[Congressional Record Volume 148, Number 92 (Wednesday, July 10, 2002)]
[House]
[Pages H4478-H4485]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                        CORPORATE REFORM NEEDED

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
January 3, 2001, the gentleman from New York (Mr. LaFalce) is 
recognized for 60 minutes as the designee of the minority leader.
  Mr. LaFALCE. Mr. Speaker, this morning I was very pleased to join 
with the gentleman from Missouri (Mr. Gephardt) and other Members to 
file a petition for discharge of H.R. 3818, the Comprehensive Investor 
Protection Act of 2002. I introduced this bill in February. When I 
introduced it, I wanted to provide a serious and credible alternative 
to a very weak industry-drafted, industry-driven bill that had been 
introduced by the Republicans. I later introduced another bill 
basically codifying the concept of President Bush's own 10-point plan 
on corporate responsibility.
  As I discussed at the press conference this morning, at every single 
point in the debate, whether it was in the House Committee on Financial 
Services, whether it was in the House Committee on Rules, or whether it 
was on the floor of the House of Representatives, I sought to offer the 
provisions of my bills as amendments to the Republican initiative so we 
could strengthen the oversight of accountants, so we could make 
auditors more independent, so we could improve corporate governance, so 
we could hold executives responsible for the financial statements their 
companies issue, and many other absolutely necessary improvements.
  On every single issue, on every single occasion, President Bush said 
no and the Republicans voted no. They opposed even the provisions of my 
bills that sought to codify President Bush's own proposals. They voted 
against them on the floor of this House. Instead of producing a strong 
bill that could set the terms of debate for the Senate, the House 
instead produced a very weak bill, a cosmetic bill, that delegated 
major issues of accounting industry reform and corporate governance 
reform to the SEC. Basically, they codified the status quo.
  Let me give some specifics. The Republican bill allowed the SEC to 
designate an accounting oversight board. But it did nothing to define 
the powers and duties of that board created under the bill, ensuring 
that it would be at best a weak institution without the authority to 
stand up to the accounting industry. Further, it did not specify the 
nature of the membership of that board. It is not just what powers the 
board has, it is who is going to serve on the board. Will they be 
zealots for investor protection? Or will they be protecting corporate 
America rather than the private individual investor?
  The Republican bill also failed to address the conflicts faced by 
auditors in a meaningful way, allowing auditors to continue to provide 
the same consulting services that they do today. The Republican bill 
did nothing to enable the SEC to effectively bar guilty officers and 
directors from serving at other public companies because it preserved 
and codified the high burden of proof that even the SEC has said makes 
it virtually impossible to bar officers and directors even in the case 
of criminal misconduct.
  The Republican bill prescribes studies, not legislative action, on 
issue after issue, even on whether corporate executives responsible for 
accounting fraud should be required to forfeit their bonuses and stock 
sale profits and whether the ties between analysts and investment 
banking should be restricted. We do not need to study that issue, we 
need to bar those conflicts.
  At the time that the Republican bill passed, there was already a 
clear need for strong and reasoned legislation to protect workers and 
shareholders, but the House Republicans squandered that opportunity. 
While the House Republicans blocked any improvements to legislation in 
the House, and while the House Republicans voted against my substitute, 
while the House Republicans voted against my motion to recommit with 
instructions to report out stronger legislation, I was nevertheless 
gratified that at the very least our efforts, our bill, provided a 
model for Senator Sarbanes as he developed his legislation now being 
considered by the Senate.
  Unlike the House Republican bill, Senator Sarbanes' bill provides for 
a strong accounting oversight board and significantly enhances auditor 
independence by limiting the consulting services auditors can provide 
to their audit clients and improving corporate governance. He has 
brought that bill to the floor of the Senate with strong bipartisan 
support and strong bipartisan cooperation I wish we had in this House.

                              {time}  1745

  As the Senate continues the debate on the Sarbanes bill, however, I 
have been dismayed to note that the administration continues to resist 
strong legislation, and particularly continues to

[[Page H4479]]

