Congressional Record, Volume 148 Issue 94 (Friday, July 12, 2002)

[Congressional Record Volume 148, Number 94 (Friday, July 12, 2002)]
[Senate]
[Pages S6687-S6700]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

PUBLIC COMPANY ACCOUNTING AND INVESTOR PROTECTION ACT OF 2002--
Continued

Mr. REID. Mr. President, will the Chair inform us what the matter
before the Senate now is?
The PRESIDING OFFICER. The Daschle second-degree amendment to the
Edwards first-degree amendment.
Mr. REID. That is Daschle for Levin; is that not right?
The PRESIDING OFFICER. That is correct.
The Senator from Nevada.
Mr. ENSIGN. Mr. President, I raise a point of order that the pending
second-degree amendment is not germane to the bill postcloture.
The PRESIDING OFFICER. The point of order is well taken. The
amendment falls.
The deputy majority leader.

Amendment No. 4286, as Modified, to Amendment No. 4187

Mr. REID. I call up amendment No. 4286, and I ask unanimous consent
that Carnahan amendment No. 4286 be modified with the change at the
desk.
The PRESIDING OFFICER. Without objection, it is so ordered. The clerk
will report.
The legislative clerk read as follows:

The Senator from Nevada [Mr. Reid], for Mrs. Carnahan, for
herself, Mr. Dodd, Mr. Durbin, Mr. Levin, Mr. Harkin, and Mr.
Corzine, proposes an amendment numbered 4286, as modified, to
amendment No. 4187.

Mr. REID. Mr. President, I ask unanimous consent that the reading of
the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:

(Purpose: To require timely and public disclosure of transactions
involving management and principal stockholders)

At the end of the amendment, insert the following:
(b) Electronic Filing.--Notwithstanding the provisions of
section 403 of this Act, section 16(a)(2) of the Securities
and Exchange Act of 1934, as added by section 403, is amended
to read as follows:
``(2) if there has been a change in such ownership, or if
such person shall have purchased or sold a security-based
swap agreement (as defined in section 206B of the Gramm-
Leach-Bliley Act) involving such equity security, shall file
electronically with the Commission (and if such security is
registered on a national securities exchange, shall also file
with the exchange), a statement before the end of the second
business day following the day on which the subject
transaction has been executed, or at such other times as the
Commission shall establish, by rule, in any case in which the
Commission determines that such 2 day period is not feasible,
and the Commission shall provide that statement on a publicly
accessible Internet site not later than the end of the
business day following that filing, and the issuer (if the
issuer maintains a corporate website) shall provide that
statement on that corporate website not later than the end of
the business day following that filing (the requirements of
this paragraph with respect to electronic filing and
providing the statement on a corporate website shall take
effect 1 year after the date of enactment of this paragraph),
indicating ownership by that person at the date of filing,
any such changes in such ownership, and such purchases and
sales of the security-based swap agreements as have occurred
since the most recent such filing under this paragraph.''.

The PRESIDING OFFICER. The Senator from Missouri.
Mrs. CARNAHAN. Mr. President, I am offering this amendment on behalf
of myself and Senators Dodd, Dubbin, Levin, Harkin, and Corzine.
The Senate is engaged in an important debate about how to improve our
Nation's financial system. Today I am offering an amendment that is
intended to provide more timely information to average investors.
America has the most vibrant and dynamic economy in the world. Our
robust and resilient capital markets are the foundation of our economy.
But the success of those markets depends on the free flow of accurate,
reliable information.
Recent disclosures about the inaccuracy of some companies' financial
reports have shaken that confidence. I am pleased the Senate has acted
quickly to take up this important reform legislation. I believe that
this bill makes tremendous progress in improving the quality of
information available to the markets. In the interest of further
improvement, I am offering an amendment to modernize the method of
disclosure required when insiders trade in their own companies' stock.
One warning sign that a company may be in trouble is when its
executives are selling large amounts of company stock, as occurred at
Enron. I have learned, however, that information about insider selling
is not easily accessible.
Under our current system a company's officers are required to file a
disclosure form with the Securities and Exchange Commission, SEC, any
time they sell securities of their company. Tens of thousands of these
forms are filed annually. These are not complicated forms. I have a
copy here. It is a simple 2-page form.
The Office of Management and Budget estimates that the form should
not take more than 30 minutes to fill out. With capital markets as
sophisticated as they are in the U.S., information must be available
quickly to be useful. However, insiders currently have up to six weeks
to file their disclosure forms. And the overwhelming majority of these
forms--95 percent--are filed on paper, rather than electronically.
The Banking Committee has already addressed the issue of timely
disclosure. This legislation would require disclosure of sales within 2
days, a vast improvement over the current deadlines. However, this
legislation is silent on the issue of modernizing this arcane paper
filing system.
Right now, there is no way for an investor in Missouri to quickly
learn that a company executive is selling off company stock. The only
ways to get the information are to go to a reading room at the SEC in
Washington, or to write a letter to the SEC. These written requests may
take weeks to process. This is unacceptable in the electronic age.
My amendment requires that information about insider sales of
publicly traded companies be filed electronically. The SEC would then
be required to make the forms available to the public over the
Internet. Any company that maintains a corporate Web site would be
required to post these disclosure forms on the Web site. The SEC,
itself, has acknowledged the value of having these forms filed
electronically.
I have here a letter from SEC Chairman, Harvey Pitt. He wrote to me
that ``expedited disclosure of trading by company insiders is
imperative.'' In fact, he applauded the legislation I introduced
earlier this year that requires electronic disclosure.
I ask unanimous consent that a copy of this letter be printed in the
Record.
There being no objection, the letter was ordered to be printed in the
Record, as follows:

U.S. Securities and

Exchange Commission,

Washington, DC, March 1, 2002.
Hon. Jean Carnahan,
U.S. Senate, Hart Office Building,
Washington, DC.
Dear Senator Carnahan: Thank you for your February 14th
letter regarding S. 1897, the Fully Informed Investor Act
which you recently introduced. I share your concerns about
the issues regarding reporting of insiders' securities
transactions that your bill addresses. As we announced on
February 13th, the Commission will shortly propose rules that
would provide accelerated reporting by companies of insider
transactions in public company securities. This is an
integral part of our effort to supplement the periodic
disclosure system with ``current disclosure'' in order to put
information investors want and need into their hands more
promptly.
I also share the view reflected in your bill that expedited
electronic disclosure of trading by company insiders is
imperative, and I applaud your initiative. As you know, the
Securities Exchange Act of 1934, rather than

[[Page S6688]]

rules adopted by the Commission, sets the deadlines for
officers, directors and beneficial owners of ten percent of a
class of equity securities of a public company to report
their trading in those securities. A legislative solution,
therefore, will be necessary to address fully the issue of
investors' timely access to information about insiders'
securities transactions.
While formal Commission comment on legislation is normally
reserved for testimony or a response to a request from a
committee or subcommittee given jurisdiction over the bill,
we would welcome the opportunity to provide you with
technical assistance on your bill if you would find that
helpful. I have asked Casey Carter, the Director of our
Office of Legislative Affairs, to contact your staff to see
if you would like our assistance. Please feel free to call me
or to have your staff call Ms. Carter at (202) 942-0019 if
you have any questions.
Yours truly,
Harvey L. Pitt.

Mrs. CARNAHAN. This is not a new idea. In fact, more than 2 years
ago, in April 2000, the SEC published a rulemaking for its electronic
data system. In that rulemaking, the SEC indicated that it
``anticipated'' making insiders file disclosure forms electronically. I
applaud the SEC for recognizing the need to modernize, but I am
frustrated by the delay. It has been over 2 years since the SEC made
this proposal.
An agency that is responsible for monitoring markets where trillions
of dollars are electronically exchanged ought to be able to develop a
fairly simple electronic database to make this information available.
The Senate now has the opportunity to require the SEC to move
quickly. I am very pleased that the bill I introduced earlier this year
on this subject was included in the House accounting reform bill. The
House has required that insiders file electronically, within one day of
their transactions. The House has also required that corporations
disclose insider sales on their corporate Web sites.
I encourage my colleagues to support my amendment. We should not make
investors wait any longer for these basic reforms.
I yield the floor.
The PRESIDING OFFICER. The Senator from North Dakota.
Mr. DORGAN. Mr. President, I have an amendment at the desk.
Mr. DODD. Mr. President, I ask to be heard on the Carnahan amendment
very briefly. Does the Senator mind?
Mr. DORGAN. How briefly?
Mr. DODD. Two minutes or so.
Mr. DORGAN. I am happy to yield to the Senator from Connecticut,
provided that I am recognized following his presentation.
Mr. DODD. I appreciate that.
The PRESIDING OFFICER. The Senator from Connecticut.
Mr. DODD. Mr. President, I commend my colleague from Missouri for
this very fine amendment. I think it is going to make a strong
difference by improving electronic reporting. It doesn't get the kind
of attention it should.
This is a positive and constructive suggestion. I am a cosponsor of
the amendment and commend the distinguished Senator from Missouri for
offering the amendment. It makes the bill stronger. It is something all
our colleagues will be willing to support. I commend the Senator for
her work.

Amendment No. 4215, As Modified

Mr. DORGAN. Mr. President, I have an amendment numbered 4215 at the
desk. I have submitted a modification of that amendment which I believe
has been reviewed by both sides. I ask for its immediate consideration
and I ask unanimous consent that the amendment be modified.
The PRESIDING OFFICER. Is there objection to laying aside the pending
amendment of the Senator from Missouri?
Mr. SARBANES. Will the Senator yield?
Mr. DORGAN. I am happy to yield.
Mr. SARBANES. Is this the amendment that deals with the offshore
companies?
Mr. DORGAN. Yes.
Mr. SARBANES. I have no objection to setting aside the pending
amendments in order to consider this amendment. I understand upon the
conclusion of the consideration of this amendment we will revert to the
Edwards-Carnahan amendment
Mr. SCHUMER. Reserving the right to object, I believe I have two
amendments that have been cleared by both sides. I would like to offer
them immediately after the Senator from North Dakota.
Mr. SARBANES. We are hoping to get to the Senator from New York. I
make a unanimous consent request that following the disposition of the
amendment of the Senator from North Dakota, we turn to the amendments
referred to by the Senator from New York.
Mr. ENSIGN. Provided that no second-degree amendments are in order to
any of the three amendments.
Mr. SARBANES. Furthermore, upon conclusion of the consideration of
the Schumer amendments, we return to the regular order, which I take it
would be the Edwards-Carnahan amendment.
Mr. REID. Reserving the right to object, Senator Schumer has a number
of amendments on the list. I think we better get numbers of those
amendments before there is an agreement they be next in order.
Mr. SARBANES. Let us withdraw the unanimous consent request and make
it only that Senator Schumer be recognized after the disposition of the
Dorgan amendment and we can address those questions.
The PRESIDING OFFICER. Is there objection?
Mr. ENSIGN. Reserving the right to object, just to make sure we have
this clarified, the unanimous consent request is just to the Dorgan
amendment pending, and we would not object as long as the second-degree
amendment is not in order to his amendment.
The PRESIDING OFFICER. Without objection, it is so ordered.
The Senator from North Dakota.
Mr. DORGAN. Mr. President, first of all I will offer an amendment
that I believe will be accepted. I understand the process is that those
who have amendments that will be accepted will be allowed to offer them
and those whose amendments are not approved by both sides will not be
allowed to offer them. In my judgment, this is not the kind of
procedure we ought to use when considering this legislation. But I
understand the Senator from Texas indicated he will object to setting
aside or laying aside an amendment for the purpose of offering another
first-degree amendment unless he agrees with the amendment. I will talk
a little bit more about that in a couple of minutes.
I had asked unanimous consent my amendment be modified. Was the
consent agreed?
The PRESIDING OFFICER. It was agreed to.
Mr. DORGAN. Is amendment No. 4215 called up at this point?
The PRESIDING OFFICER. The pending amendment is set aside and the
clerk will report.
The legislative clerk read as follows:

The Senator from North Dakota [Mr. Dorgan], for himself and
Mr. Graham of Florida, proposes an amendment numbered 4215,
as modified.

