[Congressional Record Volume 148, Number 97 (Wednesday, July 17, 2002)]
[House]
[Pages H4864-H4869]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                            CORPORATE FRAUD

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
January 3, 2001, the gentleman from Colorado (Mr. McInnis) is 
recognized for 60 minutes as the designee of the majority leader.
  Mr. McINNIS. Mr. Speaker, to my colleague, the gentleman from New 
Jersey (Mr. Pallone), I am not going to follow up with some comments 
about your previous comments. In fact, I found the gentleman's comments 
pretty interesting.
  This evening I want to spend the time with my colleagues speaking 
about corporate fraud. I spoke about that at length the other day but, 
actually, the conversation I wanted to have with my colleagues was cut 
short by the time. So tonight I wanted to go through it in much more 
detail at a little slower pace so that we have a pretty clear 
understanding of what is happening out there in corporate America, with 
a few bad apples, but these bad apples are so bad they are ruining the 
bushel of apples. I come from apple country out in the Rocky Mountains 
of Colorado, and I can tell my colleagues if we do not track down the 
bad apple in a bushel of apples, no matter how good the rest of the 
apples in that bushel are, it will not be very long before the stain 
from the bad apple begins to go over on the good apples, and pretty 
soon the whole bushel of apples is ruined.
  Now, I have heard many of my colleagues recently talk about the 
corporate fraud that is going on and, remember, it is not all 
corporations. It does not entail all of the corporations. Keep in mind 
that there are many, many smaller corporations in America.

                              {time}  2145

  When we speak of the word ``corporation,'' it is very broad. As I 
said the other evening, my in-laws are cattle ranchers. They are not 
big cattle ranchers, but they have a cattle ranch up in the mountains. 
It has been in their family since the 1880s. They are incorporated for 
liability purposes.
  I have a friend who owns an ice cream shop. He has two employees, 
actually his partner, he and his wife, they are incorporated. So not 
all corporations fall into this.
  There are a few corporations that I am going to address specifically 
by name this evening. There are a couple of corporate executives, 
thieves, that I am going to address this evening by name; and I hope my 
colleagues are attentive to this issue.
  But back to the point that I was making, recently several Members 
have said that this is like a bank robbery. These guys are bank 
robbers. I stand to differ with them. These people, like the President 
of Tyco, or Bernie Ebbers, the President of WorldCom, or Scott 
Sullivan, the chief financial officer, they are not like bank robbers.
  I will tell the Members the difference. It is right here on this 
poster. A bank robber, generally in a bank robbery the person who 
commits the bank robbery is generally a poor person taking from a rich 
person. That is not what we have here. What we have with these 
corporate problems in America today is not a poor person taking from a 
rich institution, but instead, just the opposite: we have a rich 
institution taking from the poor people. That is exactly what is 
happening out there.
  So when we hear people say, this is kind of like a bank robber, it is 
just the opposite of a bank robbery. It is the institution taking from 
the small guy, instead of the poor guy maybe taking from the bank. That 
is the difference.
  These people who are dealing with this are not any different than a 
bank robber, though, as far as how we might describe them otherwise, 
like two-bit crooks, two-bit hoods. That is exactly what we are talking 
about here.
  Let me go over a few things. I think, first of all, the best thing to 
talk about, I mentioned earlier that, by far, most of the corporations 
in America are small companies. Most of the companies in America run a 
pretty good operation. America, by far, has the strongest economy in 
the world's history. America will continue to have a strong economy. We 
are going to get through this.
  In a sense, this is somewhat of a cleansing process. We are cleansing 
ourselves of the bad apples in the bushel, so to speak. The cleansing 
process is always painful, but the only way the cleansing process works 
is that it has to be complete. The only way we save the bushel of 
apples is to get in there and find the bad apple.
  We just cannot talk about the fact that we have a bad apple in a 
bushel of apples. We have to get in there and find out where that apple 
is and find out if the bruise and the rot in the bad apple has spread 
to others, and we have to get rid of all of those.
  That is the duty of our enforcement agencies in this country. It is 
also the duty, the peer duty of other companies, other chief 
executives. We have to lift our standards in this country. This kind of 
behavior demands that other chief executives, the good chief 
executives, the good people who work hard out there, that deliver a 
good product on behalf of the company, that are honest with their 
books, that do not use their attorneys to try to deceive shareholders 
and employees, that these people demand a higher standard.
  I know a number of chief executives. I can tell the Members, they 
pride themselves on the standards that they demand. Their standards 
exceed all of the standards that some accounting firm may want, or the 
standards that the law firm says are the minimal standards they must 
meet.
  The most successful companies in America are not the companies that 
perform unethically, or perform right on the border. The successful 
ones over a long period of time or over the average period of time are 
the ones that are honest in their dealings with their employees. They 
are honest in their dealings with their shareholders. They are honest 
in their dealings with government agencies. They are honest in their 
dealings in the reports they give to the general public.
  Those are the companies, those are the businesses in America, in 
fact, those are the businesses in the world that over the long run will 
be the most successful and the strongest.
  Now, I think it is important that we have a good concept of what a 
corporation is. What makes up a corporation? How does it work? Who is 
an insider? What are some of the buzz words that are used when we talk 
about corporations?
  Of course, the first buzz word we use is ``corporation'' itself. As I 
said earlier, a corporation really, or corporations in America, are 
comprised of many, many different sizes of corporations. We can go all 
the way from General Electric or a Wal-Mart Corporation clear down to 
the mom and pop ice cream shop in our local community that incorporates 
generally for tax or liability purposes.
  So when we hear the word ``corporation,'' do not just apply it to the 
big corporations and do not just apply it every time we use it in a 
negative connotation to the bad corporations, like Tyco or K-Mart 
Corporation. And really, the corporation as a whole was not so bad, but 
the people who worked within it were rotten apples.
  We have to be able to segregate the bad from the good because the 
good deliver us good products. We can take a look at the car we drive, 
we can take a look at the toothpaste that we brush our teeth with in 
the morning, the mouthwash, or the cold medicine that we take, or the 
pen that we write with, the lights, the power that is delivered here, 
or even the clothes we have on. There are a lot of good products in our 
country.
  There are a lot of honest, hardworking people in our country. They 
are being smeared by the likes of Scott Sullivan in Florida, who right 
now is building his $19 million mansion, or the likes of Gary Winnick 
with Global

