[Congressional Record Volume 148, Number 93 (Thursday, July 11, 2002)]
[Senate]
[Pages S6617-S6619]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                          INVESTOR CONFIDENCE

  Mr. REED. Mr. President, I rise in strong support of the Sarbanes 
legislation.
  We have been buffeted over the last several months on a daily basis 
with news of companies with accounting practices that have led them to 
bankruptcy, have left them without the means to carry on their 
business, have left their workers without jobs, and have devastated 
their pension funds. Day after day after day, a litany of accounting 
irregularities surface on the front pages of America. It has translated 
into a growing lack of confidence in our markets.
  We are here today with the critical role of reassuring the American 
public that we will pass legislation quickly that will restore their 
confidence in our financial system.
  This crisis is deepening with each day. Therefore, we must move 
forward deliberately, carefully but very quickly, to ensure that we can 
communicate with the American people and let them know we are aware of 
these problems and we are correcting them.
  I just came from a press conference to which we invited 
representatives who manage public pension funds. It is a staggering 
sense that we are seeing out there, not just problems on Wall Street 
but problems on Main Street. Essentially what has happened is that the 
American public has become invested heavily in our capital markets, in 
our equities, not just individually but particularly through pension 
funds. Sixty percent of the assets of defined contribution plans are 
invested in equities or mutual funds. About 70 percent of all of these 
funds together is creating a situation in which, when Wall Street has a 
problem, it translates to every corner of the country.

  We have to step forward. We are stepping forward. The Sarbanes bill 
is a strong bill. It has been made even stronger with the adoption 
yesterday, in a bipartisan vote, of the Leahy amendment. We are going 
to create an oversight board for accountants that will truly be 
independent and will have the force and the teeth to get the job done.
  The Sarbanes bill also proposes the serious separation of the 
auditing function and other consulting functions that accountants can 
perform. If you

[[Page S6618]]