Mr. DORGAN. I ask unanimous consent reading of the amendment be
dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:

(Purpose: To clarify that the requirement that certain officers certify
financial reports applies to domestic and foreign issuers)

On page 82, after line 24, insert the following:
(c) Foreign Reincorporations Have No Effect.--Nothing in
this section 302 shall be interpreted or applied in any way
to allow any issuer to lessen the legal force of the
statement required under this section 302, by an issuer
having reincorporated or having engaged in any other
transaction that resulted in the transfer of the corporate
domicile or offices of the issuer from inside the United
States to outside of the United States.

Mr. DORGAN. Let me describe what this amendment is briefly. There was
a Wall Street Journal article on July 8 this week titled: ``Offshore-
based Firm's Officials Won't Have to Swear to Results.''

The Securities and Exchange Commission's new order
requiring chief executives and chief financial officers of
the nation's biggest companies to swear to the accuracy of
their financial results was intended to restore investors'
battered confidence. But two of the companies that have
promised the biggest concerns don't have to comply.
Why? Because Tyco International Ltd. and Global Crossing
Ltd. are based in Bermuda, even though they conduct many of
their operations and have main office in the United States
and are listed on the U.S. stock exchanges.
Securities and Exchange Commission spokesmen said large
foreign-domiciled companies over which the SEC has
jurisdiction,

[[Page S6689]]

such as and Global Crossing and Tyco, were excluded from the
list because the agency wanted to issue the order ``very
quickly.'' Therefore it focused only on U.S. companies.

So the Securities and Exchange Commission says that the chief
executives and chief financial officers of some of the biggest
companies must swear to the accuracy of their financial results. But in
recent times, we have had U.S. corporations decide that they want to
renounce their American citizenship and they want to become citizens,
for example, of Bermuda. That is called a corporate inversion. They
have essentially renounced their American citizenship, saying we are
now corporate citizens of another country.
Guess what? Under the SEC order, they are rewarded for leaving the
United States, in that their chief executives no longer have to certify
financial results. The SEC says: We had to get this done quickly, and
we don't expect to change it at this point.
Why does a company renounce its U.S. citizenship? They do it because
they don't want to pay U.S. taxes. Very simple. If they can become a
citizen of another country and renounce their U.S. citizenship, they
can save substantial money on their U.S. tax bill.
At a time when we are at war with terrorists, is that a patriotic
thing to do? No, I don't think so. I hope the Senate, and I certainly
encourage my colleagues to do this, will shut that door tight and stop
these corporate inversions. Stop these corporations from creating a
sham of renouncing their U.S. citizenship in order to avoid paying U.S.
taxes.
It might be interesting to ask companies such as Tyco: If you get
yourself in trouble someplace around the world, who are you going to
call? The Bermuda navy? The Bermuda army? The Bermuda marines? You want
the full protection of the U.S. Government and the U.S. military and
all the benefits that being a U.S. citizen brings along. But then you
want to renounce your citizenship and move to Bermuda, in a technical
sense, while keeping your offices in the United States and saving big
money on taxes. And then, under the SEC order, you don't even have to
have your chief executive officers certify the financial results of the
corporation.
That is a shame. The SEC should know better. What could they have
been thinking? I have accused them of sleeping, but this is not
sleeping; this is making really dumb decisions.
I have discussed my concern with the staff of the Banking Committee.
They believe that their bill implicitly addresses the reincorporation
problem. But Senator Graham of Florida and I said we are not satisfied
with ``implicitly'' being covered. We want the issue addressed
explicitly.
Let me also say, the technical people smile when I talk about this,
but, frankly, it took a day and a half for us to evaluate whether it
was implicitly covered in the bill. So because of that, I think it is
important to have an explicit provision in this bill that says those
companies involved in inversions that renounce their citizenship, they,
too, will be required to certify their results. Their chief executive
officers and their CFOs will be required to certify their results.
In a moment I will conclude and ask that this amendment be attached
to the bill. As I do that, I ask for the attention of the Senator from
Maryland and the manager on the other side to say that I have another
amendment that I will offer. I understand, based on your process, you
don't want it offered now. Let me describe it briefly.
The other amendment deals with the issue of what is called
disgorgement of profits.
The top executives of these corporations make bonuses, commissions,
and a substantial amount of compensation--some of them hundreds of
millions of dollars. Then they issue a restatement of earnings and
everything collapses. But they keep their profits and they keep their
commissions and they keep their bonuses.
This legislation says you can't do that. When you restate, and just
prior to restatement you have made all these bonuses, you have to
disgorge this money. It is a $2 word, but I think everybody understands
what it means.
The thing that is missing in this bill is that disgorgement should be
required in cases of bankruptcy as well. So I have an amendment that
will say: Yes, disgorgement in this bill with respect to periods prior
to restatement, but also disgorgement for the 12 months prior to the
filing of bankruptcy by a corporation as well.
A fair number of people have had a lot to say about this. Former SEC
Chairman, Richard Breeden, who was the Chairman of the SEC under
President H.W. Bush from 1989 to 1993, said:

We should consider disgorgement to the company of any net
proceeds of stock sales or option exercises within a 6-month
or a 1-year period prior to a bankruptcy filing.

So he feels that way.
Goldman Sachs CEO Henry Paulson has also spoken in favor of this
idea.
This bill will be incomplete if it does not include disgorgement in
the period prior to bankruptcy. Those making a fortune, getting bonuses
and commissions of tens of millions, yes hundreds of millions, as their
companies are headed to bankruptcy--that is unfair. We need to do
something about this.
I will not ask consent at the moment because I want to get my first
amendment approved, but I will, following some discussions, either this
morning or else on Monday, ask consent to set aside the second-degree
amendment so we can consider, in first-degree, this issue. My hope is
we would have a 100-to-0 vote on this matter because, failing that,
this bill will be incomplete.
This bill is a great bill. I have credited Senator Sarbanes and
others at length. This is a wonderful piece of legislation that I fully
support. It can be and will be improved by my amendments and by the
amendments of Senator Schumer and others. Let's complete this amendment
process.
Let me just say one last thing, if I might.
I know it has taken the patience of Job to try to manage this bill on
the floor of the Senate. I understand all the difficulties that Senator
Sarbanes and Senator Reid and many others have had these recent days
because I have been here every day when this bill has been on the
floor. My aggressiveness in trying to get these amendments considered
has nothing at all to do with the wonderful stewardship of the
chairman. I am very proud of the result he brings to the floor, and I
believe both of my amendments will improve it. I hope I can work with
him from now until Monday afternoon to have the bankruptcy amendment
included in this legislation.
Mr. SARBANES. Will the Senator yield for just a moment?
Mr. DORGAN. I will be happy to yield.
Mr. SARBANES. Madam President, I simply want to say I think the
subject matter with which the Senator's other amendment, that he just
referred to, deals is a very important subject, and I think his
observations are very much on point. Working with the other side, we
are trying to work through the amendment. We are in the process of
trying to do that. Of course, we will be continuing to talk with the
Senator, and I hope we can resolve it. It would be very helpful. I
appreciate his kind words.
Mr. DORGAN. I thank the Senator from Maryland. I ask my amendment be
considered at this point and be voted upon.
The PRESIDING OFFICER. Is there further debate on the amendment? If
not, the question is on agreeing to amendment No. 4215, as modified.
The amendment, (No. 4215), as modified, was agreed to.
Mr. SARBANES. I move to lay the motion to reconsider on the table.
The motion to lay on the table was agreed to.
The PRESIDING OFFICER (Mrs. Clinton). The Senator from New York.

Amendment No. 4295

Mr. SCHUMER. I ask unanimous consent the Carnahan amendment be laid
aside, and I send an amendment to the desk which we have talked about.
Mr. SARBANES. Will the Senator describe the amendment?
Mr. SCHUMER. Yes. This amendment is the amendment that enhances the
conflict of interest provisions by prohibiting personal loans by
issuers to chief officers of the issuer. It has been agreed to by both
sides.
Mr. SARBANES. I ask unanimous consent no second-degree amendment to
the Schumer amendment, when it is sent to the desk, be in order.
The PRESIDING OFFICER. Without objection, it is so ordered.
Is there objection to laying aside the pending amendment for purposes
of

[[Page S6690]]

sending up a new amendment? Without objection, it is so ordered. The
clerk will report.
The assistant legislative clerk read as follows:

The Senator from New York (Mr. Schumer) proposes an
amendment No. 4295.

Mr. SCHUMER. I ask unanimous consent the reading of the amendment be
dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:

(Purpose: To enhance conflict of interest provisions by prohibiting
personal loans by issuers to chief officers of the issue)

On page 91, strike line 19 and all that follows through
page 93, line 22 and insert the following:

SEC. 402. ENHANCED CONFLICT OF INTEREST PROVISIONS.

(a) Prohibition on Personal Loans to Executives.--Section
13 of the Securities Exchange Act of 1934 (15 U.S.C. 78m), as
amended by this Act, is amended by adding at the end the
following:
``(k) Prohibition on Personal Loans to Executives.--
``(1) In General.--It shall be unlawful for any issuer,
directly or indirectly, to extend or maintain credit, or
arrange for the extension of credit, in the form of personal
loan to or for any director or executive officer (or
equivalent thereof) of that issuer.
``(2) Limitation.--Paragraph (1) does not preclude any home
improvement and manufactured home loans (as that term is
defined in Section 5 of the Home Owners Loan Act, consumer
credit (as defined in section 103 of the truth in lending
act), or any extension of credit under an open end credit
plan (as defined in section 103 of the Truth in Lending Act
(15 U.S.C. 1602)), that is--
``(A) made in the ordinary course of the consumer credit
business of such issuer;
``(B) of a type that is generally made available by such
issuer to the public; and
``(C) made by such issue on market terms, or terms that are
no more favorable than those offered by the issuer to the
general public for such loans.''.

