[Senate Hearing 107-948]
[From the U.S. Government Publishing Office]
ACCOUNTING REFORM AND INVESTOR PROTECTION
VOLUME IV
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 IV
ON
THE LEGISLATIVE HISTORY OF THE SARBANES-OXLEY ACT OF 2002:
ACCOUNTING REFORM AND INVESTOR PROTECTION ISSUES RAISED BY ENRON AND
OTHER PUBLIC COMPANIES
----------
REPORTS, BILLS, AND THE SARBANES-OXLEY ACT OF 2002
----------
APRIL 16, 22, 24, 25, MAY 6, JUNE 18, 26, JULY 15, 16, AND 25, 2002
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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
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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
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VOLUME I
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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
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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
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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
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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
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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
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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
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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
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VOLUME III
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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
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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
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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
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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
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THURSDAY, JULY 25, 2002
Senate Floor Debate in Regard to the Sarbanes-Oxley Act of 2002
Conference Report taken from the Congressional Record.......... 1613
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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
REMARKS BY THE PRESIDENT AT SIGNING OF H.R. 3763,
THE SARBANES-OXLEY ACT OF 2002
The White House
Office of the Press Secretary,
July 30, 2002.
The President. Thank you very much. Welcome to the White
House, and welcome to this historic occasion.
During the past year the American economy has faced several
sudden challenges, and proven its great resiliency. Terrorists
attacked the center and symbol of our prosperity. A recession
cost many American workers their jobs. And now corporate
corruption has struck at investor confidence, offending the
conscience of our Nation. Yet, in the aftermath of September
11, we refuse to allow fear to undermine our economy. And we
will not allow fraud to undermine it either.
With well-timed tax cuts we fought our way out of recession
and back to economic growth. And now with a tough new law we
will act against those who have shaken confidence in our
markets, using the full authority of Government to expose
corruption, punish wrongdoers, and defend the rights and
interests of American
workers and investors.
My Administration pressed for greater corporate integrity.
A united Congress has written it into law. And today I sign the
most far-reaching reforms of American business practices since
the time of Franklin Delano Roosevelt. This new law sends very
clear messages that all concerned must heed. This law says to
every dishonest corporate leader: you will be exposed and
punished; the era of low standards and false profits is over;
no boardroom in America is above or beyond the law.
This law says to honest corporate leaders: your integrity
will be recognized and rewarded, because the shadow of
suspicion will be lifted from good companies that respect the
rules.
This law says to corporate accountants: the high standards
of your profession will be enforced without exception; the
auditors will be audited; the accountants will be held to
account.
This law says to shareholders that the financial
information you receive from a company will be true and
reliable, for those who deliberately sign their names to
deception will be punished.
This law says to workers: we will not tolerate reckless
practices that artificially drive up stock prices and
eventually destroy the companies, and the pensions, and your
jobs.
And this law says to every American: there will not be a
different ethical standard for corporate America than the
standard that applies to everyone else. The honesty you expect
in your small
businesses, or in your workplaces, in your community or in your
home, will be expected and enforced in every corporate suite in
this country.
I commend the Congress for passing a strong set of reforms.
I particularly thank Senator Paul Sarbanes and Congressman Mike
Oxley. Both are very thoughtful, and were persistent voices for
reform. They are true advocates of corporate integrity. I
appreciate their working together to send a signal to the rest
of the country that it is possible in Washington, DC, to set
aside partisan differences and to do what is right for the
American people. I also
appreciate the bipartisan leadership in the Congress, and I
particularly thank Senator Daschle and Senator Lott who are
with us here today.
I want to thank members of my Cabinet who worked on this
bill: Secretary of Treasury O'Neill and Attorney General
Ashcroft,
Secretary Evans, Secretary Chao. I appreciate the FBI (Federal
Bureau of Investigations) Director being here, along with the
Chairman of Securities and Exchange Commission, Harvey Pitt. I
appreciate the Corporate Fraud Task Force members who are here.
I want to assure the American people, they are just getting
started.
America's system of free enterprise, with all its risk and
all its rewards is a strength of our country, and a model for
the world. Yet free markets are not a jungle in which only the
unscrupulous survive, or a financial free-for-all guided only
by greed. The fundamentals of a free market--buying and
selling, saving and investing--require clear rules and
confidence in basic fairness.