[[Page H4865]]

Crossing in California, who is building a $90 million mansion. We can 
go on and on. Bernie Ebbers.
  I will go through a lot of these names with the Members because we 
ought to know the names of the people. We ought to be able to identify 
what apple in the bushel is bad. Remember the saying: once a crook, 
always a crook. A crook is a crook is a crook. That is the way it is. 
We have to call it as we see it. Call a spade a spade; call a crook a 
crook.
  I will tell the Members, if we allow a crook to stay in our midst, if 
we allow a crook to stay and influence what we do, over time we begin 
to pick up some of those bad habits. After a while, that old saying, 
you cannot teach an old dog new tricks, it kind of applies to a crook, 
too.
  Look at the president of Tyco, the guy who bought millions of dollars 
in art. He is worth hundreds of millions of dollars, but he cheated on 
a very small part of the art. He decided not to declare it on the sales 
tax so he could avoid it, save $100,000 here and $100,000 there.
  To someone worth hundreds of millions of dollars, that is pennies; 
that is nothing. But to illustrate, that this individual would go to 
the trouble to cheat the State out of a small amount of State sales tax 
lets us know that that old saying, you cannot teach an old dog new 
tricks and once a crook, always a crook, those sayings out there have 
applicability to some of these individuals.
  Let us go back and study what the structure of a corporation looks 
like. A corporation always starts here on the top. It always starts 
with the shareholders. The shareholders are the fundamental part of a 
corporation.
  A corporation really is not recognized as a human being, obviously; 
it is a legal body that is created by law that allows a group of 
people, in some States as few as one or two people, in other States it 
requires more, but it can allow a corporation to be built with just a 
couple of people who own the shares of the corporation.
  If it is tightly held, what ``tightly held'' means is a very few 
people or a family holds that corporation, the stock, the shares in 
that corporation, and shares and stock being synonymous, and ``closely 
held'' means maybe it is a little broader than tightly held, maybe you 
only have 20 shareholders.
  We have lots of those. For example, my wife and her parents have a 
family ranch. It is very closely held, tightly held by the family, 
closely held; and it does not have but maybe, I do not know, 10 or 15 
shareholders in that corporation.