Mr. SCHUMER. Madam President, I also ask unanimous consent that
Senator Feinstein be added as a cosponsor of this amendment.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. SCHUMER. Madam President, I am going to be very brief because I
know we do not have too much time and we have other business. I thank
both the majority and minority managers, Senator Sarbanes and Senator
Gramm, for their work on this amendment. I have also spoken to the
people in the White House who were supportive of this amendment. It is
a very simple amendment. It basically says that with certain narrow
exceptions, CEOs and CFOs of companies will not be able to get loans
from those companies.
In his speech before Wall Street yesterday, President Bush forcefully
stated: ``. . . I challenge compensation committees to put an end to
all company loans to corporate officers.''
I couldn't agree more. It seems like we didn't learn our lessons
during the S&L crisis in the 1980's? These same kinds of transactions
were used then to ``cook the books'' and our Nation's economy and
financial institutions paid the price for it. Once again, history
repeats itself.
My amendment is very simple: it makes it unlawful for any publicly
traded company to make loans to its executive officers. Let me give a
few examples as to why we should do this.
Executives of major corporations, including Enron, WorldCom, and
Adelphia, collectively received more than $5 billion in company funds
in the form of personal loans. For example, Bernard Ebbers, CEO of
WorldCom, borrowed a mind-boggling $408 million from the corporation
over several years, while receiving a compensation package valued at
over $10 million annually, all the while the company was facing massive
losses. In the case of Adelphia, the Rigas Family received loans and
other financial benefits totaling a staggering $3.1 billion, while that
company has also reported huge financial losses.
The question is: Why can't these super rich corporate executives go
to the corner bank, the Suntrust's or Bank of America's, like everyone
else to take loans?
In the case of WorldCom, Ebbers had funded his personal stock market
activities by borrowing on margin. When the value of those investments
plunged, Ebbers had to pay up. How did he do it? He borrowed money from
his board of directors to pay for the stock he had bought that was now
being called in.
This is just wrong, and it must be stopped.
I urge the amendment be agreed to.
The PRESIDING OFFICER. Is there further debate on the amendment? If
not, the question is on agreeing to the amendment.
The amendment (No. 4295) was agreed to.
Mr. SARBANES. I move to reconsider the vote.
Mr. CRAIG. I move to lay that motion on the table.
The motion to lay on the table was agreed to.

Amendment No. 4296

Mr. SCHUMER. I have a second amendment that has also been agreed to,
so I ask, again, the Carnahan amendment be laid aside, and I send the
amendment to the desk and ask for its consideration. I ask unanimous
consent Senator Shelby be added as a cosponsor on this amendment on the
SPEs.
Mr. SARBANES. I ask unanimous consent no second-degree amendment be
in order to the Schumer amendment being sent to the desk.
The PRESIDING OFFICER. Without objection, it is so ordered. Is there
objection to laying aside the pending amendments for the purpose of
introducing a new amendment? Without objection, it is so ordered. The
clerk will report.
The assistant legislative clerk read as follows:

The Senator from New York (Mr. Schumer), for himself and
Mr. Shelby, proposes an amendment numbered 4296.

Mr. SCHUMER. I ask unanimous consent the reading of the amendment be
dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:

(Purpose: To require a study of the accounting treatment of special
purpose entities)

On page 91, between lines 18 and 19, insert the following:
(c) Study and Report on Special Purpose Entities.--
(1) Study required.--The Commission shall, not later than 1
year after the effective date of adoption of off-balance
sheet disclosure rules required by section 13(j) of the
Securities Exchange Act of 1934, as added by this section,
complete a study of filings by issuers and their disclosures
to determine--
(A) the extent of off-balance sheet transactions, including
assets, liabilities, leases, losses, and the use of special
purpose entities; and
(B) whether generally accepted accounting rules result in
financial statements of issuers reflecting the economics of
such off-balance sheet transactions to investors in a
transparent fashion.
(2) Report and recommendations.--Not later than 6 months
after the date of completion of the study required by
paragraph (1), the Commission shall submit a report to the
President, the Committee on Banking, Housing, and Urban
Affairs of the Senate, and the Committee on Financial
Services of the House of Representatives, setting forth--
(A) the amount or an estimate of the amount of off-balance
sheet transactions, including assets, liabilities, leases,
and losses of, and the use of special purpose entities by,
issuers filing periodic reports pursuant to section 13 or 15
of the Securities Exchange Act of 1934;
(B) the extent to which special purpose entities are used
to facilitate off-balance sheet transactions;
(C) whether generally accepted accounting principles or the
rules of the Commission result in financial statements of
issuers reflecting the economics of such transactions to
investors in a transparent fashion;
(D) whether generally accepted accounting principles
specifically result in the consolidation of special purpose
entities sponsored by an issuer in cases in which the issuer
has the majority of the risks and rewards of the special
purpose entity; and
(E) any recommendations of the Commission for improving the
transparency and quality of reporting off-balance sheet
transactions in the financial statements and disclosures
required to be filed by an issuer with the Commission.

Mr. SCHUMER. Madam President, I will again be brief. This amendment
relates to a second problem that we have seen in the latest crisis that
we have faced in our financial markets, and that is the special purpose
entities. Sometimes special purpose entities have a valid purpose. Many
companies use them for valid purposes.
We have seen, particularly most egregiously in the case of Enron,
these have been entities that have been used to take losses off the
books, and then shareholders, and everybody else, don't know much about
them.
Enron, for instance, conducted business through thousands of these
with names such as LJM, Cayman LP, and

[[Page S6691]]

Raptor. They become pretty famous and the Enron's former CFO, Andrew
Fastow, contributed hard assets and related debt to Raptor SPE and then
Raptor would turn around and borrow large sums of money from a bank to
purchase assets or conduct other business.
This is the key. The debts of this SPE, Raptor, never showed up on
Enron's financial statements.
People make money on it. Fastow made $30 million in management fees.
These things go way overboard. The way we had proposed originally
legislating on this was too complicated, but there are some good ones.
There are some with legitimate purposes and many with bad purposes.
Congress can't set these accounting standards, nor should we. Rather,
that is the SEC and FASB's job.
We have asked in this amendment that the SEC do a comprehensive study
of the SPEs to show where the damage is, point the way to reform, and
make recommendations. This amendment does not put Congress in the
business of setting accounting standards.
It does, however, say to thousands of Enron and other employees who
have lost pensions that we are stepping up to the plate now to stop
these kinds of egregious practices.
I add that there are probably many of these SPEs for bad purposes
floating around in other companies, and this study cannot come too
soon.
We have received agreement. I thank Senators Sarbanes and Gramm.
I ask unanimous consent that the amendment be agreed to.
The PRESIDING OFFICER. Is there objection?
Without objection, it is so ordered.
The amendment (No. 4296) was agreed to.
Mr. SARBANES. Mr. President, I move to reconsider the vote.
Mr. SANTORUM. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
The PRESIDING OFFICER. The Senator from New York.
Mr. SCHUMER. Madam President, I thank Senator Sarbanes and his staff
as well as Senator Gramm and his staff for their work on accepting
these two important amendments that I think improves the bill, which is
a very fine bill that I am proud to support.
I yield the floor.
The PRESIDING OFFICER. The Senator from Idaho.
Mr. CRAIG. Madam President, let me spend a few minutes talking about
the underlying legislation, S. 2673.
There has been a great deal of debate over the last good number of
days on this issue. I am pleased that we were able to get cloture. It
is time we move on to this issue.
The American public, a good many stockholders, a good many pension
plans, a good many retirement plans are discussing what are we going to
do about the meltdown that last occurred in corporate America at the
executive level with some key corporations. It is really, in most
instances, a crisis of confidence.
There are a lot of well-run corporations across America that are
publicly held. They have historically observed the prudent rules. Their
boards have acted responsibly. But there are bad players. There are
big, bad players that have had a dramatic impact on the markets. There
is no question that we have to deal with this straight away.
When I look at the whole of this issue, it isn't just in the markets
where there is a crisis of confidence that Americans share: When you
look at 9/11, then Enron, then WorldCom, and, of course, all the
scandals that have occurred, and out in the West with the Ninth Circuit
suggesting that the Pledge of Allegiance isn't constitutional, put all
of that together, and America has to be scratching its head at this
moment, asking: Where does all of this take us? Where is that rock of
stability that we have come to rely on for so long?
I suggest that when we are debating this issue, while this is an
issue that has to be dealt with, and we are now moving appropriately,
it is one of a combination of factors that is critically important for
our country to deal with.
One issue we have to deal with is the war on terrorism. The DOD
appropriations ought to be the first bill we deal with on the defense
side to begin to shore up again this sense of confidence in the
American structure. Certainly, protecting our soldiers in the post-9/11
fighting that has gone on in Afghanistan is appropriate, and now, as we
search out terrorism around the world, that is critical.
The next step I would suggest is the confirming of judges. It is
important that we deal with judges. For the judicial system of this
country to remain strong, vacancies need to be filled. People should
receive their day in court in a timely fashion. That has been one of
the hallmarks and the strengths of this country throughout its history,
and it ought to be today.
Clearly, I hope we appoint judges who will not act as the ones in the
Ninth Circuit who suggested that the Pledge of Allegiance is
unconstitutional. I think President Bush has gone a long way in
nominating good judges to the Senate.
Yet, the politics here in the Senate today is obvious: Withhold as
long as you can. Withhold as long as you can.
The President spoke the other day on Wall Street relating to
corporate accounting. The U.S. Senate is speaking today, as they
should.
I ask unanimous consent that a commentary by Lawrence Kudlow be
printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:

[From the Washington Times, July 11, 2002]

A Class Above the Corruption and Critics

(By Lawrence Kudlow)

In front of a New York audience on Tuesday, President Bush
unveiled a revised plan to counter corporate wrongdoing and
accounting fraud, saying, ``There can be no capitalism
without conscience, no wealth without character.'' Adam
Smith, the father of free-market economics, couldn't have
said it better.
Smith always argued that smooth-functioning markets require
ethical behavior at their center. From Day One of his
presidency, Mr. Bush has applied this rule even more broadly,
emphasizing the need for ethical clarity and moral certitude
in all areas of American life. He has successfully applied
the rule of ethics to the war on terror, and now he is
transferring the very same principle to root out corporate
corruption.
From the election campaign to today, poll after poll shows
that the public believes Mr. Bush is a leader with strong
character and unshakable moral principles. Following the
blowups of WorldCom, Enron and Tyco--and many other rotten
apples--Mr. Bush's honest outrage has been heartfelt, and not
political.
It has also shone above the political carping of Tom
Daschle, Al Gore, Richard Gephardt and other national
Democrats who would locate the source of the contagious virus
of accounting fraud and corporate corruption within the Bush
administration. Theirs is a political, reckless, and silly
approach to a serious situation. The bad-business bug gained
strength and spread well before George W. Bush became
president. And today it is a grave problem that requires
sober solutions.
Serious Democrats, such as Senate Banking Committee head
Paul Sarbanes and Senate Investigations Subcommittee Chairman
Carl Levin, have taken a completely different tack from the
business-as-usual partisan politics of the Daschle gang.
Mr. Sarbanes has crafted a significant proposal to set up
an independent accounting-standards board--one that will end
conflict of interests between the auditing and consulting
functions, properly score stock options, create new pressure
for independent boards of directors, and legislate tough
legal sanctions on executives, bankers, auditors, accountants
and others who violate the new standards.
The accounting system desperately needs a fix; it is even
more incoherent than the dreaded tax code. A new accounting-
standards board should come under the aegis of the Securities
and Exchange Commission. Along with proposals from the New
York Stock Exchange to create truly independent boards of
directors, this action will promote honest accounting and
shareholder-based corporate governance.
Meanwhile, Mr. Levin has just as seriously proposed giving
the SEC, the federal government's principal accounting
overseer, the right to levy tough fines on corporate
evildoers without having to go to court first.
Suburban liberals like Sens. Sarbanes and Levin, its seems,
have suddenly become conservative lawmakers who will ``move
corporate accounting out of the shadows,'' as Mr. Bush
rightly put it, and protect the basic workings of our wealth-
creating capitalist system.
President Bush, in tune with these focused Democrats, has
proposed a doubling of the maximum prison term for mail- and
wire-fraud statutes from five to 10 years. This severe jail-
time penalty will greatly concentrate the executive mind. And
so will Mr. Bush's proposal that fraudulently earned bonuses
and compensation must be returned;