resist the creation of strong oversight for auditors of public 
companies. While the administration complains that the new organization 
may duplicate the efforts of the SEC, they continue to resist providing 
the SEC with the funding necessary for it to perform these functions 
itself. Moreover, they ignore the comprehensive authority provided to 
the SEC over the new oversight board.
  Despite the administration's protestations, there is no reason to 
expect that the new board will not be able to work with the SEC in the 
same manner that the securities' self-regulatory organizations do at 
the present.
  The administration and House Republicans must recognize what most 
Senate Republicans and even corporate leaders have already recognized, 
that the need for strong legislation that will restore the confidence 
of investors in our markets and public companies is urgent. I look 
forward to working with each and every one of my colleagues in the 
House or Senate on either side of the aisle and with the administration 
to produce a legislative product that can restore the integrity of our 
financial reporting system and our markets, that can provide the 
confidence needed to let our economy recover from the serious blows it 
has already been dealt; and I extend my hand to anyone who wants to 
work with me in that effort.
  Mr. Speaker, I yield to the gentlewoman from California (Ms. Lee).
  (Ms. LEE asked and was given permission to revise and extend her 
remarks, and include extraneous material.)
  Ms. LEE. Mr. Speaker, I thank the gentleman from New York for 
yielding and for his leadership on this and so many issues that we face 
and address in this House.
  As the gentleman from New York (Mr. LaFalce) has indicated, we are 
facing a crisis of confidence in this country, a crisis in corporate 
America. In the last 9 months we have seen major corporation after 
major corporation fall because of greed, fraud and mismanagement. From 
Enron to Global Crossing to WorldCom, the failures of these businesses 
mean that millions of Americans are hurt. Workers lose their jobs, 
investors lose their profits in the stock market, retirees lose their 
pensions. It seems that we have a culture, really, of deceit in the 
corporate world.
  From what we have learned recently, there apparently is collusion 
oftentimes between the corporation, the auditors and the analysts, who 
at the very least turn a blind eye to misdeeds and at most are really 
committing serious crimes that are defrauding the public, the 
government and investors.
  What message are we really sending to the rest of the world when we 
in the United States so often criticize them for their corporate 
corruption? At the same time people are losing their jobs and life 
savings, greedy executives are managing not only to survive, but to 
flourish. They are taking huge bonuses and, in some cases, even 
hundreds of millions of dollars in loans, while the rest of their 
workers are being forced out with nothing. This is just downright 
criminal.
  The corporations themselves are committing fraud by engaging in 
creative accounting. The auditors, such as Arthur Andersen, who are 
entrusted with ensuring the financial stability of these businesses, 
are really turning a blind eye to this fraud because of conflicts of 
interest between their auditing and consulting functions. And Wall 
Street analysts are compromising their integrity by recommending their 
customers buy stocks even when they have information that the companies 
are not in good shape because of their own conflict of interest between 
investment banking and analyst functions.
  We must pass true accounting reform. In April, the House of 
Representatives passed really a sham accounting bill, H.R. 3763, the 
so-called Corporate and Auditing Accountability and Responsibility Act. 
This Republican corporate cover, that is what it is, this legislation 
does nothing to protect employees and investors. It allows corporate 
auditors to continue to perform both accounting and consulting 
functions. It does not hold corporate wrongdoers accountable if they 
knowingly release misleading financial statements. It does not increase 
oversight of the accounting industry.
  We need to support the bill of the gentleman from New York (Mr. 
LaFalce), which would, among other things, ban auditors from consulting 
services that create conflicts of interest.
  Just this week, the Committee on Financial Services, on which I 
serve, held a hearing on the issue of the WorldCom failure. I was 
shocked, quite frankly shocked, to witness the total disregard for our 
oversight responsibility by the former CEO, Bernard Ebbers, and the 
former CFO, Scott Sullivan. Their consistent invoking of the Fifth 
Amendment did not allow for much insight into what happened. Their 
reluctance to provide our committee with necessary information so that 
we could be better prepared to put into place statutes to ensure 
corporate accountability was very, very disturbing.
  What more are they hiding? We know that Mr. Ebbers received a $400 
million loan, which he has not repaid, from WorldCom because of some 
bad investments he made. When he became subject to market calls, 
instead of selling his WorldCom stock, which he reportedly used as 
collateral, he went to his company and asked for loans so it would not 
look bad that the CEO was dumping tens of hundreds of millions of 
dollars of company stock.
  When a working parent wants to send their child to college, they 
cannot go to their boss and expect a handout to cover the cost. When an 
adult child needs help to help their parents buy prescription drugs, 
their employer does not hand them thousands of dollars. When a family 
member gets in an accident and runs up thousands in medical costs and 
they end up in bankruptcy, they are unable to secure loans from their 
employer. Most ordinary working people do not have access to loans from 
their employer, let alone over $400 million in loans, and CEOs really 
should not either. We need to prevent CEOs and other top executives 
from securing huge loans from their own companies to bail them out of 
bad investments.
  Many corporations are using offshore locations, including those in 
the Caribbean, to avoid paying United States Federal income taxes. 
Allowing U.S. corporations to avoid their tax liability is not only 
unfair, but also contributes to our deficit. I have cosponsored, along 
with many, H.R. 3884, the Corporate Patriot Enforcement Act, which 
prevents corporations from avoiding U.S. income taxes by 
reincorporating in a foreign country.
  Now what about corporate ethics? Isn't there a moral or ethical code 
in the business world? Shouldn't there be? We heard at the WorldCom 
hearing about a ``close personal relationship'' the chief analyst at 
Salomon Smith Barney, Mr. Jack Grubman, had with former WorldCom CEO 
Bernard Ebbers. I asked Mr. Grubman if his relationship with Mr. Ebbers 
was a working relationship as he stated, or a personal relationship as 
had been reported. He danced around his answer.
  At this week's hearing, Representative Jay Inslee from Washington 
asked the witnesses very pointedly about whether it was time to punish 
corporate criminals the same way people convicted of drug offenses are. 
I have always been opposed to mandatory minimums for drug offenses, 
which mostly affect low-income, urban minorities. However, if we are to 
be tough on crime, why don't we pass mandatory ten-year prison 
sentences for those convicted of fraud and other corporate crimes for 
the mostly upper-income executives? President Bush yesterday called for 
a doubling of maximum sentences--but what about strong minimum 
sentences? This President supports mandatory minimums for those 
convicted of drug offenses and he should support them for corporate 
criminals who defraud their corporations and our Nation.
  As a member of the International Relations Committee, I participated 
in a hearing on international corruption and how U.S. companies were 
harmed when unfair practices were prevalent in other nations. Our then-
Chairman and Ranking Member both talked about how corruption 
``undermines the basis of growth and stability,'' ``deters 
investment,'' ``demoralizes entrepreneurs and ordinary citizens who 
deserve good government.'' They also testified about how in Asia and 
Africa, ``democracies are threatened by corrupt practices of the 
government.'' I would argue that the United States is facing such a 
problem today. We must also clean our own house. One last quote from 
the 2000 hearing was: ``If we believe in democracy, and we want to 
build a system where the world has faith in its elected leaders, we 
need to make sure that we get rid of corruption.'' I for one want to 
have faith in the elected leaders in this Nation, starting at the top--
President Bush and Vice President Cheney.
  The American people must be able to trust the leadership in this 
country--the leaders of

