[Congressional Record Volume 148, Number 2 (Thursday, January 24, 2002)]
[Extensions of Remarks]
[Pages E17-E18]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          EMERGENCY WORKER AND INVESTOR PROTECTION ACT OF 2002

                                 ______
                                 

                         HON. CHARLES B. RANGEL

                              of new york

                    in the house of representatives

                       Thursday, January 24, 2002

  Mr. RANGEL. Mr. Speaker, we have all seen the press reports about how 
many of the employees of Enron lost virtually all of their retirement 
savings because of the Enron collapse. While the retirement savings of 
the rank and file Enron employees were disappearing, the corporate 
insiders sold millions of dollars worth of their Enron stock. The 
corporate insiders were able to sell their stock even though those 
insiders continued to promote Enron stock as a sound investment to the 
rank and file employees. In addition, Enron placed substantial 
restrictions on the ability of the rank and file employees to sell the 
Enron stock held in their retirement plan.
  The Republican leadership has made it clear that it is willing to act 
promptly, without hearings, when providing large benefits to 
corporations. This Congress enacted an airline bailout bill promptly 
without hearings while making promises to help airline workers later. 
The House of Representatives passed legislation last year, without 
hearings, that would have provided a cash payment to Enron of over $250 
million. The House passed legislation protecting the insurance 
companies from claims in future terrorist attacks, again without 
hearings and also with further promises to provide worker benefits 
later.
  Now, I ask the Republican leadership to permit prompt consideration 
of legislation to protect workers from another Enron-like incident. 
Workers should be entitled to the same consideration as large 
corporations.
  The bill that I am introducing today along with Minority Leader 
Gephardt and others contains two provisions that I believe can and 
should be enacted immediately. The bill does not pretend to be the 
final answer to the issues raised by the Enron collapse. However, it 
will provide interim protection for workers. It ensures that the 
employees of a company will have the same ability to sell stock in 
company that the corporate insiders have. It also will help ensure that 
companies provide workers and shareholders with accurate information 
about the true liabilities of the company so that they can make 
informed decisions as to whether to hold or sell that company's stock.
  Mr. Speaker, I fully support investigations and hearings on the Enron 
situation. We need to fully understand what Enron did and how it was 
permitted to do it, in order to formulate a comprehensive legislative 
response. However the investigations, hearings, studies, and task 
forces should not be an excuse to delay immediate action designed to 
protect millions of employees as well as shareholders.
  I believe there is some risk that Enron and its accounting firm may 
have been successful in destroying documents necessary for the 
investigations. I would note that there is one set of documents that 
Enron and its accountants did not destroy, namely Enron's tax returns. 
The executives from Enron have stated that the destruction of documents 
was contrary to their express instructions. If those executives are 
serious in desiring a full investigation, laying out all facts 
available, then they should release immediately Enron's tax returns for 
public examination. Those could be the only documents remaining that 
would fully disclose what happened to Enron and who is responsible.
  Mr. Speaker, this is not the last bill that I will introduce as a 
result of the issues arising from the Enron case. As we learn more 
about specific problems that should be addressed, I will urge my 
colleagues to consider additional proposals. For example, recently 
there have been press reports that Enron enhanced its guaranteed 
retirement benefits for its executive officers while it was reducing or 
eliminating guaranteed pension benefits for rank and file workers. 
There may be need for legislation to prevent such an abuse in the 
future. In addition, it is clear that certain areas in our pension 
system need to be addressed to provide a greater level of retirement 
security to workers.
  Following is a brief description of the bill I am introducing today.


                     Short-term worker protections

  Eron employees suffered large losses on their investments in Enron 
stock because Enron placed restrictions on sales of its stock held by 
employees in section 401(k) plans. Indeed, during the critical period 
within which Enron collapsed, it prohibited all sales of stock in its 
401(k) plans.
  During the early 1980s Congress enacted legislation to respond to 
certain corporate transactions where insiders received large payments, 
called ``golden parachutes.'' They were called golden parachutes 
because they enabled the insiders to bail out with extraordinary sums 
of dollars, often leaving a weak or bankrupt company behind. The 
legislation imposed a 20 percent excise tax on those payments.
  My bill would extend the golden parachute excise tax to sales of 
corporate stock by corporate insiders during periods when rank and file 
employees of the company are not able to freely sell the company stock 
held their 401(k) accounts.
  This portion of the bill would be temporary (in effect for 6 months). 
It is designed to force

[[Page E18]]

a comprehensive legislative solution that protects workers. Currently, 
congressional delay protects corporate interests while leaving rank and 
file workers at risk. I wish to reverse that dynamic.
  I believe that it is a matter of simple fairness that corporate 
insiders should not have greater freedom to sell their stock than the 
freedom that those insiders decide to grant to their employees.


            Eliminate Tax Subsides for Inaccurate Accounting

  The Wall Street Journal in an article on Monday, January 14, noted 
that ``some of the world's leading banks and brokerage firms'' provided 
Enron with crucial help in creating the intricate--and, in crucial 
ways, misleading--financial structure that fueled the energy trader's 
impressive rise but ultimately led to its spectacular downfall.''
  The article failed to note that tax lawyers also provided crucial 
assistance by their creation of hybrid instruments that are treated as 
equity for shareholder reporting but are treated as debt for tax 
purposes. Those instruments permit companies, in effect, to borrow 
money with tax deductible interest while excluding the borrowing from 
total liabilities when reporting to shareholders.
  Companies use these hybrid instruments, rather than traditional 
borrowing, only because the hybrid instruments permit the company to 
understate its liabilities when reporting to shareholders. The hybrid 
instruments typically have greater underwriting costs and interest 
rates than those that would have occurred on a traditional borrowing.
  Enron used these instruments to a fairly large extent. The footnotes 
to the balance sheet in Enron's last financial statement disclosed that 
it had somewhere between $700 million and $2 billion of these 
instruments. In addition, press reports indicate that Enron also had at 
least an additional $1.2 billion of these transactions that were not 
disclosed in the financial statement.
  In 1996 and 1997 the Clinton administration proposed eliminating tax 
deductions for interest on debt instruments when the corporation showed 
the instruments as equity on its books. If the congressional 
Republicans had permitted action on that budget proposal, we might not 
have seen the spectacular rise and collapse of Enron.
  My bill would deny the deduction for interest on instruments that the 
company treats as debt for tax purposes but does not include in its 
liabilities when it reports to shareholders. The bill would apply only 
when the proceeds of the borrowing are included in the assets of the 
corporation for shareholder reporting purposes. Therefore, it does not 
apply to borrowings by off-balance sheet entities where both the 
liability and the proceeds of the liability are not shown on the 
company's balance sheet. The bill only applies to corporations that 
file certified financial statements with the SEC, and it is 
prospective.
  Providing workers with the right to freely transfer employer stock is 
not sufficient if the employer's financial statements do not accurately 
reflect the company's financial position. I do not understand why the 
tax laws should subsidize companies attempting to hide liabilities when 
reporting to shareholders.
  I am open to other ideas and solutions. I welcome additional 
suggestions and promise to work with any Member of Congress who want to 
protect workers and shareholders. I urge that we move quickly to 
provide some protections now while we study additional measures we may 
wish to undertake in the future.

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