[[Page S6692]]

and so will his request that corporate officers and directors
who engage in serious misconduct be barred from again sitting
in corporate-leadership positions. More, if the Bush
corporate doctrine moves through Congress, top executives
will now have to certify their financial statements with
their own signatures. False reporting could lead to jail.
It seems that our more serious men in Washington want to
bolster the rue of law by strengthening the incentive to
choose right from wrong.
Incentives matter. If you tax something more you get less
of it. If you tax something less you get more of it. A 10-
year jail term for rotten corporate apples--or their
accountants--is a huge legal tax on wrongful actions.
Of course, standing behind higher ethical standards in
business is the great American investor class. Covering more
than 50 percent of American households and more than 80
million people, this group is positively changing financial
practices and the political culture. These shareholders have
lost enormous wealth, in part from dishonest accounting and
egocentric corporate misdeeds. And they're furious.
Financial markets have been democratized in the past 15
years with the rise of this investor class. They have already
voted to depress the stock market as a signal of their
indignation, and they're now prepared to vote this November
against the silly politicians who fail to realize the
enormity of the current problem. Consider this: Slightly more
than 60 percent of the investor class voted in the last
election. This may be the most powerful lobby in America.
In no uncertain terms, this new political movement is
forcing Washington to renew the rule of law, strengthen
accounting and financial standards across the board, and
restore a proper incentive system that will return Adam
Smith's ethical epicenter to the greatest wealth-creating
machine in all of history. The days of egocentric and corrupt
Soviet-style corporation have come to an end. In the stock
market, moral amnesia is dead.

Mr. CRAIG. Madam President, I see Chairman Sarbanes on the floor. It
is not often that Lawrence Kudlow praises the chairman, but he did the
other day in an op-ed and commentary that he often writes. He talked
about the Sarbanes bill and said:

Serious Democrats, such as the Senate Banking Committee
head Paul Sarbanes and Senate Investigations Subcommittee
Chairman Carl Levin, have taken a completely different tact
from the business as usual--

I will not repeat the remainder of it. But that ought to be a part of
the Record because I think it reflects the spectrum of the thinking on
the floor of the U.S. Senate at this moment. Whether you are
conservative, moderate, or liberal, we know that we have to regain the
confidence of the American investing public and the world investing
public, and for that matter, the market systems of our country and in
corporate America.
As long and as loud as many of us speak about the good corporations
out there and how well run they are, the moment another Enron occurs or
someone else speaks out about misdealings, that confidence is once
again dashed.
This legislation moves to create a bright line between, good and bad
accounting by separating auditing and consulting services for
accountants in public corporations. It requires disclosure of off-
balance sheet transactions and other obligations that might affect the
corporate financial condition, and it establishes independent auditing
boards to oversee corporate accounting.
All of those are very critical in creating bright lines of clarity,
understanding, confidence, and stronger enforcement of criminal
behavior.
Someone in my State said the other day: You don't have to strengthen
the accounting procedure, Craig. Put the bums in jail. Those are
criminal acts. When you knowingly are distorting the financial strength
of a company which affects its stock, destroys retirement funds,
employee's stock options, and all of that, it is, in fact, a criminal
act.
Our President has said it. Others have spoken on the floor. But there
is a line we have to draw. It is not one of grandstanding for political
purposes but doing the right thing, to set in place good public policy
that directs the free market system in the appropriate fashion. Do we
want to make it so restrictive that decisionmaking in the board room
means always looking over their shoulder to see that they have done it
exactly right against a Federal law when the marketplace is a dynamic
place and laws are static?
We know there have to be some static lines attached. There is no
doubt about it. Those have to be clear. At the same time, we cannot be
so restrictive that we blight the market and send investments outside
the United States to the rest of the world.
The Wall Street Journal wrote yesterday that everything you are
hearing now from Washington is aimed at winning the November elections
and not at calming financial markets. I hope this bill is all about
calming financial markets. And I believe the majority of this bill does
have that goal. Some of rhetoric may not reflect it. But I truly
believe the chairman and the ranking member are working in the
direction of building a substantive bill that will go to conference,
that works out our differences between the House and that goes to the
President's desk.
I hope the Wall Street Journal is wrong. I hope we refrain from
making corporate accountability simply another political exercise. It
ought not be. It has not been. It should never be.
In Idaho they say: ``You can't hang the same man twice.'' ``You can't
hang the same person twice.''
So let's make the laws clear, easily defined, not arbitrary, not like
our tax laws today where even the best consultants cannot give good
advice.
What we are working with, I hope, is clean and clear and appropriate.
There are more than 16,000 corporations under the jurisdiction of the
SEC. Of those, no more than a handful have been accused of criminal
wrongdoing. In the end--when all the dust settles, the market
stabilizes, and investors begin again to regain confidence, and the
Congress has acted--no more than a handful of corporations will have
been the bad actors.
So I hope and I trust we can finalize what we are doing here today,
and Monday possibly. It is important. The bottom line is very simple:
Congress needs to act, and act now, and reaffirm the confidence the
American people have in our public institutions.
I just came from a Republican bicameral meeting between the House and
the Senate Republican leaders. They said: Get us the bill immediately.
Assign conferees. Let's go to work. Let's get this out before the
August recess.
Let's send a message to the American and the world investor that we
have acted timely, that we have acted responsibly. The President has
laid down his marker. The House has laid down their marker. It is now
time for us to do the same. And in doing so, and in moving with
expeditious action--not haste, not in an irresponsible way--I think we
can turn to the American people and say: We have put in place the right
safeguards, the right protections, the right firewalls. Study the
papers, study the financials, and begin, once again, to reinvest in the
American marketplace because it will be the right place to put your
money.
Madam President, I yield floor.
The PRESIDING OFFICER. The Senator from Pennsylvania.
Mr. SANTORUM. Madam President, I want to pick up on what the Senator
from Idaho just said, which is, we were just meeting on the House side
among the leadership. One of the messages that was very clear was, when
this bill passes, the House is very eager to appoint conferees and to
move forward to get a bill out as quickly and as responsibly as
possible, to send all the right messages to the investing public and to
Wall Street that Congress has seen the problem and that we are ready,
willing, and able to act, and act in an expeditious way.
I think it is important for us to act. I agree with that sentiment.
The House, obviously, acted months ago in dealing with this problem. We
have taken a little bit longer, which we have a tendency to do in the
Senate--take a little longer to get things done. But we are now moving
forward, and we should not delay in getting to conference. We should
not delay in appointing conferees in the Senate. And we should have a
process by which we engage in these meetings earnestly and come up with
a product, if possible, by the August recess.
It is little difficult. The House is going to be out a week before
the Senate. So it is a pretty big task ahead of us, but we should go
about it in earnest, and we should do our best to move this forward and
send the signals that the Congress has moved as expeditiously as
possible to meet the concerns of the investing public about the markets
and the reliability of the numbers that corporations are sending out to
the investing public.

[[Page S6693]]

I have to say, as one of the four members of the committee who voted
against this bill in the committee, I have some concerns about the
underlying bill that came out of committee. I have some concerns about
particularly the impact on some of the small companies that will be
governed by this legislation.
A lot has been made that this is a piece of legislation that just
deals with publicly traded companies, and so we are talking about the
big companies. As any of you who have watched the market for any length
of time know, there are a lot of small companies that go into the
equity markets and are publicly traded, particularly a lot of
technology companies.
A lot of the economic growth engines of our economy are small
publicly traded companies. One of the concerns I have is this bill may
be appropriate for large multinational corporations--such as General
Motors or IBM; you can go down the list; Xerox, whatever--but it may
not be particularly an appropriate vehicle of regulation for small-cap
stocks.
As you know, there are small-capital stocks, mutual funds, small-cap
funds. To apply the same rigorous accounting standards and rules and
regulations that very well may be appropriate for these large companies
to these smaller companies could have a very significant negative
effect on economic growth in our country.
To put these kinds of rules and regulations in place for these small
companies is going to be very expensive, very onerous, and make it very
difficult for them to conduct business. And remember, folks, who is
responsible for economic growth in America, job creation in America.
Let me underscore this. We have job claims up again just last week. The
economic engine for job creation is smaller businesses. A lot of them
are these small publicly traded companies.
It is a very grave concern to me that, yes, we look at these
companies we are talking about here. These are big companies that have
done a lot of things that, obviously, they should not have done, and
with big accounting firms. We are not hearing about scandal in these
smaller publicly traded companies that use small accounting firms in
most cases. To apply these rules to these smaller companies is really
problematic and has a negative effect on our economy.

