accounting controls of the issuer required
    by section 13(b)(2) of the Securities Exchange Act of 1934 (15
    U.S.C. 78m(b)(2)), and present (in such report or in a separate
    report)--
        (I) the findings of the auditor from such testing;
        (II) an evaluation of whether such system of internal
    accounting controls--
        (aa) complies with the requirements of that section
    13(b)(2); and
        (bb) provides reasonable assurance that receipts and
    expenditures of the issuer comply with applicable law, and are
    being made in accordance with proper authorizations of the
    management and directors of the issuer; and
        (III) a description of significant defects in such internal
    controls, and of any material noncompliance, of which the
    auditor should know on the basis of such testing; and
        (B) shall include, in the quality control standards that it
    adopts with respect to the issuance of audit reports,
    requirements for every registered public accounting firm
    relating to--
        (i) monitoring of professional ethics and independence from
    issuers on behalf of which the firm issues audit reports;
        (ii) consultation within such firm on accounting and
    auditing questions;
        (iii) supervision of audit work;
        (iv) hiring, professional development, and advancement of
    personnel;
        (v) the acceptance and continuation of engagements;
        (vi) internal inspection; and
        (vii) such other requirements as the Board may prescribe,
    subject to subsection (a)(1).
        (3) Authority to adopt other standards.--
        (A) In general.--In carrying out this subsection, the
    Board--
        (i) may adopt as its rules, subject to the terms of section
    107, any portion of any statement of auditing standards or
    other professional standards that the Board determines satisfy
    the requirements of paragraph (1), and that were proposed by 1
    or more professional groups of accountants that shall be
    designated or recognized by the Board, by rule, for such
    purpose, pursuant to this paragraph or 1 or more advisory
    groups convened pursuant to paragraph (4); and
        (ii) notwithstanding clause (i), shall retain full
    authority to modify, supplement, revise, or subsequently amend,
    modify, or repeal, in whole or in part, any portion of any
    statement described in clause (i).
        (B) Initial and transitional standards.--The Board shall
    adopt standards described in subparagraph (A)(i) as initial or
    transitional standards, to the extent the Board determines
    necessary, prior to a determination of the Commission under
    section 101(d), and such standards shall be separately approved
    by the Commission at the time of that determination, without
    regard to the procedures required by section 107 that otherwise
    would apply to the approval of rules of the Board.
        (4) Advisory groups.--The Board shall convene, or authorize
    its staff to convene, such expert advisory groups as may be
    appropriate, which may include practicing accountants and other
    experts, as well as representatives of other interested groups,
    subject to such rules as the Board may prescribe to prevent
    conflicts of interest, to make recommendations concerning the
    content (including proposed drafts) of auditing, quality
    control, ethics, independence, or other standards required to
    be established under this section.
        (b) Independence Standards and Rules.--The Board shall
    establish such rules as may be necessary or appropriate in the
    public interest or for the protection of investors, to
    implement, or as authorized under, title II of this Act.
        (c) Cooperation With Designated Professional Groups of
    Accountants and Advisory Groups.--
        (1) In general.--The Board shall cooperate on an ongoing
    basis with professional groups of accountants designated under
    subsection (a)(3)(A) and advisory groups convened under
    subsection (a)(4) in the examination of the need for changes in
    any standards subject to its authority under subsection (a),
    recommend issues for inclusion on the agendas of such
    designated professional groups of accountants or advisory
    groups, and take such other steps as it deems appropriate to
    increase the effectiveness of the standard setting process.
        (2) Board responses.--The Board shall respond in a timely
    fashion to requests from designated professional groups of
    accountants and advisory groups referred to in paragraph (1)
    for any changes in standards over which the Board has
    authority.
        (d) Evaluation of Standard Setting Process.--The Board
    shall include in the annual report required by section 101(h)
    the results of its standard setting responsibilities during the
    period to which the report relates, including a discussion of
    the work of the Board with any designated professional groups
    of accountants and advisory groups described in paragraphs
    (3)(A) and (4) of subsection (a), and its pending issues agenda
    for future standard setting projects.

    SEC. 104. INSPECTIONS OF REGISTERED PUBLIC ACCOUNTING FIRMS.

        (a) In General.--The Board shall conduct a continuing
    program of inspections to assess the degree of compliance of
    each registered public accounting firm and associated persons
    of that firm with this Act, the rules of the Board, the rules
    of the Commission, or professional standards, in connection
    with its performance of audits, issuance of audit reports, and
    related matters involving issuers.
        (b) Inspection Frequency.--
        (1) In general.--Subject to paragraph (2), inspections
    required by this section shall be conducted--
        (A) annually with respect to each registered public
    accounting firm that regularly provides audit reports for more
    than 100 issuers; and
        (B) not less frequently than once every 3 years with
    respect to each registered public accounting firm that
    regularly provides audit reports for 100 or fewer issuers.
        (2) Adjustments to schedules.--The Board may, by rule,
    adjust the inspection schedules set under paragraph (1) if the
    Board finds that different inspection schedules are consistent
    with the purposes of this Act, the public interest, and the
    protection of investors.
        (c) Procedures.--The Board shall, in each inspection under
    this section, and in accordance with its rules for such
    inspections--
        (1) identify any act or practice or omission to act by the
    registered public accounting firm, or by any associated person
    thereof, revealed by such inspection that may be in violation
    of this Act, the rules of the Board, the rules of the
    Commission, the firm's own quality control policies, or
    professional standards;
        (2) report any such act, practice, or omission, if
    appropriate, to the Commission and each appropriate State
    regulatory authority; and
        (3) begin a formal investigation or take appropriate
    disciplinary action, if any, with respect to any such
    violation, in accordance with this Act and the rules of the
    Board.
        (d) Conduct of Inspections.--In conducting an inspection of
    a registered public accounting firm under this section, the
    Board shall--
        (1) inspect and review selected audit and review
    engagements of the firm (which may include audit engagements
    that are the subject of ongoing litigation or other controversy
    between the firm and 1 or more third parties), performed at
    various offices and by various associated persons of the firm,
    as selected by the Board;
        (2) evaluate the sufficiency of the quality control system
    of the firm, and the manner of the documentation and
    communication of that system by the firm; and
        (3) perform such other testing of the audit, supervisory,
    and quality control procedures of the firm as are necessary or
    appropriate in light of the purpose of the inspection and the
    responsibilities of the Board.
        (e) Record Retention.--The rules of the Board may require
    the retention by registered public accounting firms for
    inspection purposes of records whose retention is not otherwise
    required by section 103 or the rules issued thereunder.
        (f ) Procedures for Review.--The rules of the Board shall
    provide a procedure for the review of and response to a draft
    inspection report by the registered public accounting firm
    under inspection. The Board shall take such action with respect
    to such response as it considers appropriate (including
    revising the draft report or continuing or supplementing its
    inspection activities before issuing a final report), but the
    text of any such response, appropriately redacted to protect
    information reasonably identified by the accounting firm as
    confidential, shall be attached to and made part of the
    inspection report.
        (g) Report.--A written report of the findings of the Board
    for each inspection under this section, subject to subsection
    (h), shall be--
        (1) transmitted, in appropriate detail, to the Commission
    and each appropriate State regulatory authority, accompanied by
    any letter or comments by the Board or the inspector, and any
    letter of response from the registered public accounting firm;
    and
        (2) made available in appropriate detail to the public
    (subject to section 105(b)(5)(A), and to the protection of such
    confidential and proprietary information as the Board may
    determine to be appropriate, or as may be required by law),
    except that no portions of the inspection report that deal with
    criticisms of or potential defects in the quality control
    systems of the firm under inspection shall be made public if
    those criticisms or defects are addressed by the firm, to the
    satisfaction of the Board, not later than 12 months after the
    date of the inspection report.
        (h) Interim Commission Review.--
        (1) Reviewable matters.--A registered public accounting
    firm may seek review by the Commission, pursuant to such rules
    as the Commission shall promulgate, if the firm--
        (A) has provided the Board with a response, pursuant to
    rules issued by the Board under subsection (f ), to the
    substance of particular items in a draft inspection report, and
    disagrees with the assessments contained in any final report
    prepared by the Board following such response; or
        (B) disagrees with the determination of the Board that
    criticisms or defects identified in an inspection report have
    not been addressed to the satisfaction of the Board within 12
    months of the date of the inspection report, for purposes of
    subsection (g)(2).
        (2) Treatment of review.--Any decision of the Commission
    with respect to a review under paragraph (1) shall not be
    reviewable under section 25 of the Securities Exchange Act of
    1934 (15 U.S.C. 78y), or deemed to be ``final agency action''
    for purposes of section 704 of title 5, United States Code.
        (3) Timing.--Review under paragraph (1) may be sought
    during the 30-day period following the date of the event giving
    rise to the review under subparagraph (A) or (B) of paragraph
    (1).

    SEC. 105. INVESTIGATIONS AND DISCIPLINARY PROCEEDINGS.

        (a) In General.--The Board shall establish, by rule,
    subject to the requirements of this section, fair procedures
    for the investigation and disciplining of registered public
    accounting firms and associated persons of such firms.
        (b) Investigations.--
        (1) Authority.--In accordance with the rules of the Board,
    the Board may conduct an investigation of any act or practice,
    or omission to act, by a registered public accounting firm, any
    associated person of such firm, or both, that may violate any
    provision of this Act, the rules of the Board, the provisions
    of the securities laws relating to the preparation and issuance
    of audit reports and the obligations and liabilities of
    accountants with respect thereto, including the rules of the
    Commission issued under this Act, or professional standards,
    regardless of how the act, practice, or omission is brought to
    the attention of the Board.
        (2) Testimony and document production.--In addition to such
    other actions as the Board determines to be necessary or
    appropriate, the rules of the Board may--
        (A) require the testimony of the firm or of any person
    associated with a registered public accounting firm, with
    respect to any matter that the Board considers relevant or
    material to an investigation;
        (B) require the production of audit work papers and any
    other document or information in the possession of a registered
    public accounting firm or any associated person thereof,
    wherever domiciled, that the Board considers relevant or
    material to the investigation, and may inspect the books and
    records of such firm or associated person to verify the
    accuracy of any documents or information supplied;
        (C) request the testimony of, and production of any
    document in the possession of, any other person, including any
    client of a registered public accounting firm that the Board
    considers relevant or material to an investigation under this
    section, with appropriate notice, subject to the needs of the
    investigation, as permitted under the rules of the Board; and
        (D) provide for procedures to seek issuance by the
    Commission, in a manner established by the Commission, of a
    subpoena to require the testimony of, and production of any
    document in the possession of, any person, including any client
    of a registered public accounting firm, that the Board
    considers relevant or material to an investigation under this
    section.
        (3) Noncooperation with investigations.--
        (A) In general.--If a registered public accounting firm or
    any associated person thereof refuses to testify, produce
    documents, or otherwise cooperate with the Board in connection
    with an investigation under this section, the Board may--
        (i) suspend or bar such person from being associated with a
    registered public accounting firm, or require the registered
    public accounting firm to end such association;
        (ii) suspend or revoke the registration of the public
    accounting firm; and
        (iii) invoke such other lesser sanctions as the Board
    considers appropriate, and as specified by rule of the Board.
        (B) Procedure.--Any action taken by the Board under this
    paragraph shall be subject to the terms of section 107(c).
        (4) Referral.--The Board may refer an investigation under
    this section--
        (A) to the Commission;
        (B) to any other Federal functional regulator (as defined
    in section 509 of the Gramm-Leach-Bliley Act (15 U.S.C. 6809)),
    in the case of an investigation that concerns an audit report
    for an institution that is subject to the jurisdiction of such
    regulator; and
        (C) at the direction of the Commission, to--
        (i) the Attorney General of the United States;
        (ii) the attorney general of 1 or more States; and
        (iii) the appropriate State regulatory authority.
        (5) Use of documents.--
        (A) Confidentiality.--Except as provided in subparagraph
    (B), all documents and information prepared or received by or
    specifically for the Board, and deliberations of the Board and
    its employees and agents, in connection with an inspection
    under section 104 or with an investigation under this section,
    shall be confidential and privileged as an evidentiary matter
    (and shall not be subject to civil discovery or other legal
    process) in any proceeding in any Federal or State court or
    administrative agency, and shall be exempt from disclosure, in
    the hands of an agency or establishment of the Federal
    Government, under the Freedom of Information Act (5 U.S.C.
    552a), or otherwise, unless and until presented in connection
    with a public proceeding or released in accordance with
    subsection (c).
        (B) Availability to government agencies.--All information
    referred to in subparagraph (A) may, in the discretion of the
    Board, when determined by the Board to be necessary to
    accomplish the purposes of this Act or to protect investors,
    and without the loss of its status as confidential and
    privileged in the hands of the Board, be made available to the
    Commission, the Attorney General of the United States, to the
    appropriate Federal functional regulator (as defined in section
    509 of the Gramm-Leach-Bliley Act (15 U.S.C. 6809)), other than
    the Commission, with respect to an audit report for an
    institution subject to the jurisdiction of such regulator, to
    State attorneys general in connection with any criminal
    investigation, and to any appropriate State regulatory
    authority, which shall maintain such information as
    confidential and privileged.
        (6) Immunity.--Any employee of the Board engaged in
    carrying out an investigation under this Act shall be immune
    from any civil liability arising out of such investigation in
    the same manner and to the same extent as an employee of the
    Federal Government in similar circumstances.
        (c) Disciplinary Procedures.--
        (1) Notification; recordkeeping.--The rules of the Board
    shall provide that in any proceeding by the Board to determine
    whether a registered public accounting firm, or an associated
    person thereof, should be disciplined, the Board shall--
        (A) bring specific charges with respect to the firm or
    associated person;
        (B) notify such firm or associated person of, and provide
    to the firm or associated person an opportunity to defend
    against, such charges; and
        (C) keep a record of the proceedings.
        (2) Public hearings.--Hearings under this section shall not
    be public, unless otherwise ordered by the Board for good cause
    shown, with the consent of the parties to such hearing.
        (3) Supporting statement.--A determination by the Board to
    impose a sanction under this subsection shall be supported by a
    statement setting forth--
        (A) each act or practice in which the registered public
    accounting firm, or associated person, has engaged (or omitted
    to engage), or that forms a basis for all or a part of such
    sanction;
        (B) the specific provision of this Act, the securities
    laws, the rules of the Board, or professional standards which
    the Board determines has been violated; and
        (C) the sanction imposed, including a justification for
    that sanction.
        (4) Sanctions.--If the Board finds, based on all of the
    facts and circumstances, that a registered public accounting
    firm or associated person thereof has engaged in any act or
    practice, or omitted to act, in violation of this Act, the
    rules of the Board, the provisions of the securities laws
    relating to the preparation and issuance of audit reports and
    the obligations and liabilities of accountants with respect
    thereto, including the rules of the Commission issued under
    this Act, or professional standards, the Board may impose such
    disciplinary or remedial sanctions as it determines
    appropriate, subject to applicable limitations under paragraph
    (5), including--
        (A) temporary suspension or permanent revocation of
    registration under this title;
        (B) temporary or permanent suspension or bar of a person
    from further association with any registered public accounting
    firm;
        (C) temporary or permanent limitation on the activities,
    functions, or operations of such firm or person (other than in
    connection with required additional professional education or
    training);
        (D) a civil money penalty for each such violation, in an
    amount equal to--
        (i) not more than $100,000 for a natural person or
    $2,000,000 for any other person; and
        (ii) in any case to which paragraph (5) applies, not more
    than $750,000 for a natural person or $15,000,000 for any other
    person;
        (E) censure;
        (F) required additional professional education or training;
    or
        (G) any other appropriate sanction provided for in the
    rules of the Board.
        (5) Intentional or other knowing conduct.--The sanctions
    and penalties described in subparagraphs (A) through (C) and
    (D)(ii) of paragraph (4) shall only apply to--
        (A) intentional or knowing conduct, including reckless
    conduct, that results in violation of the applicable statutory,
    regulatory, or professional standard; or
        (B) repeated instances of negligent conduct, each resulting
    in a violation of the applicable statutory, regulatory, or
    professional standard.
        (6) Failure to supervise.--
        (A) In general.--The Board may impose sanctions under this
    section on a registered accounting firm or upon the supervisory
    personnel of such firm, if the Board finds that--
        (i) the firm has failed reasonably to supervise an
    associated person, either as required by the rules of the Board
    relating to auditing or quality control standards, or
    otherwise, with a view to preventing violations of this Act,
    the rules of the Board, the provisions of the securities laws
    relating to the preparation and issuance of audit reports and
    the obligations and liabilities of accountants with respect
    thereto, including the rules of the Commission under this Act,
    or professional standards; and
        (ii) such associated person commits a violation of this
    Act, or any of such rules, laws, or standards.
        (B) Rule of construction.--No associated person of a
    registered public accounting firm shall be deemed to have
    failed reasonably to supervise any other person for purposes of
    subparagraph (A), if--
        (i) there have been established in and for that firm
    procedures, and a system for applying such procedures, that
    comply with applicable rules of the Board and that would
    reasonably be expected to prevent and detect any such violation
    by such associated person; and
        (ii) such person has reasonably discharged the duties and
    obligations incumbent upon that person by reason of such
    procedures and system, and had no reasonable cause to believe
    that such procedures and system were not being complied with.
        (7) Effect of suspension.--
        (A) Association with a public accounting firm.--It shall be
    unlawful for any person that is suspended or barred from being
    associated with a registered public accounting firm under this
    subsection willfully to become or remain associated with any
    registered public accounting firm, or for any registered public
    accounting firm that knew, or, in the exercise of reasonable
    care should have known, of the suspension or bar, to permit
    such an association, without the consent of the Board or the
    Commission.
        (B) Association with an issuer.--It shall be unlawful for
    any person that is suspended or barred from being associated
    with an issuer under this subsection willfully to become or
    remain associated with any issuer in an accountancy or a
    financial management capacity, and for any issuer that knew, or
    in the exercise of reasonable care should have known, of such
    suspension or bar, to permit such an association, without the
    consent of the Board or the Commission.
        (d) Reporting of Sanctions.--
        (1) Recipients.--If the Board imposes a disciplinary
    sanction, in accordance with this section, the Board shall
    report the sanction to--
        (A) the Commission;
        (B) any appropriate State regulatory authority or any
    foreign accountancy licensing board with which such firm or
    person is licensed or certified; and
        (C) the public (once any stay on the imposition of such
    sanction has been lifted).
        (2) Contents.--The information reported under paragraph (1)
    shall include--
        (A) the name of the sanctioned person;
        (B) a description of the sanction and the basis for its
    imposition; and
        (C) such other information as the Board deems appropriate.
        (e) Stay of Sanctions.--
        (1) In general.--Application to the Commission for review,
    or the institution by the Commission of review, of any
    disciplinary action of the Board shall operate as a stay of any
    such disciplinary action, unless and until the Commission
    orders (summarily or after notice and opportunity for hearing
    on the question of a stay, which hearing may consist solely of
    the submission of affidavits or presentation of oral arguments)
    that no such stay shall continue to operate.
        (2) Expedited procedures.--The Commission shall establish
    for appropriate cases an expedited procedure for consideration
    and determination of the question of the duration of a stay
    pending review of any disciplinary action of the Board under
    this subsection.

    SEC. 106. FOREIGN PUBLIC ACCOUNTING FIRMS.

        (a) Applicability to Certain Foreign Firms.--
        (1) In general.--Any foreign public accounting firm that
    prepares or furnishes an audit report with respect to any
    issuer, shall be subject to this Act and the rules of the Board
    and the Commission issued under this Act, in the same manner
    and to the same extent as a public accounting firm that is
    organized and operates under the laws of the United States or
    any State, except that registration pursuant to section 102
    shall not by itself provide a basis for subjecting such a
    foreign public accounting firm to the jurisdiction of the
    Federal or State courts, other than with respect to
    controversies between such firms and the Board.
        (2) Board authority.--The Board may, by rule, determine
    that a foreign public accounting firm (or a class of such
    firms) that does not issue audit reports nonetheless plays such
    a substantial role in the preparation and furnishing of such
    reports for particular issuers, that it is necessary or
    appropriate, in light of the purposes of this Act and in the
    public interest or for the protection of investors, that such
    firm (or class of firms) should be treated as a public
    accounting firm (or firms) for purposes of registration under,
    and oversight by the Board in accordance with, this title.
        (b) Production of Audit Workpapers.--
        (1) Consent by foreign firms.--If a foreign public
    accounting firm issues an opinion or otherwise performs
    material services upon which a registered public accounting
    firm relies in issuing all or part of any audit report or any
    opinion contained in an audit report, that foreign public
    accounting firm shall be deemed to have consented--
        (A) to produce its audit workpapers for the Board or the
    Commission in connection with any investigation by either body
    with respect to that audit report; and
        (B) to be subject to the jurisdiction of the courts of the
    United States for purposes of enforcement of any request for
    production of such workpapers.
        (2) Consent by domestic firms.--A registered public
    accounting firm that relies upon the opinion of a foreign
    public accounting firm, as described in paragraph (1), shall be
    deemed--
        (A) to have consented to supplying the audit workpapers of
    that foreign public accounting firm in response to a request
    for production by the Board or the Commission; and
        (B) to have secured the agreement of that foreign public
    accounting firm to such production, as a condition of its
    reliance on the opinion of that foreign public accounting firm.
        (c) Exemption Authority.--The Commission, and the Board,
    subject to the approval of the Commission, may, by rule,
    regulation, or order, and as the Commission (or Board)
    determines necessary or appropriate in the public interest or
    for the protection of investors, either unconditionally or upon
    specified terms and conditions exempt any foreign public
    accounting firm, or any class of such firms, from any provision
    of this Act or the rules of the Board or the Commission issued
    under this Act.
        (d) Definition.--In this section, the term ``foreign public
    accounting firm'' means a public accounting firm that is
    organized and operates under the laws of a foreign government
    or political subdivision thereof.

    SEC. 107. COMMISSION OVERSIGHT OF THE BOARD.

        (a) General Oversight Responsibility.--The Commission shall
    have oversight and enforcement authority over the Board, as
    provided in this Act.
        (b) Rules of the Board.--
        (1) Definition.--In this section, the term ``proposed
    rule'' means any proposed rule of the Board, and any
    modification of any such rule.
        (2) Prior approval required.--No rule of the Board shall
    become effective without prior approval of the Commission in
    accordance with this section, other than as provided in section
    103(a)(3)(B) with respect to initial or transitional standards.
        (3) Approval criteria.--The Commission shall approve a
    proposed rule, if it finds that the rule is consistent with the
    requirements of this Act and the securities laws, or is
    necessary or appropriate in the public interest or for the
    protection of investors.
        (4) Proposed rule procedures.--The provisions of paragraphs
    (1) through (3) of section 19(b) of the Securities Exchange Act
    of 1934 (15 U.S.C. 78s(b)) shall govern the proposed rules of
    the Board, as fully as if the Board were a ``registered
    securities association'' for purposes of that section 19(b),
    except that, for purposes of this paragraph--
        (A) the phrase ``consistent with the requirements of this
    title and the rules and regulations thereunder applicable to
    such organization'' in section 19(b)(2) of that Act shall be
    deemed to read ``consistent with the requirements of title I of
    the Public Company Accounting Reform and Investor Protection
    Act of 2002, and the rules and regulations issued thereunder
    applicable to such organization, or as necessary or appropriate
    in the public interest or for the protection of investors'';
    and
        (B) the phrase ``otherwise in furtherance of the purposes
    of this title'' in section 19(b)(3)(C) of that Act shall be
    deemed to read ``otherwise in furtherance of the purposes of
    title I of the Public Company Accounting Reform and Investor
    Protection Act of 2002''.
        (5) Commission authority to amend rules of the board.--The
    provisions of section 19(c) of the Securities Exchange Act of
    1934 (15 U.S.C. 78s(c)) shall govern the abrogation, deletion,
    or addition to portions of the rules of the Board by the
    Commission as fully as if the Board were a ``registered
    securities association'' for purposes of that section 19(c),
    except that the phrase ``to conform its rules to the
    requirements of this title and the rules and regulations
    thereunder applicable to such organization, or otherwise in
    furtherance of the purposes of this title'' in section 19(c) of
    that Act shall, for purposes of this paragraph, be deemed to
    read ``to assure the fair administration of the Public Company
    Accounting Oversight Board, conform the rules promulgated by
    that Board to the requirements of title I of the Public Company
    Accounting Reform and Investor Protection Act of 2002, or
    otherwise further the purposes of that Act, the securities
    laws, and the rules and regulations thereunder applicable to
    that Board''.
        (c) Commission Review of Disciplinary Action Taken by the
    Board.--
        (1) Notice of sanction.--The Board shall promptly file
    notice with the Commission of any final sanction on any
    registered public accounting firm or on any associated person
    thereof, in such form and containing such information as the
    Commission, by rule, may prescribe.
        (2) Review of sanctions.--The provisions of sections
    19(d)(2) and 19(e)(1) of the Securities Exchange Act of 1934
    (15 U.S.C. 78s (d)(2) and (e)(1)) shall govern the review by
    the Commission of final disciplinary sanctions imposed by the
    Board (including sanctions imposed under section 105(b)(3) of
    this Act for noncooperation in an investigation of the Board),
    as fully as if the Board were a self-regulatory organization
    and the Commission were the appropriate regulatory agency for
    such organization for purposes of those sections 19(d)(2) and
    19(e)(1), except that, for purposes of this paragraph--
        (A) section 105(e) of this Act (rather than that section
    19(d)(2)) shall govern the extent to which application for, or
    institution by the Commission on its own motion of, review of
    any disciplinary action of the Board operates as a stay of such
    action;
        (B) references in that section 19(e)(1) to ``members'' of
    such an organization shall be deemed to be references to
    registered public accounting firms;
        (C) the phrase ``consistent with the purposes of this
    title'' in that section 19(e)(1) shall be deemed to read
    ``consistent with the purposes of this title and title I of the
    Public Company Accounting Reform and Investor Protection Act of
    2002'';
        (D) references to rules of the Municipal Securities
    Rulemaking Board in that section 19(e)(1) shall not apply; and
        (E) the reference to section 19(e)(2) of the Securities
    Exchange Act of 1934 shall refer instead to section 107(c)(3)
    of this Act.
        (3) Commission modification authority.--The Commission may
    enhance, modify, cancel, reduce, or require the remission of a
    sanction imposed by the Board upon a registered public
    accounting firm or associated person thereof, if the
    Commission, having due regard for the public interest and the
    protection of investors, finds, after a proceeding in
    accordance with this subsection, that the sanction--
        (A) is not necessary or appropriate in furtherance of this
    Act or the securities laws; or
        (B) is excessive, oppressive, inadequate, or otherwise not
    appropriate to the finding or the basis on which the sanction
    was imposed.
        (d) Censure of the Board; Other Sanctions.--
        (1) Rescission of board authority.--The Commission, by
    rule, consistent with the public interest, the protection of
    investors, and the other purposes of this Act and the
    securities laws, may relieve the Board of any responsibility to
    enforce compliance with any provision of this Act, the
    securities laws, the rules of the Board, or professional
    standards.
        (2) Censure of the board; limitations.--The Commission may,
    by order, as it determines necessary or appropriate in the
    public interest, for the protection of investors, or otherwise
    in furtherance of the purposes of this Act or the securities
    laws, censure or impose limitations upon the activities,
    functions, and operations of the Board, if the Commission
    finds, on the record, after notice and opportunity for a
    hearing, that the Board--
        (A) has violated or is unable to comply with any provision
    of this Act, the rules of the Board, or the securities laws; or
        (B) without reasonable justification or excuse, has failed
    to enforce compliance with any such provision or rule, or any
    professional standard by a registered public accounting firm or
    an associated person thereof.
        (3) Censure of board members; removal from office.--The
    Commission may, as necessary or appropriate in the public
    interest, for the protection of investors, or otherwise in
    furtherance of the purposes of this Act or the securities laws,
    remove from office or censure any member of the Board, if the
    Commission finds, on the record, after notice and opportunity
    for a hearing, that such member--
        (A) has willfully violated any provision of this Act, the
    rules of the Board, or the securities laws;
        (B) has willfully abused the authority of that member; or
        (C) without reasonable justification or excuse, has failed
    to enforce compliance with any such provision or rule, or any
    professional standard by any registered public accounting firm
    or any associated person thereof.