[[Page H4480]]

major corporations which are so important to our economy, but also to 
our political leadership. We know that last year, President Bush 
authorized his energy task force, headed by Vice President Cheney, with 
participation by Kenneth Lay, the former Enron CEO. In my home state of 
California, we know that there was manipulation of rates in the energy 
market and all signs point to Enron. The question remains what role the 
Bush Administration--both the President and Vice President--may have 
played in the California energy crisis as a result of their close 
relationship with Enron and its CEO.
  More recently, we have discovered that President Bush, while serving 
on the auditing committee and Board of Directors for Harken Energy 
Corporation in 1990, sold over 200,000 shares of that company's stock 
just 2 months before it announced losses. That stock subsequently lost 
\3/4\ of its value by the end of that year--well after George W. Bush 
was informed that there was a cash ``crisis'' at Harken. In addition, 
President Bush neglected to report this transaction with the SEC until 
almost a year later, a violation of SEC rules, stating the SEC ``lost'' 
the file, although the SEC stated in 1991 that it never received it.
  We, as elected officials, need to set a good example. I hope that 
President Bush and Vice President Cheney will be forthcoming with the 
details of these disturbing incidents.
  However, instead of coming clean with the details of these 
irregularities, the Bush-Cheney team seems to be more intent on 
offering its ``Corporate Protection Plan.'' At yesterday's press 
conference, the President announced a weak plan for corporate 
responsibility. We need to make clear how his plan falls far short of 
what's needed to reform the inherent flaws in our capitalist system, 
which seems to be exacerbating corporate fraud and crime.
  President Bush asked for $100 million additional dollars for the SEC. 
However, the House already passed a bipartisan bill providing an extra 
$195 million above that amount for the SEC. This includes over $70 
million for pay parity so that the SEC can attract and retain qualified 
investigators to look into this corporate crime.
  The President also asked for doubling the maximum jail sentence for 
corporate offenders--from 5 to 10 years--but only for mail and wire 
fraud, not for securities fraud. This is simply not enough. We need 
systemic change to prevent the crimes. An ounce of prevention is worth 
a pound of cure.
  I call on the President to put some teeth into his proposal.
  The American public needs to be able to count on their political 
leadership and corporations to be honest. Workers must have faith in 
their companies for their livelihood. Stockholders must have faith in 
the companies they invest their hard-earned money in. And retirees must 
have faith in the companies their pensions are invested in. We need 
true reforms. Let's restore the faith of the public. Let's end this 
corporate corruption now!
  Mr. LaFALCE. Mr. Speaker, I yield to the gentleman from North Dakota 
(Mr. Pomeroy).
  Mr. POMEROY. I thank the gentleman for yielding.
  Mr. Speaker, obviously in light of the financial mismanagement of 
some of the major corporations of this country and the investor losses 
we have seen, this Congress has got a lot of work to do. Thank goodness 
we have our ranking member, the gentleman from New York (Mr. LaFalce), 
still at the helm of the minority in the Committee on Financial 
Services as we undertake these difficult challenges.
  We are called a nation of investors in light of the broad 
participation of private retirement dollars in the stock market. What 
that means is, as you look at the Enrons, as you look at the WorldComs, 
as you look at the other failed corporations due to executive 
mismanagement, we are a nation of financial losers because we have not 
had adequate protections in place to protect the investing public. And 
something needs to be done.
  Let us take a look at the dollars lost. Today's Washington Post 
headline, ``Workers' 401(k)s Lost $1.1 Billion'' on the misstatement of 
liability with WorldCom and the attendant misstatement of their stock 
price.
  Their egregious accounting practices have impacted retirement income 
portfolios across the Nation. Accumulated losses from this one company 
will impact holdings in State pension funds from Maryland to California 
in the amount of $52 million. Government workers and retirees in my 
home State of North Dakota held $350,000 worth of WorldCom stocks and 
bonds and $2.5 million in their pension fund.
  What all of this means is that the failed private-sector checks and 
balances have caused a lot of damage to workers' retirement accounts, 
money they are counting on for their income security in retirement 
years. We need to fix it.
  One area that I would hope this Congress addresses in particular 
involves having company financial balance sheets reflect the stock 
options that they have awarded by posting the liability. I believe 
presently you have an awful lot more out there in terms of potential 
liability and stock dilution impact than is reflected on the balance 
sheet, and I would urge this Congress to consider carefully the words 
of Chairman Alan Greenspan, former SEC Commissioner, Arthur Levitt, as 
we address the stock options issue.
  In conclusion, I would say that it is extraordinarily important that 
we have the leadership of the gentleman from New York (Mr. LaFalce) and 
others as we restore worker protections. Our pension dollars are at 
stake. We have to have greater accountability.
  Mr. LaFALCE. Mr. Speaker, I yield to the gentlewoman from Wisconsin 
(Ms. Baldwin).
  Ms. BALDWIN. Mr. Speaker, there is a crisis in America. People are 
out of work and are worried about losing their jobs.
  In Wisconsin, I hear from the families that I represent. Wisconsin 
families' investments, college funds and retirement savings have been 
losing money for almost 2 years now. Without action to shore up the 
confidence of the American public, our faith in the stock market will 
be shattered and, along with it, the backbone of our country's 
financial system.
  This crisis is rooted in one thing, and that is greed, the greed of 
the corporate CEOs that cooked their books, falsely reported earnings, 
exercised stock options and, when the bubble burst, walked away with 
millions in guaranteed salary payments and bonuses.
  But the crisis goes deeper than a dozen CEOs and the crooked 
accounting firms that are hoping to pad their pockets. It stretches 
right into the halls of Congress and the Oval Office, where corporate 
CEOs have sought to roll back investor protection legislation and gain 
access to the Social Security funds.
  WorldCom's recent announcement that it had overstated company profits 
by $3.8 billion over the last five quarters gives it the dubious 
distinction of being the largest case of false corporate bookkeeping, 
or, simply put, fraud. Companies like Enron, Rite Aid, Merck, Tyco 
International, Global Crossing and Adelphia Communications are 
currently under investigation for a variety of reasons, such as insider 
trading, avoiding taxes and using fraudulent accounting practices, as 
Enron did.
  I believe that we have come to the point where Congress and the 
administration must come together and take swift action to stop the 
corporate abuses that have infected our country.
  The enormity of the Enron collapse alone sent shock waves throughout 
our economy. In Wisconsin, the Public Employee Retirement System lost 
an estimated $40 million in stock and $38 million in bonds because of 
Enron's illegal actions. The WorldCom debacle is estimated to have cost 
the Wisconsin Public Employees Retirement System $29 million through 
the sale of WorldCom bonds.
  Nearly half a million current or former employees of Wisconsin State 
agencies, school districts and local governments participate in the 
Wisconsin retirement system, which is also the tenth largest public 
pension fund in the United States. This does not even begin to account 
for the millions of Americans, and you know that 52 percent of 
Americans are stockholders, and the institutions that invested 
retirement savings in Enron or WorldCom or any of the numerous other 
companies who have cooked their books to show false profits or hide 
their debt.