  A lot of corporations, for example, an IBM or a General Electric or a 
Wal-Mart Corporation, they literally have millions of shareholders, 
millions of people who want to pool their money together. They entrust 
their money. They entrust their investment in this corporate entity, in 
this vehicle, to go out and see if they can make a product upon which 
there will be demand, which the consumer will want.
  In turn, those shareholders hope over time, as a result of their 
investment in this corporate vehicle, that they are going to get paid 
dividends, that they are going to be able to make money off their 
investment. But in making that investment, there are certain levels of 
integrity or trust.
  Now, we are not fools. We know that we deal with a lot of different 
people that form these corporations. We know that in any given body of 
people, whether it is Congress or whether it is the Catholic priesthood 
or whether it is schoolteachers, once in a while we are going to get a 
corrupt person in that group.
  So we do not just leave it to the honesty or integrity of people who 
form corporations, especially if those corporations are broader than a 
closely held corporation, if they are publicly traded, broadly traded, 
as they say. If they are broadly traded, we do not just totally trust 
them, the government. We do not completely trust them. We mostly trust 
them, but we do not completely trust them.
  What we do is require audits. We require public disclosure 
statements, financial disclosure statements, so that the public has an 
opportunity to screen very carefully what the audit says or what the 
financial statements say. It is kind of a check and balance on the 
chief executives.
  But in order for that check and balance to work to give protection 
not only to the shareholders but to the employees and to the people who 
are affiliated with that corporation, in order for that to work, we 
have to have honest accountants.
  Here comes Arthur Andersen. There is a problem with Arthur Andersen. 
We have to have honest attorneys. Here comes a problem with K-Mart and 
Tyco Corporation; here comes a problem with Adelphia Cable Systems, 
where the family themselves stole from the public shareholders almost 
$3.5 billion, not million, billion dollars.
  So in order for the whole system, in order for this whole system to 
work, which I am going to go through, we have to have some honesty. We 
have to have honesty and integrity from the attorneys.
  If we happen to have an attorney, like in Tyco Corporation, who pays 
himself a $20 million or $30 million bonus and breaks it up so he does 
not have to put it in the public disclosure statement that I referred 
to, so the shareholders, the check and balance, can determine whether 
or not the attorney deserved his self-enrichment of 20 or $30 million, 
if we do not have an attorney who is honest, we ought to have him 
disbarred. That is the check and balance that tries to keep the legal 
counsel in check.
  It did not work with Tyco Corporation. In fact, in Tyco Corporation, 
the attorney kind of was in bed with the president of the company. The 
president of the company self-enriched himself with hundreds of 
millions of dollars, and the same thing with the attorney. We are going 
to see the same thing in something called ImClone, ImClone, the Martha 
Stewart case. We are going to get into that in a little detail. That is 
where I am going to describe inside deals.
  But let me go back to the corporate structure. So we have the 
shareholders. A shareholder could own one share. For example, I may own 
one share of BankOne, a very reputable company out there. I do not know 
what their shares, let us say it is $24. So you could own one share, or 
be a mutual fund that owns hundreds of thousands of shares.
  Now, 10 or 15 years ago, 20 years ago, very few people, as a 
percentage of the whole of society, owned stock. The average person on 
the street did not invest in stock. But that has changed significantly 
over the last few years. One, we now have many more people that have 
retirement funds, called mutual funds, or 401(k)s with their company, 
or they form some other type of retirement vehicle. That money is 
pooled, and believe it or not, a lot of people out there who do not 
think they own stock, in fact, they indirectly do own stock because 
their retirement fund, their 401(k) or their mutual funds, actually are 
stockholders. They hold stock on your behalf. So today we have many, 
many more people invested in 401(k)s, et cetera. Therefore, we have 
many, many more people who now own stock.
  We have also seen a surge of interest in the stock market, especially 
during the boom years. We now have a lot of people we would never 
imagine buying stock who would figure out the best stock to buy down at 
the local barber shop. We had a boom. That boom, that big bubble, has 
burst.
  What I am trying to get at here is that we have lots of people who 
are now reliant on a credible corporate structure. We have more people 
in this country today dependent upon the integrity and the honesty and 
the strength of the corporate structure in America than we have ever 
had in the history of this country.
  That is why it is important that, one, we recognize not every 
corporation is corrupt. We have a lot of good companies that produce 
good products out there: the toothpaste, the car, the electric blanket, 
you name it. But that is why it is so important that we find the 
corporations like Tyco, ImClone, or K-Mart, or some of these others, 
Enron Corporation, WorldCom, Waste Management, Adelphia, Conseco. That 
is why we have to clean house on these.
  When I say clean house, I mean clean house. We cannot just sit back 
here and treat these people like they have not done something wrong. 
Keep in mind, in America, if you steal a car off a shopping center 
parking lot, and even though that car is only worth $50, and

[[Page H4866]]

somebody turns you in to the police, when the police stop you, they do 
not stop you with one police car and one police officer.