The last thing I want to see us do--yes, we want to strengthen
confidence in the capital markets. Yes, we want to deal with the
problems of fraud, and we want to hold people who commit fraud more
accountable, and toughen punishments, which is what we have done on the
floor. Those are very important things to do. But we should not do that
at the expense of jobs and economic growth in our economy.
I understand there is a provision in the bill that allows smaller--
any company, I guess, to seek a waiver as to some of the provisions of
this act. I know a lot of small businesses, and most of them do not
have a lot of money to hire lobbyists and lawyers and other people to
come here to Washington, DC, or to New York and plead their case that
they should somehow be preempted from the provisions of this act.
You are talking about 16,000 publicly traded companies, most of
which--well over 75 percent--are relatively small in size. Imagine the
burden of the regulators having to deal with petition after petition
after petition.
Senator Gramm has an amendment, which I presume he will offer on
Monday. I am hopeful that the Senate will seriously consider giving the
regulatory body some flexibility in providing blanket waivers to
classes of companies, or based on some sort of rational scheme of
determination of size and scope of a company, that we give a little
flexibility to the regulators not to sort of throw all the babies in
this one big basket, and understand that there are real significant
consequences to jobs and future growth of this economy if we did that.
So I know that is an issue on which we are going to have a discussion
next week. But, to me, it is a very significant issue, one where you
can be for tougher regulation, you can be for increased accountability,
you can be for tougher penalties--all those things, setting up this
governing board, having standards in place--you can be for all these
things in the bill, but you have to understand that General Motors and
ABC Tech Company in Scranton, PA, are fundamentally different entities
and should not be treated the same way.
It really is important for us to have some sort of provision for the
regulatory body to exempt some of these smaller entities, where some of
these regulations do not really apply or misapply, from this scheme of
regulation that is in this bill.
So with that, it looks as if we have another Member who might be
interested in offering an amendment or giving a speech.
I am happy to yield.
The PRESIDING OFFICER. The Senator from Maryland.
Mr. SARBANES. Madam President, later I want to address a couple of
points made by the Senator from Pennsylvania, but the Senator from
Delaware is in the Chamber and wishes to speak. So I yield the floor.
The PRESIDING OFFICER. The Senator from Delaware.
Mr. CARPER. Madam President, I know the Senator from Maryland is
getting tired of receiving all these bouquets, but he deserves them.
Senator Enzi is not on the floor, but he deserves one or two as well,
along with others of our colleagues, not just on the Banking Committee
but other Members as recently as this morning who offered amendments to
this legislation which improve it materially, especially the amendment
offered by the Senator from Missouri, Mrs. Carnahan. It is all well and
good that we say to those who are senior officials within companies, if
you have a stock transaction, you have to report it. Give them the
paperwork, they report it, and it goes somewhere where few people ever
have a chance to see it or be aware of it. It is quite another thing to
list that transaction, do it electronically so anyone who has access to
the Internet can find out about it. Senator Carnahan's amendment
includes this electronic disclosure, and that is a very good
improvement to the legislation.
I like what the Senator from North Dakota, Mr. Dorgan, has offered
today, with respect to the process where we have companies normally
registered and incorporated here in a State in America who somehow slip
off to Bermuda and incorporate. We actually provide an incentive; if we
don't adopt the Dorgan amendment, we provide an incentive for that kind
of behavior. Not only does that have an adverse effect on States such
as New York or Delaware or Maryland or Pennsylvania, it also has an
adverse effect on shareholders because the heads of companies that are
registered or incorporated in a place such as Bermuda would otherwise
not have to sign off and vouch for the financial statements they are
providing.
Even as recently as this morning, a good bill has gotten better.
I appreciate the amendment offered earlier by Senator Lott on behalf
of the President and the addition of a number of provisions in the bill
that the administration supports, and, frankly, I think we all should.
I came across an interesting column this week. I didn't know if I
would read it, but given that the Senator from New York is presiding, I
have to at least read the first paragraph. This is a column by a fellow
who writes in the LA Times and is syndicated across the country, Ronald
Brownstein. I will read a paragraph and perhaps ask unanimous consent
that the entire column be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:

Bush Needs to Drop the Velvet Glove Approach

(By Ronald Brownstein)

It's easy to imagine the frenzy that would be engulfing
Washington if it was President Clinton now revising his
explanation of a controversial 12-year-old stock deal.
Bush Limbaugh would be roaring in outrage. Robert H. Bork
would be decrying the loss of moral authority in the Oval
Office. Sen. Arlen Specter, R-Pa., would be demanding a
special prosecutor. Congressional committees would be
subpoenaing the president's old business partners.
President Bush probably will be spared all that, even after
suddenly altering his explanation for why he was eight months
late in reporting to the Securities and Exchange Commission
his 1990 sale of stock in Harken Energy Corp., a company on
whose board he sat, shortly before it announced large losses.
(For years he blamed it on the SEC; now he's fingering
Harken's lawyers.)

[[Page S6694]]

After the fanatical ethics wars of the Clinton years, few
in Washington have much stomach for a full-scale
confrontation--though the Washington Post raised eyebrows by
revealing Bush's former personal attorney was the SEC general
counsel at the time commission cleared him of wrongdoing in
the stock sale. The attorney, James Doty, says he reused
himself.
The demands of the war against terrorism also will
discourage a political firefight over the sale. But even so,
the disclosures were still creating awkward moments for Bush
as he prepared to call for greater corporate responsibility.
Actually, the focus on Bush's behavior 12 years ago may
frame the wrong debate. It's likely that the dominant
argument in Washington will be over whether it's credible for
Bush to demand better corporate behavior while facing these
personal questions. The more relevant issue is whether it's
credible for Bush to threaten a crackdown now after his
administration spent its frist 18 months promising business
kinder and gentler enforcement of the range of federal laws
against corporate misconduct--from the environment to the
stock markets to the workplace.
In other words, can Bush plausibly shake the iron fist
after stroking the Fortune 500 for so long with a velvet
glove?

business as usual

For all the nouvelle elements of Bush's thinking on social
issues such as education or home ownership, he's always been
a conventional conservative on government oversight of
business. As governor of Texas, presidential candidate and
president, Bush has focused more on intrusive government than
irresponsible corporations.
His consistent message has been that, in pursuing its goals
and enforcing its laws, government should be more cooperative
and less coercive. During the 2000 campaign, he crystallized
his view on government's relationship with business when he
insisted: ``I do not believe you can sue you way or regulate
your way to clean air and clean water.''
Bush has put flesh on that philosophy by staffing many
federal agencies with alumni of the industries they now
regulate. The Interior Department is crowded with former
lobbyists for the coal and oil industries. A former timber
lobbyist is watching the national forests Harvey L. Pitt, the
SEC chairman, came from the accounting industry; Bush already
has appointed another accounting industry alum to the five-
member commission and nominated yet a third. (That means Bush
is seeking to construct an SEC, for the first time, with a
majority of commissioners tied to accounting.)
To monitor safety in the workplace, Bush found an executive
from the chemical industry. To monitor safety in the mines,
he appointed an executive from the mining industry. The list
goes on.
In chorus, Bush's appointees have sung the same tune. At
her confirmation hearing last year, Environmental Protection
Agency Administrator Christie Whitman promised more
negotiation and less litigation against recalcitrant
companies. ``Instilling fear does not solve problems,'' she
insisted.
Over at the Occupational Safety and Health Administration,
director John Henshaw as late as last month told a business
audience: ``Hopefully we can put the days of OSHA as an
adversary behind us.''
And before Enron and WorldCom and Martha Stewart forced the
SEC chair to try to morph into Harvey Pitt-bull, he was
sending the same message, telling the accounting industry
last fall that he viewed them as the agency's ``partner'' and
pledging ``a new era of respect and cooperation'' after the
confrontations of the Clinton years.
Partnership with industry has its place. But enforcing
federal law to police the market place isn't it. No cop
anywhere would agree with Whitman; they instead would argue
that the best way to discourage drug dealing or street crime
is to instill fear--of relentless enforcement. The same is
true in the boardroom. Polluters or stock swindlers are more
likely to stop because they fear being caught than because
Washington asks them nicely.

Mr. CARPER. Here is the first paragraph:

It's easy to imagine the frenzy that would be engulfing
Washington if it was President Clinton now revising his
explanation of a controversial 12-year-old stock deal. Rush
Limbaugh would be reacting in outrage. Robert Bork would be
decrying the loss of moral authority in the Oval Office. [One
of our Senators] would be demanding a special prosecutor.
Congressional committees would be subpoenaing the president's
old business partners.

This is a whole lot more important than trying to find political
advantage in a particularly difficult debate and a difficult time in
this economic recovery. This is about the economy.
As a nation, we are trying to come out of a recession. There is a
fair amount of financial data which suggests we are heading in the
right direction. The number of people being laid off is slowing.
Manufacturing activity is increasing. Even economic activity among some
of the most hard-hit sectors of the economy, technology sectors, is
showing signs of life. I am encouraged by that.
If you look at the stock exchange for much of the last several weeks
and months, it does not really reflect the returning, emerging vibrancy
in the rest of the economy. That is not a good thing.
One of the reasons why it is so important for us to pass this
legislation is to send a clear signal to investors not just around the
country, but around the world that the United States is a good place in
which to invest. Our trade deficit last year was about $300 billion.
This year it is going to be even more than $300 billion.
We are starting to see the value of American currency, the dollar,
which was robust and strong for the last several years, deteriorate.
The worst thing that could happen for us, at a time when we need to
attract foreign investments, would be to send a message that the United
States is not a good or safe place in which to invest. When we are
looking to much of the rest of the world to help finance a trade
deficit of over $300 billion, it is important that we send a strong
message throughout the world that the U.S. remains the best place in
which to invest.
There are a number of provisions. I will not go through this bill
provision by provision. I want to talk about some of the groups that
have the greatest interest, the most at stake, what our obligation is
to them, and how this legislation seeks to make sure that we not only
recognize that obligation but that we act on it.
Shareholders of companies, publicly traded companies, should have
confidence. They should have confidence not only in the CEOs and top
officials, but they should have confidence in the board of directors
whose job it is to represent the interest of the shareholders and to
know that that board is indeed independent. Shareholders should have
confidence in the audit committees of the board. Investors should know
that the audit committees of the board are comprised of independent-
minded board members, knowledgeable board members who will act, not as
a lap dog, but as a watchdog every day as they serve on the audit
committee.
Shareholders should have confidence that there are rigorous auditing
standards that exist in this country and not that there are rigorous
auditing standards that are on a piece of paper somewhere, but there is
a strong, independent, knowledgeable entity that is going to make sure
that those auditing standards are enforced.

How about the auditors of publicly traded companies? We should take
away from them the temptation to look the other way or give the benefit
of the doubt to a company that they are auditing because of the
temptation from some other part of the auditing company which deals
with consulting services; in many cases, these are lucrative services.
We want to make sure the folks doing the audits of publicly traded
companies are interested in doing a good job because that is their
responsibility. Auditors should not be interested in cutting corners,
looking the other way because doing so might enable their accounting
company to attract and to retain lucrative consulting services.
This bill goes a long way--some would say too far--toward curtailing
that activity. To me, it strikes the right balance.
Most of us know of someone who used to work for one of the big eight,
then big five, now the big four accounting firms who actually went to
work for one of the companies that they audited. I do. I suspect all of
us could think of someone who has made that transition in their lives.
There is nothing wrong with that. However, the revolving door can be
more troublesome when the person moves from the auditing company one
day, the company responsible for doing the audit, and the next day, the
next week, the next month ends up as a senior official of the company
that last week, last month they were auditing.
This measure doesn't completely stop that revolving door, but it
slows it down.
Another area that this bill tries to address is the question: How
often is it appropriate to have a fresh set of eyes in charge of those
independent auditors doing that independent audit of a publicly traded
company? Under current standards every 7 years we say that the lead
partner of an audit should be changed. This measure takes it down to 5
years. Not everyone agrees with

