[Congressional Record Volume 148, Number 100 (Monday, July 22, 2002)]
[House]
[Pages H5073-H5080]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
DYING FROM DEBT
The SPEAKER pro tempore. Under a previous order of the House, the
gentleman from Mississippi (Mr. Taylor) is recognized for 5 minutes.
Mr. TAYLOR of Mississippi. Mr. Speaker, in newspapers all across this
great Nation today, the headline ran that yet another company had
declared bankruptcy. This time it was WorldCom, and this time it was
the largest bankruptcy in American history. Just a month ago it was
Enron. A little time before that, it was Global Crossing. But in every
instance, there was a common pattern, and that is little folks lost
everything they owned because the big shots at the top lied to them
about how broke their companies were.
I say this because I think the same thing is happening with our
Nation in that the little folks, the average Joes like the great young
marine whom the gentleman from Massachusetts (Mr. Meehan) just told us
about who lost his life in training at Camp Lejuene. The folks who
serve us in the Coast Guard, the Navy, the Army, the folks who serve us
every day, I think they are being cheated because the big shots are
lying to them about just how broke this country is and just how broke
their policies are making us.
The gentleman from Illinois (Mr. Hastert) became the Speaker of the
House on January 6 of 1999. On that day, our Nation's debt was
$5,615,428,551,461.33. He has been Speaker now for about 1,300 days,
and in that 1,300 days, we have voted to take care of rhinoceroses, we
have named no telling how many post offices after great Americans, we
honored the great Lindy Boggs today. But the Speaker somehow could not
find time for this body to vote on what I think is the most important
rule of all, and that is that one generation does not burden another
generation with its bills. That is precisely what has been going on in
this country, particularly since 1988.
Mr. Speaker, prior to that time, we went all the way from when George
Washington was President to 1988 and the Nation borrowed about $1
trillion. That got us through American revolution, the War of 1812, the
Spanish American War, the Civil War, the war with Mexico, World War I,
World War II, Korea and Vietnam, and it borrowed about $1 trillion. The
debt payment on that was fairly low, the amount of interest payment on
that.
Something changed during 1988. Somehow the mentality that says we are
going to lower taxes, we are going to spend more money and we are going
to stick our kids with the bill, and as long as they do not know about
it; it is sort of like those little folks who own stock, only this time
the little folks own stock in America and the big shots are bankrupting
their country.
Mr. Speaker, in the 1,300 days that you would not give us a vote on a
Balanced Budget Amendment, our debt has increased by $511,040,208,939.
Now, what does that mean? I mean some people say well, big debt is
okay, because that means that is taxes I did not have to pay. Wrong.
This is the equivalent of one generation going out and buying a car and
saying, I do not care how much it costs because my kid is going to pay
for it when they get to be 30 or 40, plus interest, so I do not care.
I am going to go find the fanciest house in my home county and I do
not care how much it costs because I am going to stick my grandkids
with the bill. It is wrong. No parent would do that, no grandparent
would do that, yet it is precisely what the political leadership of
this country has been doing and, in the past 12 months, they made it
worse. Because just like the folks at Enron and Global Crossing, they
looked the American people in the eye and they lied to them about just
how broke this country is.
Remember the quote from the President of the United States, from the
Speaker, from the gentleman from California (Mr. Thomas): ``We are
awash in money.'' No, we were not. We were awash in debt. Because a
year ago right now when those three people were saying that our Nation
was $5,726,814,835,287 in debt. Just like anybody else who borrows
money, we have to pay interest on that debt. And the biggest expense of
this Nation is not defense, it is not health care, it is not taking
care of veterans, it is not educating kids, and it is not building
highways; it is squandering money on interest on the debt. We get
nothing for it, and it costs us $1 billion a day down the rathole, and
it is only getting worse.