                              {time}  2200

  They stop you with a number of police officers. A number of police 
officers surround you. They pull you out of the vehicle at gun point 
for stealing this $50 car. They put you on the pavement. And while you 
are laying down on the pavements they handcuff you. They then put you 
in a police car, in a cage in the police car and they haul you to the 
police department.
  Bernie Ebbers of WorldCom or Gary Winnick of Global Crossing, Gary 
Winnick is currently residing in his $90 million home in Bel Air, 
California. He has never felt handcuffs. Bernie Ebbers of WorldCom went 
to the board of directors and borrowed $408 million and neither he nor 
those board of directors have ever had the feel of handcuffs around 
their hands.
  Our society has got to give them that feeling because if they do not 
get that feeling of handcuffs, we are not going to get the feeling of 
credibility. We are not going to get the feeling that our system is 
working, that the checks and balances are in place. So it is just as 
important to society that appropriate and tough punishment be meted out 
as it is to our own feeling of, well, they deserved this punishment as 
it is to fairness.
  You go into a Kmart and you steal a candy bar, you will suffer a lot 
more penalty under the criminal law than the chief executives of Kmart 
who loan themselves millions of dollars, and then the week before the 
company was taken into bankruptcy, got the loans forgiven by corporate 
documents. In other words, you do not have to pay it back. You sign it. 
Self-serving. And then they took the company into bankruptcy. Remember, 
we are not just talking about shareholders. There is another group up 
here that hurts a lot, that has suffered a lot as a result of the Enron 
and the WorldComs and the Tycos and the people of Global Crossing and 
the companies like that. That is the ones clear at the bottom of the 
list, but probably the most important box on the list, and that is the 
employees. And not just the active employees. Do not forget we have 
retired employees. So there really should be another box right here. 
The retired employees. Some who have given their entire careers to 
these corporations, and now they find themselves out on the street. 
WorldCom, who bought company after company and assumed those employees, 
now those employees are out on the street.
  This company will declare bankruptcy this week or early next week. 
These retired employees will find their pensions wiped out. The same 
with Global Crossing. How do you think the employees of Global Crossing 
feel today? They have been wiped out and Gary Winnick is living in a 
$90 million mansion, currently being remodeled because he thinks it 
needs upkeep, in Bel Air, California. Or Scott Sullivan, the 40-year-
old guy who shows up in Congress chuckling while we are interviewing 
him while his $20 million home on the ocean or lakeside is currently 
under construction in Florida. You think he gives a hoot about these 
retired employees? You think he gives a hoot about the current 
employees?
  These people have broken the trust of America and these people should 
pay the price. They should not be allowed to live the rest of their 
life in the luxury of a king and in the mockery of a justice system.
  Let me go back to how this corporation is made up. We have talked 
about our shareholders. The corporation would not exist without the 
shareholders. Now the shareholders entrust their money and they give 
their money, they put their money into the corporation. And then you 
have gotten the corporation, a group of individuals who represent the 
best interests of the corporate entity as a whole, who look out for the 
shareholders, who have responsibility for guidance of the corporation, 
not day-to-day guidance of the corporation, but overall policy, overall 
direction of the corporation. And these people have what is described 
as a fiduciary duty.
  What does fiduciary duty mean? It means a special duty, a special 
obligation to the people that you are representing. More than just, 
okay, I will do it for you. It is a special level of trust. It is a 
higher standard, and that is what these boards of directors do. I can 
tell you any time you find one of those overpaid executives, any of 
these corporations you would find in trouble whether it is Enron, TYCO, 
ImClone, whether it is Waste Management, whether it is Xerox 
Corporation, Sunbeam Corporation, any of these in trouble, you will 
find trouble in the board of directors. You will find a breach of 
fiduciary duty with those boards of directors. Either they fell asleep 
on the job or they were lulled asleep by the management that bestowed 
them with gifts.
  For example, in WorldCom, Bernie Ebbers made sure that one of his 
board of directors was given a corporate jet which probably costs the 
corporation $200,000 a month, but he decided to lease it at an arm's 
length transaction, a fair transaction. So he let the director lease it 
for a dollar a year, and all the expenses were paid.
  Do you think that director has got a fiduciary duty? Do you think he 
is representing the shareholders or the best interest of that 
corporation, or do you think he is representing the best interest of 
Bernie Ebbers of the WorldCom Corporation? It is clear he has breached 
his trust. That is why this part right here, these boards of directors, 
that is very, very important. Every box in here is important for the 
corporation to work correctly.
  Every box in here has an integral part, a basic and fundamental part 
of the company. This vehicle cannot move forward effectively if any of 
the people in these boxes have corrupted the box. For example, if you 
have corrupt shareholders, this corporation will not work. It will not 
be a good corporation. If you have a corrupt board of directors, we 
have seen what has happened with Enron or these others. If you have 
corrupt legal counsel, corrupt auditors like Arthur Andersen, corrupt 
president like the president of Tyco or the president of ImClone, the 
inside deals, or if you have a management team that is corrupt, it will 
not work, or employees that steal from the company, if you have 
employees that are corrupt. Every box in here has to work; and if it 
works, it is a very powerful economic machine. If it does not work, it 
is a complete failure or close to it. It can cause an implosion, and 
that is what you are seeing with some of these companies. You are 
seeing an implosion with WorldCom. You have seen an implosion with 
Xerox. You have seen an implosion with some of these and it is because 
of defective management in a large degree.
  So we talk about the board of directors. The board of directors does 
not go to work every day. They are generally retired executives, men 
and women, prominent in their communities, but they are supposed to be 
qualified on that board. They were not supposed to be on there for 
celebrity status. They are not supposed to be on there to be yes 
people. They are supposed to be on there for the best interest of the 
shareholder and of the corporation. And for some reason, that has been 
diluted.
  In my opinion, the long-term solution for this, one of the key parts 
of that is that we have got to professionalize our boards of directors 
across this country. We have to increase the standards and the behavior 
that we expect from them, which also means we have to increase the 
punishment if the board goes bad, if they become corrupt.
  So now we go and we have got our legal counsel. I have referred to 
our legal counsel a little. You should not have an attorney who gives 
you the advice that you want to hear. A good attorney will give you the 
advice regardless of what you want to hear. And what happens here, 
unfortunately, and Tyco is the excellent example, the attorney goes to 
work for Tyco. He got his job as a personal favor from the president of 
the company. The president of the company is a guy that cheats on his 
sales tax even though he makes tens of millions of dollars every year. 
And the lawyer here decides to cozy up in bed as well, so what he does 
is start to pay himself bonuses.
  Now, remember that the board of directors issues reports that go out 
to the shareholders. They issue reports that go out to the public, and 
they issue reports that are read all the way down this system. In Tyco 
what happened is the legal counsel made sure that the bonus he got of 
$20 or $30 million was broken up and titled in such a