    SEC. 108. ACCOUNTING STANDARDS.

        (a) Amendment to Securities Act of 1933.--Section 19 of the
    Securities Act of 1933 (15 U.S.C. 77s) is amended--
        (1) by redesignating subsections (b) and (c) as subsections
    (c) and (d), respectively; and
        (2) by inserting after subsection (a) the following:
        ``(b) Recognition of Accounting Standards.--
        ``(1) In general.--In carrying out its authority under
    subsection (a) and under section 13(b) of the Securities
    Exchange Act of 1934, the Commission may recognize, as
    `generally accepted' for purposes of the securities laws, any
    accounting principles established by a standard setting body--
        ``(A) that--
        ``(i) is organized as a private entity;
        ``(ii) has, for administrative and operational purposes, a
    board of trustees (or equivalent body) serving in the public
    interest, the majority of whom are not, concurrent with their
    service on such board, and have not been during the 2-year
    period preceding such service, associated persons of any
    registered public accounting firm;
        ``(iii) is funded as provided in section 109 of the Public
    Company Accounting Reform and Investor Protection Act of 2002;
        ``(iv) has adopted procedures to ensure prompt
    consideration, by majority vote of its members, of changes to
    accounting principles necessary to reflect emerging accounting
    issues and changing business practices;
        ``(v) considers, in adopting accounting principles, the
    need to keep standards current in order to reflect changes in
    the business environment, the extent to which international
    convergence on high quality accounting standards is necessary
    or appropriate in the public interest and for the protection of
    investors; and
        ``(B) that the Commission determines has the capacity to
    assist the Commission in fulfilling the requirements of
    subsection (a) and section 13(b) of the Securities Exchange Act
    of 1934, because, at a minimum, the standard setting body is
    capable of improving the accuracy and effectiveness of
    financial reporting and the protection of investors under the
    securities laws.
        ``(2) Annual report.--A standard setting body described in
    paragraph (1) shall submit an annual report to the Commission
    and the public, containing audited financial statements of that
    standard setting body.''.
        (b) Commission Authority.--The Commission shall promulgate
    such rules and regulations to carry out section 19(b) of the
    Securities Act of 1933, as added by this section, as it deems
    necessary or appropriate in the public interest or for the
    protection of investors.
        (c) No Effect on Commission Powers.--Nothing in this Act,
    including this section and the amendment made by this section,
    shall be construed to impair or limit the authority of the
    Commission to establish accounting principles or standards for
    purposes of enforcement of the securities laws.
        (d) Study and Report on Adopting Principles-Based
    Accounting.--
        (1) Study.--
        (A) In general.--The Commission shall conduct a study on
    the adoption by the United States financial reporting system of
    a principles-based accounting system.
        (B) Study topics.--The study required by subparagraph (A)
    shall include an examination of--
        (i) the extent to which principles-based accounting and
    financial reporting exists in the United States;
        (ii) the length of time required for change from a rules-
    based to a principles-based financial reporting system;
        (iii) the feasibility of and proposed methods by which a
    principles-based system may be implemented; and
        (iv) a thorough economic analysis of the implementation of
    a principles-based system.
        (2) Report.--Not later than 1 year after the date of
    enactment of this Act, the Commission shall submit a report on
    the results of the study required by paragraph (1) to the
    Committee on Banking, Housing, and Urban Affairs of the Senate
    and the Committee on Financial Services of the House of
    Representatives.

    SEC. 109. FUNDING.

        (a) In General.--The Board, and the standard setting body
    designated pursuant to section 19(b) of the Securities Act of
    1933, as amended by section 108, shall be funded as provided in
    this section.
        (b) Annual Budgets.--The Board and the standard setting
    body referred to in subsection (a) shall each establish a
    budget for each fiscal year, which shall be reviewed and
    approved according to their respective internal procedures not
    less than 1 month prior to the commencement of the fiscal year
    to which the budget pertains. The budget of the Board shall be
    subject to approval by the Commission.
        (c) Sources and Uses of Funds.--
        (1) Recoverable budget expenses.--The budget of the Board
    (reduced by any registration or annual fees received under
    section 102(e) for the year preceding the year for which the
    budget is being computed), and all of the budget of the
    standard setting body referred to in subsection (a), for each
    fiscal year of each of those 2 entities, shall be payable from
    annual accounting support fees, in accordance with subsections
    (d) and (e).
        (2) Funds generated from the collection of monetary
    penalties.--Subject to the availability in advance in an
    appropriations Act, and notwithstanding subsection (h), all
    funds collected by the Board as a result of the assessment of
    monetary penalties shall be used to fund a merit scholarship
    program for undergraduate and graduate students enrolled in
    accredited accounting degree programs, which program is to be
    administered by the Board or by an entity or agent identified
    by the Board.
        (d) Annual Accounting Support Fee for the Board.--
        (1) Establishment of fee.--The Board shall establish, with
    the approval of the Commission, a reasonable annual accounting
    support fee (or a formula for the computation thereof ), as may
    be necessary or appropriate to establish and maintain the
    Board.
        (2) Assessments.--The rules of the Board under paragraph
    (1) shall provide for the equitable allocation, assessment, and
    collection by the Board (or an agent appointed by the Board) of
    the fee established under paragraph (1), among issuers, in
    accordance with subsection (f ), allowing for differentiation
    among classes of issuers, as appropriate.
        (e) Annual Accounting Support Fee for Standard Setting
    Body.--The annual accounting support fee for the standard
    setting body referred to in subsection (a)--
        (1) shall be allocated in accordance with subsection (f ),
    and assessed and collected against each issuer, on behalf of
    the standard setting body, by 1 or more appropriate designated
    collection agents, as may be necessary or appropriate to pay
    for the budget and provide for the expenses of that standard
    setting body, and to provide for an independent, stable source
    of funding for such body, subject to review by the Commission;
    and
        (2) may differentiate among different classes of issuers.
        (f ) Allocation of Accounting Support Fees Among Issuers.--
    Any amount due from issuers (or a particular class of issuers)
    under this section to fund the budget of the Board or the
    standard setting body referred to in subsection (a) shall be
    allocated among and payable by each issuer (or each issuer in a
    particular class, as applicable) in an amount equal to the
    total of such amount, multiplied by a fraction--
        (1) the numerator of which is the average monthly equity
    market capitalization of the issuer for the 12-month period
    immediately preceding the beginning of the fiscal year to which
    such budget relates; and
        (2) the denominator of which is the average monthly equity
    market capitalization of all such issuers for such 12-month
    period.
        (g) Conforming Amendments.--Section 13(b)(2) of the
    Securities Exchange Act of 1934 (15 U.S.C. 78m(b)(2)) is
    amended--
        (1) in subparagraph (A), by striking ``and'' at the end;
        (2) in subparagraph (B), by striking the period at the end
    and inserting the following: ``; and
        ``(C) notwithstanding any other provision of law, pay the
    allocable share of such issuer of a reasonable annual
    accounting support fee or fees, determined in accordance with
    section 109 of the Public Company Accounting Reform and
    Investor Protection Act of 2002.''.
        (h) Rule of Construction.--Nothing in this section shall be
    construed to render either the Board, the standard setting body
    referred to in subsection (a), or both, subject to procedures
    in Congress to authorize or appropriate public funds, or to
    prevent such organization from utilizing additional sources of
    revenue for its activities, such as earnings from publication
    sales, provided that each additional source of revenue shall
    not jeopardize, in the judgment of the Commission, the actual
    and perceived independence of such organization.

                         TITLE II--AUDITOR INDEPENDENCE

    SEC. 201. SERVICES OUTSIDE THE SCOPE OF PRACTICE OF AUDITORS.

        (a) Prohibited Activities.--Section 10A of the Securities
    Exchange Act of 1934 (15 U.S.C. 78j-1) is amended by adding at
    the end the following:
        ``(g) Prohibited Activities.--It shall be unlawful for a
    registered public accounting firm (and any associated person of
    that firm, to the extent determined appropriate by the
    Commission) that performs for any issuer any audit required by
    this title or the rules of the Commission under this title or,
    beginning 180 days after the date of commencement of the
    operations of the Public Company Accounting Oversight Board
    established under section 101 of the Public Company Accounting
    Reform and Investor Protection Act of 2002 (in this section
    referred to as the `Board'), the rules of the Board, to provide
    to that issuer, contemporaneously with the audit, any non-audit
    service, including--
        ``(1) bookkeeping or other services related to the
    accounting records or financial statements of the audit client;
        ``(2) financial information systems design and
    implementation;
        ``(3) appraisal or valuation services, fairness opinions,
    or contribution-in-kind reports;
        ``(4) actuarial services;
        ``(5) internal audit outsourcing services;
        ``(6) management functions or human resources;
        ``(7) broker or dealer, investment adviser, or investment
    banking services;
        ``(8) legal services and expert services unrelated to the
    audit; and
        ``(9) any other service that the Board determines, by
    regulation, is impermissible.
        ``(h) Preapproval Required for Non-Audit Services.--A
    registered public accounting firm may engage in any non-audit
    service, including tax services, that is not described in any
    of paragraphs (1) through (9) of subsection (g) for an audit
    client, only if the activity is approved in advance by the
    audit committee of the issuer, in accordance with subsection
    (i).''.
        (b) Exemption Authority.--The Board may, on a case by case
    basis, exempt any person, issuer, public accounting firm, or
    transaction from the prohibition on the provision of services
    under section 10A(g) of the Securities Exchange Act of 1934 (as
    added by this section), to the extent that such exemption is
    necessary or appropriate in the public interest and is
    consistent with the protection of investors, and subject to
    review by the Commission in the same manner as for rules of the
    Board under section 107.

    SEC. 202. PREAPPROVAL REQUIREMENTS.

        Section 10A of the Securities Exchange Act of 1934 (15
    U.S.C. 78j-1), as amended by this Act, is amended by adding at
    the end the following:
        ``(i) Preapproval Requirements.--
        ``(1) In general.--
        ``(A) Audit committee action.--All auditing services (which
    may entail providing comfort letters in connection with
    securities underwritings) and non-audit services, other than as
    provided in subparagraph (B), provided to an issuer by the
    auditor of the issuer shall be preapproved by the audit
    committee of the issuer.
        ``(B) De minimus exception.--The preapproval requirement
    under subparagraph (A) is waived with respect to the provision
    of non-audit services for an issuer, if--
        ``(i) the aggregate amount of all such non-audit services
    provided to the issuer constitutes not more than 5 percent of
    the total amount of revenues paid by the issuer to its auditor;
        ``(ii) such services were not recognized by the issuer at
    the time of the engagement to be non-audit services; and
        ``(iii) such services are promptly brought to the attention
    of the audit committee of the issuer and approved by the audit
    committee prior to the completion of the audit, by 1 or more
    members of the audit committee who are members of the board of
    directors to whom authority to grant such approvals has been
    delegated by the audit committee.
        ``(2) Disclosure to investors.--Approval by an audit
    committee of an issuer under this subsection of a non-audit
    service to be performed by the auditor of the issuer shall be
    disclosed to investors in periodic reports required by section
    13(a).
        ``(3) Delegation authority.--The audit committee of an
    issuer may delegate to 1 or more designated members of the
    audit committee who are independent directors of the board of
    directors, the authority to grant preapprovals required by this
    subsection. The decisions of any member to whom authority is
    delegated under this paragraph to preapprove an activity under
    this subsection shall be presented to the full audit committee
    at each of its scheduled meetings.
        ``(4) Approval of audit services for other purposes.--In
    carrying out its duties under subsection (m)(2), if the audit
    committee of an issuer approves an audit service within the
    scope of the engagement of the auditor, such audit service
    shall be deemed to have been preapproved for purposes of this
    subsection.''.

    SEC. 203. AUDIT PARTNER ROTATION.

        Section 10A of the Securities Exchange Act of 1934 (15
    U.S.C. 78j-1), as amended by this Act, is amended by adding at
    the end the following:
        ``(j) Audit Partner Rotation.--It shall be unlawful for a
    registered public accounting firm to provide audit services to
    an issuer if the lead audit partner (having primary
    responsibility for the audit) or the audit partner responsible
    for reviewing the audit that is assigned to perform those audit
    services has performed audit services for that issuer in each
    of the 5 previous fiscal years of that issuer.''.

    SEC. 204. AUDITOR REPORTS TO AUDIT COMMITTEES.

        Section 10A of the Securities Exchange Act of 1934 (15
    U.S.C. 78j-1), as amended by this Act, is amended by adding at
    the end the following:
        ``(k) Reports to Audit Committees.--Each registered public
    accounting firm that performs for any issuer any audit required
    by this title shall timely report to the audit committee of the
    issuer--
        ``(1) all critical accounting policies and practices to be
    used;
        ``(2) all alternative treatments of financial information
    within generally accepted accounting principles that have been
    discussed with management officials of the issuer,
    ramifications of the use of such alternative disclosures and
    treatments, and the treatment preferred by the registered
    public accounting firm; and
        ``(3) other material written communications between the
    registered public accounting firm and the management of the
    issuer, such as any management letter or schedule of unadjusted
    differences.''.

    SEC. 205. CONFORMING AMENDMENTS.

        (a) Definitions.--Section 3(a) of the Securities Exchange
    Act of 1934 (15 U.S.C. 78c(a)) is amended by adding at the end
    the following:
        ``(58) Audit committee.--The term `audit committee' means--
        ``(A) a committee (or equivalent body) established by and
    amongst the board of directors of an issuer for the purpose of
    overseeing the accounting and financial reporting processes of
    the issuer and audits of the financial statements of the
    issuer; and
        ``(B) if no such committee exists with respect to an
    issuer, the entire board of directors of the issuer.
        ``(59) Registered public accounting firm.--The term
    `registered public accounting firm' has the same meaning as in
    section 3 of the Public Company Accounting Reform and Investor
    Protection Act of 2002.''.
        (b) Auditor Requirements.--Section 10A of the Securities
    Exchange Act of 1934 (15 U.S.C. 78j-1) is amended--
        (1) by striking ``an independent public accountant'' each
    place that term appears and inserting ``a registered public
    accounting firm'';
        (2) by striking ``the independent public accountant'' each
    place that term appears and inserting ``the registered public
    accounting firm'';
        (3) in subsection (c), by striking ``No independent public
    accountant'' and inserting ``No registered public accounting
    firm''; and
        (4) in subsection (b)--
        (A) by striking ``the accountant'' each place that term
    appears and inserting ``the firm'';
        (B) by striking ``such accountant'' each place that term
    appears and inserting ``such firm''; and
        (C) in paragraph (4), by striking ``the accountant's
    report'' and inserting ``the report of the firm''.
        (c) Other References.--The Securities Exchange Act of 1934
    (15 U.S.C. 78a et seq.) is amended--
        (1) in section 12(b)(1) (15 U.S.C. 78l(b)(1)), by striking
    ``independent public accountants'' each place that term appears
    and inserting ``a registered public accounting firm''; and
        (2) in subsections (e) and (i) of section 17 (15 U.S.C.
    78q), by striking ``an independent public accountant'' each
    place that term appears and inserting ``a registered public
    accounting firm''.
        (d) Conforming Amendment.--Section 10A(f ) of the
    Securities Exchange Act of 1934 (15 U.S.C. 78k(f )) is
    amended--
        (1) by striking ``Definition'' and inserting
    ``Definitions''; and
        (2) by adding at the end the following: ``As used in this
    section, the term `issuer' means an issuer (as defined in
    section 3), the securities of which are registered under
    section 12, or that is required to file reports pursuant to
    section 15(d), or that will be required to file such reports at
    the end of a fiscal year of the issuer in which a registration
    statement filed by such issuer has become effective pursuant to
    the Securities Act of 1933 (15 U.S.C. 77a et. seq.), unless its
    securities are registered under section 12 of this title on or
    before the end of such fiscal year.''.

    SEC. 206. CONFLICTS OF INTEREST.

        Section 10A of the Securities Exchange Act of 1934 (15
    U.S.C. 78j-1), as amended by this Act, is amended by adding at
    the end the following:
        ``(l) Conflicts of Interest.--It shall be unlawful for a
    registered public accounting firm to perform for an issuer any
    audit service required by this title, if a chief executive
    officer, controller, chief financial officer, chief accounting
    officer or any person serving in an equivalent position for the
    issuer was employed by that registered independent public
    accounting firm and participated in any capacity in the audit
    of that issuer during the 1-year period preceding the date of
    the initiation of the audit.''.

    SEC. 207. STUDY OF MANDATORY ROTATION OF REGISTERED PUBLIC ACCOUNTING
                        FIRMS.

        (a) Study and Review Required.--The Comptroller General of
    the United States shall conduct a study and review of the
    potential effects of requiring the mandatory rotation of
    registered public accounting firms.
        (b) Report Required.--Not later than 1 year after the date
    of enactment of this Act, the Comptroller General shall submit
    a report to the Committee on Banking, Housing, and Urban
    Affairs of the Senate and the Committee on Financial Services
    of the House of Representatives on the results of the study and
    review required by this section.
        (c) Definition.--For purposes of this section, the term
    ``mandatory rotation'' refers to the imposition of a limit on
    the period of years in which a particular registered public
    accounting firm may be the auditor of record for a particular
    issuer.

    SEC. 208. COMMISSION AUTHORITY.

        (a) Commission Regulations.--Not later than 180 days after
    the date of enactment of this Act, the Commission shall issue
    final regulations to carry out each of subsections (g) through
    (l) of section 10A of the Securities Exchange Act of 1934, as
    added by this title.
        (b) Auditor Independence.--It shall be unlawful for any
    registered public accounting firm (or an associated person
    thereof, as applicable) to prepare or issue any audit report
    with respect to any issuer, if the firm or associated person
    engages in any activity with respect to that issuer prohibited
    by any of subsections (g) through (l) of section 10A of the
    Securities Exchange Act of 1934, as added by this title, or any
    rule or regulation of the Commission or of the Board issued
    thereunder.

    SEC. 209. CONSIDERATIONS BY APPROPRIATE STATE REGULATORY AUTHORITIES.

        In supervising nonregistered public accounting firms and
    their associated persons, appropriate State regulatory
    authorities should make an independent determination of the
    proper standards applicable, particularly taking into
    consideration the size and nature of the business of the
    accounting firms they supervise and the size and nature of the
    business of the clients of those firms. The standards applied
    by the Board under this Act should not be presumed to be
    applicable for purposes of this section for small and medium
    sized nonregistered public accounting firms.

                      TITLE III--CORPORATE RESPONSIBILITY

    SEC. 301. PUBLIC COMPANY AUDIT COMMITTEES.

        Section 10A of the Securities Exchange Act of 1934 (15
    U.S.C. 78f ) is amended by adding at the end the following:
        ``(m) Standards Relating to Audit Committees.--
        ``(1) Commission rules.--
        ``(A) In general.--Effective not later than 270 days after
    the date of enactment of this subsection, the Commission shall,
    by rule, direct the national securities exchanges and national
    securities associations to prohibit the listing of any security
    of an issuer that is not in compliance with the requirements of
    any portion of paragraphs (2) through (6).
        ``(B) Opportunity to cure defects.--The rules of the
    Commission under subparagraph (A) shall provide for appropriate
    procedures for an issuer to have an opportunity to cure any
    defects that would be the basis for a prohibition under
    subparagraph (A), before the imposition of such prohibition.
        ``(2) Responsibilities relating to registered public
    accounting firms.--The audit committee of each issuer, in its
    capacity as a committee of the board of directors, shall be
    directly responsible for the appointment, compensation, and
    oversight of the work of any registered public accounting firm
    employed by that issuer (including resolution of disagreements
    between management and the auditor regarding financial
    reporting) for the purpose of preparing or issuing an audit
    report or related work, and each such registered public
    accounting firm shall report directly to the audit committee.
        ``(3) Independence.--
        ``(A) In general.--Each member of the audit committee of
    the issuer shall be a member of the board of directors of the
    issuer, and shall otherwise be independent.
        ``(B) Criteria.--In order to be considered to be
    independent for purposes of this paragraph, a member of an
    audit committee of an issuer may not, other than in his or her
    capacity as a member of the audit committee, the board of
    directors, or any other board committee--
        ``(i) accept any consulting, advisory, or other
    compensatory fee from the issuer; or
        ``(ii) be an affiliated person of the issuer or any
    subsidiary thereof.
        ``(C) Exemption authority.--The Commission may exempt from
    the requirements of subparagraph (B) a particular relationship
    with respect to audit committee members, as the Commission
    determines appropriate in light of the circumstances.
        ``(4) Complaints.--Each audit committee shall establish
    procedures for--
        ``(A) the receipt, retention, and treatment of complaints
    received by the issuer regarding accounting, internal
    accounting controls, or auditing matters; and
        ``(B) the confidential, anonymous submission by employees
    of the issuer of concerns regarding questionable accounting or
    auditing matters.
        ``(5) Authority to engage advisers.--Each audit committee
    shall have the authority to engage independent counsel and
    other advisers, as it determines necessary to carry out its
    duties.
        ``(6) Funding.--Each issuer shall provide for appropriate
    funding, as determined by the audit committee, in its capacity
    as a committee of the board of directors, for payment of
    compensation--
        ``(A) to the registered public accounting firm employed by
    the issuer for the purpose of rendering or issuing an audit
    report; and
        ``(B) to any advisers employed by the audit committee under
    paragraph (5).''.

    SEC. 302. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.

        (a) Certification of Periodic Reports.--Each periodic
    report containing financial statements filed by an issuer with
    the Commission pursuant to section 13(a) or 15(d) of the
    Securities Exchange Act of 1934, shall be accompanied by a
    written statement by the chief executive officer and chief
    financial officer (or the equivalent thereof ) of the issuer.
        (b) Content.--The statement required by subsection (a)
    shall certify the appropriateness of the financial statements
    and disclosures contained in the periodic report, and that
    those financial statements and disclosures fairly present, in
    all material respects, the operations and financial condition
    of the issuer.
        (c) Foreign Reincorporations Have No Effect.--Nothing in
    this section 302 shall be interpreted or applied in any way to
    allow any issuer to lessen the legal force of the statement
    required under this section 302, by an issuer having
    reincorporated or having engaged in any other transaction that
    resulted in the transfer of the corporate domicile or offices
    of the issuer from inside the United States to outside of the
    United States.

    SEC. 303. IMPROPER INFLUENCE ON CONDUCT OF AUDITS.

        (a) Rules To Prohibit.--It shall be unlawful, in
    contravention of such rules or regulations as the Commission
    shall prescribe as necessary and appropriate in the public
    interest or for the protection of investors, for any officer or
    director of an issuer, or any other person acting under the
    direction thereof, to take any action to fraudulently
    influence, coerce, manipulate, or mislead any independent
    public or certified accountant engaged in the performance of an
    audit of the financial statements of that issuer for the
    purpose of rendering such financial statements materially
    misleading.
        (b) Enforcement.--In any civil proceeding, the Commission
    shall have exclusive authority to enforce this section and any
    rule or regulation issued under this section.
        (c) No Preemption of Other Law.--The provisions of
    subsection (a) shall be in addition to, and shall not supersede
    or preempt, any other provision of law or any rule or
    regulation issued thereunder.
        (d) Deadline for Rulemaking.--The Commission shall--
        (1) propose the rules or regulations required by this
    section, not later than 90 days after the date of enactment of
    this Act; and
        (2) issue final rules or regulations required by this
    section, not later than 270 days after that date of enactment.

    SEC. 304. FORFEITURE OF CERTAIN BONUSES AND PROFITS.

        (a) Additional Compensation Prior to Noncompliance With
    Commission Financial Reporting Requirements.--If an issuer is
    required to prepare an accounting restatement due to the
    material noncompliance of the issuer, as a result of
    misconduct, with any financial reporting requirement under the
    securities laws, the chief executive officer and chief
    financial officer of the issuer shall reimburse the issuer
    for--
        (1) any bonus or other incentive-based or equity-based
    compensation received by that person from the issuer during the
    12-month period following the first public issuance or filing
    with the Commission (whichever first occurs) of the financial
    document embodying such financial reporting requirement; and
        (2) any profits realized from the sale of securities of the
    issuer during that 12-month period.
        (b) Commission Exemption Authority.--The Commission may
    exempt any person from the application of subsection (a), as it
    deems necessary and appropriate.

    SEC. 305. OFFICER AND DIRECTOR BARS AND PENALTIES.

        (a) Unfitness Standard.--
        (1) Securities exchange act of 1934.--Section 21(d)(2) of
    the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(2)) is
    amended by striking ``substantial unfitness'' and inserting
    ``unfitness''.
        (2) Securities act of 1933.--Section 20(e) of the
    Securities Act of 1933 (15 U.S.C. 77t(e)) is amended by
    striking ``substantial unfitness'' and insert ``unfitness''.
        (b) Equitable Relief.--Section 21(d) of the Securities
    Exchange Act of 1934 (15 U.S.C. 78u(d)) is amended--
        (1) by redesignating paragraphs (2) through (4) as
    paragraphs (3) through (5), respectively; and
        (2) by inserting after paragraph (1) the following:
        ``(2) Equitable relief.--In any action or proceeding
    brought or instituted by the Commission under any provision of
    the securities laws, the Commission may seek, and any Federal
    court may grant, any equitable relief that may be appropriate
    or necessary for the benefit of investors.''.