are going to be an auditor, you have to be an auditor, not an auditor 
and consultant. This is an important step forward.
  Also importantly, the Sarbanes bill will require that the SEC receive 
the necessary resources to get the job done. There have been for 
decades extensive security laws on our books. Unless these laws are 
enforced, they are not effective. Frankly, some of what we are 
discovering is a lack of enforcement. You have the SEC that is 
overwhelmed with filings and not capable of reviewing all those 
filings, not capable of taking the kind of proactive action which is 
necessary to avert the crisis we have seen.
  We are indeed at a critical moment in our history. We have seen the 
market over the last few days take huge losses. That suggests that not 
just the American public but the world is growing more and more 
concerned with our accounting practices, our transparency, whether or 
not a financial statement by an American publicly traded company can be 
relied upon.
  One of the ironies of this is a year or 2 ago, 3 or 4 years ago 
certainly, we were out offering our market to an emerging economy in 
Russia as the model; in a way, sort of looking at them, saying: Boy, if 
only they would adopt our accounting practices, the kind of tough rules 
we have, it would be a huge step forward in their development as a 
market economy.
  Well, ironically, today we have discovered that what we thought was a 
very thorough, comprehensive system is not as thorough and 
comprehensive as we thought and did not have the kind of integrity we 
need to ensure investors that when they read a report from an American 
company, that report is accurate. That used to be the standard.
  I mentioned previously that I had the occasion to attend a press 
conference with representatives of public pension funds. One of the 
individuals was the first comptroller of New York City.
  Let me give you an idea of the dimension of a problem we are talking 
about. On an annual basis, the city of New York has been contributing 
about $600 million a year to their pension funds in order to make sure 
those pension funds are actuarially sound, that they can pay the 
benefits for all of their retirees. They still can do that today, but 
the pricetag has gone up to over $1 billion in a year. They estimate, 
if the market continues, that they will be paying on the order of $3 
billion in a few years. That money comes from taxes paid by the people 
of New York, and it comes from cutting other programs. It is a huge 
problem.
  At the core of the problem is this lack of confidence, the daily 
spate of news reports saying essentially that the accounting practices 
of major publicly held companies are absolutely erroneous. We have to 
reverse that tidal wave, and we have to do it quickly. We can begin to 
do that by strong support of the Sarbanes bill.
  Many people have called this an investors' bill of rights. I think 
they are correct. I commend and compliment the chairman of the Banking 
Committee, Senator Sarbanes.
  This is an example of how legislation should be done. This is an 
example of a careful, thoughtful process through the committee. I know 
the Presiding Officer, as a member of that committee, contributed 
substantially to that process. It was a delight and pleasure to work 
with Senator Sarbanes on the Banking Committee, to see that careful, 
thoughtful approach--with 10 hearings, witnesses from every sector of 
our economy, including perspectives from those who manage pensions, 
those who are security experts, and those who are business leaders. All 
of those perspectives were brought together in this legislation, which 
is thorough, comprehensive, and, in my view, outstanding.
  Then, also, to be able to fashion a bipartisan group of support was 
critical here and throughout our country. This is a textbook example by 
a master of how to move legislation through this body, but, more 
importantly, how to respond to the compelling needs of the American 
public. I commend and thank Senator Sarbanes and his staff for their 
great effort.
  We are at a point we can begin to see--if we move forward in the next 
few days--a new regime of securities laws that will feature an 
independent, full-time professional oversight board to monitor the 
behavior of accountants. We will also see guidelines on which nonaudit 
services are prohibited, so there will be a separation between the 
audit and nonaudit services. That should prevail. This is very 
important.
  I was an attorney in private practice and did corporate work. 
Frankly, I assumed that what I saw in that report, signed by a 
distinguished auditing firm, was gospel and not to be contradicted; 
that it was the final judge about disputes on costs and facts about 
what the company was doing and what they were disclosing and what they 
didn't have to disclose. I always assumed that it was the accountants 
who were answering those tough questions. They were literally the bad 
guys. There were a lot of creative CEOs, CFOs, and lawyers. In fact, 
they were often satirized, and the most uncreative part of the 
management was that auditor who was telling you, no, you cannot do 
this. That, obviously, over the last few years, has eroded 
tremendously.
  With the Sarbanes bill, we will clearly delineate those activities 
that can and should be performed by an auditor. It will also shore up 
tremendously corporate responsibility and require CEOs and CFOs to 
certify the accuracy of the company's financial statements. It will 
also increase the amount of the financial disclosure that a company 
must conduct in the course of their business.
  Many of the exotic arrangements that brought down Enron were never 
disclosed to shareholders and the investing public. As a result, those 
entities, when discovered--such as CHEWCO--were the instruments of the 
demise of that company. Those kinds of off-balance-sheet transactions 
will have to be disclosed if the bill passes, and I think it is 
necessary to do that.
  We are also dealing with the very real need for increasing funding 
for the SEC. That is a critical component of the legislation.
  The President was in New York City making a speech, calling for $100 
million--or probably closer to $300 million, or more--that we need to 
ensure that the SEC has to conduct their activities. So we are moving 
forward and ensuring that, I hope, we do this.
  Our record over the last several years has not been as aggressive as 
I would have liked it to be. I supported a measure a few years ago--in 
fact, I think last year--in which we passed legislation that lowered 
various fees that are involved in securities transactions, with the 
idea that we would, at the same time, increase the pay within the SEC 
to attract better workers and more sophisticated individuals there, to 
complement what is going on in the private market where legal salaries 
are very high. The transaction reduction fee went down, but the pay 
parity never went into effect. So I think we have to follow through not 
only with this authorization but also with appropriations to make sure 
that can occur.
  So we have a situation where we are moving forward and in which the 
Sarbanes legislation, I hope, will be complemented by legislation 
proposed by Senator Kennedy to directly affect pension operations in 
the United States. These two pieces of legislation--hopefully brought 
together quickly, passed through this body and by the other body, and 
signed by the President--will send a signal to the American public, the 
investing public in the U.S. and around the world that our markets are 
the best in the world, that they can rely upon every word in a 
financial report, and to have fully disclosed the financial conditions 
of publicly held companies in the United States. If we do that, it will 
be a huge benefit not just to Wall Street but to Main Street.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. GRAMM. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. GRAMM. Mr. President, I support the McConnell amendment. I think 
it is a good government amendment. I think it is a full disclosure 
amendment. I don't even see why we are voting on it. I am convinced it 
will be defeated because any good government amendment that has 
anything to do with plaintiffs' attorneys is routinely defeated in the 
Senate.

[[Page S6619]]