Not only are they stealing from the average Joe, but they are taking
from the Social Security Trust Fund. We now owe the citizens of this
great country $1,300,000,000,000 of Social Security that has been taken
from the Social Security Trust Fund and used for other purposes. There
is not a penny there. There is no lock box. From the Medicare trust
fund they have stolen another $271 billion, that is a thousand times a
thousand times a thousand times 271. Yet, they had the nerve to look us
in the eye and say, Washington is awash in money.
For my military retirees, we owe them $168 billion, a thousand times
a thousand times a thousand times 168. For our Nation's civil service,
the Capitol Hill policemen who are guarding this building right now,
the FBI agents, the Customs agents, people who go out and protect our
children, people who are looking for our children who have been
kidnapped, they pay out of their own pockets into their retirement
fund. It is supposed to be set aside for their retirement. We owe them
$540 billion.
Mr. Speaker, it is time that this body got a chance to vote on a
Balanced Budget Amendment to the Constitution so that these shenanigans
come to an end before this country dies the way Enron and Global
Crossing and now WorldCom did, that the country dies from its own
debts.
[[Page H5074]]
{time} 2145
CORPORATE GREED
The SPEAKER pro tempore (Mr. Platts). 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, I intend this evening to spend a little
time with you talking about a subject which, of course, is on the minds
of many people across this country, and I want to look into it in some
depth tonight so we can have an idea of where the problem rests, with
what individuals the problem rests, and I intend to name these
individuals by name, and what are some of the solutions.
I think as Members of Congress, when we are elected to public office,
we have an obligation not only to discuss the problems, but really our
primary purpose in being elected back here is to try to come up with
some solutions. It is always easy, always easy to determine about what
the problem is. Sometimes it is easier than others. But what is more
difficult is to come up with a solution. When we have tough problems
back here, it requires that we cross the aisle. It requires that we
take a nonpartisan approach, that we be as bipartisan as we can to come
up with a solution that works for the American people.
My topic this evening is corporate greed. And I can tell you that on
one side of the aisle, and this is the last point that I will be as
pointed here as I am going to be right now, but on the Democratic side
of the aisle, including the minority leader, the gentleman from
Missouri (Mr. Gephardt), says they are looking at this corporate greed
as an opportunity to gain 40 seats. That is what they say. We are going
to take 40 seats as a result of this corporate greed. What I am urging
the gentleman and his followers over there to do is quit talking about
the type of political gain you can get out of this. Do not talk about
that while the house is burning. What I suggest you do is work with us,
all of us together, seize upon this problem, and work out a solution
before this begins to spin out of control.
We have a stock market out there that is in trouble. And if you look
at the fundamentals of that stock market, that stock market should not
be in trouble. We have inventories that are down. We have corporate
profits that are coming up. Our unemployment rate is staying low. Our
inflation rate is staying low. There is a lot of good, promising signs
that our recovery in this economy is forthcoming, that it is in
progress. But we can shoot ourselves in the foot, and that is exactly
what is happening when the likes of the gentleman from Missouri (Mr.
Gephardt) come out here and say this is our opportunity to use it to
our political advantage to gain 40 seats.
But that talk aside, the problem that is happening to the retired
people out there that were depending upon their retirement from some of
these corrupt corporations, the employees that have lost their jobs out
there by the tens of thousands because of corrupt CEOs, that is what
the issue is. The American people, not for one moment the gentleman
from Missouri (Mr. Gephardt) believes that the issue here should be a
decision between what we are going to do in November with political
congressional seats. They do not want that. They want to figure out how
they are going to keep their jobs and what is going to happen to the
rascals, and rascals is only a friendly word to use for these CEOs that
have allowed corporate greed to overtake their ethics and moral
standards of this country.
These people are worse than bank robbers. Remember, a bank robber is
generally a poor person robbing from a rich institution. The case I
will talk about this evening are rich individuals in rich institutions
robbing from the poor people. That is worse than a bank robber; and yet
the gentleman from Missouri (Mr. Gephardt) and the Democrats decide
that instead of trying to solve this problem and go after these people,
to go after the Republican House seats.