    SEC. 306. INSIDER TRADES DURING PENSION FUND BLACKOUT PERIODS
                        PROHIBITED.

        (a) Prohibition.--It shall be unlawful for any director or
    executive officer of an issuer of any equity security (other
    than an exempted security), directly or indirectly, to
    purchase, sell, or otherwise acquire or transfer any equity
    security of the issuer (other than an exempted security),
    during any blackout period with respect to such equity
    security, in accordance with any exception provided by rule of
    the Commission pursuant to subsection (d).
        (b) Effectiveness.--
        (1) Notice requirements.--Except as provided in paragraph
    (2), no blackout period may take effect earlier than 30 days
    after the date on which written notice of such blackout period
    is provided by the plan administrator to the participants or
    beneficiaries.
        (2) Exception.--The 30-day notice requirement in paragraph
    (1) shall not apply, and notice under paragraph (1) shall be
    furnished as soon as is reasonably possible, in any case in
    which--
        (A) a deferral of the blackout period would violate the
    requirements of subparagraph (A) or (B) of section 404(a)(1) of
    the Employment Retirement Income Security Act of 1974, and a
    fiduciary of the plan so reasonably determines in writing; or
        (B) the inability to provide the 30-day notice is due to
    events that were unforeseeable, or circumstances beyond the
    reasonable control of the plan administrator, and a fiduciary
    of the plan so reasonably determines in writing.
        (3) Written notice.--The notice required to be provided
    under paragraph (1) shall be in writing, except that such
    notice may be in electronic form to the extent that such form
    is reasonably accessible to the recipient.
        (c) Remedy.--
        (1) In general.--Any profit realized by a director or
    executive officer referred to in subsection (a) from any
    purchase, sale, or other acquisition or transfer in violation
    of this section shall inure to and be recoverable by the
    issuer, irrespective of any intention on the part of such
    director or executive officer in entering into the transaction.
        (2) Actions to recover profits.--An action to recover
    profits in accordance with this section may be instituted at
    law or in equity in any court of competent jurisdiction by the
    issuer, or by the owner of any security of the issuer in the
    name and in behalf of the issuer if the issuer fails or refuses
    to bring such action within 60 days after the date of request,
    or fails diligently to prosecute the action thereafter, except
    that no such suit shall be brought more than 2 years after the
    date on which such profit was realized.
        (d) Rulemaking Authorized.--The Commission may issue rules
    to clarify the application of this subsection, to ensure
    adequate notice to all persons affected by this subsection, and
    to prevent evasion thereof.
        (e) Definitions.--For purposes of this section--
        (1) the term ``blackout period'', with respect to the
    equity securities of any issuer--
        (A) means any period during which the ability of not fewer
    than 50 percent of the participants or beneficiaries under all
    applicable individual account plans maintained by the issuer to
    purchase, sell, or otherwise acquire or transfer an interest in
    any equity of such issuer held in such an individual account
    plan, is suspended by the issuer or a fiduciary of the plan;
    and
        (B) does not include--
        (i) a period in which the employees of an issuer may not
    allocate their interests in the individual account plan due to
    an express investment restriction--
        (I) incorporated into the individual account plan; and
        (II) timely disclosed to employees before joining the
    individual account plan or as a subsequent amendment to the
    plan; or
        (ii) any suspension described in subparagraph (A) that is
    imposed solely in connection with persons becoming participants
    or beneficiaries, or ceasing to be participants or
    beneficiaries, in an applicable individual account plan by
    reason of a corporate merger, acquisition, divestiture, or
    similar transaction; and
        (2) the term ``individual account plan'' has the same
    meaning as in section 3(34) of the Employee Retirement Income
    Security Act of 1974 (29 U.S.C. 1002(34)).

                    TITLE IV--ENHANCED FINANCIAL DISCLOSURES

    SEC. 401. DISCLOSURES IN PERIODIC REPORTS.

        (a) Disclosures Required.--Section 13 of the Securities
    Exchange Act of 1934 (15 U.S.C. 78m) is amended by adding at
    the end the following:
        ``(i) Accuracy of Financial Reports.--Each financial report
    that is required to be prepared in accordance with generally
    accepted accounting principles under this title and filed with
    the Commission shall reflect all material correcting
    adjustments that have been identified by a registered public
    accounting firm in accordance with generally accepted
    accounting principles and the rules and regulations of the
    Commission.
        ``(j) Off-Balance Sheet Transactions.--Not later than 180
    days after the date of enactment of the Public Company
    Accounting Reform and Investor Protection Act of 2002, the
    Commission shall issue final rules providing that each annual
    and quarterly financial report required to be filed with the
    Commission shall disclose all material off-balance sheet
    transactions, arrangements, obligations (including contingent
    obligations), and other relationships of the issuer with
    unconsolidated entities or other persons, that may have a
    material current or future effect on financial condition,
    changes in financial condition, results of operations,
    liquidity, capital expenditures, capital resources, or
    significant components of revenues or expenses.''.
        (b) Commission Rules on Pro Forma Figures.--Not later than
    180 days after the date of enactment of this Act, the
    Commission shall issue final rules providing that pro forma
    financial information included in any periodic or other report
    filed with the Commission pursuant to the securities laws, or
    in any public disclosure or press or other release, shall be
    presented in a manner that--
        (1) does not contain an untrue statement of a material fact
    or omit to state a material fact necessary in order to make the
    pro forma financial information, in light of the circumstances
    under which it is presented, not misleading; and
        (2) reconciles it with the financial condition and results
    of operations of the issuer under generally accepted accounting
    principles.
        (c) Study and Report on Special Purpose Entities.--
        (1) Study required.--The Commission shall, not later than 1
    year after the effective date of adoption of off-balance sheet
    disclosure rules required by section 13(j) of the Securities
    Exchange Act of 1934, as added by this section, complete a
    study of filings by issuers and their disclosures to
    determine--
        (A) the extent of off-balance sheet transactions, including
    assets, liabilities, leases, losses, and the use of special
    purpose entities; and
        (B) whether generally accepted accounting rules result in
    financial statements of issuers reflecting the economics of
    such off-balance sheet transactions to investors in a
    transparent fashion.
        (2) Report and recommendations.--Not later than 6 months
    after the date of completion of the study required by paragraph
    (1), the Commission shall submit a report to the President, the
    Committee on Banking, Housing, and Urban Affairs of the Senate,
    and the Committee on Financial Services of the House of
    Representatives, setting forth--
        (A) the amount or an estimate of the amount of off-balance
    sheet transactions, including assets, liabilities, leases, and
    losses of, and the use of special purpose entities by, issuers
    filing periodic reports pursuant to section 13 or 15 of the
    Securities Exchange Act of 1934;
        (B) the extent to which special purpose entities are used
    to facilitate off-balance sheet transactions;
        (C) whether generally accepted accounting principles or the
    rules of the Commission result in financial statements of
    issuers reflecting the economics of such transactions to
    investors in a transparent fashion;
        (D) whether generally accepted accounting principles
    specifically result in the consolidation of special purpose
    entities sponsored by an issuer in cases in which the issuer
    has the majority of the risks and rewards of the special
    purpose entity; and
        (E) any recommendations of the Commission for improving the
    transparency and quality of reporting off-balance sheet
    transactions in the financial statements and disclosures
    required to be filed by an issuer with the Commission.

    SEC. 402. ENHANCED CONFLICT OF INTEREST PROVISIONS.

        (a) Prohibition on Personal Loans to Executives.--Section
    13 of the Securities Exchange Act of 1934 (15 U.S.C. 78m), as
    amended by this Act, is amended by adding at the end the
    following:
        ``(k) Prohibition on Personal Loans to Executives.--
        ``(1) In general.--It shall be unlawful for any issuer,
    directly or indirectly, to extend or maintain credit, or
    arrange for the extension of credit, in the form of a personal
    loan to or for any director or executive officer (or equivalent
    thereof ) of that issuer.
        ``(2) Limitation.--Paragraph (1) does not preclude any home
    improvement and manufactured home loans (as that term is
    defined in section 5 of the Home Owners Loan Act), consumer
    credit (as defined in section 103 of the Truth in Lending Act),
    or any extension of credit under an open end credit plan (as
    defined in section 103 of the Truth in Lending Act (15 U.S.C.
    1602)), that is--
        ``(A) made in the ordinary course of the consumer credit
    business of such issuer;
        ``(B) of a type that is generally made available by such
    issuer to the public; and
        ``(C) made by such issuer on market terms, or terms that
    are no more favorable than those offered by the issuer to the
    general public for such loans.''.

    SEC. 403. DISCLOSURES OF TRANSACTIONS INVOLVING MANAGEMENT AND
                        PRINCIPAL STOCKHOLDERS.

        Section 16(a) of the Securities Exchange Act of 1934 (15
    U.S.C. 78p(a)) is amended--
        (1) by striking ``security, shall file,'' and inserting the
    following:
        ``(1) shall file''; and
        (2) by striking ``beneficial owner, and'' and all that
    follows through the end of the subsection and inserting the
    following: ``beneficial owner; and
        ``(2) if there has been a change in such ownership, or if
    such person shall have purchased or sold a security-based swap
    agreement (as defined in section 206B of the Gramm-Leach-Bliley
    Act) involving such equity security, shall file with the
    Commission (and if such security is registered on a national
    securities exchange, shall also file with the exchange), a
    statement before the end of the second business day following
    the day on which the subject transaction has been executed, or
    at such other time as the Commission shall establish, by rule,
    in any case in which the Commission determines that such 2-day
    period is not feasible, indicating ownership by that person at
    the date of filing, any such changes in such ownership, and
    such purchases and sales of the security-based swap agreements
    as have occurred since the most recent such filing under this
    paragraph.''.

    SEC. 404. MANAGEMENT ASSESSMENT OF INTERNAL CONTROLS.

        (a) Rules Required.--The Commission shall prescribe rules
    requiring each annual report required by section 13 of the
    Securities Exchange Act of 1934 (15 U.S.C. 78m) to contain an
    internal control report, which shall--
        (1) state the responsibility of management for establishing
    and maintaining an adequate internal control structure and
    procedures for financial reporting; and
        (2) contain an assessment, as of the end of the most recent
    fiscal year of the issuer, of the effectiveness of the internal
    control structure and procedures of the issuer for financial
    reporting.
        (b) Internal Control Evaluation and Reporting.--With
    respect to the internal control assessment required by
    subsection (a), each registered public accounting firm that
    prepares or issues the audit report for the issuer shall attest
    to, and report on, the assessment made by the management of the
    issuer. An attestation made under this subsection shall be made
    in accordance with standards for attestation engagements issued
    or adopted by the Board. Any such attestation shall not be the
    subject of a separate engagement.

    SEC. 405. EXEMPTION.

        Nothing in section 401, 402, or 404, the amendments made by
    those sections, or the rules of the Commission under those
    sections shall apply to any investment company registered under
    section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-
    8).

    SEC. 406. CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS.

        (a) Code of Ethics Disclosure.--The Commission shall issue
    rules to require each issuer, together with periodic reports
    required pursuant to sections 13(a) and 15(d) of the Securities
    Exchange Act of 1934, to disclose whether or not, and if not,
    the reason therefor, such issuer has adopted a code of ethics
    for senior financial officers, applicable to its principal
    financial officer, comptroller or principal accounting officer,
    or persons performing similar functions.
        (b) Changes in Codes of Ethics.--The Commission shall
    revise its regulations concerning matters requiring prompt
    disclosure on Form 8-K (or any successor thereto) to require
    the immediate disclosure, by means of the filing of such form,
    dissemination by the Internet or by other electronic means, by
    any issuer of any change in or waiver of the code of ethics of
    the issuer.
        (c) Definition.--In this section, the term ``code of
    ethics'' means such standards as are reasonably necessary to
    promote--
        (1) honest and ethical conduct, including the ethical
    handling of actual or apparent conflicts of interest between
    personal and professional relationships;
        (2) full, fair, accurate, timely, and understandable
    disclosure in the periodic reports required to be filed by the
    issuer; and
        (3) compliance with applicable governmental rules and
    regulations.
        (d) Deadline for Rulemaking.--The Commission shall--
        (1) propose rules to implement this section, not later than
    90 days after the date of enactment of this Act; and
        (2) issue final rules to implement this section, not later
    than 180 days after that date of enactment.

    SEC. 407. DISCLOSURE OF AUDIT COMMITTEE FINANCIAL EXPERT.

        (a) Rules Defining ``Financial Expert''.--The Commission
    shall issue rules, as necessary or appropriate in the public
    interest and consistent with the protection of investors, to
    require each issuer, together with periodic reports required
    pursuant to sections 13(a) and 15(d) of the Securities Exchange
    Act of 1934, to disclose whether or not, and if not, the
    reasons therefor, the audit committee of that issuer is
    comprised of at least 1 member who is a financial expert, as
    such term is defined by the Commission.
        (b) Considerations.--In defining the term ``financial
    expert'' for purposes of subsection (a), the Commission shall
    consider whether a person has, through education and experience
    as a public accountant or auditor or a principal financial
    officer, comptroller, or principal accounting officer of an
    issuer, or from a position involving the performance of similar
    functions--
        (1) an understanding of generally accepted accounting
    principles and financial statements;
        (2) experience in--
        (A) the preparation or auditing of financial statements of
    generally comparable issuers; and
        (B) the application of such principles in connection with
    the accounting for estimates, accruals, and reserves;
        (3) experience with internal accounting controls; and
        (4) an understanding of audit committee functions.
        (c) Deadline for Rulemaking.--The Commission shall--
        (1) propose rules to implement this section, not later than
    90 days after the date of enactment of this Act; and
        (2) issue final rules to implement this section, not later
    than 180 days after that date of enactment.

                     TITLE V--ANALYST CONFLICTS OF INTEREST

    SEC. 501. TREATMENT OF SECURITIES ANALYSTS BY REGISTERED SECURITIES
                        ASSOCIATIONS.

        (a) Rules Regarding Securities Analysts.--Section 15A of
    the Securities Exchange Act of 1934 (15 U.S.C. 78o-3) is
    amended by adding at the end the following:
        ``(n) Rules Regarding Securities Analysts.--
        ``(1) Analyst protections.--The Commission, or upon the
    authorization and direction of the Commission, a registered
    securities association or national securities exchange, shall
    have adopted, not later than 1 year after the date of enactment
    of this subsection, rules reasonably designed to address
    conflicts of interest that can arise when research analysts
    recommend equity securities in research reports and public
    appearances, in order to improve the objectivity of research
    and provide investors with more useful and reliable
    information, including rules designed--
        ``(A) to foster greater public confidence in securities
    research, and to protect the objectivity and independence of
    securities analysts, by--
        ``(i) restricting the prepublication clearance or approval
    of research reports by persons employed by the broker or dealer
    who are engaged in investment banking activities, or persons
    not directly responsible for investment research, other than
    legal or compliance staff;
        ``(ii) limiting the supervision and compensatory evaluation
    of securities analysts to officials employed by the broker or
    dealer who are not engaged in investment banking activities;
    and
        ``(iii) requiring that a broker or dealer and persons
    employed by a broker or dealer who are involved with investment
    banking activities may not, directly or indirectly, retaliate
    against or threaten to retaliate against any securities analyst
    employed by that broker or dealer or its affiliates as a result
    of an adverse, negative, or otherwise unfavorable research
    report that may adversely affect the present or prospective
    investment banking relationship of the broker or dealer with
    the issuer that is the subject of the research report, except
    that such rules may not limit the authority of a broker or
    dealer to discipline a securities analyst for causes other than
    such research report in accordance with the policies and
    procedures of the firm;
        ``(B) to define periods during which brokers or dealers who
    have participated, or are to participate, in a public offering
    of securities as underwriters or dealers should not publish or
    otherwise distribute research reports relating to such
    securities or to the issuer of such securities;
        ``(C) to establish structural and institutional safeguards
    within registered brokers or dealers to assure that securities
    analysts are separated by appropriate informational partitions
    within the firm from the review, pressure, or oversight of
    those whose involvement in investment banking activities might
    potentially bias their judgment or supervision; and
        ``(D) to address such other issues as the Commission, or
    such association or exchange, determines appropriate.
        ``(2) Disclosure.--The Commission, or upon the
    authorization and direction of the Commission, a registered
    securities association or national securities exchange, shall
    have adopted, not later than 1 year after the date of enactment
    of this subsection, rules reasonably designed to require each
    securities analyst to disclose in public appearances, and each
    registered broker or dealer to disclose in each research
    report, as applicable, conflicts of interest that are known or
    should have been known by the securities analyst or the broker
    or dealer, to exist at the time of the appearance or the date
    of distribution of the report, including--
        ``(A) the extent to which the securities analyst has debt
    or equity investments in the issuer that is the subject of the
    appearance or research report;
        ``(B) whether any compensation has been received by the
    registered broker or dealer, or any affiliate thereof,
    including the securities analyst, from the issuer that is the
    subject of the appearance or research report, subject to such
    exemptions as the Commission may determine appropriate and
    necessary to prevent disclosure by virtue of this subparagraph
    of material non-public information regarding specific potential
    future investment banking transactions of such issuer, as is
    appropriate in the public interest and consistent with the
    protection of investors;
        ``(C) whether an issuer, the securities of which are
    recommended in the appearance or research report, currently is,
    or during the 1-year period preceding the date of the
    appearance or date of distribution of the report has been, a
    client of the registered broker or dealer, and if so, stating
    the types of services provided to the issuer;
        ``(D) whether the securities analyst received compensation
    with respect to a research report, based upon (among any other
    factors) the investment banking revenues (either generally or
    specifically earned from the issuer being analyzed) of the
    registered broker or dealer; and
        ``(E) such other disclosures of conflicts of interest that
    are material to investors, research analysts, or the broker or
    dealer as the Commission, or such association or exchange,
    determines appropriate.
        ``(3) Definitions.--In this subsection--
        ``(A) the term `securities analyst' means any associated
    person of a registered broker or dealer that is principally
    responsible for, and any associated person who reports directly
    or indirectly to a securities analyst in connection with, the
    preparation of the substance of a research report, whether or
    not any such person has the job title of `securities analyst';
    and
        ``(B) the term `research report' means a written or
    electronic communication that includes an analysis of equity
    securities of individual companies or industries, and that
    provides information reasonably sufficient upon which to base
    an investment decision.''.
        (b) Enforcement.--Section 21B(a) of the Securities Exchange
    Act of 1934 (15 U.S.C. 78u-2(a)) is amended by inserting
    ``15A(n),'' before ``15B''.
        (c) Commission Authority.--The Commission may promulgate
    and amend its regulations, or direct a registered securities
    association or national securities exchange to promulgate and
    amend its rules, to carry out section 15A(n) of the Securities
    Exchange Act of 1934, as added by this section, as is necessary
    for the protection of investors and in the public interest.

                  TITLE VI--COMMISSION RESOURCES AND AUTHORITY

    SEC. 601. AUTHORIZATION OF APPROPRIATIONS.

        Section 35 of the Securities Exchange Act of 1934 (15
    U.S.C. 78kk) is amended to read as follows:

    ``SEC. 35. AUTHORIZATION OF APPROPRIATIONS.

        ``In addition to any other funds authorized to be
    appropriated to the Commission, there are authorized to be
    appropriated to carry out the functions, powers, and duties of
    the Commission, $776,000,000 for fiscal year 2003, of which--
        ``(1) $102,700,000 shall be available to fund additional
    compensation, including salaries and benefits, as authorized in
    the Investor and Capital Markets Fee Relief Act (Public Law
    107-123; 115 Stat. 2390 et seq.);
        ``(2) $108,400,000 shall be available for information
    technology, security enhancements, and recovery and mitigation
    activities in light of the terrorist attacks of September 11,
    2001; and
        ``(3) $98,000,000 shall be available to add not fewer than
    an additional 200 qualified professionals to provide enhanced
    oversight of auditors and audit services required by the
    Federal securities laws, and to improve Commission
    investigative and disciplinary efforts with respect to such
    auditors and services, as well as for additional professional
    support staff necessary to strengthen the programs of the
    Commission involving Full Disclosure and Prevention and
    Suppression of Fraud, risk management, industry technology
    review, compliance, inspections, examinations, market
    regulation, and investment management.''.

    SEC. 602. APPEARANCE AND PRACTICE BEFORE THE COMMISSION.

        (a) In General.--The Securities Exchange Act of 1934 (15
    U.S.C. 78a et seq.) is amended by inserting after section 4B
    the following:

    ``SEC. 4C. APPEARANCE AND PRACTICE BEFORE THE COMMISSION.

        ``(a) Authority To Censure.--The Commission may censure any
    person, or deny, temporarily or permanently, to any person the
    privilege of appearing or practicing before the Commission in
    any way, if that person is found by the Commission, after
    notice and opportunity for hearing in the matter--
        ``(1) not to possess the requisite qualifications to
    represent others;
        ``(2) to be lacking in character or integrity, or to have
    engaged in unethical or improper professional conduct; or
        ``(3) to have willfully violated, or willfully aided and
    abetted the violation of, any provision of the securities laws
    or the rules and regulations issued thereunder.
        ``(b) Definition.--With respect to any registered public
    accounting firm, for purposes of this section, the term
    `improper professional conduct' means--
        ``(1) intentional or knowing conduct, including reckless
    conduct, that results in a violation of applicable professional
    standards; and
        ``(2) negligent conduct in the form of--
        ``(A) a single instance of highly unreasonable conduct that
    results in a violation of applicable professional standards in
    circumstances in which the registered public accounting firm
    knows, or should know, that heightened scrutiny is warranted;
    or
        ``(B) repeated instances of unreasonable conduct, each
    resulting in a violation of applicable professional standards,
    that indicate a lack of competence to practice before the
    Commission.
        ``(c) Study and Report.--(1) The Commission shall conduct a
    study to determine based upon information for the period from
    January 1, 1998 to December 31, 2001--
        ``(A) the number of `securities professionals', which term
    shall mean public accountants, public accounting firms,
    investment bankers, investment advisers, brokers, dealers,
    attorneys, and other securities professionals practicing before
    the Commission--
        ``(i) who have been found to have aided and abetted a
    violation of the Federal securities laws, including rules or
    regulations promulgated thereunder (hereinafter collectively
    referred to as `Federal securities laws'), but who have not
    been sanctioned, disciplined, or otherwise penalized as a
    primary violator in any administrative action or civil
    proceeding, including in any settlement of such actions or
    proceedings (referred to hereinafter as `aiders and abettors');
    and
        ``(ii) who have been found to have been primary violators
    of the Federal securities laws;
        ``(B) a description of the Federal securities laws
    violations committed by aiders and abettors and by primary
    violators, including--
        ``(i) the specific provisions of the Federal securities
    laws violated;
        ``(ii) the specific sanctions and penalties imposed upon,
    such aiders and abettors and primary violators, including the
    amount of any monetary penalties assessed upon and collected
    from such persons;
        ``(iii) the occurrence of multiple violations by the same
    person or persons either as an aider or abettor or as a primary
    violator; and
        ``(iv) whether as to each such violator disciplinary
    sanctions have been imposed, including any censure, suspension,
    temporary bar, or permanent bar to practice before the
    Commission; and
        ``(C) the amount of disgorgement, restitution or any other
    fines or payments the Commission has (i) assessed upon and (ii)
    collected from, aiders and abettors and from primary violators.
        ``(2) A report based upon the study conducted pursuant to
    subsection (c)(1) shall be submitted to the Senate Committee on
    Banking, Housing, and Urban Affairs no later than 6 months
    after the date of enactment of the `Public Company Accounting
    Reform and Investor Protection Act of 2002'.
        ``(d) Rules of Professional Responsibility for Attorneys.--
    Not later than 180 days after the date of enactment of this
    section, the Commission shall establish rules, in the public
    interest and for the protection of investors, setting forth
    minimum standards of professional conduct for attorneys
    appearing and practicing before the Commission in any way in
    the representation of public companies, including a rule
    requiring an attorney to report evidence of a material
    violation of securities law or breach of fiduciary duty or
    similar violation by the company or any agent thereof to the
    chief legal counsel or the chief executive officer of the
    company (or the equivalent thereof ) and, if the counsel or
    officer does not appropriately respond to the evidence
    (adopting, as necessary, appropriate remedial measures or
    sanctions with respect to the violation), requiring the
    attorney to report the evidence to the audit committee of the
    board of directors or to another committee of the board of
    directors comprised solely of directors not employed directly
    or indirectly by the company, or to the board of directors.''.
        (b) Electronic Filing.--Notwithstanding the provisions of
    section 403 of this Act, section 16(a)(2) of the Securities and
    Exchange Act of 1934, as added by section 403, is amended to
    read as follows:
        ``(2) if there has been a change in such ownership, or if
    such person shall have purchased or sold a security-based swap
    agreement (as defined in section 206B of the Gramm-Leach-Bliley
    Act) involving such equity security, shall file electronically
    with the Commission (and if such security is registered on a
    national securities exchange, shall also file with the
    exchange), a statement before the end of the second business
    day following the day on which the subject transaction has been
    executed, or at such other times as the Commission shall
    establish, by rule, in any case in which the Commission
    determines that such 2 day period is not feasible, and the
    Commission shall provide that statement on a publicly
    accessible Internet site not later than the end of the business
    day following that filing, and the issuer (if the issuer
    maintains a corporate website) shall provide that statement on
    that corporate website not later than the end of the business
    day following that filing (the requirements of this paragraph
    with respect to electronic filing and providing the statement
    on a corporate website shall take effect 1 year after the date
    of enactment of this paragraph), indicating ownership by that
    person at the date of filing, any such changes in such
    ownership, and such purchases and sales of the security-based
    swap agreements as have occurred since the most recent such
    filing under this paragraph.''.

    SEC. 603. FEDERAL COURT AUTHORITY TO IMPOSE PENNY STOCK BARS.