                              {time}  1800

  While most corporate abuse has hit individual and institutional 
investors the hardest so far, I think it is important to realize that 
the same corporations that are under investigation have had a 
tremendous amount of influence in government and, essentially, over the 
very policies that matter to people most. In fact, just one week before 
the revelation by WorldCom of their financial impropriety, they were 
handing

[[Page H4481]]

over $100,000 for a dinner featuring President Bush and benefiting the 
National Republican Congressional Committee and the National Republican 
Senatorial committee. That makes me question will these same officials 
really go after these CEOs and accounting companies and also pass 
legislation that will prevent future Enrons and WorldComs.
  Mr. Speaker, it is time for accountability; it is time for the 
administration and the Republicans in Congress to say to their 
traditional base of big business and corporate CEOs, ``Enough is 
enough.''
  There is a crisis in America. People are out of work or are worried 
about losing their jobs. In Wisconsin, I hear from the families that I 
represent. Wisconsin families' investments, college funds, and 
retirement savings have been losing money for almost two years now. 
Without action, to shore up the confidence of the American public, our 
faith in the stock market will be shattered and along with it, the 
backbone of our country's financial system.
  This crisis is rooted in one thing--greed. The greed of the corporate 
CEOs that cooked their books, falsely reported earnings, exercised 
stock options, and when the bubble burst, walked away with millions in 
guaranteed salary payments and bonuses. But this crisis goes deeper 
than a dozen CEOs and crooked accounting firms hoping to paid their 
pockets. It stretches right into the halls of Congress and the Oval 
office, where corporate CEOs have sought to roll back investor 
protection legislation, and gain access to Social Security funds.
  WorldCom's recent announcement that it had overstated company profits 
by more than $3.8 billion over the last five quarters, gives it the 
dubious distinction of being the largest case of false corporate 
bookkeeping, or simply put, fraud. Companies like Enron, Rite Aid, 
Merck, Tyco International, Global Crossing, ImClone, and Adelphia 
Communications are currently under investigation for a variety of 
reasons such as, insider trading, avoiding taxes, and using fraudulent 
accounting practices as Enron did. I believe we have come to the point 
where Congress and the Administration must come together and take swift 
action to stop the corporate abuses that have infected our country.
  The enormity of Enron's collapse alone sent shock waves through our 
economy. In Wisconsin, the public employee retirement system lost an 
estimated $40 million in stock and $38 million in bonds because of 
Enron's illegal actions. The WorldCom debacle is estimated to have cost 
the Wisconsin public employee retirement system $29 million through the 
sale of WorldCom bonds. Nearly half a million current or former 
employees of Wisconsin state agencies, school districts and local 
governments participate in the Wisconsin retirement system, which is 
also the tenth largest public pension fund in the United States. This 
doesn't even begin to account for the millions of Americans (you know, 
52 percent of us are stockholders) and institutions that invested 
retirement savings in Enron or WorldCom, or any of the numerous other 
companies who have cooked their books to show false profits or hide 
costs and debt.
  Perhaps the biggest accomplishment for corporate America this year 
was during the debate of passage of an economic stimulus bill. Their 
provision in this bill was so shocking it is a moment that I will not 
be able to forget for a long, long time. Our country was languishing in 
recession, and every day I heard from friends, neighbors, and 
constituents who said they were experiencing trauma in our struggling 
economy. They told me how important extending unemployment benefits 
would be in helping them to meet the next month's mortgage payment and 
keeping food on the table. At the time, no one knew how long our 
economic downturn would last; the genuine fear they expressed to me is 
something I'll never forget.
  During this debate, the House leadership refused to consider a bill 
that would extend unemployment benefits for an additional 13 weeks. I 
urged the House to follow the State of Wisconsin's lead and pass a bill 
to extend unemployment benefits so displaced workers would have more 
time to get back on their feet and look for another job. Instead, the 
leadership put the concerns of huge corporations first. Valuable time 
was wasted as the House passed three bills that the Senate refused to 
consider because they centered on giving huge corporations millions of 
dollars in tax breaks instead of helping those who needed immediate 
relief. The bills included a provision that would have given energy-
trading giant, Enron, a tax rebate check worth more than $250 million--
even though the corporation hadn't paid taxes in 4 out of the last 5 
years.
  It is time to return the confidence that investors once had. It is 
time to make corporate CEOs pay for their crimes and serve time for 
their crimes while strengthening the oversight ability of Congress and 
the Securities and Exchange Commission (SEC) so that we never again 
have to hear tale of illegal accounting practices and massive CEO 
payouts. It is time that the rest of Congress stand with me and my 
Democratic colleagues and return investor confidence to the free market 
system.
  Mr. LaFALCE. Mr. Speaker, I thank the gentlewoman for her great 
comments. I now call upon the distinguished gentleman from Texas (Mr. 
Bentsen).
  Mr. BENTSEN. Mr. Speaker, let me thank the ranking member of the 
Committee on Financial Services for calling this Special Order. The 
gentleman has been on point on the subject of the crisis of confidence 
that we have in our public markets long before many, and he needs to be 
commended for that. He has worked diligently to craft legislation that 
would go a long way towards restoring that confidence.
  I must say, it was somewhat ironic that yesterday, when the President 
addressed the luncheon in New York and outlined his proposals, that a 
large number of the proposals he outlined were those that the gentleman 
from New York himself had outlined and had proposed in our committee 
back in April, almost I guess every one, every single one, which had 
been voted down, unfortunately, mostly on a party line vote. But as 
things go on, just as some of the executives from WorldCom, the ones 
who did testify before our committee the other day, said that hindsight 
is really 20-20 vision and, as some of them said then, that they would 
not have voted to give the loans to the CEO that they did a year 
earlier, it now appears that some of our friends on the other side of 
the aisle have determined that some of the ideas of the gentleman from 
New York (Mr. LaFalce) are worthy of consideration. So we are glad that 
he has received that recognition.
  Mr. Speaker, we do have a crisis of confidence in our markets. The 
United States has the most efficient market system in the world. Yet it 
is a system that operates through transparency; it is a system that 
operates through rules, rules which have to be followed. What has 
occurred, unfortunately, over the last several years, is that 
executives have come to the conclusion that they do not always have to 
follow those rules, whether it is trying to meet earnings targets or 
revenue targets, or whether it is trying to increase the value of stock 
because of stock options that they own to increase the amount of 
revenues that they will personally earn. The fact is that we have ended 
up with very lax accounting, very lax standards; and as a result of 
that, in large part, investors have seen more than $7 trillion of value 
wiped out.
  In fact, as of the close of the markets today, the S&P index is now 
back below where it was in 1997. Last week, the NASDAQ gave everything 
back to 1997, and the Dow Jones closed today below 9,000 for the first 
time since October in the aftermath of the attacks on 9-11. More than 
$30 billion of foreign investment in the United States, which helps 
fuel our current account deficit, has been pulled out of the U.S. 
markets, not because there is necessarily more value in investing in 
Europe and Asia so much as investors no longer feel confident with the 
information that they are being provided of investments in the United 
States.
  Mr. Speaker, this is a tragedy for the history of American 
capitalism; and until such time as our government speaks with one voice 
concerning corporate governance, concerning true independent auditing 
standards, this crisis of confidence will not evaporate, it will not go 
away.
  Now, the House passed a bill in April, and it was a first step; but, 
quite frankly, it came up too short. The Senate, the other body, is 
working on a bill which may have things that Members do not completely 
agree with, but it is a step more in the right direction. It would be 
helpful, it would be helpful if the executive branch would begin to 
speak more forcefully on this issue. It would be helpful if the 
executive branch, which again, as I stated at the outset, has started 
to come around, perhaps a latter-day conversion, would speak more 
clearly about what standards it would have for establishing oversight 
of the auditing.
  As the gentleman from New York will recall and the gentleman from 
Pennsylvania who was there the other day, we had the lead auditor, 
independent auditor for WorldCom and we