[[Page H4867]]

way that it would never have to show up in any of these reports. So the 
employees did not know what the attorney was paying himself. The board 
of directors, theoretically, did not know what he was paying himself. 
Certainly the shareholders did not know what he was paying himself. It 
was what is called a sweetheart deal.
  Now, you also have the auditors over here. And you saw the same thing 
with Enron. That is the excellent example of Enron Corporation. With 
Enron what you did is you had Arthur Andersen in the morning, and keep 
in mind it is not just Arthur Andersen, but you had Arthur Andersen in 
the morning being your auditor, telling you whether or not your books 
were clean and whether or not they had been cooked, and in the 
afternoon offering to you a much more lucrative contract for themselves 
doing consulting.
  We have got to break apart auditing firms that offer auditing at this 
time and consulting at this time. They are two separate functions, and 
they should be handled by two totally independent, unaffiliated units 
for it to work effectively. What happened with Arthur Andersen, they 
got too cozy with the management at Enron. These accountants, these 
CPAs out there making 100,000 or 90,000, they could not resist the 
temptation to make several hundred thousand like the executives at 
Enron. So when the executives at Enron or the board members that were 
corrupt at Enron came over to the accountants and said, here is what we 
want this report to the public to look like, the auditors for their own 
self-enrichment say, we can make it work. We can hide those numbers. 
And that is exactly what they did at WorldCom.
  At WorldCom they took their expenses that should have been put in the 
expense column and they capitalized them so it looked like they were 
making more profits. And this was done with the assistance of their 
auditing team. And, in turn, they had stock options that went up in 
value because the stock price was high because the public, the 
shareholders and the public that wanted those shares thought the 
company was making money when, in fact, it never made money. It never 
made any kind of money. They threw out these corrupt corporate 
executives or these board members threw out a line. They got the 
auditors to bite on the bait. They pull in the auditors, then they 
throw in another line. They pull in the legal counsel and then, of 
course, pretty soon they say we have enough. Now, let us see what kind 
of suckers are out there.