        (a) Securities Exchange Act of 1934.--Section 21(d) of the
    Securities Exchange Act of 1934 (15 U.S.C. 78u(d)), as amended
    by this Act, is amended by adding at the end the following:
        ``(7) Authority of a court to prohibit persons from
    participating in an offering of penny stock.--
        ``(A) In general.--In any proceeding under paragraph (1)
    against any person participating in, or, at the time of the
    alleged misconduct who was participating in, an offering of
    penny stock, the court may prohibit that person from
    participating in an offering of penny stock, conditionally or
    unconditionally, and permanently or for such period of time as
    the court shall determine.
        ``(B) Definition.--For purposes of this paragraph, the term
    `person participating in an offering of penny stock' includes
    any person engaging in activities with a broker, dealer, or
    issuer for purposes of issuing, trading, or inducing or
    attempting to induce the purchase or sale of, any penny stock.
    The Commission may, by rule or regulation, define such term to
    include other activities, and may, by rule, regulation, or
    order, exempt any person or class of persons, in whole or in
    part, conditionally or unconditionally, from inclusion in such
    term.
        (b) Securities Act of 1933.--Section 20 of the Securities
    Act of 1933 (15 U.S.C. 77t) is amended by adding at the end the
    following:
        ``(g) Authority of a Court To Prohibit Persons From
    Participating in an Offering of Penny Stock.--
        ``(1) In general.--In any proceeding under subsection (a)
    against any person participating in, or, at the time of the
    alleged misconduct, who was participating in, an offering of
    penny stock, the court may prohibit that person from
    participating in an offering of penny stock, conditionally or
    unconditionally, and permanently or for such period of time as
    the court shall determine.
        ``(2) Definition.--For purposes of this subsection, the
    term `person participating in an offering of penny stock'
    includes any person engaging in activities with a broker,
    dealer, or issuer for purposes of issuing, trading, or inducing
    or attempting to induce the purchase or sale of, any penny
    stock. The Commission may, by rule or regulation, define such
    term to include other activities, and may, by rule, regulation,
    or order, exempt any person or class of persons, in whole or in
    part, conditionally or unconditionally, from inclusion in such
    term.''.

    SEC. 604. QUALIFICATIONS OF ASSOCIATED PERSONS OF BROKERS AND DEALERS.

        (a) Brokers and Dealers.--Section 15(b)(4) of the
    Securities Exchange Act of 1934 (15 U.S.C. 78o) is amended--
        (1) by striking subparagraph (F) and inserting the
    following:
        ``(F) is subject to any order of the Commission barring or
    suspending the right of the person to be associated with a
    broker or dealer;''; and
        (2) in subparagraph (G), by striking the period at the end
    and inserting the following: ``; or
        ``(H) is subject to any final order of a State securities
    commission (or any agency or officer performing like
    functions), State authority that supervises or examines banks,
    savings associations, or credit unions, State insurance
    commission (or any agency or office performing like functions),
    an appropriate Federal banking agency (as defined in section 3
    of the Federal Deposit Insurance Act (12 U.S.C. 1813(q))), or
    the National Credit Union Administration, that--
        ``(i) bars such person from association with an entity
    regulated by such commission, authority, agency, or officer, or
    from engaging in the business of securities, insurance,
    banking, savings association activities, or credit union
    activities; or
        ``(ii) constitutes a final order based on violations of any
    laws or regulations that prohibit fraudulent, manipulative, or
    deceptive conduct.''.
        (b) Investment Advisers.--Section 203(e) of the Investment
    Advisers Act of 1940 (15 U.S.C. 80b-3(e)) is amended by
    striking paragraphs (7) and (8) and inserting the following:
        ``(7) is subject to any order of the Commission barring or
    suspending the right of the person to be associated with an
    investment adviser; or
        ``(8) is subject to any final order of a State securities
    commission (or any agency or officer performing like
    functions), State authority that supervises or examines banks,
    savings associations, or credit unions, State insurance
    commission (or any agency or office performing like functions),
    an appropriate Federal banking agency (as defined in section 3
    of the Federal Deposit Insurance Act (12 U.S.C. 1813(q))), or
    the National Credit Union Administration, that--
        ``(A) bars such person from association with an entity
    regulated by such commission, authority, agency, or officer, or
    from engaging in the business of securities, insurance,
    banking, savings association activities, or credit union
    activities; or
        ``(B) constitutes a final order based on violations of any
    laws or regulations that prohibit fraudulent, manipulative, or
    deceptive conduct.''.
        (c) Conforming Amendments.--
        (1) Securities Exchange Act of 1934.--The Securities
    Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended--
        (A) in section 3(a)(39)(F) (15 U.S.C. 78c(a)(39)(F)), by
    inserting ``, or is subject to an order or finding,'' before
    ``enumerated'';
        (B) in each of sections 15(b)(6)(A)(i) (15 U.S.C.
    78o(b)(6)(A)(i)), paragraphs (2) and (4) of section 15B(c) (15
    U.S.C. 78o-4(c)), and subparagraphs (A) and (C) of section
    15C(c)(1) (15 U.S.C. 78o-5(c)(1)) by striking ``or omission''
    each place that term appears, and inserting ``, or is subject
    to an order or finding,''; and
        (C) in each of paragraphs (3)(A) and (4)(C) of section
    17A(c) (15 U.S.C. 78q-1(c)), by inserting ``, or is subject to
    an order or finding,'' before ``enumerated'' each place that
    term appears.
        (2) Investment Advisers Act of 1940.--Section 203(f ) of
    the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(f )) is
    amended, by inserting ``or (3)'' after ``paragraph (2)''.

                         TITLE VII--STUDIES AND REPORTS

    SEC. 701. GAO STUDY AND REPORT REGARDING CONSOLIDATION OF PUBLIC
                        ACCOUNTING FIRMS.

        (a) Study Required.--The Comptroller General of the United
    States shall conduct a study--
        (1) to identify--
        (A) the factors that have led to the consolidation of
    public accounting firms since 1989 and the consequent reduction
    in the number of firms capable of providing audit services to
    large national and multinational business organizations that
    are subject to the securities laws;
        (B) the present and future impact of the condition
    described in subparagraph (A) on capital formation and
    securities markets, both domestic and international; and
        (C) solutions to any problems identified under subparagraph
    (B), including ways to increase competition and the number of
    firms capable of providing audit services to large national and
    multinational business organizations that are subject to the
    securities laws;
        (2) of the problems, if any, faced by business
    organizations that have resulted from limited competition among
    public accounting firms, including--
        (A) higher costs;
        (B) lower quality of services;
        (C) impairment of auditor independence; or
        (D) lack of choice; and
        (3) whether and to what extent Federal or State regulations
    impede competition among public accounting firms.
        (b) Consultation.--In planning and conducting the study
    under this section, the Comptroller General shall consult
    with--
        (1) the Commission;
        (2) the regulatory agencies that perform functions similar
    to the Commission within the other member countries of the
    Group of Seven Industrialized Nations;
        (3) the Department of Justice; and
        (4) any other public or private sector organization that
    the Comptroller General considers appropriate.
        (c) Report Required.--Not later than 1 year after the date
    of enactment of this Act, the Comptroller General shall submit
    a report on the results of the study required by this section
    to the Committee on Banking, Housing, and Urban Affairs of the
    Senate and the Committee on Financial Services of the House of
    Representatives.

    SEC. 702. COMMISSION STUDY AND REPORT REGARDING CREDIT RATING AGENCIES.

        (a) Study Required.--
        (1) In general.--The Commission shall conduct a study of
    the role and function of credit rating agencies in the
    operation of the securities market.
        (2) Areas of consideration.--The study required by this
    subsection shall examine--
        (A) the role of credit rating agencies in the evaluation of
    issuers of securities;
        (B) the importance of that role to investors and the
    functioning of the securities markets;
        (C) any impediments to the accurate appraisal by credit
    rating agencies of the financial resources and risks of issuers
    of securities;
        (D) any barriers to entry into the business of acting as a
    credit rating agency, and any measures needed to remove such
    barriers;
        (E) any measures which may be required to improve the
    dissemination of information concerning such resources and
    risks when credit rating agencies announce credit ratings; and
        (F) any conflicts of interest in the operation of credit
    rating agencies and measures to prevent such conflicts or
    ameliorate the consequences of such conflicts.
        (b) Report Required.--The Commission shall submit a report
    on the study required by subsection (a) to the President, the
    Committee on Financial Services of the House of
    Representatives, and the Committee on Banking, Housing, and
    Urban Affairs of the Senate not later than 180 days after the
    date of enactment of this Act.

            TITLE VIII--CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY

    SEC. 801. SHORT TITLE.

        This title may be cited as the ``Corporate and Criminal
    Fraud Accountability Act of 2002''.

    SEC. 802. CRIMINAL PENALTIES FOR ALTERING DOCUMENTS.

        (a) In General.--Chapter 73 of title 18, United States
    Code, is amended by adding at the end the following:

    ``Sec. 1519. DESTRUCTION, ALTERATION, OR FALSIFICATION OF RECORDS IN
                        FEDERAL INVESTIGATIONS AND BANKRUPTCY

        ``Whoever knowingly alters, destroys, mutilates, conceals,
    covers up, falsifies, or makes a false entry in any record,
    document, or tangible object with the intent to impede,
    obstruct, or influence the investigation or proper
    administration of any matter within the jurisdiction of any
    department or agency of the United States or any case filed
    under title 11, or in relation to or contemplation of any such
    matter or case, shall be fined under this title, imprisoned not
    more than 10 years, or both.

    ``Sec. 1520. DESTRUCTION OF CORPORATE AUDIT RECORDS

        ``(a)(1) Any accountant who conducts an audit of an issuer
    of securities to which section 10A(a) of the Securities
    Exchange Act of 1934 (15 U.S.C. 78j-1(a)) applies, shall
    maintain all audit or review workpapers for a period of 5 years
    from the end of the fiscal period in which the audit or review
    was concluded.
        ``(2) The Securities and Exchange Commission shall
    promulgate, within 180 days, after adequate notice and an
    opportunity for comment, such rules and regulations, as are
    reasonably necessary, relating to the retention of relevant
    records such as workpapers, documents that form the basis of an
    audit or review, memoranda, correspondence, communications,
    other documents, and records (including electronic records)
    which are created, sent, or received in connection with an
    audit or review and contain conclusions, opinions, analyses, or
    financial data relating to such an audit or review, which is
    conducted by any accountant who conducts an audit of an issuer
    of securities to which section 10A(a) of the Securities
    Exchange Act of 1934 (15 U.S.C. 78j-1(a)) applies.
        ``(b) Whoever knowingly and willfully violates subsection
    (a)(1), or any rule or regulation promulgated by the Securities
    and Exchange Commission under subsection (a)(2), shall be fined
    under this title, imprisoned not more than 5 years, or both.
        ``(c) Nothing in this section shall be deemed to diminish
    or relieve any person of any other duty or obligation, imposed
    by Federal or State law or regulation, to maintain, or refrain
    from destroying, any document.''.
        (b) Clerical Amendment.--The table of sections at the
    beginning of chapter 73 of title 18, United States Code, is
    amended by adding at the end the following new items:
    ``1519. Destruction, alteration, or falsification of records in
    Federal investigations and bankruptcy.
    ``1520. Destruction of corporate audit records.''.

    SEC. 803. DEBTS NONDISCHARGEABLE IF INCURRED IN VIOLATION OF SECURITIES
                        FRAUD LAWS.

        Section 523(a) of title 11, United States Code, is
    amended--
        (1) in paragraph (17), by striking ``or'' after the
    semicolon;
        (2) in paragraph (18), by striking the period at the end
    and inserting ``; or''; and
        (3) by adding at the end, the following:
        ``(19) that--
        ``(A) arises under a claim relating to--
        ``(i) the violation of any of the Federal securities laws
    (as that term is defined in section 3(a)(47) of the Securities
    Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), any State
    securities laws, or any regulations or orders issued under such
    Federal or State securities laws; or
        ``(ii) common law fraud, deceit, or manipulation in
    connection with the purchase or sale of any security; and
        ``(B) results, in relation to any claim described in
    subparagraph (A), from--
        ``(i) any judgment, order, consent order, or decree entered
    in any Federal or State judicial or administrative proceeding;
        ``(ii) any settlement agreement entered into by the debtor;
    or
        ``(iii) any court or administrative order for any damages,
    fine, penalty, citation, restitutionary payment, disgorgement
    payment, attorney fee, cost, or other payment owed by the
    debtor.''.

    SEC. 804. STATUTE OF LIMITATIONS FOR SECURITIES FRAUD.

        (a) In General.--Section 1658 of title 28, United States
    Code, is amended--
        (1) by inserting ``(a)'' before ``Except''; and
        (2) by adding at the end the following:
        ``(b) Notwithstanding subsection (a), a private right of
    action that involves a claim of fraud, deceit, manipulation, or
    contrivance in contravention of a regulatory requirement
    concerning the securities laws, as defined in section 3(a)(47)
    of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)),
    may be brought not later than the earlier of--
        ``(1) two years after the discovery of the facts
    constituting the violation; or
        ``(2) five years after such violation.''.
        (b) Effective Date.--The limitations period provided by
    section 1658(b) of title 28, United States Code, as added by
    this section, shall apply to all proceedings addressed by this
    section that are commenced on or after the date of enactment of
    this Act.
        (c) No Creation of Actions.--Nothing in this section shall
    create a new, private right of action.

    SEC. 805. REVIEW OF FEDERAL SENTENCING GUIDELINES FOR OBSTRUCTION OF
                        JUSTICE AND EXTENSIVE CRIMINAL FRAUD.

        Pursuant to section 994 of title 28, United States Code,
    and in accordance with this section, the United States
    Sentencing Commission shall review and amend, as appropriate,
    the Federal Sentencing Guidelines and related policy statements
    to ensure that--
        (1) the base offense level and existing enhancements
    contained in United States Sentencing Guideline 2J1.2 relating
    to obstruction of justice are sufficient to deter and punish
    that activity;
        (2) the enhancements and specific offense characteristics
    relating to obstruction of justice are adequate in cases
    where--
        (A) documents and other physical evidence are actually
    destroyed, altered, or fabricated;
        (B) the destruction, alteration, or fabrication of evidence
    involves--
        (i) a large amount of evidence, a large number of
    participants, or is otherwise extensive;
        (ii) the selection of evidence that is particularly
    probative or essential to the investigation; or
        (iii) more than minimal planning; or
        (C) the offense involved abuse of a special skill or a
    position of trust;
        (3) the guideline offense levels and enhancements for
    violations of section 1519 or 1520 of title 18, United States
    Code, as added by this title, are sufficient to deter and
    punish that activity;
        (4) the guideline offense levels and enhancements under
    United States Sentencing Guideline 2B1.1 (as in effect on the
    date of enactment of this Act) are sufficient for a fraud
    offense when the number of victims adversely involved is
    significantly greater than 50;
        (5) a specific offense characteristic enhancing sentencing
    is provided under United States Sentencing Guideline 2B1.1 (as
    in effect on the date of enactment of this Act) for a fraud
    offense that endangers the solvency or financial security of a
    substantial number of victims; and
        (6) the guidelines that apply to organizations in United
    States Sentencing Guidelines, chapter 8, are sufficient to
    deter and punish organizational criminal misconduct.

    SEC. 806. PROTECTION FOR EMPLOYEES OF PUBLICLY TRADED COMPANIES WHO
                        PROVIDE EVIDENCE OF FRAUD.

        (a) In General.--Chapter 73 of title 18, United States
    Code, is amended by inserting after section 1514 the following:

    ``Sec. 1514A. CIVIL ACTION TO PROTECT AGAINST RETALIATION IN FRAUD
                        CASES

        ``(a) Whistleblower Protection for Employees of Publicly
    Traded Companies.--No company with a class of securities
    registered under section 12 of the Securities Exchange Act of
    1934 (15 U.S.C. 78l), or that is required to file reports under
    section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.
    78o(d)), or any officer, employee, contractor, subcontractor,
    or agent of such company, may discharge, demote, suspend,
    threaten, harass, or in any other manner discriminate against
    an employee in the terms and conditions of employment because
    of any lawful act done by the employee--
        ``(1) to provide information, cause information to be
    provided, or otherwise assist in an investigation regarding any
    conduct which the employee reasonably believes constitutes a
    violation of section 1341, 1343, 1344, or 1348, any rule or
    regulation of the Securities and Exchange Commission, or any
    provision of Federal law relating to fraud against
    shareholders, when the information or assistance is provided to
    or the investigation is conducted by--
        ``(A) a Federal regulatory or law enforcement agency;
        ``(B) any Member of Congress or any committee of Congress;
    or
        ``(C) a person with supervisory authority over the employee
    (or such other person working for the employer who has the
    authority to investigate, discover, or terminate misconduct);
    or
        ``(2) to file, cause to be filed, testify, participate in,
    or otherwise assist in a proceeding filed or about to be filed
    (with any knowledge of the employer) relating to an alleged
    violation of section 1341, 1343, 1344, or 1348, any rule or
    regulation of the Securities and Exchange Commission, or any
    provision of Federal law relating to fraud against
    shareholders.
        ``(b) Enforcement Action.--
        ``(1) In general.--A person who alleges discharge or other
    discrimination by any person in violation of subsection (a) may
    seek relief under subsection (c), by--
        ``(A) filing a complaint with the Secretary of Labor; or
        ``(B) if the Secretary has not issued a final decision
    within 180 days of the filing of the complaint and there is no
    showing that such delay is due to the bad faith of the
    claimant, bringing an action at law or equity for de novo
    review in the appropriate district court of the United States,
    which shall have jurisdiction over such an action without
    regard to the amount in controversy.
        ``(2) Procedure.--
        ``(A) In general.--An action under paragraph (1)(A) shall
    be governed under the rules and procedures set forth in section
    42121(b) of title 49, United States Code.
        ``(B) Exception.--Notification made under section
    42121(b)(1) of title 49, United States Code, shall be made to
    the person named in the complaint and to the employer.
        ``(C) Burdens of proof.--An action brought under paragraph
    (1)(B) shall be governed by the legal burdens of proof set
    forth in section 42121(b) of title 49, United States Code.
        ``(D) Statute of limitations.--An action under paragraph
    (1) shall be commenced not later than 90 days after the date on
    which the violation occurs.
        ``(c) Remedies.--
        ``(1) In general.--An employee prevailing in any action
    under subsection (b)(1) shall be entitled to all relief
    necessary to make the employee whole.
        ``(2) Compensatory damages.--Relief for any action under
    paragraph (1) shall include--
        ``(A) reinstatement with the same seniority status that the
    employee would have had, but for the discrimination;
        ``(B) the amount of back pay, with interest; and
        ``(C) compensation for any special damages sustained as a
    result of the discrimination, including litigation costs,
    expert witness fees, and reasonable attorney fees.
        ``(d) Rights Retained by Employee.--Nothing in this section
    shall be deemed to diminish the rights, privileges, or remedies
    of any employee under any Federal or State law, or under any
    collective bargaining agreement.''.
        (b) Clerical Amendment.--The table of sections at the
    beginning of chapter 73 of title 18, United States Code, is
    amended by inserting after the item relating to section 1514
    the following new item:
    ``1514A. Civil action to protect against retaliation in fraud
    cases.''.

    SEC. 807. CRIMINAL PENALTIES FOR DEFRAUDING SHAREHOLDERS OF PUBLICLY
                        TRADED COMPANIES.

        (a) In General.--Chapter 63 of title 18, United States
    Code, is amended by adding at the end the following:

    ``Sec. 1348. SECURITIES FRAUD

        ``Whoever knowingly executes, or attempts to execute, a
    scheme or artifice--
        ``(1) to defraud any person in connection with any security
    of an issuer with a class of securities registered under
    section 12 of the Securities Exchange Act of 1934 (15 U.S.C.
    78l) or that is required to file reports under section 15(d) of
    the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)); or
        ``(2) to obtain, by means of false or fraudulent pretenses,
    representations, or promises, any money or property in
    connection with the purchase or sale of any security of an
    issuer with a class of securities registered under section 12
    of the Securities Exchange Act of 1934 (15 U.S.C. 78l) or that
    is required to file reports under section 15(d) of the
    Securities Exchange Act of 1934 (15 U.S.C. 78o(d)); shall be
    fined under this title, or imprisoned not more than 10 years,
    or both.''.
        (b) Clerical Amendment.--The table of sections at the
    beginning of chapter 63 of title 18, United States Code, is
    amended by adding at the end the following new item:
    ``1348. Securities fraud.''.

               TITLE IX--WHITE-COLLAR CRIME PENALTY ENHANCEMENTS

    SEC. 901. SHORT TITLE.

        This title may be cited as the ``White-Collar Crime Penalty
    Enhancement Act of 2002''.

    SEC. 902. CRIMINAL PENALTIES FOR CONSPIRACY TO COMMIT OFFENSE OR TO
                        DEFRAUD THE UNITED STATES.

        Section 371 of title 18, United States Code, is amended by
    striking ``If two or more'' and all that follows through ``If,
    however,'' and inserting the following:
        ``(a) In General.--If 2 or more persons--
        ``(1) conspire to commit any offense against the United
    States, in any manner or for any purpose, and 1 or more of such
    persons do any act to effect the object of the conspiracy, each
    person shall be fined or imprisoned, or both, as set forth in
    the specific substantive offense which was the object of the
    conspiracy; or
        ``(2) conspire to defraud the United States, or any agency
    thereof in any manner or for any purpose, and 1 or more of such
    persons do any act to effect the object of the conspiracy, each
    person shall be fined under this title, or imprisoned not more
    than 10 years, or both.
        ``(b) Misdemeanor Offense.--If, however,''.

    SEC. 903. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.

        (a) Mail Fraud.--Section 1341 of title 18, United States
    Code, is amended by striking ``five years'' and inserting ``10
    years''.
        (b) Wire Fraud.--Section 1343 of title 18, United States
    Code, is amended by striking ``five years'' and inserting ``10
    years''.

    SEC. 904. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE RETIREMENT
                        INCOME SECURITY ACT OF 1974.

        Section 501 of the Employee Retirement Income Security Act
    of 1974 (29 U.S.C. 1131) is amended--
        (1) by striking ``$5,000'' and inserting ``$100,000'';
        (1) by striking ``one year'' and inserting ``10 years'';
    and
        (3) by striking ``$100,000'' and inserting ``$500,000''.

    SEC. 905. AMENDMENT TO SENTENCING GUIDELINES RELATING TO CERTAIN WHITE-
                        COLLAR OFFENSES.

        (a) Directive to the United States Sentencing Commission.--
    Pursuant to its authority under section 994(p) of title 18,
    United States Code, and in accordance with this section, the
    United States Sentencing Commission shall review and, as
    appropriate, amend the Federal Sentencing Guidelines and
    related policy statements to implement the provisions of this
    title.
        (b) Requirements.--In carrying out this section, the
    Sentencing Commission shall--
        (1) ensure that the sentencing guidelines and policy
    statements reflect the serious nature of the offenses and the
    penalties set forth in this title, the growing incidence of
    serious fraud offenses which are identified above, and the need
    to modify the sentencing guidelines and policy statements to
    deter, prevent, and punish such offenses;
        (2) consider the extent to which the guidelines and policy
    statements adequately address--
        (A) whether the guideline offense levels and enhancements
    for violations of the sections amended by this title are
    sufficient to deter and punish such offenses, and specifically,
    are adequate in view of the statutory increases in penalties
    contained in this title; and
        (B) whether a specific offense characteristic should be
    added in United States Sentencing Guideline section 2B1.1 in
    order to provide for stronger penalties for fraud when the
    crime is committed by a corporate officer or director;
        (3) assure reasonable consistency with other relevant
    directives and sentencing guidelines;
        (4) account for any additional aggravating or mitigating
    circumstances that might justify exceptions to the generally
    applicable sentencing ranges;
        (5) make any necessary conforming changes to the sentencing
    guidelines; and
        (6) assure that the guidelines adequately meet the purposes
    of sentencing as set forth in section 3553(a)(2) of title 18,
    United States Code.

    SEC. 906. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.

        (a) In General.--Chapter 63 of title 18, United States
    Code, is amended by adding at the end the following:

    ``Sec. 1348. FAILURE OF CORPORATE OFFICERS TO CERTIFY FINANCIAL REPORTS

        ``(a) Certification of Periodic Financial Reports.--Each
    periodic report containing financial statements filed by an
    issuer with the Securities Exchange Commission pursuant to
    section 13(a) or 15(d) of the Securities Exchange Act of 1934
    (15 U.S.C. 78m(a) or 78o(d)) shall be accompanied by a written
    statement by the chairman of the board, chief executive
    officer, and chief financial officer (or equivalent thereof )
    of the issuer.
        ``(b) Content.--The statement required under subsection (a)
    shall certify the appropriateness of the financial statements
    and disclosures contained in the periodic report or financial
    report, and that those financial statements and disclosures
    fairly present, in all material respects, the operations and
    financial condition of the issuer.
        ``(c) Criminal Penalties.--Notwithstanding any other
    provision of law--
        ``(1) any person who recklessly and knowingly violates any
    provision of this section shall upon conviction be fined not
    more than $500,000, or imprisoned not more than 5 years, or
    both; or
        ``(2) any person who willfully violates any provision of
    this section shall upon conviction be fined not more than
    $1,000,000, or imprisoned not more than 10 years, or both.''.
        (b) Technical and Conforming Amendment.--The section
    analysis for chapter 63 of title 18, United States Code, is
    amended by adding at the end the following:
    ``1348. Failure of corporate officers to certify financial
    reports.''.

    SEC. 907. HIGHER MAXIMUM PENALTIES FOR MAIL AND WIRE FRAUD.

        (a) Mail Fraud.--Section 1341 of title 18, United States
    Code, is amended by striking ``five'' and inserting ``ten''.
        (b) Wire Fraud.--Section 1343 of title 18, United States
    Code, is amended by striking ``five'' and inserting ``ten''.

    SEC. 908. TAMPERING WITH A RECORD OR OTHERWISE IMPEDING AN OFFICIAL
                        PROCEEDING.

        Section 1512 of title 18, United States Code, is amended--
        (1) by re-designating subsections (c), (d), (e), (f ), (g),
    (h), and (i) as subsections (d), (e), (f ), (g), (h), (i) and
    (j);
        (2) by inserting after subsection (b) the following new
    subsection:
        ``(c) Whoever corruptly--
        ``(1) alters, destroys, mutilates, or conceals a record,
    document, or other object, or attempts to do so, with the
    intent to impair the object's integrity or availability for use
    in an official proceeding; or
        ``(2) otherwise obstructs, influences, or impedes any
    official proceeding, or attempts to do so; shall be fined under
    this title or imprisoned not more than 10 years, or both.''.

    SEC. 909. TEMPORARY FREEZE AUTHORITY FOR THE SECURITIES AND EXCHANGE
                        COMMISSION.