[[Page H4482]]

asked him repeatedly, how come you did not find the overstatements of 
earnings and the fact that expenses were capitalized that should not 
have been capitalized? You are the auditor. You look at the books that 
are given to you by the CFO. And he said, well, we just take the 
numbers that are given to us. We do not actually look at them; we look 
at the system to see if they work.
  If we do not pass significant legislation to restore confidence in 
the markets, our economy will continue to suffer from this malaise. The 
burden is now on the House, along with the other body and the executive 
branch, to speak with one voice to restore confidence to the markets, 
to ensure that we can have sufficient economic growth in our economy.
  I commend the gentleman from New York for putting on this Special 
Order.
  Mr. LaFALCE. Mr. Speaker, I thank the gentleman from Texas. Let me 
now yield to the gentleman from Illinois (Mr. Davis).

  Mr. DAVIS of Illinois. Mr. Speaker, I want to thank the gentleman 
from New York for yielding and for his outstanding leadership on this 
important issue.
  Before Enron Corporation's bankruptcy filing in December of 2001, all 
of us knew that the firm was widely regarded as one of the most 
innovative, fastest-growing, and best-managed businesses in the United 
States. With the swift collapse, shareholders, including thousands of 
Enron workers who held company stock in their 401(k) retirement 
accounts, lost tens of billions of dollars. It now appears that Enron 
was in terrible financial shape as early as 2000, burdened with debt 
and money-losing businesses, but manipulated its accounting statements 
to hide these problems. Now, WorldCom, the Nation's second largest 
long-distance telephone company, has been charged with fraud by the 
Securities and Exchange Commission. Reports have revealed that WorldCom 
defrauded investors by improper accounting practices of $3.9 billion in 
expenses during 2001.
  We are discovering that publicly traded companies have contributed to 
bilking American investors and taxpayers out of $4 trillion since 2000 
due to unaccountable financial filings, accounting errors, 
misinformation, and mismanagement of funds. Where were our watchdogs? 
They were nowhere to be found.
  In order to ensure corporate accountability, we need to establish 
under the jurisdiction of the Securities and Exchange Commission ways 
to regulate accounting firms that audit SEC registrants. This type of 
structure could be empowered to charge registrants with annual fees to 
pay for the cost of staff to carry out the suggested plan of 
surveillance of auditors.
  This concept would intervene between a registrant and its auditor 
before, during, and at the end of an audit. It would be more effective 
than the current regulatory system in, one, achieving an early warning 
of potential financial disasters such as Enron and WorldCom; two, 
requiring a change in auditors when the SEC deems it appropriate; 
three, require pre-approval of consulting engagements for a registrant 
to be conducted by its auditor; and, four, improve the format and 
content of financial and auditor reports by including information about 
labor relations, research and development, marketing programs, and new 
products.
  I believe that these kinds of safeguards would go a long way towards 
helping to rectify the situation.
  Again, I commend the gentleman from New York (Mr. LaFalce) for his 
outstanding leadership, and I thank him for the opportunity to 
participate in this Special Order.
  Mr. LaFALCE. Mr. Speaker, I thank the gentleman very much.
  Our next speaker will be someone who has been a full partner with me 
in the crafting of the strongest possible legislation to deal with this 
problem. He serves as the ranking Democrat on the Subcommittee on 
Capital Markets, which is the subcommittee of legislative jurisdiction 
over the entire field of securities. He is the distinguished gentleman 
from Pennsylvania (Mr. Kanjorski).
  Mr. KANJORSKI. Mr. Speaker, first of all, may I say how we are going 
to miss the gentleman's leadership after he completes his final term in 
Congress, because certainly he has been a stalwart supporter of 
transparency, accountability, and responsibility, both in government 
and in private business.
  Mr. Speaker, I guess I want to talk to the President of the United 
States. I had the opportunity to watch his speech yesterday. I have 
watched my colleagues struggle over these last 6 months with the 
disclosures that have occurred in American business, and I have talked 
to a lot of my constituents. I guess I want to set certain perspectives 
that I view this from.
  First and foremost, it is one thing to lose money in the stock market 
if one is a direct buyer in the stock market, if one is wealthy enough 
to be a speculator or trader in the stock market. But unfortunately, 
the people that have really lost this money are pensioners and 401(k) 
owners, millions and millions of Americans that were persuaded over the 
last 20 or 30 years to become part of democratic capitalism; and they, 
through their pension funds and through their 401(k)s, bought into the 
idea that America is indeed a great capitalistic Nation and had the 
wherewithal to participate in the growth of that capitalism, in the 
creation of that wealth; and they entrusted their meager funds, their 
retirement funds to managers that primarily are located in and around 
Wall Street.
  To a large extent, during the flaming years of the 1990s, it got to 
the point that one had to be a fool not to invest in the stock market. 
I used to run across constituents of mine that would receive a 
settlement in a personal injury case or a workman's compensation case 
and I asked them how they were protecting the money they had that they 
needed for the rest of their lives; and an unbelievable number used to 
tell me, oh, I am in the market and I am going to constantly make money 
and eventually be wealthy. Well, I think about a lot of those people in 
a lot of those coffee-house chats that I have had with them over the 
last 5 or 10 years, and I cannot imagine the tragedies their families 
and themselves suffer today as they see this deterioration in the 
market.
  The question is, Is America sliding into a depression because we are 
not productive, because we are not profitable? I think not. I think the 
gentleman from Texas (Mr. Bentsen) made a great point. This is the most 
vibrant economy in the world, in the history of the world; and yet the 
market is reflecting a loss on a daily basis, and I think it is an 
expression of a loss of confidence. Total confidence? No. But a 
sufficiently large portion of confidence to take some of the usual 
available purchasing money that is in the market out of the market, and 
that loss of money reflects the downward trend of prices.
  Has it been discriminatory? Not really. It is not the bad actors that 
are paying the loan; it is business across the board. It is our very 
substantial capital system that is contracting right before our eyes.
  I heard the President say yesterday that one of his solutions would 
be he is going to double the sentences for the scoundrels. Well, first 
of all, we have not seen any convictions of any scoundrels, so we 
cannot assume any sentences at this point. But I wonder why it is so 
important, what kind of relief will this give the American pensioner or 
401(k) owner if a scoundrel goes to jail for 10 years instead of 5 
years?