  The first suckers they go after are the shareholders. They suck in 
the shareholders, and then the people that suffer the worst at the 
bottom are the employees. People that have worked for these companies 
for years, for decades. What is left of their future is decimated. 
Their life savings is gone. It is pretty hard to stomach this. It is 
pretty hard to look at how much these employees of WorldCom or Enron or 
Kmart or Tyco or ImClone, it is hard to stomach what has happened to 
these people's savings, to their pensions, when people like Scott 
Sullivan are living in a $20 million brand new mansion in Florida or 
Gary Winnick of Global Crossing is living in a $90 million mansion in 
Bel Air, California, all at the expense of these employees and of these 
shareholders. Self-enrichment. Inside deal. Inside knowledge.
  Now, what do I mean by inside knowledge? You know, to run a 
corporation, your executive officers have certain information that is 
obviously confidential. They have information that would impact the 
corporation. They cannot, for example, if they are negotiating to buy 
some property across the street, they do not want to release publicly 
about what price they are willing to pay for that. They keep that 
inside the company's information. And it is for obvious reasons. They 
keep it. And that is perfectly legal. That is called inside 
information. But what is not legal is when these executive officers, 
this management team or these boards of directors use that confidential 
inside information for their own self-enrichment. And I will give you 
the perfect example of it. I have it laid out right here for you. It is 
a company.
  Many of you have never heard of ImClone Systems, Incorporated, but 
you have heard a case affiliated with it called Martha Stewart. She is 
tied into this little deal. Let us take a look at what ought to be a 
textbook example for every college business book that is published for 
study, a textbook example of corruption at the core, of the misuse, and 
the breach of fiduciary duty by your corporate officers. Here is what 
happens. ImClone has a president, and the president of the corporation 
finds out December 4, remember the dates. They are important. On my 
poster, this is the key date right here. Lots of these corporate 
officers, including the president, the vice president, the legal 
attorney, the vice president for marketing, they hold a lot of stocks. 
They hold a lot of options on shares of stocks.
  Now they are about to get information that the public will not have 
access to for several days. Now under the rules of law, they are not to 
share this information with anybody because it gives one person an 
unfair advantage. Our stock market works out there, our investment 
market works because theoretically both parties have an equal advantage 
at least going into it. And they then negotiate and they bargain. But 
you cannot have a system that works correctly when one party has inside 
information and using it inappropriately, the other side can never get 
a fair deal. There is no square deal on something like that. And 
ImClone was not about to give anybody a square deal, except the inside 
people. Here is what happened.

                              {time}  2215

  December 4, FDA officials meet privately with the ImClone vice 
president and informally and probably improperly, but informally 
signaled that the company's cancer drug could have licensing problems. 
So on December 4, an FDA official, and again, I am not sure this was 
proper what this official told, but he hinted or dropped the hint, hey, 
your drug, which this company has built itself upon, is in serious 
trouble. It may not get its license. You guys may be in real trouble.
  What happens? Look what happens. You think that they go public with 
this information? No. You think they are going to go out to the average 
John or Jane on the street that owns stock, that trusts this 
management, you think they go to the board of directors? They may, by 
the way, have gone to the board, but do you think they go to the 
employees who work so hard to make this a success and say we have got 
some information, you need to be aware this stock may collapse? No, 
they do not do that. These people are corrupt. They are going to use 
that to self-enrich themselves.
  Here is the sequence of things that happen. December 6, two days 
later, their attorney, and remember, I told you how important it is 
that you have legal counsel that has integrity, that has capability and 
knows the rules of law when it comes to corporate governance. So what 
happens on December 6? This attorney, their general attorney, general 
counsel the title they use, unloads $2.5 million worth of ImClone 
stock. Cannot wait to sell. Two days after that information gets to 
him, he drops the stock. What a wonderful timing. What a coincidence, 
what a hunch. Must be a very brilliant guy in the stock market.
  December 11, ImClone vice president Ronald Martell sells another two-
point-some-million dollars' worth of ImClone stock.
  On December 26, now we are jumping to December 26, a very key date 
right here, here is the CEO, this guy, in my opinion, is as big a two-
bit crook as you have ever seen in the history of this country. This 
guy was called the general attorney, now the general counsel. He has 
already sold his stock because he knows the news is coming. He spends 
17 minutes on the phone with the CEO, Sam Waksal, the president. Here 
is what he does. He spends 17 minutes on the phone with the president. 
The president then drafts a note, and on the note he marks ``urgent, 
immediate attention required,'' and he sends it to his broker, to the 
broker that holds the president's, this guy, he sends it over to his 
personal broker, this note, urgent, immediate attention required.
  Then what he does is he knows that in the next couple of days, on 
December 27 or December 28, I guess it is December 28, there is going 
to be an announcement that ImClone's drug is not going to get licensed 
by the FDA, and

