[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.
____________________