                              {time}  1815

  Does it really matter? Does it get one cent back for the pensioner or 
the person who needs this money for retirement, or for the senior 
citizen who is indeed using this money in retirement? I think not.
  So as we look at this issue, I get little solace as an individual or 
as a representative of so many of these pensioners and senior citizens 
than to think we are going to fill up the jails with these scoundrels. 
That is not going to give them one dollar more for them to have the 
quality of life that they have become used to.
  I think we have to look prospectively into the future, to what this 
means and what it can mean, and what is this disease or infection that 
is affecting the capital markets of America.
  I come to the conclusion that the most important thing is that we 
stabilize the capital markets of the United States, and the most 
important way of doing that is to find a way, either by statute or 
regulation or by the

[[Page H4483]]

industries themselves, of disclosure of what the facts are.
  So I think, first and foremost, we have to find a short period of 
time and make sure the corporations, most of them that are traded on 
the exchanges, go back and do proper auditing and accounting, and make 
a full restatement and disclosure of what they have there.
  We cannot afford a daily, weekly, or monthly bleed of major 
corporations failing because of improper accounting procedures or other 
internal procedures, to take the respect and integrity out of those 
institutions and infect and affect the other institutions with a loss 
of credibility among the investing public.
  Secondly, once we stabilize the markets, it seems to me that we have 
to move forward with a program, and hopefully this is what I address to 
the President.
  I would say, Mr. President, we do not need a weak legislative 
response or a weak executive response, and 2002 is not a lot different 
from 1902. What we need is a member of the President's own party to 
make a revisit to America. We need a Theodore Roosevelt. We need 
someone who responds with looking at what the problem is, recognizing 
that it is systemic in some respects, it is dangerous, it could 
ultimately lead to a deep recession or, in fact, depression, and could 
destroy the quality of life we have known in this country over the last 
10 years.
  It is up to the leadership of the President, together with private 
industry and the private market, to structure a response to this 
problem that is sufficient not to be overbearing and strangle our 
capital market system, but sufficient to send the word and the message 
and the standards that the type of activities that have been uncovered 
in the last several months will not be tolerated in the future; they 
will be disclosed to the American public, the investing public; and 
that, where necessary, government will set parameters to stabilize our 
markets, bring us back to relative security that truth is known, and to 
reinforce a very successful capital system.
  I add only one respect: I agree with Secretary O'Neill in regard to 
the fact that this is not a crisis that all businessmen or executives 
are crooks. There are just a small number, but there are more than a 
few. This is not a total failure of the capital markets of America, but 
it is a bumpy road, and could be serious if not patched.
  This is not a time for us to wring our hands and try and do as little 
as possible to prevent disturbance to our friends or our supporters; 
this is a time to rise above politics and recognize that the very 
structure and position of the United States of America is at risk.
  We need the strength of a strong Commander in Chief. We need a second 
Theodore Roosevelt.