[[Page H4868]]

he knows that their stock price will implode. It will collapse. So he 
immediately calls his broker, and he knows that if he sells the stock 
in his name, it is going to be pretty obvious he had inside 
information.
  So he transfers 4.5 million shares or $4.5 million, I cannot remember 
which, into his daughter's name and says to his daughter, sell the 
stock quick. What happens to the daughter? She turns around and sells 
her stock. She has got over $2 million or $3 million worth of stock. 
She attempts to sell her father's stock in her name, but Merrill Lynch 
says no, something is fishy here, we are not going to let you sell that 
4 million shares, but we will let you sell your shares because maybe 
you are like the attorney and the marketing guy and like some of the 
other executive officers, you just know how to read the stock market, 
just timing, just a coincidence that you had such a hunch that this 
stock was going to implode.
  Do not forget now they have got buddies out there. They do have a 
couple of close friends. One of their close friends is this broker at 
Merrill Lynch. What does this broker at Merrill Lynch do? He calls 
somebody named Martha Stewart. What does Martha Stewart do? He leaves a 
message to Martha Stewart. This is before the general public knows of 
the inside information that is going on. The Merrill Lynch broker calls 
Martha Stewart, and the message he leaves her is ImClone is going to 
start trading downward, ImClone is in trouble, in other words, but the 
exact quote is, ``ImClone is going to start trading downward.''

  What happens? Martha Stewart immediately sells almost $300,000, I 
think it is within a few minutes sells $300,000 approximately worth of 
her stock.
  What happens? Next day, the announcement comes out. ImClone stock 
almost becomes worthless. Who loses on the deal? Well, the shareholders 
of ImClone lose in a big way unless you happen to be on the inside. The 
employees of ImClone lose in a big way. The retired employees of 
ImClone get their pension plans, their retirements, all get wiped out.
  Who comes out of it smelling like a rose? The two bit-crook comes out 
of it smelling like a rose. Some of the board members come out of it. 
The president of the company, the president's daughter and people like 
Martha Stewart, who by coincidence just happened to know the right day 
to sell.
  These are the kind of deals that are putting a black eye on business 
in America. These are the kind of deals that are shading the honest 
people. These are the kind of bad apples in the bushel we have got to 
dig down and we have got to find it, and I will tell you it is not just 
with this ImClone Corporation.
  Let me just give you a quick demonstration. Enron Corporation, I do 
not need to talk much about that. We know about the corruption that 
went on at Enron Corporation, and take a look at the problems they had 
on their board of directions at Enron Corporation. Not one of those 
executives has yet had the feeling of handcuffs on their wrists. Keep 
that in mind next time you go to the grocery store or the shopping 
center. You might see somebody that stole a 95 cent candy bar and they 
have got handcuffs on their wrists, but nobody at Enron did.
  Take a look at Arthur Andersen, completely breached their duties, not 
the whole corporation. There were a lot of good people that worked in 
that, but the whole corporation was dependent on their executive 
officers who were supposed to have integrity and honesty, but they got 
reeled in. They cast out there and the executives reeled them in, said, 
come on, we will cut you in on the deal. Arthur Andersen.
  Xerox Corporation overstates their sales, tried to deceive the 
shareholder.
  Kmart Corporation goes out and loans its chief executive officers and 
several of the executive officers millions of dollars a couple of weeks 
before they know they are going to declare bankruptcy; and the week 
before they declare bankruptcy, the chief executive officers sit down 
and write a statement to themselves, dear self, the money that we had 
you loan from Kmart is now forgiven, signed self. That is what happened 
here.
  I know people that worked at Kmart. You know stores of Kmart that 
have closed. They are trying to make it. They are still trying to make 
it go. There are a lot of people. These are blue collar workers, a lot 
of them. These are not wealthy people. It is like I said at the 
beginning of my remarks, this is not a bank robbery going on here 
because keep in mind, the bank robbery, it is generally a poor person 
trying to rob from a rich institution. These are wealthy institutions 
trying to rob from poor people; and at Kmart they were successful, lots 
of retired employees there that made maybe five, six bucks an hour who 
had just a few hundred dollars a month. They do not have a $90 million 
dollar mansion like Gary Winnick with Global Crossing.
  They get wiped out, these people, and they are not 20-year-old kids 
that have a lot of life ahead of them. They are 
50-, 60-, 70-year-old people that are dependent upon their pension 
after 30 years with Kmart.
  Take a look at WorldCom, Tyco Corporation. Take a look at ImClone. 
That is the one that we took, and I have got more charts. I could tell 
you about more and more of them.
  I have got back here Adelphia Corporation. There the executive 
officers bought their own sports team, built their own private golf 
course for $20 million, managed to siphon $3.5 billion, not million, 
billion off the corporate books. Where were the auditors? Where was the 
attorney? Where was the corporate board of directors? They stole that 
money. They are probably playing golf today, and we have more examples 
like that.
  Waste Management, Sunbeam which was caught several years ago, Global 
Crossing.
  There is a little game called Monopoly out there, and I am not trying 
to be cute here. I am serious as I can be. In that game you could pull 
a card, and if you get in trouble, you could pull a card. You know what 
that card says, ``Go to jail, and as you pass go, do not collect your 
$200.''
  What I worry about here is that people like Gary Winnick, people like 
the head of Tyco, people like Scott Sullivan, and by the way, if you 
have not seen it, this is Scott Sullivan's $20 million palace currently 
under construction on Lakeside in Florida. These people should not only 
ought to go to jail. They should not collect the money on the way to 
jail.
  These proceeds were taken from the employees of that corporation. 
These proceeds were taken from the shareholders who trusted the 
management team of that corporation. There is a solution, and our 
solution is kind of multistage.
  The first step in the solution for getting this is to keep in mind 
that the whole system has not imploded. I would say that a very small 
fraction of the system is in trouble, but your body may be cancer-free 
and you may have just a little tiny bit of cancer on your big toe. If 
you do not catch that cancer for a while, most everything is going 
fine; but if you ignore that cancer on your toe, pretty soon it may go 
up your leg and then pretty soon it will kill you.
  Now we have discovered it on our toe. Now is the time to act. Keep in 
mind that we do not need to pull out a gun and shoot ourselves because 
most of our body is in fine shape and we are going to be able to remove 
that cancer. If we remove it and if we act aggressively and if we dig 
deep enough, we can get that cancer off and we will be fine. So it is 
no use destroying your body. Keep in mind, most of your body is working 
well, but you have got to act aggressively against the problem you have 
got on that foot. It is the same thing here.
  The second step, we have got to aggressively pursue these crooks. A 
crook is a crook is a crook; and a crook that steals from the poor, a 
crook that steals from the working population in this country, a crook 
that steals from anybody ought to be punished. The days of our society, 
of these people being allowed to live in these kinds of mansions after 
we know they took the money or the ImClone people and I do not care how 
popular they are. It may be Martha Stewart.
  I admire Martha Stewart. She built her empire from nothing. She is a 
hardworking lady but she made a big mistake, in my opinion. She dealt 
on inside information, information that the little guy was not entitled 
to, but the law says the little guy is entitled to.
  These people have broken the law, and these people should be 
punished. If