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that. Some would like to have a change in auditing companies, requiring
auditing companies to rotate every 5 or 7 years. I don't think that is
a good idea. I do believe the approach we take in this measure, moving
from 7 to 5 years the period of time after which the lead auditor, the
lead partner has to be changed, is sound.
How about investors? I talked about shareholders, about the auditors
themselves. How about investors? The investors in this country and
other countries need to be comforted by the knowledge that when they
hear an analyst on television or read of an analyst's recommendation of
a particular stock or stocks, when an analyst says buy, they mean buy.
When an analyst says sell, they mean sell. When an analyst says hold,
they mean hold.
Investors have the right to know that the analysts whose advice they
are following or attempting to follow are not being pressured to color
their recommendations of a buy, sell, or hold by what is happening on
the investment banking side of the business, and to know that the
analyst's compensation is going to be derived more from how well the
analyst does his job, providing good analysis and investment advice,
and not about how much new business that analyst can help bring to the
investment banking side of their company.
How about the CEOs and senior management? When they break the law,
they should be fully prosecuted under the law, and if what they have
done is an offense for which they can be imprisoned, they ought to be.
Our job in the Congress is to pass laws and to say what the crime or
penalty should be when people violate those laws.
It is the job of the Justice Department to fully prosecute--with the
help of the SEC and the other watchdog agencies--people who violate the
laws. Senator Leahy, on behalf of a number of Senators, earlier this
week--yesterday, I believe--offered legislation that provides a new law
that says not only can we prosecute some of the corporate wrongdoers--I
am tempted to call them criminals, but I won't--who violate the trust,
and to not only say you have to go after them under the mail and fraud
provisions of the criminal code, but to broaden that--which is
sometimes difficult to do--and make the prosecutions more easily done
and with very tough penalties under another part of the code.
CEOs should not be allowed to profit from financial misinformation or
from manipulation of their books. I commend the President and those who
have worked on this legislation to say, to the extent that this does
happen--a CEO or senior official benefits financially from tampering or
cooking the books--they would be compelled to give that money back.
I mentioned earlier the legislation offered by Senator Carnahan of
Missouri which would actually make sure there is a disclosure of sale
when a CEO or senior official sells their stock; that the transaction
would not only have to be reported to the SEC, but disclosed
electronically.
Another provision in the bill that I think is especially good and
timely, given what has gone on at WorldCom, where apparently a senior
official of that company received a $360 million loan from the
company--a loan which I don't believe the shareholders ever knew
about--at least when they found out about it, it was too late for a lot
of them. That kind of information should be fully disclosed promptly
and through a medium that allows those who have some need to know--
investors and shareholders--to have that information in a timely way.
Finally, a word about the employees who work for some of these
companies that have gone through, or are going through, a meltdown.
They need, I think, recourse when they are urged, on the one hand, by
senior officials to buy company stock for their 401(k) investment plans
at the very time when senior officials are bailing out of the company
stock. There should be some kind of recourse for employees when that
happens. In the belief of what is good for the goose is good for the
gander, employees should never again face the situation that Enron
employees faced where, during a lockdown period of time, employees
could not sell their stock while senior officials were able to bail out
and sell their stock. What is good for the goose is good for the
gander. To the extent that employees in a lockdown period are not able
to sell their company stock in their 401(k) plan, the senior officials
of the company should not be able to enter into transactions involving
their stock either.
There is one thing I don't believe we address in this bill; the
others I mentioned, we do. One area we do not address--and I suspect it
comes later--and a member of the staff will tell me if I am mistaken.
One of the problems we have with 401(k)s for the employees, the
investors, is that they don't get very good advice. The companies don't
want to be held liable if they provide bad advice when all is said and
done. And when we move on to other issues, I hope we will have agreed
on a way to better ensure that the employees who are not getting very
good advice do get that good advice.

I worry about the concentration of assets and investments. I know
some people believe there should be a cap and that they should not be
able to invest any more than half or a quarter in company stock for
your 401(k). If I am an employee and I am buying company stock, maybe I
should have to sign a form that is an acknowledgment that I am about to
do something very stupid--something similar to what the employees did
at Enron, where they put all their eggs in one basket--and acknowledge
that is not a bright thing to do, and acknowledge that I am doing that
unwise thing myself. Maybe that is needed here. In addition to that
kind of disclosure, I think we do need to address the need for better
advice for employees.
I will go back to where I started; that is to say, a lot is riding on
this legislation--a whole lot more than we would have guessed 6 months
ago. Six months ago, as we saw Enron melt down and the disclosures come
forward, we thought it was one company that was poorly run, maybe
fraudulently run. A lot of people were hurt who worked at that company.
A lot of people who worked for the auditor, the accounting firm, Arthur
Andersen, have lost their jobs and were, frankly, fully innocent, but
they have been harmed. Six months ago, there was a full sense of
outrage at Enron and the people who led it to its fall.
We know now that what happened at Enron may not be precisely the same
as other companies, but it is symptomatic of the behavior in other
companies, where the people who run those companies do not meet their
obligations to the shareholders, to the employees, and where greed has
corrupted too many people. While it is difficult for us to pass a law
outlawing greed, we can try to outlaw fraud. But it is tough to do
that; I acknowledge that.
With the developments within a whole host of other companies--
disclosures of financial mismanagement and misstatements,
misrepresentation of performance of other companies in recent months--
the importance of what we are doing this week and next has grown. We
need to get this economy moving in the right direction. I believe that,
underneath, a lot of the fundamentals are pretty sound. If you look at
growth, and productivity, and the manufacturing activity to which I
alluded earlier, there is some good news. The troubling news is what is
going on in the stock market, as investors are skittish, and that is
understandable.
We can begin to restore, in a very meaningful and tangible way, the
confidence of those investors in America and in American companies, and
we ought to do that.
The last word I will say is this. I commend Chairman Sarbanes. He is
not presently on the floor. I also commend the committee staff and
personal staffs for the kinds of hearings that have been held this year
which have led us to this day. Chairman Sarbanes is not the sort of
person who is interested in rushing out and being on television every
night. He is not interested so much in seeing his name or picture in
the newspaper. He is interested in getting at the truth. I think the
hearings that were held over many months have led us to finding the
truth and, maybe just as important, to finding the right course for us
to take as a nation, to be able to right some of the wrongs that have
been done and to reduce the likelihood that further wrongs will occur
in the future.
I know some have been impatient for us to get to this day and to take
up

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this legislation, pass it, and to send it to the President. I think it
has been worth the wait. I acknowledge that not everything that needs
to be done ought to be done by the Congress. The stock exchanges have
made a number of excellent changes, and they are to be commended. Many
companies and many corporate boards, that have sort of been tarred with
the same brush, and senior officials and CEOs who are doing a good job
in acting and behaving in a most important way, have been tarred and
feathered with the same brush.
A lot of companies have said, themselves, they have taken a look in
the mirror--boards of directors, audit committees, and others--and
said: We can do better. And they have adopted reforms. Shareholders--
market forces--have come to bear on companies, their boards of
directors, as they should, and that is helpful as well.
In the end, there are some things the Congress can do and ought to
do, maybe not all of them, but a lot of them are included in this
legislation before us. I am proud to have participated as a member of
the Banking Committee in its development and proud to be a witness to
the work that is going on in this Chamber to make a good bill even
better. I yield the floor.
The PRESIDING OFFICER. Who yields time? The Senator from Michigan.
Mr. LEVIN. Madam President, in a moment I am going to ask unanimous
consent that the pending amendment be set aside and that I be allowed
to call up amendment No. 4283. This amendment relates to stock options.
The amendment is one line. It says that the standard-setting body for
accounting principles that is set up in this bill shall review the
accounting treatment of employee stock options--just review it--and
shall within a year of enactment of this act adopt an appropriate
generally accepted accounting principle for the treatment of employee
stock options. They shall review it within a year and adopt an
appropriate standard.
There has been a huge amount of debate about stock options. Recently
the Republican Senate staff of the Joint Economic Committee issued a
report about ``Understanding the Stock Option Debate.'' In that report,
it concluded that, ``Basic principles of financial accounting imply
that stock option awards should be treated as a cost in corporate
financial statements, and this cost should be recognized at the time of
grant.''
We have a Republican Senate staff report which, after reviewing all
of the pros and cons, concludes that stock option awards should be
treated as costs in financial statements. It is a very strong document.
It is an analysis that I recommend to people to read.
Our amendment, however, does not do that. Our amendment, which is an
amendment I am offering on behalf of myself, Senator McCain, and
Senator Corzine, simply says that the board we are funding in this bill
should review the accounting treatment of employee stock options and
adopt an appropriate standard.
How anybody can be opposed to the proper accounting board doing a
review and coming up with an appropriate standard is something beyond
my understanding. I can understand the arguments, the pros and the
cons. I have been through them for 10 years. I have argued that we
ought to treat stock options like any other form of compensation, and I
believe we should. But I do not set accounting standards. That is not
my job. That is the job of this newly independent board to set
accounting standards, and we should urge them to take a look at this.
This is where this matter should be referred and at a minimum, Madam
President, I ought to be allowed to get a vote on this amendment.

This is a germane amendment. We are in a postcloture situation, and I
do not know of a time--there may be; I have not been around here as
long as some--but I do not know of a time when a germane amendment
postcloture has not been permitted to go to a vote.
Apparently, that is what is going to happen, from what I hear. I hope
it is not true, and I do not want to be unfair to my good friend from
Pennsylvania. He may not object. But I think it is a misuse of our
rules now I am going to get to a process issue--to not permit a germane
amendment postcloture to be voted on. And this amendment is germane.
On the stock option issue, we have everyone from Alan Greenspan to
economists. Let me read the list of some of the people who support a
change in stock option accounting: Alan Greenspan; Paul Volcker; Arthur
Levitt; Warren Buffett; TIAA-CREF, one of the largest pension funds in
the United States for teachers; several economists; Paul O'Neill;
Standard & Poors; Council for Institutional Investors; Citizens for Tax
Justice; Consumer Federation of America; Consumers Union; AFL-CIO; on
and on. They believe that stock options are a form of compensation,
they have value, and they should be part of the expenses on the books
of a corporation just as they are taken as a tax deduction at this
point.
One of the driving factors in the corporate abuses that we have seen
are the huge gobs of stock options which have been handed out to
executives. Then executives push accounting principles beyond any
comprehension to raise the value of the stock and then exercise their
options and sell the stock. We have seen this situation repeated in
corporation after corporation, and I believe we ought to try to put an
end to it, but that is not what this amendment does. This amendment
simply says: We are creating a newly independent board. This
independent board should decide on what the appropriate standard is.
That is why we are providing independent funding for it.
I want to read a part of a Washington Post editorial of April 18,
2002:

Alan Greenspan, perhaps the nation's most revered
economist, thinks employee stock options should be counted,
like salaries, as a company expense. Warren Buffett, perhaps
the nation's foremost investor, has long argued the same
line.

Skipping down:

The London-based International Accounting Standards Board
recently recommended the same approach. In short, a rather
unshort list of experts endorses the common-sense idea that,
whether you get paid in cash or company cars or options, the
expense should be recorded. . . .
Why does this matter? Because the current rules--which allow
companies to grant executives and other employees millions of dollars
in stock options without recording a dime of expenses--make a mockery
of corporate accounts. Companies that grant stock options lavishly can
be reporting large profits when the truth is that they are taking a
large loss. In 2000, for example, Yahoo reported a profit of $71
million, but the real number after adjusting for the cost of employee
stock options was a loss of $1.3 billion. Cisco reported $4.6 billion
in profits; the real number was a $2.7 billion loss. By reporting make-
believe profits, companies may have conned investors into bidding up
their stock prices. This is one cause of the Internet bubble.