                Announcement by the Speaker Pro Tempore

  The SPEAKER pro tempore (Mr. Gutknecht). The Chair would advise all 
Members to direct their remarks to the Chair.
  Mr. LaFALCE. Mr. Speaker, one of the most important subcommittees of 
the Committee on Financial Services is the Subcommittee on Financial 
Institutions and Consumer Credit, and the ranking Democrat on that 
serves as the chief voice for consumer protection within the committee 
and the House of Representatives. That is the gentlewoman from 
California (Ms. Waters).
  Mr. Speaker, it is my pleasure to yield to the gentlewoman from 
California (Ms. Waters).
  Ms. WATERS. Mr. Speaker, I thank the gentleman from New York (Mr. 
LaFalce) for taking this time out for us to come to this floor and talk 
about one of the biggest crises confronting this country today.
  I would like to start with an observation. Yesterday, the President 
of the United States of America was on Wall Street. He was up on Wall 
Street, and he was expected to give a very, very tough speech. He had 
signaled the press that he would give a very tough speech on Wall 
Street on corporate responsibility.
  Well, the President went to Wall Street, and it was staged very well. 
The curtain that hung behind him, the backdrop, had ``corporate 
responsibility'' written all over it, and he had great opening 
statements.
  Of course, before getting into the subject matter, he talked about 
terrorism and how we were hunting down the terrorists who seek to sow 
chaos, and talked about his commitment. And, of course, he got a big 
applause on that, because Americans are concerned about terrorism, and 
the President knows when he speaks about terrorism, especially in New 
York, where we experienced terrible devastation, that that will soften 
up any crowd.
  But then he went on into the speech, and many people sat watching, I 
am sure, as I did, wondering when was he going to get tough. He 
mentioned in the speech that we have learned of some business leaders 
obstructing justice and misleading clients, falsifying records, and 
business executives breaching the public trust and abusing power.
  He kind of talked about that, and the CEOs that he had learned about 
earning tens of millions of dollars in bonuses, but he did not call any 
names. He did not call any names, despite the fact that we had just 
come from the Committee on Financial Services, where we had the top 
management and ex-management of WorldCom before us. We had very well 
documented that there had been accounting tricks where the operating 
expenses had been moved over to the capital column, which made the 
bottom line look bigger than it was, and the company look healthier 
than it was.
  However, he did not call the name of Enron. He did not call the name 
of WorldCom. He did not mention the names of any of those who have been 
prominent in the news. He could not let it come out of his mouth. He 
could not say anything about Arthur Andersen and Tyco and Rite-Aid and 
Global Crossing and Xerox.
  I think people expected him to call names and to talk about what we 
really have learned thus far, and to talk about what we were going to 
do about it. But as we further examine the speech, we found that the 
President talked a lot about more bureaucracy. He is going to create a 
new corporate fraud task force, headed by the deputy attorney general, 
which will target major accounting fraud and other criminal activities 
in corporate finance. The task force will function as a financial 
crimes SWAT team, overseeing the investigation of corporate abusers and 
bringing them to account.
  Now, I am considered a liberal, a progressive. I am the one that they 
point the finger at and talk about creating bureaucracy. They say that 
people who believe as I do oftentimes do nothing but spend government 
money, create more bureaucracy, and we have to get rid of government; 
too much government.
  Not only did he create more bureaucracy in his speech, he asked for 
$100 million, $100 million to give to the SEC. Now, this is a 
conservative spending money. Well, of course, this President has shown 
since he has been in office that he sure knows how to spend money. We 
are back into a deficit situation.
  So he went to Wall Street, he talked about spending $100 million 
more, talked about creating again another task force, but I forgot to 
tell the Members, at the top of his speech he said to the business 
people who were there, do not forget, in so many words, I have done tax 
reform, and I am now making it permanent. So at the same time that he 
is spending money, he is talking about how he is going to allow them 
not to be able to pay more taxes.
  Mr. Speaker, I would just like to say, we have to get tough on 
corporate crime. We have to call it for what it is. We have got to put 
people in jail. They have to do some time. This business of having all 
of these stock options, this exorbitant pay, the severance pay, like 
the executive of Tyco who left with $100 million in severance pay, this 
business of corporate heads being able to borrow huge sums of money, 
like Mr. Ebbers, who got $408 million, we do not know what the terms 
are. We do not know if that was collateralized. All we know is they sit 
in the board rooms and they pass the money among themselves while the 
workers lose their jobs, the investors lose their investments, and the 
companies get driven in the ground.

  Enough is enough. No, Mr. President, you were not tough enough. You 
were not believable. You did not send the real signal. You did not do 
anything. As a matter of fact, Wall Street did not pay any attention to 
you. There was no rally. As a matter of fact, I think we

[[Page H4484]]

lost some points on Wall Street after you spoke. Get real, Mr. 
President. If you want to get tough, the American people are waiting.


                Announcement by the Speaker Pro Tempore

  The SPEAKER pro tempore (Mr. Kirk). The Chair will remind Members 
that they will direct their remarks to the Chair and not to the 
President.
  Mr. LaFALCE. Mr. Speaker, I thank the Chair for his reminder.
  Mr. Speaker, I yield to the distinguished gentlewoman from California 
(Ms. Sanchez).
  Ms. SANCHEZ. Mr. Speaker, I thank my ranking member, the gentleman 
from New York (Mr. LaFalce), who has been doing such a great job, for 
yielding to me. I am going to miss him at the end of this year.
  Mr. Speaker, I am a businesswoman, and I am really alarmed and 
saddened about what is going on, not just on Wall Street and in 
American business in particular, but how it is affecting us in our own 
hometowns, the confidence of people investing in the market.
  As a former person in the financial markets, I am just dismayed at 
how this is affecting what I think is really a great institution and 
something that really marks our country apart from others, and that is 
the whole idea of American business.
  I know what it feels like to start a business, to find dollars, to 
grow the business, to make it a corporation, to hand that company over 
to professional management when it is time as an entrepreneur to get 
out and seek for more. I know what it feels like to see my product on 
the grocery shelves when I go shopping. I know how excited I get when I 
first see my ads on national television about the product or the 
service I am doing. I think that is a great thing.
  I think that is what marks America as such a different society than 
any historically or any currently. But there are always these excesses, 
and these questions and these demands, these questions that pop up: Why 
should corporations pay taxes?
  I always have to sit back and think, corporations should be happy to 
have the type of system that we have in the United States. They should 
be happy that we have infrastructure; that we have railways, freeways; 
that we have ports, that we have the Internet; that we have banking; 
and that we train employees by sending them to universities, and that 
we pay for that with government funds.
  They should be happy that we have information systems. If we go to do 
business in another country somewhere in the world, we do not 
necessarily have that. I remember doing business in Mexico, and every 
afternoon at 2 or 3 p.m. the electricity would shut off, and we were 
dead for a couple of hours' worth of business time.
  We should be happy as corporations that we have this type of 
infrastructure. We should understand that we need to pay for that. We 
should be paying for it. They do in other countries. They have to put 
in their own road in other countries. They have to put in their own 
sewer system in other countries. Here we are doing it as a people to 
keep American business going, to keep these jobs.