[[Page H4869]]

we do not punish these people, if we do not go aggressively after these 
people, then we begin to lose the integrity and the credibility that we 
are going to be able to get that cancer off our foot, and then we do 
have the risk of our entire system imploding.
  That is a long way off because I am confident, especially under the 
President's statements of the last couple of weeks, under action take 
on this floor, under action taken on the other body's floor and the 
compromise that we will eventually come up with, we are going to go 
after them; but we need our local prosecutors to go after them. We need 
the Internal Revenue Service to go after them. We need the Securities 
and Exchange Commission to go after them. There is no reason any agency 
that has any kind of jurisdiction over these individuals should not 
pursue these people as aggressively as they would pursue a two-bit 
thief that walks out of one of these companies with a pen or a candy 
bar or calculator that they have stolen.
  I have been pretty emotional with this speech because I feel deeply 
about it. I feel a lot of people have gotten cheated; and I know I have 
said it time and time again, but it is not a bank robbery. It is not 
poor people trying to steal from the rich. These are a very few people 
who are very wealthy who acted in a very self-serving, very selfish 
method for one purpose and that was to enrich themselves at the expense 
of somebody else; and in these particular cases, the people that have 
done this were already wealthy. It was not like they needed to get 
wealthy. It was not like they needed to take bread home to their kids. 
These people were already wealthy. They just did not have enough so 
they decided to cheat the system, and the people they cheated are the 
people that do not have enough.

                              {time}  2230

  They are the people that have had their pensions wiped out; that have 
had their dreams wiped out; that have had their jobs eliminated. Those 
are the people that are suffering, and the people who have invested in 
these shares and the American dream. Those are the people that are 
suffering, and we ought to right the wrong. It is dependent on us, 
colleagues, to right that wrong, and we are going to have this 
opportunity.
  So once again I call for prosecutors across the country, for the IRS, 
for the SEC, for Congress, the President has already shown his 
aggressiveness on this, we need to come together and we need to bring 
down the hammer and we need to bring it down hard so that people know 
that the American business system is a credible system that works on 
integrity. If we can do that, we will restore the economic strength of 
our business machine. We have to have that for this country to continue 
its greatness.

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