The only risks, the only fair risks are based on honest
information. Tricking an investor into taking a risk is theft
by another name. Corporate executives must set an ethical tone
for their companies. They must understand the skepticism
Americans feel and take action to set clear standards of right
and wrong. Those who break the rules tarnish a great economic
system that provides
opportunity for all.
Their actions hurt workers who committed their lives to
building the company that hired them. Their actions hurt
investors and
retirees who placed their faith in the promise of growth and
integrity. For the sake of our free economy, those who break
the law--break the rules of fairness, those who are dishonest,
however wealthy or successful they may be, must pay a price.
Today, we are taking practical steps to encourage honest
enterprise in our Nation. Under this law, CEO's and chief
financial officers must personally vouch for the truth and
fairness of their
companies' disclosures. Those financial disclosures will be
broader and better for the sake of shareholders and investors.
Corporate officials will play by the same rules as their
employees. In the periods when workers are prevented from
buying and selling stock in their pensions or 401(k)'s,
corporate officials will also be barred from any buying or
selling.
Corporate misdeeds will be found and will be punished. This
law authorizes new funding for investigators and technology at
the Securities and Exchange Commission (SEC) to uncover
wrongdoing. The SEC will now have the administrative authority
to bar dishonest directors and officers from ever again serving
in positions of corporate responsibility. The penalties for
obstructing justice and shredding documents are greatly
increased. Corporate crime will no longer pay. CEO's who profit
by betraying the public trust will be forced to return those
gains to investors. And the maximum prison term for common
types of fraud has quadrupled from 5 to 20 years.
For the first time, the accounting profession will be
regulated by an independent board. This board will set clear
standards to uphold the integrity of public audits, and have
the authority to investigate abuses and discipline offenders.
And auditing firms will no longer be permitted to provide
consulting services that create conflicts of interest.
This law gives my Administration new tools for enforcement.
We will use them to the fullest. We will continue to
investigate, arrest, and prosecute corporate officials who
break the law. The Corporate Fraud Task Force I established is
now hard at work, overseeing investigations of alleged fraud
and insider trading. More than 200 Federal prosecutors are at
work detecting and punishing corporate crimes. Every corporate
official who has chosen to commit a crime can expect to face
the consequences. No more easy money for corporate criminals,
just hard time.
As the work of enforcement proceeds, I hope Congress will
join me in other important efforts to protect the savings and
investments of Americans preparing for retirement. We have seen
how workers can lose a lifetime of savings overnight, locked
into pension plans without adequate choices and information.
Workers should be able to sell company stock and diversify
into other investments after 3 years in their own company's
plan. They should receive updates on their retirement accounts,
not once a year, but every 3 months. They should have access to
sound investment advice. I have proposed pension protection
reforms; the House has passed them. I hope the Senate takes
them up soon.
We must also work together to promote more growth in the
economy and jobs for the American people. The fundamentals of
our economy are sound. After all, sales of automobiles and new
houses are on the rise. New unemployment claims have been
falling since April. Inflation is low, productivity is
increasing, and growth continues. Those are signs of strength
in our economy, and with the right policies we can build on it.
We must continue to work to control Federal spending, and
make the tax cuts permanent, so Americans can save and plan for
their own future. We must tear down trade barriers, so people
everywhere can buy American. We must make terrorism insurance
available to spur more construction.
And on energy, we must encourage conservation through new
technology and produce more energy at home, to give our economy
safe and steady sources of power, and make our country less
reliant upon foreign sources of power.
The attacks against our economy in the last year have
caused deep hardship, and highlighted the economy's fundamental
strength. The American economy is more diverse and more
innovative than ever before. And its greatest strength, the
people who make it work, are better trained and more productive
and more highly skilled than ever before.
Whenever we face challenges, from the fear that threatened
our economy after September 11 to the fraud that threatens
investor confidence today, we have tackled them head on. The
American economy depends on fairness and honesty. The vast
majority of businesses uphold those values. With this law, we
have new tools to enforce those values, and we will use those
tools aggressively to defend our free enterprise system against
corruption and crime.
It is now my honor to sign the Sarbanes-Oxley Act of 2002.
[Applause.]
[The bill is signed.]