                              {time}  1830

  But what happens with these corporations that want to do off-shore, 
that would take them off Stanley brands? We do not want to pay taxes 
here, let us make it a foreign corporation, tell everybody we are still 
American made but we do not want to pay taxes. Why do these 
corporations not want to pay their fair share?
  My father used to say we do not get something for nothing. Everything 
in the long run costs. I took a look these last 3 or 4 years at this 
market, every business going up, well, every business that did not have 
a product, their stock going up and up and up and everybody getting in 
and people telling me at cocktail parties, ``You are stupid for not 
having your money in there, Sanchez.'' And there I stayed with these 
companies that had a product. I could see it. I could feel it. I could 
eat it. And I understand the pressures on those managers. Everybody 
else was getting money, everybody was getting bonuses, their stock 
options were going up, and these people making a real product, they 
were not seeing these increases. But to fake increases in one's own 
company in order to compensate oneself, that is also wrong. I mean two 
wrongs do not make a right. We do not get something for nothing.
  And auditors, my God, what happened? I mean I was trusting them as an 
investor, that they were telling me the numbers of what was going on in 
the company. I have never believed in all these off balance-sheet 
transactions and loans and things that only had to be footnoted and one 
had to do 14 different inquiries until they got the information on what 
kind of deal was going on behind what. And, yes, things get more 
complicated and financing comes from all around the world and people 
take different pieces and corporations buy each other and everything 
going on, but we need to get back to the basics. We need good rules. 
That is a part of Congress. We need good rules. We need to set good 
rules. We need real regulatory agencies, and we need to fund them so 
that they are doing the work. We need to anticipate conflict of 
interest, and we need to ensure a way to stop that from happening, and 
we need to make examples of the bad guys.
  Mr. President, I call on you, make examples of these bad guys.
  Mr. LaFALCE. Mr. Speaker, I yield to the gentleman from California 
(Mr. Sherman).
  Mr. SHERMAN. Mr. Speaker, first let me say what an honor it has been 
under the gentleman from New York's (Mr. LaFalce) leadership over the 
last 4 years on the Democratic side of the Committee on Financial 
Services.
  Second, let me express some disappointment in the President's speech 
yesterday. In his preview of his speech that was picked up by AP and 
other news stories, he said that he was planning to create a ban on 
huge loans to corporate executives; but when he actually delivered the 
speech, he simply called upon the corporations not to make such loans, 
which is like calling on a pack of wolves to become vegetarians.
  It was indeed a disappointing speech, but what was more disappointing 
was the President's belief based on his own experience at Harken that 
the SEC is engaged typically in reviewing the materials filed with them 
and then, when they need to be restated, demanding that restatement. 
The fact is that the Chair of the SEC has refused to provide our 
committee with even a cost estimate of what it would take to engage in 
the very kinds of activities only as to the top thousand corporations 
in America that the President states in his press conference that he 
believes that the SEC is already engaged in.
  In answering questions about Harken, the President said he thought 
the SEC was engaged in these activities. The fact is the SEC did not 
read Enron's financial statement for 4 years in a row. So we need an 
SEC that rises to the President's image of what they do, and in order 
to do that we might need a chairman who actually wants to achieve that 
objective.

  Mr. LaFALCE. Mr. Speaker, I yield to the gentleman from New York (Mr. 
Israel).
  Mr. ISRAEL. Mr. Speaker, I thank the gentleman, and certainly his 
leadership will be missed.
  Mr. Speaker, I represent a middle-class, middle-income district on 
Long Island, New York. The people I represent play by the rules. They 
pay their taxes. They pay their dues. They raise their kids with the 
values of hard work and fairness. They know the value of real 
punishment for real crimes. And they know there is no difference 
between stealing with a gun and stealing with an accountant's pencil.
  The worst crime that was committed in this crisis was the theft of 
time. The worst crime is that people's retirements were stolen away 
from them because the value of their 401(k)s, their pensions, their 
retirements will plummet as a result of this scandal, adding more time 
of hard work and paying taxes. This was the theft of time and that 
cannot be forgiven. People's retirements have been stolen. And where is 
the punishment? Ken Lay and his cronies continue to walk freely. There 
have been no personal bankruptcies for senior management. There have 
been no jail sentences, no disgourgements. There has been no 
accountability, but plenty of American corporations even today will 
continue to register themselves in Bermuda to escape paying their fair 
share of American taxes to support our troops in Afghanistan.

[[Page H4485]]

  The American people will be looking at this House of Representatives 
wanting an assurance that we will return this country and its 
businesses to fair play and playing by the rules.
  Mr. LaFALCE. Mr. Speaker, I thank the gentleman.
  We have lost 5 to $7 trillion. Now a significant portion of that, not 
all of that, is because of corporate mismanagement, earnings 
manipulation by officers, by directors, by the auditors, by the 
research analysts having conflicts of interest, by inadequate 
regulation from the self-regulatory organizations, by inadequate 
regulation from the SEC.
  We need to correct the problem. We need strong legislation to correct 
the problem. We do not need a powder puff effort. We do not need a 
cosmetic approach. And I urge everyone in this House to get behind 
strong meaningful legislation such as the bill that I have introduced 
that has been endorsed by so many consumer groups across America.

                          ____________________