        (a) In General.--The Securities Exchange Act of 1934 is
    amended by inserting after section 21C(c)(2) (15 U.S.C. 78u-
    3(c)(2)) the following:
        ``(3) Temporary freeze.--(A) Whenever, during the course of
    a lawful investigation involving possible violations of the
    Federal securities laws by an issuer of publicly traded
    securities or any of its directors, officers, partners,
    controlling persons, agents, or employees, it shall appear to
    the Commission that it is likely that the issuer will make
    extraordinary payments (whether compensation or otherwise) to
    any of the foregoing persons, the Commission may petition a
    Federal district court for a temporary order requiring the
    issuer to escrow, subject to court supervision, those payments
    in an interest-bearing account for 45 days. Such an order shall
    be entered, if the court finds that the issuer is likely to
    make such extraordinary payments, only after notice and
    opportunity for a hearing, unless the court determines that
    notice and hearing prior to entry of the order would be
    impracticable or contrary to the public interest. A temporary
    order shall become effective immediately and shall be served
    upon the parties subject to it and, unless set aside, limited
    or suspended by court of competent jurisdiction, shall remain
    effective and enforceable for 45 days. The period of the order
    may be extended by the court upon good cause shown for not
    longer than 45 days, provided that the combined period of the
    order not exceed 90 days.
        ``(B) If the individual affected by such order is charged
    with violations of the Federal securities laws by the
    expiration of the 45 days (or the expiration of any extended
    period), the escrow would continue, subject to court approval,
    until the conclusion of any legal proceedings. The issuer and
    the affected director, officer, partner, controlling person,
    agent or employee would have the right to petition the court
    for review of the order. If the individual affected by such
    order is not charged, the escrow will terminate at the
    expiration of the 45 days (or the expiration of any extended
    period), and the payments (with accrued interest) returned to
    the issuer.''.
        (b) Technical Amendment.--Section 21C(c)(2) of the
    Securities Exchange Act of 1934 (15 U.S.C. 78u-3(c)(2)) is
    amended by striking ``This'' and inserting ``Paragraph (1) of
    this''.

    SEC. 910. AMENDMENT TO THE FEDERAL SENTENCING GUIDELINES.

        (a) Request for Immediate Consideration by the United
    States Sentencing Commission.--Pursuant to its authority under
    section 994(p) of title 28, United States Code, and in
    accordance with this section, the United States Sentencing
    Commission is requested to--
        (1) promptly review the sentencing guidelines applicable to
    securities and accounting fraud and related offenses;
        (2) expeditiously consider promulgation of new sentencing
    guidelines or amendments to existing sentencing guidelines to
    provide an enhancement for officers or directors of publicly
    traded corporations who commit fraud and related offenses; and
        (3) submit to Congress an explanation of actions taken by
    the Commission pursuant to paragraph (2) and any additional
    policy recommendations the Commission may have for combating
    offenses described in paragraph (1).
        (b) Other.--In carrying out this section, the Sentencing
    Commission is requested to--
        (1) ensure that the sentencing guidelines and policy
    statements reflect the serious nature of securities, pension,
    and accounting fraud and the need for aggressive and
    appropriate law enforcement action to prevent such offenses;
        (2) assure reasonable consistency with other relevant
    directives and with other guidelines;
        (3) account for any aggravating or mitigating circumstances
    that might justify exceptions, including circumstances for
    which the sentencing guidelines currently provide sentencing
    enhancements;
        (4) make any necessary conforming changes to the sentencing
    guidelines; and
        (5) assure that the guidelines adequately meet the purposes
    of sentencing as set forth in section 3553(a)(2) of title 18,
    United States Code.
        (c) Emergency Authority and Deadline for Commission
    Action.--The Commission is requested to promulgate the
    guidelines or amendments provided for under this section as
    soon as practicable, and in any event not later than the 120
    days after the date of the enactment of this Act, in accordance
    with the procedures set forth in section 21(a) of the
    Sentencing Reform Act of 1987, as though the authority under
    that Act had not expired.

    SEC. 911. AUTHORITY OF THE COMMISSION TO PROHIBIT PERSONS FROM SERVING
                        AS OFFICERS OR DIRECTORS.

        (a) In section 21C of the Securities Exchange Act of 1934,
    add at the end a new subsection as follows:
        ``(f ) Authority of the Commission To Prohibit Persons From
    Serving as Officers or Directors.--In any cease-and-desist
    proceeding under subsection (a), the Commission may issue an
    order to prohibit, conditionally or unconditionally, and
    permanently or for such period of time as it shall determine,
    any person who has violated section 10(b) of this title or the
    rules or regulations thereunder from acting as an officer or
    director of any issuer that has a class of securities
    registered pursuant to section 12 of this title or that is
    required to file reports pursuant to section 15(d) of this
    title if the person's conduct demonstrates unfitness to serve
    as an officer or director of any such issuer.''.
        (b) In section 8A of the Securities Act of 1933 add at the
    end a new subsection as follows:
        ``(f ) Authority of the Commission To Prohibit Persons From
    Serving as Officers or Directors.--In any cease-and-desist
    proceeding under subsection (a), the Commission may issue an
    order to prohibit, conditionally or unconditionally, and
    permanently or for such period of time as it shall determine,
    any person who has violated section 17(a)(1) of this title from
    acting as an officer or director of any issuer that has a class
    of securities registered pursuant to section 12 of the
    Securities Exchange Act of 1934 or that is required to file
    reports pursuant to section 15(d) of that Act if the person's
    conduct demonstrates unfitness to serve as an officer or
    director of any such issuer.''.

                         TITLE X--CORPORATE TAX RETURNS

    SEC. 1001. SENSE OF THE SENATE REGARDING THE SIGNING OF CORPORATE TAX
                        RETURNS BY CHIEF EXECUTIVE OFFICERS.

        It is the sense of the Senate that the Federal income tax
    return of a corporation should be signed by the chief executive
    officer of such corporation.

        The Presiding Officer. The Senate insists on its amendment
    and requests a conference with the House.

            VOLUME 148, THURSDAY, JULY 25, 2002, NUMBER 103,
                          PAGES [S7350-S7365]

                 Sarbanes-Oxley Act of 2002--Conference Report

        The Presiding Officer. Under the previous order, the Senate
    will proceed to the consideration of the conference report to
    acompany H.R. 3763, which the clerk will report.
        The legislative clerk read as follows:

        The committee of conference on the disagreeing votes of the
    two Houses on the amendment of the Senate to the bill (H.R.
    3763), to protect investors by improving the accuracy and
    reliability of corporate disclosures made pursuant to the
    securities laws, and for other purposes, having met, have
    agreed that the House recede from its disagreement to the
    amendment of the Senate, and agree to the same with an
    amendment, and the Senate agree to the same, signed by a
    majority of the conferees on the part of both Houses.