Then this editorial goes on:

But nobody wants to ban this form of compensation; the goal
is merely to have it counted as an expense.

Madam President, that is what most of the accounting profession,
economists, and business people, other than those executives who are
taking such huge amounts of stock options, want to do. This is what the
Accounting Standards Board wanted to do in 1993, but then were beaten
down so badly that they had to come up with an alternative instead
called disclosure.
Even when the accounting board decided to do that--which was not an
independent accounting board because it did not have an independent
source of financing, unlike this accounting board will have after we
enact this bill--and now to read their report of 1994. The board issued
an exposure draft called, ``Accounting for Stock-Based Compensation,''
and they decided that stock option values should be expensed. Then they
said the draft was extraordinarily controversial, and the board not
only expects but actively encourages debate on issues. Then they
pointed out in the FASB document that the controversy escalated
throughout the exposure process.
Then in paragraph 60 of their findings, the FASB board said the
following, that ``the debate on accounting for stock-based compensation
unfortunately became so divisive that it threatened the board's future
working relationship with some of its constituents. The nature of the
debate threatened the future of accounting standards-setting in the
private sector.''

[[Page S6697]]

This is an extraordinary document and everybody should read it so
people understand the kind of pressure that not only that board was
under--hopefully, the newly independently funded board will not be
under--but the kind of pressure which exists in this Congress. We have,
in essence, a new board, because it has an independent source of
funding. We ought to let that board reach an independent conclusion on
one of the most controversial, contentious issues we have before us.
This is a tremendous bill we are voting on. But it can be
strengthened. It is not a perfect bill, and from the point of view of
pure fairness and deliberation, this Senate should be allowed to vote
on a germane amendment postcloture.
I will read one additional paragraph from the FASB document report to
set out the extent of the pressure which exists in this area and why it
is so important there be a review of this whole matter by an
independent board.
In December 1994, the board said it decided that ``the extent of
improvement in financial reporting that was envisioned when this
project was added to its technical agenda was not attainable.''
Why was it not attainable, the FASB said? Because the ``deliberate,
logical consideration of issues that usually leads to improvement in
financial reporting was no longer present.'' These are incredible
words. This is from the board that is supposed to set accounting
standards in this country. They wrote in their report that when their
proposal to expense stock operations was issued, it was not attainable
because the ``deliberate, logical consideration of issues that usually
leads to the improvement in financial reporting was no longer
present.''
Why was it no longer present? Because the debate had become so
divisive, in their words, that it threatened the board's future working
relationship with some of its constituents.
The nature of the debate, they wrote, threatened the future of
accounting standards-setting in the private sector.
Finally, the board, beaten down, threatened with extinction, said
this: ``The board chose a disclosure-based solution for stock-based
employee compensation to bring closure to a divisive debate on this
issue, not because it believes the solution is the best way to improve
financial accounting and reporting.''
That was in 1994. We have seen what has happened in terms of stock
option abuses because this board, if it had proceeded in the way it
thought best, would have gone out of existence.
This bill creates a newly independent board, a board that has an
independent source of revenue. This bill, it seems to me, is not
complete, is not strong, unless we now say to this country that the
newly independent board should review this accounting standard and
reach an appropriate conclusion.
This amendment, which is cosponsored by Senators McCain and Corzine,
does not say what that conclusion is. It does not, unlike the McCain
amendment which was not allowed a vote yesterday, conclude that stock
options should be expensed. It does say we have an independently funded
board which should review this matter and reach the appropriate
conclusion.
Mr. REID. Will the Senator yield for a question?
Mr. LEVIN. I would be happy to.
Mr. REID. I am just curious. I am not sure I should get involved at
this stage because the Senator knows the subject so well, but this
board that is set up in this proposed law, they would not have
authority to do that on their own?
Mr. LEVIN. They would.
Mr. REID. Why do we need your amendment?
Mr. LEVIN. Because this Congress has been on record as saying what
the accounting standard should be. In the early 1990s we took a
position. This neutralizes that position. This says, the accounting
board is the right place. The Senate is on record by a vote of 88 to 9
as saying there should not be the expensing of stock options. What this
amendment says is that the board should decide. It should review this
matter. It takes a neutral position, thereby clearing the record as to
what the position of this Senate is.
As of now, all we have on record is that stock options should not be
expensed. What this amendment would say is, you should review this and
reach an appropriate standard.
Mr. REID. My question to the Senator was, If we did not have the
Senator's amendment, would the board not have that authority anyway?
Mr. LEVIN. They could do it, but all that there would be on the
record would be our last statement saying they should not expense. That
same kind of pressure we put on them would still be on the record, and
I think that should not be the last statement this Senate should make
on this subject.
The last statement we ought to make on this subject is that the
accounting board is the appropriate place to make that decision, not
the Senate.
Mr. REID. I still ask my friend for the third time, if we have no
Levin amendment, it would seem to me this newly created board would
still have authority to do what the Senator is talking about.
Mr. LEVIN. Under the cloud we created in 1994. I would refer my
friend to the debate in this body back on May 3, 1994, where the Senate
reached a conclusion that it is the sense of the Senate, that was
approved by, again, a vote of 88 to 9 or something like that, that the
Financial Accounting Standards Board should not change the current
generally accepted accounting treatment of stock options.
Mr. SARBANES. Will the Senator yield?
Mr. LEVIN. I am happy to yield.
Mr. SARBANES. I asked the Senator to yield because I do want to
underscore that the legislation that is before us takes a major step in
trying to guarantee the independence of the Financial Accounting
Standards Board in terms of how it provides for its funding, and that
is a dramatic improvement of the situation because heretofore the
standard board had to seek voluntary funding. So the standards board
ended up going to the people for whom it was establishing the standards
in order to get money to fund its operations. Well, when it came to the
crunch--and this issue was one such crunch as far as the Financial
Accounting Standards Board was concerned--the people from whom they
were voluntarily getting the money said we are not going to give you
any money. You are not going to be able to carry out your activities.
So we moved in this legislation because one of the things we require
is that the issuers pay a mandatory fee. If you are an issuer, you are
registered with the SEC and you have to pay a fee. That goes into a
fund and that fund pays for the budget of the Public Accounting
Oversight Board and the budget of the Financial Accounting Standards
Board, so they are assured a revenue source.
I urge people to stop and think about that because it is a very
important step to ensuring the independence of both boards. But here we
are talking about the Financial Accounting Standards Board, and the
dramatic change from its previous situation.

So it really will have, at least on the budget side, the independence
to go ahead and make these decisions as they choose to call them. The
issue that becomes involved in all of this otherwise is the question,
Should the Congress of the United States be itself actually
establishing accounting standards? Of course, as the Senator indicated,
when an opinion was voiced on that a few years ago, it went in one
direction. And now people want the Congress to come along and express
an opinion in another direction. I have some sympathy. Obviously, we
have seen things happen. Most people might have sympathy.
But we come back to the basic question, whether the Congress should
be doing this. We set up this accounting standards board so it could
make independent judgments. Unfortunately, there is no question about
the fact that previously the standards board was subjected to
tremendous pressure which affected its ability to make an independent
judgment. It got tremendous pressure from industry groups, pressure
from Congress reflecting the pressure of industry groups, and of course
this exposure on its budget.
We have tried in the legislation to address this very basic question
of making sure this board has its independence. That does not reach to
the specific issue the Senate is now addressing, but I wanted that on
the record. It is important that be understood.
Mr. REID. Mr. President I ask unanimous consent I be allowed to speak
using my own time for up to 2 minutes.

[[Page S6698]]

The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. LEVIN. I will conclude, but I need to reclaim the floor because
apparently all time otherwise is counted against my allotted time
postcloture.
Mr. President, I ask unanimous consent the pending amendment be set
aside and that I be allowed to call up the amendment I filed at the
desk relative to this subject which I understand has been ruled
germane.
The PRESIDING OFFICER. The Senator from Pennsylvania.
Mr. SANTORUM. Reserving the right to object, I want to make a couple
of points.
No. 1, the Senator from Michigan suggested that all amendments that
are germane postcloture should be allowed to be offered. I wish that
were the case. I wish we had the opportunity to do that in all
situations, but that has not been the case in this Senate, or has not
been necessarily the history of the Senate. There have been many
instances where germane amendments have not been allowed to be offered
postcloture.
No. 2, I make a point and reiterate the point that the chairman of
the committee has made. The Senator from Michigan has made the point
that FASB has been compromised because it wanted to do things and it
felt constrained by the constituency which funds it. We have set up an
independent funding source for FASB now, and I think that would allow a
lot more independence to be able to deal with these accounting issues,
such as the way we treat stock options, in a way that allows an
independent judgment.
Finally, while we do have a sense of the Senate that is 8 years old
on this issue, the Congress has never directed FASB to study an issue
of accounting. This is precedent setting. There is nothing in this bill
that directs FASB to do anything. It is an independent board. It sets
up the accounting standards. I think there is no question that it will
in all likelihood review this issue.
For the Congress to begun to weigh in--even 8 years ago, we did not
direct FASB to do this; we simply expressed our opinion. To direct FASB
to do something would be a very bad precedent to set.
I object.
The PRESIDING OFFICER. The objection is heard.
The Senator from Michigan.
Mr. LEVIN. Mr. President, I see no reason that a vote should not be
permitted on this amendment. That is what this objection leads to. I
urge we come back on Monday, or whenever we do come back, and I will
make this motion again because this is a critical issue, that is not
addressed in this bill, which is a big part of the lack of credibility
we have right now in our markets. It needs to be addressed in some way.
This is a neutral way to do it.
The arguments given by our friend from Pennsylvania are reasons to
vote no on an amendment. They are not reasons to prevent an amendment
from being called up and being offered.
I will say again, I don't know where an amendment that is ready to be
offered is not permitted to be offered because postcloture one side of
the aisle has decided it is going to leave a first-and second-degree
amendment standing out there without a vote in order to prevent other
germane amendments from being voted on. I don't think that has ever
happened. Obviously, we have reached the end of the 30 hours at times
and there are still germane amendments that are pending. But this is
not that situation.
There is no further debate on the Carnahan amendment that I know of.
Why not vote on the Carnahan amendment? There is no further debate--or
if there is, let the debate take place so that other people can offer
their germane amendments. That is being precluded here. I believe it is
a misuse of postcloture rules to do that.
That being the situation, I will be offering a unanimous consent at
this time that my amendment be made in order at 2 p.m. on Monday.
The PRESIDING OFFICER. Is there objection?
Mr. SANTORUM. I object.
Mr. LEVIN. I thank the Chair, and I will make a unanimous consent
request again on Monday that we be allowed to offer germane amendments
in the time that remains on Monday and that we not be precluded by a
blocking action which, it seems to me, is a distortion and a misuse of
the postcloture rules which are intended to allow 30 hours to consider
germane amendments. If that 30 hours is being used up and either being
sworn off or not used, it seems to me that then precludes consideration
of highly relevant--indeed, germane--amendments which are important to
strengthening this bill.
I thank the sponsors of this bill. It is a strong bill. There is no
reason we should not be able to vote on a way to make it stronger.
I yield the floor.
Mr. GRAHAM. Mr. President, I appreciate the chance to speak about the
Public Company Accounting Reform and Investor Protection Act. I would
like to strengthen section 302 of this legislation which is entitled,
``Corporate Responsibility For Financial Reports.''
I have discussed several ideas with Senator Sarbanes and greatly
appreciate his leadership on this legislation. He has been tireless in
his efforts to strengthen corporate accountability and protect the
American investing public.
My first area of concern involves companies that have chosen to move
their headquarters overseas. This legislation requires that CEOs and
CFOs sign a statement saying that the financial documents they have
filed are fair and accurate. This is consistent with an order just
issued by the Securities and Exchange Commission, SEC, that requires
CEOs and CFOs to attest to the accuracy of their company's most recent
financial statement.
But there is a glaring omission to this recent SEC order. Only
companies that are U.S.-based would be required to send in these signed
documents. If a company once based in the U.S. has fled our shores and
gone overseas for tax reasons, they now just received a reward for
leaving our Nation. Those CEOs and CFOs would not have to sign
financial documents and attest to their accuracy.
The SEC has also overlooked the accuracy of future financial
documents by non-U.S.-based companies. Under a proposed rule, that is
in the ``open comment period,'' foreign based companies are again
enjoying a lesser standard of accountability. This is wrong, and unfair
to American companies.
In the proposed rule, the SEC does invite comments on how to cover
overseas-based companies. However, this could be a case of ``too little
too late.'' If companies are being publically traded in the United
States, regardless of where their headquarters are located, they ought
to be required to meet the same level of accountability that we are
establishing for everyone else in this legislation.
Let's not give U.S.-based companies one more reason to leave our
Nation and incorporate someplace else. We need to hold all companies in
our markets to the same high standard--there should be no reward of a
lower standard if your company leaves the U.S. for a new overseas
headquarters.
My staff placed a call to the SEC to uncover the reason why foreign
based companies were excluded from their recent order. To the credit of
the SEC, they wanted to act quickly. They thought that the quickest way
to promulgate this order was to cover only U.S. based companies.
However, in doing this quickly, they ended up sending the wrong
message. U.S. based CEOs and CFOs are ``on the hook'' in signed
statements. Foreign-based CEOs and CFOs, simply put, are not.
Senator Dorgan and I want to change this. We want it to be clear in
the statute that no matter where your company is based, you must comply
with this obligation. Senator Dorgan has filed an amendment to correct
this, amendment No. 4125.
I appreciate the consideration that the floor managers, Senator
Sarbanes and Senator Gramm, have given our amendment and I encourage
all my colleagues to support us in this effort. I look forward to
seeing it in the final legislation.
Mr. JOHNSON. Mr. President, I rise today to urge my colleagues to
take swift and decisive action to stem the tide of corporate greed that
is eroding the integrity of America's capital markets. I am a strong
believer in the free