  Having said that, I make note of the fact that the Dow is down again 
today. I do not believe the primary problem in the markets today is the 
disease we are fighting. The primary problem we have now is fear about 
the absurd prescription of the doctor. I believe there is concern that 
in this frenzy, things are going to be done that will have a long-term 
negative impact on the capital market.
  If you take the bill the House has already passed and the Senate bill 
as it is now, and you take the President's position reiterated 
yesterday by the Secretary of the Treasury, we have the makings of a 
good bill that can be broadly supported.
  I reiterate my hope and desire that we bring this debate to a close. 
We could, by unanimous consent, have a vote on cloture today. We could 
deal very quickly with germane amendments. We could pass this bill 
tonight, and next week we could be going to conference. That would be 
prudent policy.
  We are going to have a lot of amendments offered, if my list is 
indicative, that if anyone really believed they would be adopted, would 
be terribly frightening to investors.
  The PRESIDING OFFICER. The Senator's 2 minutes has expired.
  Mr. GRAMM. I ask unanimous consent for 1 additional minute.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. GRAMM. If anybody took this list of amendments seriously, they 
would not be willing to risk thousands, millions, or billions of 
dollars. But they should not take this list seriously because these 
amendments are not going to become law.
  The sooner we bring this debate to an end, the sooner we pass this 
bill in the Senate, the sooner we go to conference, the sooner we put 
together a bill that will represent a compromise, the more certainty 
there will be on Wall Street and the quicker we will rebuild equity 
values in America and rebuild confidence in our market.
  I urge my colleagues, let's move ahead. Nothing good is going to 
happen today to this bill. Nothing bad is going to happen either, I 
make that clear, but it will not be clear to people watching this 
debate. The sooner the debate ends, the better off we will be. The 
sooner we get to conference, the sooner we will have a bill. That 
cannot come soon enough to suit me.
  The PRESIDING OFFICER. Who yields time?
  The Senator from Kentucky.
  Mr. McCONNELL. Mr. President, I expect shortly my amendment will be 
tabled. That will be further evidence that there is not a majority of 
the Senate willing to confront the issue of either union corruption as 
we discovered yesterday or, in the case of the amendment about to be 
voted on, plaintiff's lawyer misconduct.
  The underlying amendment, the Edwards-Enzi amendment, addresses the 
issue of corporate counsel, defense counsel misconduct, and it seemed 
only appropriate to me that we deal with the other side of the 
equation; that is, the lawyers who represent plaintiffs in Federal 
claims and in Federal courts.
  This is a long overdue matter to be dealt with. If not now, when? My 
good friend from Maryland said this is an inappropriate bill to deal 
with it, so I suggested maybe he would support me in bringing up my 
matter freestanding with a time agreement; he smiled, but clearly the 
answer was no.
  Mr. SARBANES. Will the Senator yield?
  The answer was no. I didn't smile. I said no and smiled along with 
it.
  Mr. McCONNELL. Mr. President, I respectfully correct the observation, 
in case the Senator from Maryland misunderstood. I didn't doubt that 
his answer was no. He doesn't want to deal with this at any point, 
ever--not now, not tomorrow, not ever.
  The issue before the Senate is whether it is appropriate to deal with 
client misbehavior when they are representing plaintiffs, as well as 
when they might be representing defendants.
  My amendment is very simple. I would love to have gone further. My 
amendment does not cap fees, does not cap damages. It simply deals with 
the following: Providing, for the client, information about the 
arrangements under which the client is retaining the lawyer at the 
beginning, in the middle, and at the end of the case so the client 
fully understands the terms of the arrangement; second, that there be a 
45-day bereavement rule established 45 days after the occurrence of the 
accident where the victims and their families would not be harassed by 
those seeking to represent them. It is just a 45-day bereavement rule 
which we already did under Federal law for airplane accidents.

  I hope this amendment will be adopted. It is very reasonable and very 
appropriate to this bill.
  I yield the floor.
  The PRESIDING OFFICER. Who yields time? The Senator from Maryland.
  Mr. SARBANES. Mr. President, what is the time situation? I have 2 
minutes?
  The PRESIDING OFFICER. The Senator from Maryland has 2 minutes and 
the Senator from Wyoming has 2 minutes. The Senator from Maryland.
  Mr. SARBANES. Mr. President, I urge my colleagues to table this 
amendment. I do not know what amendment the Senator from Kentucky will 
come with next out of his grab bag, but he has obviously got a whole 
set of pet projects that he has been husbanding there in his committee 
and that he will seek to offer. They are not relevant to this 
legislation.
  Here we are again trying to deal with an issue that is relevant. I 
suggest to the distinguished Senator from Kentucky that he allow the 
second-degree amendment staffer to take the weekend off so we do not 
have to continue to go through this exercise of being confronted with 
these second-degree amendments not relevant to the legislation. We have 
important legislation to deal with here. We have some good amendments 
pending out there. This repeated effort to just gum up the works is 
difficult to understand.
  In any event, I urge my colleagues on the vote that is shortly to 
come to vote to table the McConnell amendment.
  The PRESIDING OFFICER. The Senator from Wyoming is recognized.
  Mr. ENZI. Mr. President, we have, I think, before us, about 60 
amendments. I join my ranking member, the Senator from Texas, in his 
comments about how we need to get this bill done as quickly as 
possible. The stock market is dropping. It may be because of what we 
are doing. It may be because of the need to have this bill done. Either 
way, getting this bill done will give some assurance to the stock 
market both that we are not dabbling in it anymore, and that we have 
completed our work and have provided a solution.
  As a result--and I regret that it is on this amendment with my friend 
from Kentucky--I will begin making tabling motions on amendments that 
do not have a direct aspect to the bill. I also would be doing that to 
amendments that put specific accounting language into the bill, even if 
it is relevant. This bill is not designed to put in specific accounting 
language; it is designed to set up a process for getting to specific 
accounting language. That is a very fine distinction and a very 
important one if we want to have the kind of stock market and the 
companies that we envision.
  With those comments, at this time I move to table the McConnell 
amendment.
  The PRESIDING OFFICER. The Senator from Nevada.
  Mr. REID. I ask for the yeas and nays.
  The PRESIDING OFFICER. Is there a sufficient second?
  There is a sufficient second.
  The yeas and nays were ordered.
  The PRESIDING OFFICER. The majority leader.
  Mr. DASCHLE. I ask unanimous consent we be permitted 1 minute to make 
an introduction.
  The PRESIDING OFFICER. Without objection, it is so ordered.

                          ____________________