        The Presiding Officer. The Senate will proceed to the
    consideration of the conference report.
        (The report is printed in the House proceedings of the
    Record of July 24, 2002.)
        The Presiding Officer. The Senator from Nevada is
    recognized.
        Mr. Reid. Madam President, I suggest the absence of a
    quorum and ask that the time not be charged against either
    manager.
        The Presiding Officer. Without objection, it is so ordered.
    The clerk will call the roll.
        The legislative clerk proceeded to call the roll.
        Mr. Sarbanes. Madam President, I ask unanimous consent that
    the order for the quorum call be rescinded.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Sarbanes. Madam President, parliamentary inquiry of the
    Chair: What is pending before the Senate?
        The Presiding Officer. The debate on the conference report
    is limited to 2 hours equally divided.
        Mr. Sarbanes. So there is 1 hour on each side.
        The Presiding Officer. The Senator is correct.
        Mr. Sarbanes. Madam President, I yield myself 10 minutes.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Sarbanes. Madam President, I am very pleased that we
    are now considering the conference report on the Public Company
    Accounting Reform and Investor Protection Act of 2002. The
    Senate approved this legislation on July 15 on a 97-0 vote.
    Conferees were named promptly both here and in the House, and
    the conference committee immediately went to work.
        Agreement was reached yesterday in the early evening, about
    7 o'clock, by the conference committee, and the House took up
    the conference report this morning and acted on it earlier in
    the day. The vote, I believe, was 422--3.
        The conference report has now come over to us, and
    obviously, under our procedures, it is our turn to proceed to
    consider it.
        This legislation establishes a carefully constructed
    statutory framework to deal with the numerous conflicts of
    interest that in recent years have undermined the integrity of
    our capital markets and betrayed the trust of millions of
    investors.
        I say to my colleagues that in every one of its central
    provisions, the conference report closely tracks or parallels
    the provisions in the Senate bill for which, as I indicated
    earlier, all the Members present at the time, 97 of us, voted
    only a short time ago.
        This legislation establishes a strong independent
    accounting oversight board, thereby bringing to an end the
    system of self-regulation in the accounting profession which,
    regrettably, has not only failed to protect investors, as we
    have seen in recent months, but which has in effect abused the
    confidence in the markets, whose integrity investors have taken
    almost as an article of faith.
        This legislation reflects the extraordinary efforts of many
    colleagues on both sides of the Capitol. I want especially to
    recognize and express my deep gratitude to Senators Dodd and
    Corzine who early on introduced legislation that in many
    respects serves as the basis for titles 1 and 2 of this
    legislation.
        On the House side, Congressman LaFalce introduced
    comprehensive legislation on which we drew.
        I also wish to acknowledge the many important contributions
    that my Republican colleague, Senator Enzi, made at every step
    in the process. Senator Enzi had legislation of his own, but in
    addition we worked very closely in the course of developing
    this legislation. Again and again I was struck by the
    thoughtfulness and reasonableness of his proposals for
    improving in the legislation. While in the end not all of them
    were included in the legislation, a significant number are, and
    I thank him very much for all his contributions.
        Before addressing the major provisions of the legislation,
    let me make very clear that it applies exclusively to public
    companies--that is, to companies registered with the Securities
    and Exchange Commission. It is not applicable to provide
    companies, who make up the vast majority of companies across
    the country.
        This legislation prohibits accounting firms from providing
    certain specified consulting services if they are also the
    auditors of the company. In our considered judgment, there are
    certain consulting services which inherently carry with them
    significant conflicts of interest. Auditors, in effect, find
    themselves in the position of auditing their own work. They may
    be acting as management of the company, for instance, on
    personnel matters when, as the outside auditor, they were
    supposed to be standing one step removed from the company as
    the outside auditor. This is the reasoning behind the
    prohibition.
        What has happened in recent years is that the fees earned
    from the consulting work have dwarfed the fees earned from the
    auditors, which inevitably leads to concerns that punches may
    be pulled on the audit to accommodate the significant and
    remunerative involvement on the consulting side. Certain
    enumerated consulting practices are therefore not allowed, with
    the exception that a case-by-case exemption can be obtained
    from the oversight board that this legislation establishes.
        The auditor can engage in the balance of consulting
    services with the pre-approval of the audit committee of the
    corporation. And of course an auditor can engage in whatever
    consulting services the firm and the corporation agree upon so
    long as the firm is not also acting as the corporation's
    auditor.
        The bill sets significantly higher standards for corporate
    responsibility governance. It requires public companies to have
    independent audit committees and also enhances the role of the
    audit committee, which will have responsibility for hiring and
    firing the auditors and setting their compensation.
        The legislation requires full and prompt disclosure of
    stock sales by company executives. Senator Carnahan added an
    important provision to the bill, requiring electronic filing
    with respect to such sales. That requirement would take effect
    in a year's time, to allow time for the necessary systems to be
    put in place; once in place it will assure prompt and accurate
    disclosure of these very significant transactions.
        The legislation places limits on loans by corporations to
    their executive officers. It sets certain requirements for
    disclosure with respect to special purpose entities, which were
    used by some corporations that have run into such serious
    difficulty in recent months. It seeks to address the statement
    of pro forma earnings, in order to assure a more complete and
    accurate picture of a public company's financial position.
        It also addresses the conflicts of interests that arise for
    stock analysts to whom investors look for impartial research-
    based advice about stocks. Unfortunately, many of these
    analysts are under pressure to promote stocks in which their
    broker-dealer firms may have an investment banking interest; on
    the one hand they are supposed to give unbiased advice to
    potential purchasers of stock, whether to buy or sell, but at
    the same time the firm of which they are a part is interested
    in developing a business relationship with the company on which
    the analyst is passing judgment. It has been sobering to
    discover that analysts have been formally recommending certain
    stocks to the investing public, while at the same time
    discussing them contemptuously among themselves. We have had
    too many demonstrations of this occurring.
        The legislation includes provisions to protect analysts
    against retaliation, in cases where a negative recommendation
    may invite retaliation. Furthermore, the bill authorizes
    significant increases in funding for the Securities and
    Exchange Commission, which for the first time in many years
    will give it something close to the funding resources it needs.
        There are also extensive criminal penalties contained in
    this legislation. These were initially included in legislation
    reported by the Judiciary Committee, which Senator Leahy
    offered as an amendment to the bill. The House then passed its
    own bill with respect to criminal penalties, a separate
    standing bill, which in many instances doubled or even tripled
    the penalties in the Leahy proposal as it came to the floor,
    and the Leahy proposals were further supplemented by an
    amendment from Senators Biden and Hatch and another from
    Senator Lott.
        The Presiding Officer. The Senator has consumed 10 minutes.
        Mr. Sarbanes. I yield myself 4 additional minutes.
        The Presiding Officer. The Senator has that right.
        Mr. Sarbanes. These provisions, among other things, require
    the CEOs and CFOs to certify their company's financial
    statements under penalty of potentially severe punishments.
        We provide a $776 million authorization for the SEC. I want
    to spend a minute on this point, because it is very important.
    The Senate Appropriations Committee is now working on an
    appropriation that would contain $750 million for the SEC. It
    is urgent that we provide adequate funding for the Commission,
    whose responsibilities have expanded as the volume of market
    activity has grown, but whose funding has lagged. Clearly, the
    Commission must have the resources necessary to ensure a
    decisive and expeditious response to the scandals we have seen
    in recent months, and to minimize the likelihood that we will
    see others in the future.
        I must underscore this point. The Commission has been
    underfunded, and the result has been understaffing, high staff
    turnover and low morale as the Commission seeks to carry out
    its work. The SEC must be in a position to address immediately
    the problems of inadequate staff resources and inadequate pay.
        At the moment, the SEC cannot offer its attorneys and
    accountants the same level of salary and benefits that their
    counterparts receive at the five Federal bank regulatory
    agencies. Talented and dedicated staff attorneys and
    accountants can increase their compensation by as much as one-
    third simply by moving to another agency. This is an
    intolerable situation. Pay parity has been authorized and now
    must be funded; this legislation specifically provide the
    necessary funding.
        In addition, the authorization provides funding that will
    enable the Commission to upgrade its technical capacities, its
    computer systems, and it provides significant resources so that
    the Commission can augment its staff of attorneys, accountants
    and examiners at a time when they are needed to address a very
    heavy workload burden.
        As an aside, I mention that this morning the committee
    reported to the Senate four nominees to bring the Securities
    and Exchange Commission to its full complement of five members.
    I very much hope we will be able to approve them next week so
    that they will be able to take their positions before the
    August recess. If we do, the Commission will be at full
    strength. They will all be in place and ready to do the job,
    and I think that is highly desirable.
        In closing, let me say that I believe this conference
    report reflects our best efforts to deal with issues which we
    know to be numerous and complex. Throughout the process, we
    have worked together carefully on these issues. We have sought
    advice from the most distinguished and experienced
    practitioners in the field. We held 10 hearings in March with
    some of the very best experts in the country as our witnesses.
    We have consulted extensively, and I hope my colleagues will
    agree in good faith and across party lines. Our vision has been
    broad, our purpose steady. I think our approach has been
    reasonable.
        We will send to the President legislation establishing a
    solid statutory framework for the reforms we know are urgently
    needed.
        Our markets have benefited beyond measure from the
    statutory framework that created the SEC nearly 70 years ago.
    Indeed, I think we have had a tendency to take that for
    granted. Those markets have been a very significant economic
    asset for the United States, and an integral part of our
    economic strength. This legislation will serve to complement
    and reinforce that framework, which has served us well, and I
    believe it will stand the test of time.
        Our markets, which have the reputation of being the
    fairest, the most efficient, the most transparent in the world,
    have suffered greatly in recent times, so much so that they
    seem to have lost the confidence of our investors. It is our
    purpose, with this legislation and through other actions that
    will have to be taken by the regulatory agencies and by the
    private sector, to see that once again our capital markets
    deserve the enviable reputation for fairness, efficiency, and
    transparency that they have enjoyed through the years.
        I yield the floor.
        The Presiding Officer. The Senator from Texas.
        Mr. Gramm. Madam President, I yield myself such time as I
    may consume.
        I want to begin with some thank-yous and congratulations.
    First, I want to congratulate Senator Sarbanes on this bill,
    and I want to make note that in a very difficult period, where
    so many were trying to point the finger of blame, when it
    seemed almost every day that people were clamoring to make the
    strongest statement they could make to get the sound bite on
    television, Senator Sarbanes could have taken that same route
    in the Banking Committee. We are the committee that has
    jurisdiction over the issues that had been at the very heart of
    our recent concerns in the capital markets.
        However, Senator Sarbanes did not take that route. I
    congratulate him. He not only brought good reflection on
    himself, but he helped raise the esteem that the Banking
    Committee is held in and reflected well on the Senate. We had
    hearings but we were focusing on what could be done to fix the
    problem. As a result, those hearings were the most productive
    that were held. They contributed to bringing us to where we
    are.
        Now let me make it clear, from the very beginning there has
    been a broad consensus, and a very deep consensus, on 90
    percent of the issues in this bill. One of my frustrations in
    this debate--and when you are debating something as high
    profile as this is, there are frustrations. I am not
    complaining--as my wife says whenever I complain about this
    job, not only did nobody force you to take it, but a lot of
    good people worked hard to keep you from getting it--I am not
    complaining, but part of our problem has been that the media
    has wanted to present this as a debate that had to do with how
    tough people were being, to the exclusion, often, in my
    opinion, of how reasonable we need to be.
        We have before the Senate a bill that is clearly an
    improvement over the status quo. I don't care how disappointed
    you are in any one provision--and on several provisions I am
    very disappointed. No matter how disappointed a Member is, this
    is an improvement over the status quo, and for two reasons. One
    is obvious. That is, we needed stiffer criminal penalties. And,
    second, we needed to create an independently funded and an
    independently operating accounting oversight board so that we
    could deal with ethics questions in a framework that will
    promote high ethical standards, in the framework of
    independence. In addition, we desperately needed to have an
    independently funded FASB.
        I would just say as an aside, Madam President, over the
    years I have agreed with FASB in some of their decisions; I
    have disagreed with FASB on some of their decisions. However, I
    am proud to be able to say today I have never taken the
    position that Congress ought to override FASB. As
    incomprehensible as some of their rulings have been to my way
    of thinking, having Congress vote on accounting standards is a
    very dangerous thing.
        Some of our colleagues want to vote on the whole issue of
    expensing stock options. Wherever you come down on that issue,
    having Congress vote on accounting standards is very dangerous,
    very counterproductive. I hope that will not happen. Certainly,
    I am not going to vote to impose accounting standards on this
    board. We want FASB to set accounting standards. We want to be
    sure they have the independence that is necessary to allow them
    to do it.
        In those areas there has never been a disagreement on this
    bill. The disagreements that have occurred have had to do with
    the perception of individual Members as to what was practical,
    what was workable, what was desirable. The one view I have
    always subscribed to, and I would have to say given my period
    of service in public life I am more convinced of it than ever,
    is that Thomas Jefferson was right when he said good men--he
    would say good people today, of course--good men with the same
    information are prone to have different opinions.
        There is a natural tendency in the human mind to think, if
    people disagree with you, that either, A, they don't know what
    they are talking about; or B, they don't have good intentions.
    I subscribe to the Jefferson thesis.
        The areas where I disagree with the bill are pretty
    straightforward. First of all, I believe there is a very real
    problem in auditor independence. If I were a member of this new
    accounting oversight board that we are going to put into place
    and I had to vote on the nine prohibited areas that are written
    into law in the bill, I would want to study them in detail. I
    might very well support all nine of them. I do not believe they
    should be written into law.
        The advantages of letting the board set these standards--it
    seems to me that there are three:
        No. 1, the board is going to have more time and more
    expertise than we have and is likely to do a better job.
        No. 2, if we make a mistake and we write it into law, it is
    hard to fix things that are written into law. As Alan Greenspan
    has said, if Glass-Steagall, Depression-era banking
    legislation, had been a regulation, it clearly would have been
    changed by the 1950s. We did not change it until 1999. It took
    a long time to change it.
        Finally, and probably of greatest importance, there is a
    natural tendency when we are talking about the problem in an
    era where we are all reading about Enron and WorldCom and the
    huge companies, to forget this law will apply to 16,254
    companies. Many of these companies are quite small. One of the
    advantages of allowing the accounting oversight board to set
    out prohibitions on auditors performing other services in
    regulation, instead of prescribing them in law, is that the
    board can find a system whereby they can recognize what is
    practical in dealing with smaller companies and how that might
    differ from what is practical for General Motors.
        An example that has come to my mind is one where I am
    operating a small public company, stock traded on an exchange
    or on Nasdaq, and I employ an accounting firm that has a CPA
    who basically does my auditing. He is in Houston. I am trying
    to hire a new bookkeeper in my company. I have three
    candidates. When my auditor is in town auditing my books, I
    say: I have these three candidates. I majored in physics in
    college, and I don't know anything about accounting. Could you
    interview these three bookkeepers and tell me who you think
    would be best?
        Under this bill, that would be illegal. That would be
    providing a personnel service. It is prohibited for my auditor
    to provide that service for me as well.
        For General Motors, should your auditor be providing a
    personnel service? My guess is they probably should not. But
    for this small company in College Station, Texas, what this
    prohibition ultimately will do is force them to do one of three
    things: In all probability, they will hire the bookkeeper
    without ever getting the advice of a CPA; No. 2, they can hire
    another CPA to interview these three candidates for a
    bookkeeper and pay them; No. 3, they can file for a waiver
    through the SEC and through the board. Each option is a worse
    choice from those available to such a small company today, and
    a worse choice for its shareholders.
        The bill allows a waiver on an individual company by
    company basis. I rejoice that is the case. I personally believe
    we should have given the board, with the agreement of the SEC,
    the ability to grant blanket waivers based on the circumstances
    of classes of individual companies.
        For example, if you have already granted 1,000 waivers
    where companies have applied for a waiver for a certain
    requirement based on their size, their location, practicality,
    the cost, whatever, at that point shouldn't the board be able
    to say: We have established this principle, and if your company
    meets these conditions, you are granted the waiver? Then, all
    they have to do is prove they meet the conditions.
        My concern--and who knows, maybe this will be true, maybe
    it will not. The problem is we are legislating. We don't know.
    We can't look into the future. My concern is that by not
    granting them the ability to provide blanket waivers we are
    going to force a lot of smaller companies to hire lawyers and
    lobbyists to come to Washington to petition the SEC and the
    board. My concern is that this is going to use up their time
    and use up the resources of companies.
        There is another side of this story and that is the concern
    that blanket waivers could be used to get around the intent of
    the law. How do you deal with that? How do you find a happy
    balance? It is not an easy question. I would have to say I
    believe we have imposed a one-size-fits-all regimentation that
    is going to be difficult to deal with--not impossible to deal
    with, but I think it is going to be difficult.
        Another problem I have is that we have in this bill an
    accounting oversight board. Its members are not elected
    officials. They are not appointed in the sense that they are
    not Government officials. They will have the ability to make
    decisions that will affect the livelihood of Americans who are
    in the accounting profession. They will literally have the
    ability to say to a CPA: We are taking your license away and
    you can never practice again in providing accounting services
    to a publicly traded company.
        Clearly, there are cases where that is justified. Clearly,
    there are cases where people ought to be fined and, clearly,
    there are cases where people ought to be put in prison. But I
    think when you are taking people's livelihoods, they ought to
    have an opportunity to appeal to the Federal district court
    where they live.
        I think there ought to be a burden on them to make their
    case, and obviously the court is going to take into account
    that this board, that was duly constituted, made a decision.
    But I think that is an opportunity that people ought to have
    that they do not have under this bill.
        I am also concerned about litigation. During the whole
    Clinton administration, there was only one bill where we
    overrode the President's veto, and that was a bill having to do
    with private securities litigation reform. We had a massive
    number of predatory strike suits where people filed lawsuits
    against companies. They almost always settled out of court. We
    had one law firm that filed the lion's share of the lawsuits.
    And the chief lawyer in that company said, in effect, ``It is
    wonderful to practice law where you don't have clients.''
        That was a mistake when he said that, but he said it.
        We took action to try to eliminate or minimize this abuse.
    In doing so, we codified a 1991 Supreme Court decision that
    addressed what happens if you think you have been wronged. We
    are not talking about criminal activity. We are not talking
    about SEC enforcement. We are not talking about the Justice
    Department. We are talking about civil disputes that people
    have. Under that law, in codifying what the 1991 Supreme Court
    decision said, we said that within a year after you believe you
    have been wronged, you have to file your lawsuit, and within 3
    years after the event happens, you have to file your lawsuit.
        One of the things this bill does, which I oppose, is it
    raises that to 2 years and 5 years, respectively. I would say
    that if there were evidence that people were not getting these
    lawsuits filed because of a lack of time, that under the
    circumstances I think that increasing the statute of
    limitations would have been justified. But as we have looked at
    the data, the mean average lawsuit is filed 11 days after the
    injury is discovered. Something like 90 percent of the lawsuits
    are filed in the first 6 months. It seems to me that this
    provision and other provisions of the bill that expand the
    ability of people to sue may have a positive effect in making
    people pay attention to their business, but we all know, based
    on our legal system, that it is going to be abused and that
    very heavy costs are going to be imposed on the private sector
    of the economy as litigation costs ultimately are added to the
    cost of the product that is produced and reduced from the stock
    value held by shareholders.
        I could go on and on. There are other people who want to
    speak. We are under a time limit. But let me sum up.
        I thought about this long and hard, and as I thought about
    this bill, I had to weigh, Does it do more good than harm? I
    have concluded that it does. It does less good than it could
    have done; it does more harm than it should have done--we could
    have corrected these things--but, quite frankly, in the
    environment we were in it was impossible. In the environment we
    were in, where everything was judged on some concept of being
    tough rather than on practicality and workability, it was
    impossible for us to come back and deal with these problems.
        Finally, in the timeframe that we all faced in conference,
    we never really got around to discussing the practical kinds of
    things that do not seem important when you are writing law but
    seem very important 2 or 5 years later when you are
    implementing it.
        Having said all that, I cannot stand up here and argue that
    this bill has worsened the status quo. This bill is better than
    the status quo for two reasons. No. 1, change needs to be made
    and criminal penalties need to be raised. These independent
    boards need to be established, and 90 percent of this bill, in
    my opinion, clearly represents a step in the right direction.
        But, second--and this may sound like strange logic but I
    think it is important. I think to understand American
    government you have to understand it. The American people
    expect Congress to respond to a problem. We may not know the
    answer. We may not have perfect knowledge. But they expect us
    to try to do something about it. That in and of itself is an
    argument to which we should respond.
        I would argue--being a conservative, as everyone engaged in
    this debate knows--I would argue we need to be careful. But in
    the end this bill is an improvement on the status quo. It could
    have been better. There are changes that could have been made
    that were not. But in the end, I cannot argue that this bill
    should not pass, should not become law. The President is going
    to sign the bill, and clearly he should.
        I do believe we will have to come back after the fact and
    we will have to correct some of these issues. I think as time
    goes on we will see we may not have done enough in one area.
    Maybe we went overboard in another area. But the Congress will
    meet again, people will be paid to do this work, and I am
    confident that it will be done.
        So let me conclude on this thought. I believe the
    marketplace has gone a long way toward solving this problem. I
    think the New York Stock Exchange action was excellent. Once
    again, they are proving that they are a great institution. As I
    have often said about the New York Stock Exchange, I feel as if
    I am standing on holy ground at the New York Stock Exchange.
        Every boardroom is different from what it was before this
    crisis started. No one sitting on a board, corporate board or
    an audit committee, will ever be the same. No auditors will
    ever look at their task the way they did before all of this
    started, at least for a very long time. or at least for a very
    long time.
        One of the advantages of having structure is when they
    forget, the structure won't forget. I totally agree with that.
    I think this represents a complement to it.
        There is much in here I would have done differently. But in
    the end, I think this is a response that people can say the
    Government did hear, the Government did care, and Congress did
    try to fix it. I don't doubt that there are mistakes in here. I
    think I could name some, if asked to. But, on the whole, this
    is a response that was aimed at the problem. People went about
    it in a reasonable manner.
        Certainly, the authors of this bill intended to do as good
    a job as they could do.
        I again want to congratulate Senator Sarbanes. I also want
    to thank him, looking back now at how quickly the conference
    went. I know people were unhappy when we had this period when
    the floor was tied up, and there were numerous amendments
    people wanted to add to the bill. But I think, given how the
    whole thing played out, it worked out from that point of view
    pretty much right.
        If people on Wall Street are listening to the debate and
    trying to figure out whether they should be concerned about
    this bill, I think they can rightly feel that this bill could
    have been much worse. I think if people had wanted to be
    irresponsible, this is a bill on which they could have been
    irresponsible and almost anything would have passed on the
    floor of the Senate.
        I think given where we are on this bill that it is a
    testament to the fact that our system works pretty well.
        I yield the floor.
        The Presiding Officer (Mr. Edwards). Who yields time?
        Mr. Gramm. Mr. President, I yield 12 minutes to the Senator
    from Wyoming.
        The Presiding Officer. The Senator from Wyoming.
        Mr. Enzi. Thank you, Mr. President.
        I am here today to speak in support of the conference
    report to the accounting reform bill. I will be encouraging all
    Senators to vote for the conference report.
        This is earthshaking legislation that has been done with
    tremendous speed. It had to be earthshaking because we are
    trying to counteract the tremors from the volcanic action of
    the mountaintop being blown off such companies as Enron,
    WorldCom, Global Crossing, and others. Those collapses have set
    up a series of tremors across this country.
        Congress is not the one to solve all the problems. But as
    Senator Gramm just mentioned, we are expected to work at
    solving all of the problems. We have put in a huge effort on
    this bill, and it will make a difference.
        While we have been working, the stock market has been going
    through some tremendous gyrations. I think some of those
    reactions in the stock market were to see how carefully we
    would consider and resolve this issue. I believe, the stock
    market was worried that we would overreact. The market watched
    to see if Congress would keep adding and adding things, until
    we destroyed the whole system. They can now see that did not
    happen--Congress acted responsibly. We took a long and tough
    look at the problem and reacted, but we did not overreact. At
    the same time corporations across the country have been making
    sure they did not have the kinds of problems brought to light
    in a few of these companies.
        ``Corporations'' should not be a bad word in this country.
    This country was built on business.
        I always like to mention that it was primarily built on
    small business--small businesses that grew up, in many cases,
    but nevertheless ideas that started out as a small business.
        We have to keep our focus on those small businesses, and
    make sure they are able to continue to operate in the climate
    that we have in the United States and under the laws that we
    pass.
        I am pleased to say that the actions we took in this bill
    provide some assurance to small businesses and small accounting
    firms that they can continue to operate the way they have in
    the past.
        We have given encouragement to the States not to run out
    and apply the same types of laws. I hope the States are paying
    attention because they will ruin a very good thing if they
    destroy small business. Keep the eye on small business, and we
    will continue to have big business.
        Corporations have been checking what has been going on in
    their firms to a greater extent than they have ever before.
    Boards, CEOs, CFOs, and audit committees have been checking to
    see if they have the kinds of problems that brought down these
    other companies.
        It is much like when there is a plane crash. Right after a
    plane crash is probably the safest time in the world to fly
    because everybody checks their equipment ever so much more
    carefully to make sure that the kind of defects that may have
    caused other problems will not happen to them. And the effect
    lasts for a long time afterwards.
        Corporations have been checking their books. They have
    begun changing procedures. Some of the changes they have made
    have resulted in restatements. They have paid a price for doing
    restatements. But they have done the right thing by doing a
    restatement, and they should be recognized for that. I
    mentioned speed before. The Senate is not designed for speed.
    We started out slow. We held 10 hearings. We looked at the
    issues very carefully, everybody resolved in writing their own
    ideas.
        One of the tough things about legislating is putting it
    down in writing. The concepts are so easy, but the details are
    so tough.
        There are a number of people who drafted bills on this--
    both in the House and in the Senate. On this side, Senator
    Gramm and I drafted a bill. Senator Corzine and Senator Dodd
    introduced a bill. Of course, Senator Sarbanes had the
    overreaching bill, and I believe his benefited a little bit
    from having copies of both the House and Senate bills on which
    to build his bill. I compliment him for the way he took ideas
    from all of these different approaches.
        Again, it shows the value of legislating by a wide variety
    of people. You get a wide variety of viewpoints, which actually
    provides some insights into areas that a person might not have
    thought about.
        But, at any rate, we concluded the hearings, and we merged
    the bill. This came to committee the week before the Fourth of
    July. It passed out of committee in one day. It came to the
    floor of this body just 2 weeks ago. And now, it has already
    been conferenced, and come back to us for final passage. Part
    of that is a result of the atmosphere we are in, and the need
    for action. Timing can be everything on a bill. But part of it
    is because of the concentration of people who worked on this.
        This legislation is a response to problems highlighted by
    the recent corporation failures of Enron, WorldCom, and others.
    It does send a clear signal to corporate America that
    executives can no longer abuse the trust their shareholders
    place in them without severe consequences.
        This legislation builds a strong and independent board to
    oversee the accounting industry. It will eliminate the climate
    of self-regulation that has historically guided accounting.
        However, I would like to make one point clear. I believe
    that, overall, accountants take their responsibilities very
    seriously. They did before, and they do now. We have the best
    system in the world. What we are doing with this is to maintain
    that we have the best system in the world. Most accountants are
    honest and hard working. They work for the benefit of the
    investors with probably the same percentage of exceptions as
    other professions.
        This legislation will also provide for strong disciplinary
    action against executives who break the law. No longer will
    they be disciplined with a slap on the wrist. The bill
    recognizes that executives who destroy the dreams of investors
    by irresponsible and unethical behavior will be given the
    severe punishment they deserve.
        I also want to again thank Senator Sarbanes and Senator
    Gramm for their leadership on this issue. They both have worked
    tirelessly the past few months to get this bill finished in a
    timely manner. I particularly appreciate some of the insights
    Senator Gramm gave me as he worked on this bill in more detail
    than most people ever achieve. It is his standard, and he
    carried that out again this time, which did resolve a number of
    the problems. I want to congratulate Senator Sarbanes, and
    thank him for the way he conducted the hearings. A lot of
    people do not realize that the Chairman of a committee usually
    gets to pick most of the witnesses, and the ranking member gets
    to pick a few of the witnesses.
        As we went through these 10 hearings, I couldn't find any
    witnesses that I wouldn't have picked were I given the
    selection. There were some very qualified people who testified.
    Some of them were even accountants. I did appreciate that. I
    apologize for asking some questions of them but it was such a
    great opportunity for me. My staff noticed that when the camera
    focused in on the person giving the answer, the wedge of people
    behind them were all asleep.
        So what we dealt with is not the kind of thing that
    Americans get really excited about. It is far too detailed for
    us to get too excited about it. For accountants, these kinds of
    discussions are almost like watching ESPN.
        Senator Sarbanes did continue to meet with me and other
    Members and continued to make changes that improved the bill.
    There was a wide variety of Senators who worked on this bill. I
    have mentioned Senators Dodd and Corzine and Gramm. Senator
    Edwards worked with me on one provision that is in this bill to
    make sure that not only accountants, analysts, CEOs, CFOs,
    Boards and audit committees were addressed under this bill, but
    lawyers have some responsibility, too.
        I find it very exciting we are going to make lawyers have a
    code of ethics when they are dealing with the Securities and
    Exchange Commission, and that they are going to have an
    obligation to report things when they find them. I know that
    causes some consternation among some attorneys, but I think it
    will make, overall, the same kind of improvements we are
    expecting from everybody else.
        Senators Allen, Gregg, Baucus, Grassley, and Kennedy all
    worked on some provisions that we don't talk about too much;
    again, it is in the detail area, but it has to do with the
    blackout period when you are dealing with pension and other
    stock sales by executives. I know the intense hours it took to
    come up with a solution that would work. And if you have that
    many people agreeing on it, there is probably a good chance it
    will work.
        Again, I congratulate all those people for their constraint
    in limiting their ideas to what needed to be done for this
    bill. A lot of ideas were floating around here on lots of
    things we can with corporations and executives that people want
    to have fixed, but this bill did maintain some real constraint
    to stay on topic.
        I do believe the conference report is an improved bill from
    the one that passed the Senate. Again, I appreciate Senator
    Sarbanes working with me to make some of the changes about
    which I spoke.
        One change we made changes the implication that not all
    nonaudited services should be presumed illegal. The bill has
    been changed to clearly allow the audit committee to make that
    determination without the law implying that it is illegal.
        In addition, he made some changes dealing with the testing
    of internal compliance. I believe the new language more clearly
    represents the true role of auditors. One of the problems we
    dealt with throughout this process is educating Members on
    exactly what the role of an auditor is. I believe the new
    language represents that realization, and I thank the chairman
    for making the change.
        There is another important change in the provision dealing
    with corporate loans. The provision would still prohibit
    corporate executives from reaping millions of dollars in loans
    from their companies, but the new language also realizes that
    executives need to use things such as credit cards to conduct
    their business. So this section is a vast improvement.
        Another item I would like to comment on is the
    understanding that insurance companies, many times, have audits
    they must file with their State regulators. It would be
    burdensome and expensive to require these companies to hire a
    separate auditing firm to perform this responsibility. That
    problem was also recognized, and the needed changes were made.
        However, I also understand that due to the time
    constraints, a report will not be filed with the bill. I think
    this will pose a series of problems because we will not be
    defining what the authors actually intended with certain
    sections of the bill and allowing the same written discourse
    that there would be on the bill. I think this may especially
    cause problems with the extraordinary number of regulations
    that are going to have to be written to implement the bill.
        As the ranking member of the subcommittee with jurisdiction
    over the Securities and Exchange Commission, I do intend to
    work closely with the Commission to ensure that the new
    regulations are consistent with what I see as congressional
    intent. I will work with others to make sure these regulations
    conform.
        I ask the ranking member, could I have an additional 3
    minutes?
        Mr. Gramm. Sure.
        Mr. President, I yield an additional 3 minutes to the
    Senator from Wyoming.
        The Presiding Officer. The Senator from Wyoming.
        Mr. Enzi. I thank the Senator.
        Mr. President, some of the issues that did not come up in
    this bill dealt with FASB. We did something marvelous for FASB.
    We made sure of its independence. One way we made sure of its
    independence, besides citing in the law, was to make sure FASB
    has independent funding. They will not have to come to Congress
    with a budget. And they will not have to go to corporate
    America for funding. They will get independent funding to be
    able to do the job they need to do. That will inhibit us from
    trying to change what they are doing in setting accounting
    standards.
        I am pleased to state that we have taken a look at the
    things they are working on right now. They are working on four
    issues that are extremely important to make sure what happened
    with other companies will not happen again.
        I have to tell you, in those four things they have listed
    as a priority, one of them is not stock options and what to do
    with them. They do need to address that, but I certainly hope
    that Congress does not decide that what we see as a problem
    does supersede other problems that may have caused collapses
    such as Enron's.
        So I hope we will not get in a position of dictating now to
    FASB what they should be working on, and in what order, and to
    what degree, or, worse yet, just going ahead and passing
    accounting standards on our own.
        With respect to section 302, the conference recognizes that
    results presented in financial statements often necessarily
    require accompanying disclosures in order to apprise investors
    of the company's true financial condition and results of
    operations. The supplemental information contained in these
    additional disclosures increases transparency for investors.
    Accordingly, the relevant officers must certify that the
    financial statements together with the disclosures contained in
    the periodic report, taken as a whole, are appropriate and
    fairly represent, in all material respects, the operations and
    financial condition of the issuer.
        I also believe the conferees contemplate that the Board
    will have discretion to contract or outsource certain tasks to
    be undertaken pursuant to this legislation and the regulations
    promulgated under the Act. The Board may outsource functions
    which can be done more efficiently by existing and established
    organization. An exercise of discretion in this manner does not
    absolve the Board of responsibility for the proper execution of
    the contracted or outsourced tasks.
        I also believe that the Conferees expect that the Board and
    the standard setting body will deem investment companies
    registered under Section 8 of the Investment Company Act of
    1940 to be a class of issuers for purposes of establishing the
    fees pursuant to this section, and that investment companies as
    a class will pay a fee rate that is consistent with the reduced
    risk they pose to investors when compared to an individual
    company. Audits of investment companies are substantially less
    complex than audits of corporate entities. The failure to treat
    investment companies as a separate class of issuers would
    result in investment companies paying a disproportionate level
    of fees.
        In addition, I believe we need to be clear with respect to
    the area of foreign issuers and their coverage under the bill's
    broad definitions. While foreign issuers can be listed and
    traded in the U.S. if they agree to conform to GAAP and New
    York Stock Exchange rules, the SEC historically has permitted
    the home country of the issuer to implement corporate
    governance standards. Foreign issuers are not part of the
    current problems being seen in the U.S. capital markets, and I
    do not believe it was the intent of the conferees to export
    U.S. standards disregarding the sovereignty of other countries
    as well as their regulators.
        I also realize inconsistencies appear in sections 302 and
    906. The SEC is required to complete rulemaking within 30 days
    after the date of enactment with regard to CEO certification
    under section 302. However, section 906 suggests that
    certification would be required upon enactment, thus the
    penalties would go into effect before the certification
    requirement is completed through the rulemaking process. I
    believe it was the intent of the Conferees that the penalties
    under section 906 should not become effective until the
    rulemaking process is finalized.
        Under the conference report, section 3(a) gives the SEC
    wide authority to enact implementing regulations that are
    ``necessary or appropriate in the public interest.'' I believe
    it is the intent of the conferees to permit the Commission wide
    latitude in using their rulemaking authority to deal with
    technical matters such as the scope of the definitions and
    their applicability to foreign issuers. I would encourage the
    SEC to use its authority to make the act as workable as
    possible consistent with longstanding SEC interpretations.
        Finally, I not only thank the Senators I have been able to
    work with on this, but I also thank the staffs. I thank
    particularly Katherine McGuire, my legislative director, and
    Mike Thompson, who handles my banking issues. I also thank
    Kristi Sansonetti, who works on all of my legal issues, and
    Ilyse Schuman, who played a very important role in the blackout
    pension period.
        I thank, on Senator Sarbanes's staff, Steve Harris, Marty
    Gruenberg, Steve Kroll, Dean Shahinian, Lynsey Graham, and
    Vince Meehan.
        I thank, on Senator Gramm's staff, Wayne Abernathy, Linda
    Lord, who is probably one of the most knowledgeable lawyers in
    this area I have ever encountered, Michelle Jackson and Stacie
    Thomas.
        And, on Senator Dodd's staff, I thank Alex Sternhell.
        America will never know all the work these people have done
    on this bill, the hours they have spent on it, daytime and
    nighttime. I have seen them working in the early morning hours
    on this, and that is after spending the previous night working
    on it. They have just spent incredible time on this.
        There is some incredible expertise among these people.
    Without their help, we would have never gotten to this point.
    So I thank all of them.
        I thank the chairman and Senator Gramm and all the others
    who have had a part in this. It is time we adopt this bill.
        I yield the floor.
        The Presiding Officer. The Senator from Maryland.
        Mr. Sarbanes. Mr. President, let me first say, I think
    Senator Enzi has been extremely gracious in recognizing the
    extraordinary contribution that has been made by the staff as
    we have formulated this legislation. I appreciate him doing
    that. I certainly associate myself with his remarks about the
    dedication and the perseverance and the extraordinarily high
    level of competence that is brought to this matter by staff on
    both sides of the aisle--committee staff and personal staff.
        Mr. President, I yield 10 minutes to the Senator from New
    Jersey.
        The Presiding Officer. The Senator from New Jersey.
        Mr. Corzine. Mr. President, I am honored today to stand
    before the Senate to express my strong support and appreciation
    for the conference report that I suspect, within an hour or so,
    we will adopt, and, hopefully, unanimously, as we did the
    original bill that came out of the Senate.
        I think it is historic. I think it is truly critical in
    bringing about the kind of important reforms that will make a
    real difference to our financial system, not just today but I
    think as a standard it will be very much an important part of
    the structure of our financial system for decades to come.
        I have said often, since we have talked about this
    legislation, that it really does, in my mind, fill a large gap
    that has been missing in our securities laws that were written
    70 years ago. I think it very well may be the most important
    step we will have taken in that interim period, to make sure we
    have a measured but strong securities and reporting structure
    in our Nation that makes for the depth and breadth and beauty
    and effectiveness of our financial markets.
        This legislation, as has been noted, comprehensively deals
    with reform of our accounting profession, enhances corporate
    accountability, improves transparency, moderates conflicts in a
    number of parts of our financial world, deals with the
    transparency of corporate financial statements, strengthens the
    SEC, tightens penalties and more securely sets the law, and
    ultimately, I believe, will restore the trust, the needed
    trust, and investor confidence in the integrity of America's
    capital markets.
        This was an absolutely necessary step at this time in our
    Nation's history. There has been an enormous betrayal of trust,
    demonstrated, certainly, by the headlines and the litany of
    corporate abuses. Let me say, it goes deeper than just the
    headlines. There have been 1,100 corporate earnings
    restatements in the last 4 years. There is a basic loss of more
    than just the simple sense of trust that people get from the
    headlines. It is hard for people to make investment decisions
    when they don't have good facts, good numbers, and the ability
    to draw good conclusions about where the investor dollar should
    go.
        It has led to a misallocation of capital. And there was a
    serious need for people to have reform in this area because
    this betrayal really went at the heart of why people were
    employees of various firms, why investors put their trust in
    investing in companies, and why the American system, which so
    relies on trust, has been called into question with respect to
    the integrity of our financial markets in recent days.
        It is an extraordinary step. I am pleased to have been a
    part of it.
        I see the chairman just left the Chamber. I want to take a
    few moments to make sure he knows how strongly I feel about the
    leadership he played. For those who were not a part of this
    measured process that Chairman Sarbanes put forward--I have
    said this to him personally--the 10 hearings we had were the
    moral equivalent of a graduate finance program. I suspect that
    very few times in congressional history have we seen the
    breakdown in the detail and presentation of sophisticated
    information, complicated topics, presented with the security
    and integrity that were presented in our hearings that led to
    the creation of this legislation. He did an incredible job of
    putting together a bill.
        I get a little nervous when I hear people say this was a
    rush to justice, a rush to an answer. This was one of the most
    thoughtful and measured programs of review put in place before
    the legislation was written that absolutely could ever have
    been conceived. He deserves enormous credit for making sure we
    were thoughtful in the process.
        Like Senator Enzi, I compliment all the staffs who were
    involved in this. This was an incredible effort on all of their
    parts. From the bottom of my heart--and I am sure all those
    others who were involved in this process--I truly appreciate
    the thoughtfulness and care they all gave to it.
        I also would be remiss if I did not mention Senator Dodd
    for his great help in originally putting together our
    initiatives with regard to accounting reform, corporate
    oversight, and resourcing the SEC, which I think are
    fundamental parts of the legislation. We feel good about that.
    I think Senator Dodd has taken an extraordinary step in
    leadership.
        Once again, I say to the Senator from Wyoming, this is
    about making America better. It is fundamentally about doing
    the right thing at the right time. His leadership on that, to
    make sure we stayed constrained, as he says, thoughtful, and
    measured about how we addressed the problem, has been most
    appropriate, and I have appreciated the opportunity to work
    with him. I compliment him for that effort.
        I would say the same about the Presiding Officer. The
    addition of a number of the amendments that have come,
    particularly with regard to bringing in the responsibility that
    is associated with lawyering in America, as important as it is
    for accountants and CFOs and CEOs, I think was an important
    step. There has been a lot of really great effort here.
        Now that the chairman is back in the Chamber, I want to say
    again, this is a classic example of quality leadership, of
    thoughtful leadership, and getting to a result that will make a
    difference in the lives of Americans in the years ahead.
        This is a little more personal for me because for the 5
    years before I came here, I was a CEO. Sometimes you want to
    hide from that moniker these days since it is not so popular. I
    think these days about the words of Andy Grove, who said that
    he was ashamed and embarrassed by some of the actions and many
    of the actions that are associated with the abuse we have seen.
    I stand with Andy Grove on that.
        This is not one of our prouder moments in our financial
    system. But what does make me proud is that we could work
    together in a bipartisan way to come to a thoughtful, measured
    response that will make a difference, that really will move our
    securities laws in a direction that will give the American
    people confidence in how they read an income statement, when
    they look at a balance sheet and when they judge where they
    want to work, that they will have the necessary information.
        I am not going to go into detail on the bill. Senator
    Sarbanes and Senator Enzi did that. It is a great piece of
    legislation. I don't think it went too far at all. In fact, I
    think it is about spot on. I am sure there will be things we
    will need to review in time, tweak with, but this is a good set
    of initiatives which will make a difference in America's
    financial system.
        When we address these issues, it does beg to recognize that
    there are additional tasks that need to be addressed. I heard
    the chairman talk about it is not good enough to authorize; we
    have to appropriate the funds to go with the necessary
    obligations we put on the SEC; we need to make sure our new
    advisory board actually has the resources. I think we do. But
    their independence, their ability to function, will come
    because they have the resources. The same as the SEC; we have
    to do our job in the second part of this to make sure those
    resources are available.
        We do need to make sure the SEC Commissioners are in place
    so that we can have a credible process of looking at
    enforcement and review of laws and making sure that as we
    structure the SEC in the days going forward, we have the best
    of minds brought to bear there. I hope we can vote on these
    Commissioners very quickly.
        For myself--I know there are differences of views about
    this--there are other unmet items on the agenda. Not
    necessarily do they apply to this bill, but in my view we
    should, as a nation, deal with the stock options issue. I don't
    think Congress should write the accounting rules, but I believe
    to recognize that stock options are an expense is relatively
    self-evident to those who have operated in business. They are
    used as a substitute for compensation. Compensation is an
    expense. That is why you see Chairman Greenspan and all of what
    I think is the critical weight of those who have observed on
    this issue speaking out that this is an issue that needs to be
    addressed. The Bermuda registry of companies, derivatives
    regulation are also issues.
        Could I have 1 additional minute?
        Mr. Sarbanes. I yield an additional minute.
        The Presiding Officer. The Senator may continue.
        Mr. Corzine. We need to address these issues. There are
    missing gaps in other parts of our oversight of our securities
    markets and financial markets that need to be addressed.
        Finally, I believe there is a gaping hole in our oversight
    of what our investors and employees and the public need to see
    addressed, and that is pension reform. I know working their way
    through Congress right now are a number of initiatives on it.
    Fewer than 50 percent of Americans have pensions. We have a
    major need to address this. We should pull it together in as