[[Page S6699]]

enterprise system, and I am proud of America's leadership in creating
tremendous economic opportunity for all investors, big or small,
domestic or foreign. However, it is time that Congress curb the
appalling corporate excesses and misinformation that have hurt
investors, employees and taxpayers. Passage of the Public Company
Accounting Reform and Investor Protection Act is a critical step in
addressing these concerns.
It is tempting to blame the problems corporate America is facing on
just a few bad actors. For the most part, America's business men and
women are industrious, innovative, and honest people who work hard to
build our economy and provide jobs for our communities. However, we
simply cannot ignore the shocking number and size of failed or failing
companies, the marked increase in earnings restatements, and the
profound toll this has taken on hard-working Americans. In fact, state
pension funds have plummeted more than $1 billion from the WorldCom
restatement and billions more from other companies involved in the
scandals.
In light of these inexcusable revelations, it is hard to believe that
these problems are just isolated instances. Almost daily discoveries of
accounting irregularities at some of America's largest and most highly
respected companies, such as Enron, WorldCom, Tyco, and Xerox, to name
just a few, clearly demonstrate the need for systemic accounting and
corporate governance reform. Just recently, in fact, the Wall Street
Journal reported that the drug company Merck may have understated
revenue by over $12 billion.
We must address systemic problems that are undermining the efficiency
and transparency of our free market system, and which are eroding the
faith of everyday Americans in the fundamental fairness of American
business practices. We must clean up the current corporate culture that
rewards misleading financial reporting and lax or corrupt corporate
governance. We need strong legislation that will end the conflicts of
interest and lack of disclosure that have misled investors and shaken
their faith in America's financial markets. And we need to ensure that
the SEC has the tools and money it needs to become a strong and
formidable enforcer of securities laws. A kinder and gentler SEC serves
only those corporate executives who have something to hide.
The Public Company Accounting Reform and Investor Protection Act
addresses these problems in a way that limits regulatory burden but
provides affirmative measures to restore the integrity of our free
market system. I support the bill's creation of a strong Public Company
Accounting Oversight Board and restrictions on non-audit services
accounting firms can provide to public company audit clients. Further,
the bill imposes tough new corporate responsibility standards and
implements controls over stock analyst conflicts of interest. Also, the
bill requires public companies to quickly and accurately disclose
financial information, so that high-level executives don't have a head
start over small investors in bailing out when a company is in trouble.
Finally, the bill ensures that the SEC has the resources to accomplish
its mission of regulating the securities markets.
On this last point, I was disappointed that President Bush's budget
did not include money that the Banking Committee authorized last year
that would have strengthened the SEC. The SEC has long been hobbled by
its inability to compete for top-notch employees because of a pay scale
that was out of line with other financial regulators. Late last year,
Congress passed, and the President signed, H.R. 1088, which provided
pay parity for SEC employees. Unfortunately, the President's budget did
not allocate additional funds, making it difficult if not impossible
for the SEC to carry out its enforcement mission. I am pleased that
President Bush is now calling for additional funding for the SEC, which
should be better able to police public companies with adequate
resources.
Without the threat of real consequences, however, dishonest corporate
executives have little to fear from being caught with their hands in
the cookie jar. For this reason, Congress must implement a plan to hold
irresponsible corporate executives responsible for their actions. We
must not allow these criminals to hide behind the corporate veil, while
stealing millions of dollars from hard-working Americans. In that vein,
I support provisions contained in the Corporate and Criminal Fraud
Accountability Act, sponsored by Senator Leahy. The bill would provide
stronger criminal penalties for corporate managers who defraud
investors of publicly traded securities, criminal prosecution of
persons who alter or destroy documents related to investigations, and
protection for corporate whistleblowers against retaliation by their
employers, among other provisions designed to protect investors from
corporate greed.
Finally, I believe that we should take a strong stance against
another form of corporate greed: corporations that profit from American
consumers, yet intentionally dodge U.S. taxes by moving their
headquarters abroad. It is outrageous that these so-called ``American''
companies take advantage of the benefits of operating in this country
and yet shirk even the most basic responsibilities of corporate
citizenship. That's why I strongly support the Tax Shelter Transparency
Act, sponsored by Senator Baucus, which would close the loopholes that
allow corporate executives to use evasive accounting tactics to enrich
themselves on the backs of American taxpayers.
Before I close, I would like to thank Chairman Sarbanes for his
leadership on this important issue. I also want to thank the Chairman
as well as the Banking Committee staff for conducting a series of ten
inclusive and comprehensive hearings on the issues addressed in his
bill. The content of those hearings provided a conceptual foundation
for our subsequent discussions of Senator Sarbanes' bill and a previous
bill proposed by Senators Dodd and Corzine. In addition, our work has
been enhanced by the fine contributions of Senator Enzi, who is the
Senate's only Certified Public Accountant. The deliberative process
used to develop this legislation has led to an appropriate, thoughtful,
bipartisan bill that makes great strides in addressing the problems in
our financial markets and restoring investor confidence.
Ms. LANDRIEU. Mr. President, I would like to voice my strong support
for S. 2673, the Public Company Accounting Reform and Investor
Protection Act. This legislation will bring accountability to our
corporate boardrooms and end the accounting abuses that threaten to
undermine the free enterprise system.
The hallmark of our economic system is free, fair, and open
competition. The system rewards innovation, efficiently, and hard work.
It allows individuals to take an idea, a dream, or an invention; build
a business around it; and turn it into a livelihood. Some of our
greatest corporations today started with just one idea.
The recent revelations from Wall Street have thrown much of this in
doubt. For the Enrons, and WorldComs of the world, success was based on
hiding losses, misstating earnings, destroying documents, and getting
cozy with their so-called ``independent'' auditors and the stock
analysis who are supposed to give the stock buying public objective
information. Instead of winning through open competition, these
companies and others won through accounting sleight-of-hand.
The price of this deception has been too high. While much has been
made in the media about how far the Dow, the NASDAQ, and the S & P 500
have fallen on Wall Street, the real pain is being felt on Main
Street--in retirement plans, pensions, and the investment portfolios of
hard working people in our country. The pain is being felt by the very
wealthy and people with modest means. Fortunately no Louisiana-based
corporation has been caught up in this mess and hopefully that will
remain the case, but many Louisiana investors were not so lucky.
Many have said that all of these problems have been caused by a few
bad apples. But when we hear about corporations hiding losses, creating
off-book partnerships, insider trading, and inside loans to corporate
officers, it means that something may be wrong with the whole tree: the
tree is rotten because of loopholes in regulations and limited
oversight.
My State of Louisiana is home to a large number of small businesses--
94,000 of the employer businesses in my state employ fewer than 500
people--

[[Page S6700]]

and they employ about 54 percent of the state's workforce. This does
not include the estimated 135,000 self-employed people in my state. I
find myself wondering what small business owners think of all of the
news reports about these big, sophisticated corporations and their
crooked accounting?
Small business owners work hard to keep clean books. They do not have
a team of creative accountants that turn losses into gains. The small
business does not create sham, off-book partnerships to hide losses. I
have never heard of a small business being forced to restate its
earnings. Small business grow by playing by the rules. Many small
business owners dream of taking the honest approach to turning their
ideas and dreams into big businesses. How disheartening must it be for
them to see that in the world of big corporate business the way to get
ahead is by cheating.
The bill before us today will help restore faith in the free market.
It creates a strong oversight board that will set auditing standards
for public companies backed up with the power to investigate abuses. It
gets rid of the inherent conflict of interest faced by accounting firms
that provide management consulting services to their auditing clients.
Here on the floor we have added tough criminal penalties to this bill
and given greater protections to whistles blowers. The whistle blower
protections are an especially needed reform. We want the honest people
in business to know that there is still a place for them.
We must take this opportunity to restore confidence in the free
market. I urge my colleagues to vote in favor of this legislation and I
want to commend the chairman of the Committee, Mr. Sarbanes, for
bringing this legislation to the floor.

Vote Explanation

Mr. KERRY. Mr. President, due to a longstanding commitment I
was necessarily absent for the vote on cloture on the Public Company
Accounting Reform and Investor Protection Act of 2002 (S. 2673).
Although my vote would not have affected the outcome, had I been
present, I would have voted for cloture on the bill.

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