    thoughtful a way as Chairman Sarbanes has led our Senate to
    this conclusion, led this debate to a positive conclusion. I
    hope we will address that in the future. So, once again, I
    express my great gratitude to all those involved. I
    particularly thank Chairman Sarbanes for his strong leadership.
        Mr. Sarbanes. Mr. President, I thank the able Senator from
    New Jersey for his kind and gracious remarks about my efforts.
    I underscore the enormously valuable contribution that Senator
    Corzine made to the development not only of this legislation
    but all of the work that has come before the committee. He
    brought a perspective and perception here that were extremely
    important, enabling us to work through some difficult issues. I
    appreciate that.
        I yield 7 minutes to the Senator from Vermont, chairman of
    the Judiciary Committee.
        The Presiding Officer. The Senator from Vermont is
    recognized.
        Mr. Leahy. Mr. President, I thank the chairman. The Senator
    from California wishes 1 minute. I yield 1 minute to her.
        Mrs. Boxer. Mr. President, I came to the floor to give my
    deepest thanks to Senator Sarbanes and Senator Leahy for
    leading us in just the way we needed to be led toward a tough,
    fair reform that would lead to confidence in our financial
    system. I also thank Senator Enzi for his work.
        I was a stockbroker years ago, decades ago, and in those
    days the big accounting firms were known for their integrity,
    and CEOs were highly respected. That check and balance was lost
    along the way and it must be restored.
        I believe this bill will do it and our people will, once
    again, have trust and confidence in our financial system. They
    will know when they read an annual report and it is signed off
    on by an accounting firm that it means what it says and says
    what it means. That will bring the stock market back into
    balance. It will not happen tomorrow. This isn't magic
    legislation. But over time confidence will be restored and our
    economy will be on solid footing once again. I thank my
    friends.
        Mr. Leahy. Mr. President, I thank Chairman Sarbanes for his
    leadership on this impressive bill and on the conference
    agreement. The then-Congressman Sarbanes was one of the first
    people I met when I came to Washington as an elected Member of
    this body. We have been friends from that time forward. I have
    been so pleased to work with him.
        I am proud that the conference agreement includes and
    adopts the provisions of the Leahy-McCain amendment, which the
    Senate adopted by a 97-to-0 vote--again, with the strong help
    and support of the Senator from Maryland.
        These provisions are nearly identical to the Corporate and
    Criminal Fraud Accountability Act, which I introduced with
    Majority Leader Daschle and others in February. It was reported
    unanimously by the Senate Judiciary Committee in April.
        The Presiding Officer helped get this through the Judiciary
    Committee. The Leahy-McCain amendment provides new crimes with
    tough criminal penalties to restore accountability and
    transparency in our markets. It accomplishes this in three
    ways: No. 1. It punishes criminals who commit corporate fraud.
    No. 2. It preserves evidence that can prove corporate fraud.
    No. 3. It protects victims of corporate fraud.
        As a former prosecutor, I know nothing focuses one's
    attention on the question of morality like seeing steel bars
    closing on them for a number of years because of what they did.
        The conference report includes a tough new crime of
    securities fraud which will cover any scheme or artifice to
    defraud investors. We added the longer jail term of the other
    body.
        There are three key provisions of the Senate-passed bill
    that were not in the recently passed House bill but are now in
    the conference agreement. I think they are truly an essential
    part of a comprehensive reform measure. First, we extend the
    statute of limitations in securities fraud cases. In many of
    the State pension funds cases, the current short statute has
    barred fraud victims from seeking recovery for Enron's misdeeds
    in 1997 and 1998. For example, Washington State's policemen,
    firefighters, and teachers were blocked from recovery of nearly
    $50 million in Enron investments by the short statute of
    limitations. That is why the last two SEC Chairmen--one a
    Republican and the other a Democrat--endorsed a longer short
    statute of limitations to provide victims with a fair chance to
    recoup their losses.
        Secondly, we include meaningful protections for corporate
    whistleblowers, as passed by the Senate. We learned from
    Sherron Watkins of Enron that these corporate insiders are the
    key witnesses that need to be encouraged to report fraud and
    help prove it in court. Enron wanted to silence her as a
    whistleblower because Texas law would allow them to do it. Look
    what they were doing on this chart. There is no way we could
    have known about this without that kind of a whistleblower.
    Look at this. They had all these hidden corporations--Jedi,
    Kenobi, Chewco, Big Doe--I guess they must have had ``little
    doe''--Yosemite, Cactus, Ponderosa, Raptor, Braveheart. I think
    they were probably watching too many old reruns when they put
    this together. The fact is, they were hiding hundreds of
    millions of dollars of stockholders' money in their pension
    funds. The provisions Senator Grassley and I worked out in
    Judiciary Committee make sure whistleblowers are protected.
        Third, we include new anti-shredding crimes and the
    requirement that corporate audit documents be preserved for 5
    years with a 10 year maximum penalty for willful violations.
    Prosecutors cannot prove their cases without evidence. As the
    Andersen case showed, instead of just incorporating the
    loopholes from existing crimes and raising the penalties, we
    need tough new provisions that will make sure key documents do
    not get shredded in the first place.
        It only takes a minute to warm up the shredder, but it can
    take years for prosecutors and victims to prove a case.
        The conference report also maintains almost identical
    provisions to those authored by Senator Biden and approved
    unanimously by the Senate. These include enhanced criminal
    penalties for pension fraud, mail fraud, wire fraud, and a new
    crime for certifying false financial reports. As chairman of
    the Judiciary's Subcommittee on Crime and Drugs, Senator Biden
    deserves praise for his leadership of these issues.
        It is time for action--decisive and comprehensive reforms
    that will restore confidence and accountability in our public
    markets for the millions of Americans whose economic security
    is threatened by corporate greed.
        We cannot stop greed, but we can keep greed from
    succeeding.
        We have seized this moment to make a good beginning to
    fashion protections for corporate fraud victims, preserve
    evidence of corporate crimes and hold corporate wrongdoers
    accountable. We have much to do to help repair the breaches of
    trust that have so shattered confidence in our markets and
    market information. We have made a good start today toward
    restoring that confidence but more will be needed. In addition
    we will need swift and strong enforcement actions and good
    faith administration of the reform set forth in our conference
    report. Our conference is concluding but our work is just
    beginning.
        Again, I thank the Senator from Maryland.
        Mr. Sarbanes. Mr. President, I thank the Senator from
    Vermont. I underscore again how important his contributions
    were. The Senate Judiciary Committee reported out a bill
    without opposition in the committee. That is something which
    accompanied this legislation.
        I yield 4 minutes to the Senator from South Dakota, and
    then it is my intention to go to the Senator from North
    Carolina.
        Mr. Johnson. Mr. President, most of all I thank him for his
    extraordinary leadership on the development of this landmark
    legislation. I think it is fair to say this is the most
    critically important piece of investor protection legislation
    since the Securities Act of 1933 or the Securities Exchange Act
    of 1934.
        This comes on the heels of the disclosure of corporate
    corruption that has been endemic in recent months, where we
    have witnessed lost jobs, lost savings, lost pensions, and
    ultimately lost confidence worldwide in America's capital
    markets.
        There is an urgency that strong legislation be passed by
    this body and the Congress to restore confidence--restore both
    the perception and the reality of integrity in our capital
    markets.
        This legislation is strong legislation. That is why it has
    been applauded by editorial writers from the east coast to the
    west coast. Senator Sarbanes has been the subject of much
    congratulatory observation on the part of so many. This comes
    on the heels of, frankly, much weaker legislation that had been
    passed previously in the House of Representatives, the other
    body.
        By passing a strong Senate bill, we were able to go to
    conference. I am proud to have served on that conference
    committee and to craft legislation there that goes in the
    direction of the Senate rather than in the direction of the
    other body and gives this Nation strong securities legislation.
    It provides a stiff penalty for corporate wrongdoing, creates a
    strong oversight board to ensure that corporate audits are done
    properly, and that the books, in fact, are not cooked. It
    imposes tough new corporate responsibility standards and
    implements control over stock analysts' conflicts of interest,
    so they are not making a fortune while advising their clients
    to invest. It requires public companies to quickly and
    accurately disclose financial information. It ensures that the
    Securities and Exchange Commission has the resources to
    accomplish its mission of regulating the securities markets.
        These important provisions will ensure that America's
    financial markets remain efficient and transparent and the envy
    of the world. It will benefit average people who may not have
    had enough information to make informed decisions in the past
    and certainly could not have possibly known that the books were
    cooked, that the audits were incorrect, and that corruption was
    running rife. They had no way of knowing that.
        This will turn that around. This is not the last word, but
    this is a critically important step in the right direction to
    returning integrity to our markets. We can observe, having come
    through this horrible experience in recent months of disclosure
    after disclosure of corruption having taken place, a
    recognition that free market economies can only work when there
    is a cop on the beat. Free market economies can only work when
    there are fair, well-enforced, and strictly enforced rules. A
    free market economy without rules, without a cop on the beat,
    is not an economy that will ever work at all.
        This goes a long way, I believe, to reviving confidence in
    America's economic future. It goes a long way to restoring the
    fairness and transparency so that people may make their
    investments--and investments may go up, and they may go down,
    but they can know when they make those investments, they are
    making those investments based on true and accurate analysis
    and not on bogus numbers that some audit firm on the take has
    been willing to put forward as the truth when, in fact, they
    are not the truth.
        Again, the whole Nation owes a great deal of gratitude to
    Chairman Sarbanes and to the Senate, in this case, for what I
    am confident is going to be an overwhelming vote in favor of
    this legislation.
        I yield the floor.
        Mr. Sarbanes. Mr. President, I yield 6 minutes to the
    Senator from North Carolina.
        The Presiding Officer (Mr. Corzine). The Senator from North
    Carolina.
        Mr. Edwards. Mr. President, I thank, along with all my
    colleagues, Senator Sarbanes for the extraordinary work he has
    done on this bill. We are proud of him. America appreciates
    very much what he and others who have worked with him have
    done.
        I also thank Senator Enzi, who is in the Chamber, and
    Senator Corzine, who is presiding, for the work they have done
    with me on what I think is an important part of this
    legislation which, in addition to corporate CEOs and
    accountants, is holding the lawyers involved in these
    transactions responsible and accountable; that if they see
    something wrong occurring, they should do something about it--
    report it to their client, to the corporation, report it to the
    CEO, the chief legal officer and, if necessary, report it to
    the board.
        In Congress, we are doing what needs to be done and
    stepping to the plate with regard to corporate responsibility.
    That is in striking contrast to what is going on in my home
    State right now.
        At a time when Americans are demanding more corporate
    responsibility, when Congress is stepping up and doing what
    needs to be done, the President has gone to North Carolina
    today to ask for less corporate responsibility, to make it
    easier on insurance companies and to make it harder on victims.
        The President is in North Carolina today proposing some of
    the smallest limits that have ever been proposed for families
    who have suffered tragedies, serious problems, as a result of
    poor medical care at a time when medical malpractice insurance
    premiums constitute way less than 1 percent, substantially less
    than 1 percent, of medical care costs in this country.
        The President is holding a roundtable, as I speak, on this
    subject. I would like to see how many victims of medical
    negligence, of medical malpractice, people who have been
    devastated and their lives devastated, are participating in
    this roundtable. I know these people. For many years I have
    represented them. I have been in their homes. I have been in
    homes and spent time with families whose child will never walk,
    who have been blinded for life, who have been crippled for
    life, who have suffered injuries from which they will never
    recover.
        These children blinded for life, crippled for life,
    severely injured for life--there is a description in the HHS
    report on which the President is relying which talks about when
    juries find they have been hurt and award money to them, they
    describe it as ``winning the lottery ticket.'' The parents of a
    child who has been blinded for life, the parents of a child who
    will never walk, rest assured they do not believe they have the
    winning lottery ticket.
        My question is: How many of those people are the President
    talking to when he is in North Carolina today? The next time he
    comes back to North Carolina, we invite him to talk to some of
    those people because those are the ordinary Americans to whom
    he should be talking. Those are the people who are going to be
    impacted. The children who have suffered serious injuries are
    the ones who are going to have the greatest impact and have
    their rights taken away by what the President is proposing.
        Unfortunately, listening to ordinary people is not what
    this administration does. They have done it time and time
    again. It is stunning, but it is sad and consistent. When this
    administration has a choice between protecting the rights of
    big companies, big insurance companies versus the rights of
    ordinary people, they choose the big insurance company, the big
    companies every single time. They have been dragged kicking and
    screaming to do something about corporate responsibility, which
    we are doing in the Congress.
        On the Patients' Bill of Rights, on which Senator Kennedy,
    Senator McCain, and I have worked so hard, they have
    consistently sided with the big HMOs, which is why we do not
    have a Patients' Bill of Rights in this country.
        On prescription drugs, when we tried to do something about
    the cost of prescription drugs on the floor of the Senate, this
    administration consistently sided with the big drug companies.
    When it comes to the environment, this administration has
    weakened clean air laws that protect the air for our children
    and consistently sided with the big energy companies that are
    polluting our air.
        Today the President adds to that list, in going to the
    State of North Carolina, the big insurance companies. This
    President loves to talk about compassion. My question to him
    is: Where is his compassion for the victims?
        Mr. President, I yield the floor.
        Mr. Bayh. Mr. President, I rise today in support of the
    accounting reform and corporate responsibility conference
    agreement. I do so, because I believe very strongly that it is
    in the best interests of America at this critical time in our
    history.
        I believe it goes way beyond mere accounting issues. What
    we are agreeing to today deals with the financial security of
    millions of individual investors across this country, the
    security of their pensions, their 401(k) programs, and their
    other investments for the future of their children and their
    grandchildren.
        What we are talking about today involves the very vitality
    of our economy, the amount of investment that will take place
    in the economy, the number of jobs that will be created, and
    the vitality of farms. It involves the standing of America in
    the international economy, whether we will continue to be a
    safe haven for investments from those abroad, attracting the
    capital that helps us build a strong foundation for America's
    economy.
        More than anything else, this bill embodies the basic
    values upon which this has been based. It clearly answers the
    question: Will we continue to encourage those virtues that have
    always characterized America and will our Nation continue to be
    the land of opportunity based upon hard work, honesty, and
    playing by the rules or, will we be perceived as the land of
    opportunity based upon deceit. I believe that the right answer,
    based upon traditional values and virtues, is embodied in the
    accounting reform and corporate responsibility bill.
        I congratulate our colleagues, Senators Sarbanes, Dodd,
    Corzine and Enzi. They demonstrated leadership and foresight in
    this issue.
        Since the tragedies of 9/11, our country has been involved
    in twin struggles: One, the physical national security of this
    country; and, second, getting this economy moving again to
    ensure the economic security of Americans across this country.
    There are parallels between these two challenges. Both occurred
    as a result of unexpected tragedies but have presented us with
    opportunities to make this an even better, stronger, more
    secure Nation. Both involve breaking the political gridlock and
    the bureaucratic inertia that all too often make progress in
    this Capitol difficult. And both involve striking the right
    balance between individual freedom and liberty on the one hand,
    that we cherish, and collective security, which makes
    individual liberty meaningful, on the other.
        Let me conclude where I began. This issue goes a long way
    beyond mere accounting issues. It goes a long way beyond
    economic policy. It goes to the very heart of who we are, what
    we stand for as a people, and the kind of values we cherish in
    the United States of America. This will protect individual
    investors. It will help to ensure the integrity of our economy.
    But more than anything else, it will ensure that those
    Americans who have embraced our tradition with virtues, who
    have worked hard and saved their money, who have played by the
    rules, and are honest are able to get ahead in this society.
        It will send a loud and clear signal to those who practice
    corporate fraud that they do not have an avenue to success in
    this country. That does not embody the best values of America.
    I strongly support the accounting reform and corporate
    responsibility conference agreement. I urge my colleagues to
    enact this important legislation.
        Mr. Kerry. Mr. President, I strongly support the Sarbanes-
    Oxley Act of 2002 because it will help end the corporate abuses
    that in recent months have plagued our economy and will help
    restore confidence in our economy. I would like to take this
    opportunity to express my appreciation for the efforts that
    Senator Paul Sarbanes, Chairman of the Senate Banking, Housing
    and Urban Affairs Committee, has made to develop and enact this
    important legislation. As a former member of the Banking
    Committee, I know how difficult it is to respond quickly to
    recent events that affected our capital markets. However,
    Senator Sarbanes has put together a coalition which led to a
    unanimous vote in support of his bill in the Senate, and the
    provisions of which is the base text for this conference
    report.
        The United States must stand for the fairest, most
    transparent and efficient financial markets in the world.
    However, the trust and confidence of the American people in
    their financial markets have been dangerously eroded by the
    emergence of serious accounting irregularities by some
    companies and possible fraudulent actions by companies like
    WorldCom, Inc., Enron, Arthur Andersen and others. Some
    investment banks have been charged with publicly recommending
    stocks for public purchase that their own analysts regarded as
    junk.
        The shocking malfeasance by these businesses and accounting
    firms has put a strain on the growth of our economy. The
    misconduct by a few senior executives has cost the jobs of
    hard-working Americans, including 17,000 at WorldCom and
    thousands more at companies accused of similar wrongdoing. The
    lack of faith in our financial markets contributed to an
    overall decline in stock values and has caused grave losses to
    individual investors and pension funds. For example, the losses
    to the California Public Employees Retirement System from the
    recent WorldCom disclosures total more than $580 million.
        The conference report creates a new Public Company
    Accounting Oversight Board to oversee the auditing of companies
    that are subject to the federal securities laws. The Board will
    establish auditing, quality control, and ethical standards for
    accounting firms. The conference report restricts accounting
    firms from providing a number of non-audit services to its
    audit clients to preserve the firm's independence. It also
    requires accounting firms to change the lead or coordinating
    partners for a company every five years.
        The conference report requires CEOs to certify their
    financial statements or face up to 20 years in prison for
    falsifying information on reports. It keeps executives from
    obtaining corporate loans that are not available to outsiders.
    It requires public companies to provide periodic reports to the
    SEC on off-balance transactions, arrangements, obligations and
    other relationships that may have a material current or future
    effect on the company's financial condition. It requires
    directors, officers and 10 percent equity holders to report
    their purchases and sales of company securities within two days
    of the transaction.
        I am pleased that the conference report includes the
    Corporate Fraud and Criminal Fraud Accountability Act which
    will provide for criminal prosecution and enhanced penalties of
    persons who defraud investors in publicly traded securities or
    alter or destroy evidence in Federal investigations. It will
    also prohibit debts incurred in violation of securities fraud
    laws from being discharged in bankruptcy and protect whistle
    blowers who report fraud against retaliation by their
    employers.
        The conference report requires the SEC to adopt rules to
    foster greater public confidence in securities research
    including: protecting the objectivity and independence of stock
    analysts who publish research intended for the public by
    prohibiting the pre-publication clearance of such research or
    recommendations by investment banking or other staff not
    directly responsible for investment research; disclosing
    whether the public company being analyzed has been a client of
    the analyst's firm and what services the firm provided;
    limiting the supervision of research analysts to officials not
    engaged in investment banking activities; protecting securities
    analysts from retaliation by investment banking staff.
        The provisions included in this legislation will help
    restore confidence in our capital markets and in turn will help
    provide for future economic growth. It is an important first
    step, not a last. Mr. President, I am pleased to support the
    Conference Report and will continue to look for ways to improve
    investor confidence in our financial markets.
        Mr. Schumer. Mr. President, everyone knows that New York
    City is the financial capital of the world. Yet as we continue
    to rebuild our city in light of the tragic events of September
    11, we are now faced with the devastating effects of depressed
    markets and unsure investors, who are once again victims. With
    more than half of American households investing in the markets,
    we're all affected by a crisis in investor confidence.
        I can't think of a more appropriate time than the present
    for the Senate to debate legislation to restore dwindling
    investor confidence and bring sound footing back to our
    financial markets. Isn't it ironic? Just a few weeks ago, the
    headlines read ``Sarbanes bill dead'' or ``Accounting Reform
    Fading.''
        In the wake of recent revelations about WorldCom and just 2
    days ago Merck, corporate corruption has reached an all-time
    high; we are now at a new level of corporate corruption. We've
    reached a new low and the question every member of the Senate
    must be asking is: ``Where does it end?''
        Buzzwords like ``accounting fraud,'' ``corporate
    corruption,'' ``Restatements,'' ``Cooking the books,'' are
    being bandied about in the press, in the coffee shops, at the
    dinner tables across America. Just this weekend at the Taste of
    Buffalo, people came up to me and said ``Throw `em in jail,
    Chuck!'' They were talking about the Ken Lay's, Bernard Ebers',
    the Andrew Fasdow's of the corporate world. White collar
    criminals who ran giant corporations and used tricky gimmicks
    to rob investors of not only their hard money but also their
    confidence in the strongest and fairest markets in the world. *
    * * They are the investment giants: Enron, Arthur Andersen,
    Adelphia, CMS Energy, Reliant Resources, Dynergy, Tyco
    International, and now Xerox and WorldCom. A mere handful of
    our nations top companies who have gone under as a result of
    misrepresented earnings and poor management. In less than a
    years time, these so-called investment giants through the great
    gift of deceit and tricky accounting practices have reduced
    themselves to mere shells of their former existence.
        As a result, their use of tricky gimmicks to hide the real
    picture and literally milk the system dry have caused investors
    around the globe to question integrity of our nations markets,
    which are supposed to be the strongest and most resilient
    because they are perceived as the most open, most transparent
    markets in the world. Up until now, the United States had been
    a magnet for foreign investment. Yet, the selfish, greedy
    actions of a small few have led to a steady and precipitous
    drop in foreign investment in our financial markets.
        It is no secret that greed played a major role in our
    markets rapid decline and slow demise. The heads of these
    entities stole millions, some billions of dollars from
    investors, and it is now time that we make them pay for their
    actions.
        I commend the NASDAQ and the New York Stock Exchange for
    their announcements of new, tough corporate governance
    standards. The New York markets have taken the first steps to
    correct corporate corruption, and now it is our turn to find
    the right balance in light of these unsteady markets and times.
        So what is the right balance? The right balance is one that
    will not only offer strict corporate governance laws, protect
    the average investor from being swindled out of his or her hard
    earned savings by a fast-talking, wheeling and dealing broker,
    but will also severely punish those individuals who
    intentionally mislead investors with faulty practices. That is
    why I am introducing the following amendments to the Public
    Company Accounting Reform and Investor Protection Act of 2002
    to further limit the ability of company execs from personally
    manipulating and rigging the system for their personal benefit
    and interest.
        The first amendment prohibits companies from issuing
    personal loans to company executives as seen with Worldcom,
    whose CEO received more than $300,000 in loans from the
    technology giant. Instead, CEOs will have to go to the bank,
    just like everyone else, to acquire a loan; which, will reduce
    the risk of CEOs ability to use company funds for personal
    purposes.
        The second amendment requires company execs to forfeit any
    and all bonuses and additional compensation if their
    restatements occur along with criminal liability.
        It is my hope that by revealing the few bad apples at the
    bottom of the barrel, and punishing these individuals for their
    immoral behavior, we can save the rest of the industry and
    restore confidence in our markets.
        The legislation pending before us will make it harder for
    companies to lie about their assets. Thats the least we can do
    in re-establishing public confidence in corporate America. Our
    common purpose today is to ensure that the Enron's, the Tyco's,
    and the WorldCom's never happen again.
        Now is the time for us to act. It is the least we can do to
    shore up the investing public's confidence in our markets.
        Mr. Wellstone. Mr. President, 2 years ago it was pretty
    lonely being in favor of the auditor independence reforms that
    then-SEC Chairman Arthur Levitt said were necessary to guard
    against unprecedented accounting scandals. I am proud that I
    was one of the few who thought Chairman Levitt was going in the
    right direction. Unfortunately it took the implosion of several
    multi-billion dollar firms, and a loss of tens of thousands of
    jobs and hundreds of billions of dollars in investor equity, to
    prove that he was right. Now America's capital markets have
    been shaken by a dramatic loss in investor confidence,
    threatening the economic recovery.
        But today, Congress has acted. I rise today in strong
    support of the Public Company Accounting Reform and Investor
    Protection Act conference report. I commend the Senator from
    Maryland, the Chairman of the Banking Committee for putting
    together significant, structural reform of corporate governance
    and auditor independence and for defending it in conference.
        And I am heartened that the President and the House
    leadership have finally agreed to comprehensive reform instead
    of mere half-measures and tough rhetoric.
        This bill holds the bad actors accountable for their fraud
    and deception. But the legislation goes much further, as it
    should, because the problem goes much deeper. We are faced with
    more than the wrong doing of individual executives, we are
    faced with a crisis in confidence in American capital markets
    and American business.
        This conference report retains the strong Senate reforms
    virtually intact. It bars an auditor from offering audit
    services and other consulting services to the same client. It
    says publically traded companies must change the partner in
    charge of the audit every five years. It strengthens oversight
    of accountants, by establishing an independent board to set and
    enforce standards. And it enhances disclosure. This alone is
    real reform. But the bill does more. It makes corporate
    executives more accountable to their shareholders. It makes
    investment analysts more accountable to the public. And it's
    bill contains strong penalties for corporate wrong-doers.
        All and all, this legislation lets the sunshine back into
    the smoke-filled corporate board rooms so that insiders have
    harder time cheating the outsiders. It is structural reform
    that restores checks and balances that will protect against
    fraud, deception, and reckless carelessness.
        We need to restore America's faith in corporate America. It
    has gone beyond individual wrong doing. The system hides and
    encourages corruption. Today the Congress passes strong reform.
    Now I call on the President to make enactment and enforcement
    of this new law a priority.
        Mr. Bond. Mr. President, last night, the conference
    committee released its final report on comprehensive accounting
    reform and corporate governance legislation. The reaction of
    our financial markets confirms that this legislation is
    absolutely necessary to help restore integrity and confidence
    to our free market system and our investment community.
        However, in our rush to enact broad reforms, we may be
    damaging the economic framework for small companies to reach
    our capital markets. In the long term, the reforms will make
    our economy stronger. In the short term, we will be creating
    complete chaos for small publicly traded companies and
    companies trying to gain the capital for growth through stock
    offerings.
        I am extremely disappointed in the conferees' decision not
    to recognize this fact and provide the Securities and Exchange
    Commission and the proposed Public Company Accounting Oversight
    Board with greater flexibility in dealing with small firms.
    Small business has been the driving force of our economy for
    well over a decade. The high hurdles in the legislation are
    necessary for large, conglomerate companies but they may be a
    trip wire for our small business entrepreneurial community.
        Mr. Sarbanes. Mr. President, I note that the Congress, in
    the Enhanced Review of Periodic Disclosures section in the
    Sarbanes-Oxley Act, provides for regular and systematic reviews
    by the Securities and Exchange Commission of the periodic
    reports filed by public companies that are listed on a national
    securities exchange or on Nasdaq. The section requires that
    there be some review of issuers' disclosures at least once
    every three years. The bill identifies factors which the
    Commission should consider in scheduling reviews, including the
    issuer's capitalization, stock price volatility and
    restatements of earnings. We expect the Commission to exercise
    its discretion to determine the appropriate level and scope of
    review for each company's reports in the furtherance of the
    protection of investors and the public interest.
        The Presiding Officer. Who yields time?
        Mr. Sarbanes. Mr. President, may I ask what the time
    situation is?
        The Presiding Officer. The Senator from Maryland has 15
    minutes 10 seconds. The Senator from Wyoming has 21 minutes 30
    seconds.
        Mr. Sarbanes. I yield 3 minutes to the Senator from New
    York.
        The Presiding Officer. The Senator from New York.
        Mr. Schumer. I thank the Chair.
        Mr. President, this is an extremely important day for our
    capital markets, for our country, and for the future of our
    economy. As we all know, capitalism has its ups and downs and
    works in ups and downs, and there have been periods throughout
    our history--I can think of the S&L crisis a decade ago--where
    things get off track, out of control. It is our job as
    Government not to interfere with entrepreneurial vigor, not to
    create such regulation that they become a straitjacketed
    company, but at the time when the markets show that things have
    gotten off track, it is our job to help put them back on track.
        There is a bottom line principle here: If investors,
    whether throughout the United States or the rest of the world,
    do not believe companies are on the level, they will not
    invest. Unfortunately, the revelations of the last year have
    given people the view that they are not on the level. That it
    is not the same for them in terms of even information as it is
    for somebody at the top, that the information they may be
    getting may be wrong or distorted far beyond what they normally
    would in the world. So this bill puts that back.
        I think it is a carefully balanced bill. There are some
    changes in it. There are some changes not in it that I would
    like to have seen, but the perfect should not be the enemy of
    the good. It is a good bill, a fine bill. In fact, when the
    agreement was reached, the Dow Jones went up 400 points. I do
    not think it was coincidental. Whether it be CEOs of large
    companies or individual investors, the public is saying to us,
    make it right. Look at the abuses that occurred in the past and
    make sure they cannot occur again, and do it in a careful way
    that keeps our markets fluid, liquid, deep, and important. I
    think this bill does it.
        I want to pay a great deal of tribute to our chairman,
    Senator Sarbanes, and to so many others who made this bill a
    reality. With the passage of this bill, we can tell investors,
    while we have not cleared up every problem, and perhaps we will
    come back and address this later--I think we will have to in a
    couple areas--we have certainly made things better.
        A few weeks ago, Washington looked as if it was dithering
    in the face of crisis, but today we proudly act in a bipartisan
    way to restore faith in our markets, the deepest, strongest,
    and best markets in the world.
        I dare say, I know there are some who are against any
    change or any regulation, but our markets will be stronger
    tomorrow than they were this morning when this bill passes the
    House, the Senate, and is signed by the President.
        The Presiding Officer. Who yields time?
        Mr. Sarbanes. Mr. President, we are down quite far in our
    time. Senator Dodd, who wishes to speak, is at a memorial
    service. I suggest if the other side could use some of its
    time, it would be helpful in balancing this out. I ask
    unanimous consent that while we are trying to work this out the
    time not be charged to either party, and I suggest the absence
    of a quorum.
        The Presiding Officer. The clerk will call the roll.
        The legislative clerk proceeded to call the roll.
        Mr. Enzi. Mr. President, I ask unanimous consent that the
    order for the quorum call be rescinded.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Enzi. I suggest the absence of a quorum.
        The Presiding Officer. The clerk will call the roll.
        The assistant legislative clerk proceeded to call the roll.
        Mr. Sarbanes. Mr. President, I ask unanimous consent that
    the order for the quorum call be rescinded.
        The Presiding Officer. Without objection, it is so ordered.
        Mr. Sarbanes. Mr. President, I yield 8 minutes to the
    distinguished Senator from Connecticut.
        The Presiding Officer. The Senator from Connecticut.
        Mr. Dodd. Mr. President, when we opened the conference on
    this legislation a week or so ago, I said my hope was the
    passage of this bill would be quick, decisive, and unanimous.
    Two out of three is not bad. We got quick and decisive and
    almost unanimous. Our colleague from Texas, and our friend, was
    unable to support the final product for reasons he has already
    explained.
        I thought we did an excellent job in moving as quickly as
    we did. I believe passage of the legislation and the quick and
    decisive manner and nearly unanimous way we achieved the result
    and overwhelming support of the Senate and the House fulfill a
    responsibility of Congress to protect investors. There is more
    work to be done, but we have begun a significant part of the
    journey. In fact, we traveled a great distance down the road in
    fulfilling a congressional responsibility in responding to the
    events that began to unfold, at least to the public's
    awareness, last October. And the story is not yet complete. We
    do not know the final results.
        I have a few minutes in which to share some thoughts. I am
    going to move quickly to share comments. I begin by commending
    my colleague from Maryland, the chairman of the Banking
    Committee, for the tremendous job he has done. I said
    yesterday, any students of the Congress of the United States
    who want to seek out good examples of how a legislative product
    can be developed, nurtured, analyzed, discussed, debated, and
    finally passed, this is about as good an example as I have seen
    in recent years of how one ought to proceed. Certainly the
    hearings we held in the Banking Committee I don't recall
    attracting much attention. I don't recall a single one of the
    12 hearings we held appearing on the nightly news or being lead
    stories on some of the 24-hour news stations.
        I recall a great many hearings where people sat there,
    raised their right hand, and took the fifth amendment. That got
    a lot of attention. The 12 hearings held in the Banking
    Committee of the Senate, where we went through the deliberate,
    slow, ponderous process of actually listening to people who had
    something to say about what ought to be done to clean up this
    mess, never made it on the nightly news that I am aware of.
        I commend again my friend and colleague with whom I have
    enjoyed my service in the Congress of the United States for
    more than a quarter of a century. We have sat next to each
    other for a good part of that time in both the House and in
    this Chamber. I sit next to him on the Foreign Affairs
    Committee and on the Banking Committee. If I could make the
    choice and it would not be determined by seniority, I would
    make him my choice for seatmate. I have great respect for him
    and admire him immensely. He has proven the value of having
    Paul Sarbanes as a Member of this body.
        I also point out the Presiding Officer, one of the most
    junior Members of this Chamber, who provided an incredible,
    invaluable support and source of ideas, guidance. Rarely does a
    new Member play such an important role on such an important
    piece of legislation. Of any Member who was involved in this
    process, Mike Enzi of Wyoming and others all would agree, in
    any history written of the development of the bill, the role of
    a freshman Senator from the State of New Jersey named Jon
    Corzine needs to be talked about. He played a very important
    role. We would not be here without him. I tip my hat to him and
    to Mike Enzi, the only Member of this Chamber who actually knew
    something at a practical level about what it was to be an
    accountant and what life was like in the trenches.
        For the staff and others who worked on this legislation,
    this was not the most popular idea in the world. Had it not
    been for unfolding events, I am not sure we would have
    developed that kind of support. I will love to one day tell my
    daughter, who is only an infant, that it was the power of our
    persuasion which convinced a majority here to go along.
        Not many understood the value, the substantive value, of
    this bill. Mike Enzi did, a number of others did, there were
    many in the House who did, but an awful lot of people, even as
    late as a week ago, were suggesting maybe this bill was a bad
    idea, and that it would not go anywhere, and it shouldn't go
    anywhere; we ought to spend another couple of months thinking
    about it.
        Those notices were not a month old, or 2 months old; that
    was 5 or 6 day ago. I understand it was the public's demand
    that we respond to this that had an awful lot to do with the
    support we garnered. That is all right. I never argue about how
    you get support around here as long as you get it in the end.
    We got it in the end, and that is the important news.
        The fact is, we are about to vote overwhelmingly to support
    a very critical piece of legislation. I am confident, as he has
    already indicated, that the President will sign this bill into
    law. We are already seeing markets respond, not entirely
    because of this, but certainly in no small measure because of
    the events that have unfolded and the parts Congress played.
        The chairman of the committee has talked about part of the
    bill. There are very important pieces, including the auditor
    independence. The board will be revolutionary in how it
    operates. Someone pointed out today, a lot of what the
    regulators do will determine the value of what we have written
    legislatively. I am confident that will be the case.
        Having FASB now be compensated for and paid for from public
    money and not relying on the largess and generosity of the
    accounting industry to receive compensation will make a
    significant difference in establishing accounting rules and
    procedures. Certainly having prohibitions against those going
    from the industry, working for the clients for whom they have
    done audits, will have a beneficial effect on slowing down this
    not only appearance of conflict, but certainly the conflicts of
    interest that have occurred too often.
        There are many other parts of the bill, including corporate
    penalties, that were crafted by our colleague from Vermont and
    other Members of the Judiciary Committee, that deserve a great
    deal of credit for their contribution to this process. The
    leadership, Senator Daschle, certainly for insisting we move as
    rapidly as we did to get the product done in committee and get
    it on the floor of the Senate, understanding how important this
    issue would be to the shareholder interests and pensioners and
    to others who depend upon a solid, strong economy for their
    well-being--certainly their contribution is extremely important
    as well.
        We have seen the economy begin to do a bit better. I don't
    think our work is done, despite the accomplishments in this
    legislation. My hope would be that before this Senate adjourns
    in a week and a half from now, we might deal with the pension
    issue. I don't know if that will be possible. I know there are
    a lot of other issues that need to be considered. My hope is if
    we are not able to do that in the next week and a half, we will
    come back soon after we reconvene in September.
        I sit on the Health, Education, Labor, and Pensions
    Committee with the presiding officer who is interested in that
    committee. My hope is that we can deal with the pension reform
    matters that are necessary, as well, for adoption by this
    Congress before the 107th Congress adjourns.
        Again, I commend all those involved. I thank Alex Sternhill
    of my office, Steve Harris, Marty Gruenberg, all the Members
    who worked with the chairman's committee and the full committee
    of the Senate Banking Committee, and those on the minority
    side, as well, who played an extremely important role.
        While he disagreed with the final outcome of the bill, the
    Senator from Texas and I have had a great relationship over
    these many years we have served together. I have always enjoyed
    being on his side. He is a tough opponent, but when we worked
    together we have done some pretty good work around here and
    passed some pretty good bills.
        He is leaving and I believe the Senate will be less vibrant
    an institution because of his absence. It is important that
    this place be a place of ideas for debate to occur, and the
    Senator from Texas has always made that kind of contribution.
        The Presiding Officer. The time of the Senator has expired.
        Mr. Dodd. Hang on. I am commending him. He is going to give
    me more time.
        Mr. Gramm. The Senator can have all the time he wants.
        Mr. Dodd. Mr. President, I have learned after more than 20
    years that if you want the minority to give you a little more
    time, start complementing them. It is amazing. Egos are alive
    and well in the Senate.
        I am going to miss him. He is not done. We have more work,
    obviously, in the remaining weeks, but this may be one of the
    last major bills the Banking Committee considers. I don't know
    what life holds for him down the road, but the good Lord is not
    done with him yet.
        I look forward to your vibrancy, your ideas, and your
    passion in whatever role you decide to assume in the next part
    of your life, and thank you for the tremendous work you have
    given to the committee and this body through your service.
        I thank again the chairman and other members of the
    committee for contributing to what may be one of the most
    important pieces of legislation this body will consider in the
    107th Congress and one of the most important in the area of
    financial services in many, many decades.
        I yield the floor.
        The Presiding Officer. Who yields time?
        Mr. Gramm. Mr. President, how much time do we have?
        The Presiding Officer. The Senator from Texas has 14
    minutes.
        Mr. Gramm. We were going to shoot for about 4:30 so I may
    yield some of it back, depending on who comes over.
        Let me, first, thank my dear colleague, Senator Dodd, for
    his kind comments. I have enjoyed working with him over the
    years. I very much appreciate the comments he made.
        I want to say something about my staff. A famous
    philosopher once said: In no way can you get a keener insight
    into the true nature of a leader than by looking at the people
    by whom he surrounds himself.
        I would always be happy to have anybody judge me by Linda
    Lord and by Wayne Abernathy. It is amazing how much impact
    staffers have on the Senate. I am blessed in this area to have
    two of the best staff people who have ever served any Senator
    in the history of this country. On most issues on which I
    worked with Linda Lord, she knows more about this subject than
    anybody, and generally more than everybody else combined. In
    working with her, I see that the Lord was a great
    discriminator; he gave some people incredible ability and most
    of us he gave relatively few, in the way of talents. I thank
    her for the great job she has done.
        I thank Wayne Abernathy. In the years I was chairman of the
    Banking Committee, Wayne Abernathy was chairman of the Banking
    Committee. In the day-to-day work, he has made an incredible
    contribution. If there is an unfairness to it, it is that I
    have gotten credit for all the good work that they have done,
    and I am grateful for that.
        I reserve the remainder of my time.
        The Presiding Officer. Who yields time?
        Mr. Sarbanes. How much time do I have remaining?
        The Presiding Officer. The Senator has 3 minutes remaining.
        Mr. Sarbanes. I yield 1 minute to the Senator from
    Minnesota.
        Mr. Wellstone. I thank the Senator from Maryland. I thank
    him for his great leadership and the other Senators working on
    this. I can only say this in 1 minute: I remember when Arthur
    Levitt came by several years ago to talk with me about the need
    for audit independence. Senator Sarbanes and others have made
    that possible. Many people took their savings, converted it to
    stock, and thought it would be there for their children or
    grandchildren. Many people had 401(k)s they were counting on.
    All of this has eroded in value. Investors do not have the
    confidence in the economy. I think the key is to make the
    structural change and make sure people can count on the
    independent audits, that no one is cooking their books. This is
    the best of government oversight. I am very proud to support
    this legislation.
        Once again, I thank the chair of the Banking Committee for
    exceptional leadership.
        I yield the floor.
        The Presiding Officer. The Senator from Maryland.
        Mr. Sarbanes. Mr. President, as Senator Gramm was speaking
    earlier I was thinking to myself that he really was
    exemplifying on the floor of the Senate the sort of dialog we
    went through in the committee. As he was making an argument
    about auditor independence, I was thinking that is really a
    very reasonable argument and one to which we really paid
    attention. I want to give the counterargument, and then make a
    concluding comment about the terrific work of the staff on this
    bill.
        Senator Gramm has suggested that the conference report
    should be changed to give the SEC or the Oversight Board
    authority to grant broad categorical exemptions from the list
    of non-audit services that Section 201 of the bill prohibits
    registered public accounting firms to provide to public company
    audit clients.
        Such a change, in my view, would weaken one of the
    fundamental objectives of the conference report: to draw a
    bright line around a limited list of non-audit services that
    accounting firms may not provide to public company audit
    clients because their doing so creates a fundamental conflict
    of interest for the accounting firms.
        This limited list is based on a set of simple principles:
        A public company auditor, in order to be independent,
    should not audit its own work (as it would if it provided
    internal audit outsourcing services, financial information
    systems design, appraisal or valuation services, actuarial
    services, or bookkeeping services to an audit client).
        A public company auditor should not function as part of
    management or as an employee of the audit client (as it would
    if it provided human resources services such as recruiting,
    hiring, and designing compensation packages for the officers,
    directors, and managers of an audit client).
        A public company auditor, to be independent, should not act
    as an advocate of its audit client (as it would if it provided
    legal and expert services to an audit client in judicial or
    regulatory proceedings.)
        A public company auditor should not be a promoter of the
    company's stock or other financial interests (as it would be if
    it served as a broker-dealer, investment adviser, or investment
    banker for the company).
        I want to emphasize that Section 201 does not bar
    accounting firms from offering consulting services. It simply
    requires that they not offer certain consulting services to
    public companies for which they wish to serve as ``independent
    auditor.'' An accounting firm is free to offer any services it
    wants to any public companies it does not audit (or to any
    private companies). It also may engage in any non-audit
    service, including tax services, that is not on the list for an
    audit client if the activity is approved in advance by the
    audit committee of the public company.
        The conference report does authorize the new Oversight
    Board, on a case-by-case basis, to exempt any person, issuer,
    public accounting firm, or transaction from the prohibition on
    the provision of non-audit services to the extent that such
    exemption is necessary or appropriate in the public interest
    and is consistent with the protection of investors.
        The exemptive authority provided the Board is intentionally
    narrow to apply to individual cases where the application of
    the statutory requirement would impose some extraordinary
    hardship or circumstance that would merit an exemption
    consistent with the protection of the public interest and the
    protection of investors.
        But the fundamental presumption of the provision is that
    these non-audit services, by their very nature, present a
    conflict of interest for an accounting firm if provided to a
    public company audit client.
        Arthur Andersen was conflicted because it served Enron as
    both an auditor and a consultant, and for two years it also
    served as Enron's internal auditor, essentially auditing its
    own work. Enron was Andersen's largest client, and in 2000
    Andersen earned $27 million in consulting fees from the company
    ($25 million in audit fees).
        In its oversight hearing earlier this year on the failure
    of Superior Bank in Hinsdale, Illinois, the Senate Banking
    Committee learned first-hand the risks associated with allowing
    accounting firms to audit their own work. In that case, the
    accounting firm audited and certified a valuation of risky
    residual assets calculated according to a methodology it had
    provided as a consultant. The valuation was excessive and led
    to the failure of the institution.
        The SEC's recent actions against one of the large public
    accounting firms (KPMG) in an enforcement case illustrates the
    danger of allowing an accounting firm to serve as a broker
    dealer, investment advisor, or investment banker for a public
    company audit client (Porta Systems). In that case, the
    accounting firm set up an affiliate and the affiliate provided
    ``turn around'' services to the issuer, including functioning
    as the president of the company. There would have been no need
    for an SEC action if the non-audit service were simply
    prohibited.
        The inherent conflict created by these consulting services
    has been exacerbated by their rapid growth in the last 15
    years. According to the SEC, 55 percent of the average revenue
    of the big five accounting firms came from accounting and
    auditing services in 1988. Twenty-two percent of the average
    revenue came from management consulting services. By 1999,
    those figures had fallen to 31 percent for accounting and
    auditing services, and risen to 50 percent for management
    consulting services. Recent data reported to the SEC showed on
    average public accounting firms' non-audit fees comprised 73
    percent of their total fees, or $2.69 in non-audit fees for
    every $1.00 in audit fees.
        A number of the most knowledgeable and thoughtful witnesses
    who testified before the Senate Banking Committee in the
    hearings held in preparation for this legislation argued that
    the growth in the non-audit consulting business done by the
    large accounting firms for their audit clients has so
    compromised the independence of the audits that a complete
    prohibition on the provision of consulting services by
    accounting firms to their public audit clients is required.
    Perhaps the strongest advocates of this view have been the
    managers of large pension funds who are entrusted with people's
    retirement savings.
        For example, the California Public Employees' Retirement
    System (CalPERS), manages pension and health benefits for more
    than 1.3 million members and has aggregate holdings totaling
    almost $150 billion. According to CalPERS CEO, James E. Burton:

        the inherent conflicts created when an external auditor is
    simultaneously receiving fees from a company for non-audit work
    cannot be remedied by anything less than a bright-line ban. An
    accounting firm should be an auditor or a consultant, but not
    both to the same client.

        John Biggs is CEO of Teachers Insurance and Annuity
    Association College Retirement Equities Fund (TIAA-CREF), the
    largest private pension system in the world, which manages
    approximately $275 billion in pension assets for over 2 million
    participants in the education and research community. Mr. Biggs
    was also a member of the last Public Oversight Board. He told
    the Committee that:

        TIAA-CREF does not allow our public audit firm to provide
    any consulting services to us, and our policy even bars our
    auditor from providing tax services.

        The conference report chose not to follow the approach of
    imposing a complete prohibition on the provision of non-audit
    services to audit clients. Instead it chose the approach of
    identifying the non-audit services which by their very nature
    pose a conflict of interest and should be prohibited. Among
    those supporting this approach are former Comptroller General
    Charles Bowsher, former SEC Chairman Arthur Levitt, and former
    Federal Reserve Board Chairman Paul Volcker.
        The argument is made that small companies, in particular,
    may be burdened by this requirement and that the SEC should
    have broad authority to grant categorical exemptions. It is
    even argued that so many companies would seek case-by-case
    exemptions that the SEC would become overwhelmed and would be
    unable to process the exemptions in a timely manner.
        The point is that if the provision of a non-audit service
    to a public company audit client creates a conflict of interest
    for the accounting firm that non-audit service should be
    prohibited, whether the public company is large or small.
    Investors rely on the audit in making their investment
    decisions, and the independence of the audit should not be
    compromised by the provision of the non-audit service. If a
    legitimate exceptional hardship is imposed, then the Oversight
    Board would have the authority to grant case-by-case
    exemptions.
        The present Comptroller General, David Walker, issued a
    particularly strong statement in support of the approach to
    auditor independence taken in the bill conference report I
    would like to quote:

        I believe that legislation that will provide a framework
    and guidance for the SEC to use in setting independence
    standards for public company audits is needed. History has
    shown that the AICPA [American Institute of Certified Public
    Accountants] and the SEC have failed to update their
    independence standards in a timely fashion and that past
    updates have not adequately protected the public's interests.
    In addition, the accounting profession has placed too much
    emphasis on growing non-audit fees and not enough emphasis on
    modernizing the auditing profession for the 21st century
    environment. Congress is the proper body to promulgate a
    framework for the SEC to use in connection with independence
    related regulatory and enforcement actions in order to help
    ensure confidence in financial reporting and safeguard
    investors and the public's interests. The independence
    provision [of the bill] . . . strikes a reasoned and reasonable
    balance that will enable auditors to perform a range of non-
    audit services for their audit clients and an unlimited range
    of non-audit services for their non-audit clients. . . . In my
    opinion, the time to act on independence legislation is now.

        This auditor independence provision is at the very center
    of this legislation. It goes to the public trust granted to
    public accounting firms by our securities laws which require
    comprehensive financial statements that must be prepared, in
    the words of the Securities Act of 1933, by ``an independent
    public or certified accountant.''
        The statutory independent audit requirement has two sides,
    a private franchise and a public trust. It grants a franchise
    to the nation's public accountants--their services, and only
    their services--must be secured before an issuer of securities
    can go to market, have the securities listed on the nation's
    stock exchanges, or comply with the reporting requirements of
    the securities laws. This is a source of significant private
    benefit.
        But the franchise is conditional. It comes in return for
    the CPA's assumption of a public duty and obligation. As a
    unanimous Supreme Court noted nearly 20 years ago:

        In certifying the public reports that collectively depict a
    corporation's financial status, the independent auditor assumes
    a public responsibility. . . . [That auditor] owes ultimate
    allegiance to the corporation's creditors and stockholders, as
    well as to the investing public. This ``public watchdog''
    function demands that the accountant maintain total
    independence from the client at all times and requires complete
    fidelity to the public trust.

        We must cut the chord between the audit and the consulting
    services which by their very nature undermine the independence
    of the audit. We must break this culture that exists, and to do
    that we need a bright line. In my view granting broad exemption
    authority to the Oversight Board or the SEC to permit these
    non-audit services would undermine the separation the
    conference report is intended to establish.
        I wanted to underscore the fact that there was a very
    reasoned, intense discussion of these issues. There is reason
    on both sides. I thought the Senator made a very strong
    statement. I wanted to give the counterstatement here.
        I share Senator Dodd's view about this exchange of ideas
    and its importance to the functioning of this institution. The
    Senator from Texas has certainly made an important contribution
    in that regard.
        I wish to take a moment to recognize the terrific work of
    the staff. Senator Gramm referred to Wayne Abernathy and Linda
    Lord, and of course Mike Thompson and Katherine McGuire of
    Senator Enzi's staff; Laura Ayoud of the legislative counsel
    who worked day and night to put this thing in legislative
    language; the staff of the Banking Committee led by Steve
    Harris, Dean Shahinian, Steve Kroll, Lynsey Graham, Vincent
    Meehan, Sarah Kline, Judy Keenan, Jesse Jacobs, Craig Davis,
    Marty Gruenberg, Gary Gensler, and, as I said, all led so ably
    by Steve Harris.
        We had the very able staff of the Senators on the
    committee: Alex Sternhell, Naomi Camper, Jon Berger, Jimmy
    Williams, Catherine Cruz Wojtasik, Leslie Wooley, Margaret
    Simmons, Matt Young, Roger Hollingsworth, and Matt Pippin.
        I thank again all my colleagues who participated. I think I
    recognized most of them in the course of the day, and I want to
    say just a word about Chairman Oxley and Congressman LaFalce on
    the House side, who made it possible for us to work through
    this conference and with whom we have worked so cooperatively
    on so many issues that have come before our committee.
        The Presiding Officer. The time of the Senator has expired.
    Who yields time?
        Mr. Sarbanes. How much time is remaining?
        The Presiding Officer. The Senator from Maryland is without
    time. There are 12 minutes for the Senator from Texas.
        Mr. Gramm. Mr. President, we have reached the hour that we
    set for a vote. I am ready to yield back the 12 minutes and
    have the vote proceed.
        I reiterate that this is a bill that was fraught with
    danger in the environment that we were in. Literally anything
    could have passed. I think, by a combination of good work and
    some good fortune, that has not been the case. We have a
    vehicle before us that I think will be complicated. It will be
    difficult to implement.
        I think we will probably change it in the future. But I
    think in terms of our ability to prosper under the bill, and
    for the economy to survive not only the illness but the
    prescription of the doctor in this case, I think it is doable.
        I yield the remainder of our time.
        The Presiding Officer. The question is on agreeing to the
    conference report.
        Mr. Sarbanes. Mr. President, I ask for the yeas and nays.
        The Presiding Officer. Is there a sufficient second?
        There is a sufficient second.
        The clerk will call the roll.
        The assistant legislative clerk called the roll.
        Mr. Nickles. I announce that the Senator from North
    Carolina (Mr. Helms) is necessarily absent.
        I further announce that if present and voting the Senator
    from North Carolina (Mr. Helms) would vote ``yea.''
        The Presiding Officer. Are there any other Senators in the
    Chamber desiring to vote?
        The result was announced--yeas 99, nays 0, as follows:
                          [Rollcall Vote No. 192 Leg.]
        Yeas--99: Akaka, Allard, Allen, Baucus, Bayh, Bennett, Biden,
    Bingaman, Bond, Boxer, Breaux, Brownback, Bunning, Burns, Byrd,
    Campbell, Cantwell, Carnahan, Carper, Chafee, Cleland, Clinton,
    Cochran, Collins, Conrad, Corzine, Craig, Crapo, Daschle, Dayton,
    DeWine, Dodd, Domenici, Dorgan, Durbin, Edwards, Ensign, Enzi,
    Feingold, Feinstein, Fitzgerald, Frist, Graham, Gramm, Grassley, Gregg,
    Hagel, Harkin, Hatch, Hollings, Hutchinson, Hutchison, Inhofe, Inouye,
    Jeffords, Johnson, Kennedy, Kerry, Kohl, Kyl, Landrieu, Leahy, Levin,
    Lieberman, Lincoln, Lott, Lugar, McCain, McConnell, Mikulski, Miller,
    Murkowski, Murray, Nelson (FL), Nelson (NE), Nickles, Reed, Reid,
    Roberts, Rockefeller, Santorum, Sarbanes, Schumer, Sessions, Shelby,
    Smith (NH), Smith (OR), Snowe, Specter, Stabenow, Stevens, Thomas,
    Thompson, Thurmond, Torricelli, Voinovich, Warner, Wellstone, Wyden
        Not Voting--1: Helms

        The conference report was agreed to.
        Mr. Sarbanes. Mr. President, I move to reconsider the vote.
        Mr. Daschle. I move to lay that motion on the table.
        The motion to lay on the table was agreed to.
        Mr. Reid. I suggest the absence of a quorum.
        The Presiding Officer (Mr. Dayton). The clerk will call the
    roll.
        The assistant legislative clerk proceeded to call the roll.
        Mr. Reid. Madam President, I ask unanimous consent that the
    order for the quorum call be rescinded.
        The Presiding Officer (Ms. Cantwell). Without objection, it
    is so ordered.