I am asking you to put it aside for a minute and join us as a team,
all of us as a team, Democrats and Republicans, unaffiliated. As a team
we need to address the corporate greed that has overtaken some of our
chief executive officers. There are solutions out there, and there are
solutions that can occur with bipartisan support. This House, under the
leadership of the Speaker of the House, and, frankly, under the demands
of the President of the United States will this week in my opinion,
pass legislation that will be effective to help address this problem.
But we can only do it if the gentleman from Missouri (Mr. Gephardt) and
the more radical Democrats put aside their partisanship and work
towards the solution of getting our hands on these corporate CEOs and
these corporations that are making their money by misleading, by
breaching their fiduciary duties to the people that are really their
owners.
I think it is helpful, and some of you have heard my comments in the
last couple of weeks on the same topic, I do not mean to be repetitive,
but I think it is important that we repeat some of the basics of
corporations in this country so we have an idea, an understanding of
what we are dealing with today.
Remember that corporations are not a body in themselves. They are not
a human body, obviously. They are a structure that we made up in this
country under our system. And corporations are a systemic model, so to
speak, of how to carry out business that represents the interests of
numerous individuals.
Keep in mind that not all corporations are bad. In fact, most
corporations do a pretty good job. We have a lot of wonderful products
in this country that are the results of corporations, both small
corporations and big corporations. The mainstay of this economy is not
the big corporations like the Enrons or the Global Crossings or the
Adelphia Cable Company or the Tycos or the K-Marts. The mainstay is
small business and there are a lot of small businesses in this country
that are corporations. You can go down town anywhere USA and you will
find them that have incorporated, and they have the local drug store on
the corner or they have a little taxi cab service and they have
incorporated or maybe a little airport charter store and they have
incorporated. It would be a mistake, you cannot throw all corporations
into the same net as the Enron Corporation. But you have to take the
Enrons and the Worldcoms and the Tycos and the K-Marts and the
corporations like that that have done bad and do something about it.
You have to march them to jail. You have to bring discipline into the
process.
Corporate structure in this country will only work as long as you
have integrity as a part of the foundation. Of course, you have to have
the other fundamentals. You have to have a legal structure. You have to
have profit. But you have to have that integrity, and that integrity is
a part of checks and balances that makes sure that the corporations, as
Adam Smith would say, do not get out of hand; that we do not end up
with a monolithic society where monopolies control everything.
Let us talk about the corporate structure and what responsibilities
there are for the various people involved in the corporate structure.
Now, this little diagram I put together, this probably would not pass
in a classroom setting in Harvard Business School, but it is something
I think we can all work with. And I think it is something that we can
understand as I go through my discussion this evening.
The corporation. Remember, the very basic part of the corporation are
the owners of the corporation, the owners of the business and that is
what it is. It is a business, and it does not have to be a lots of
owners. My wife, for example, her family are ranchers and they have a
small ranch. And they probably have, I do not know, maybe 10
shareholders, maybe eight shareholders in their corporation. So we are
not necessarily talking about large corporations. But for the benefit
of this evening's discussion, let us talk about this structure. Here
are your shareholders.
Now, a corporation like Enron or a good corporation that seems to be
viable, IBM or Coke or some of these others, General Electric, General
Motors, they have millions of shareholders. They have millions of
owners. And, obviously, because even the largest owner, for example, of
General Motors may only own a fraction of 1 percent, what these
shareholders have done is
[[Page H5075]]
they are you and I, there are more people in America today that are
shareholders than at any time in the history of this country. And that
is good. That is real good.
The problem is that if we do not reinstill the high level of
standards of integrity and moral character in these corporations, we
will see this large number of everyday Americans who are shareholders
begin to reduce itself, and that hurts the system.
The more people we can get involved in the investment and in the
business of our country, the better it is for the country. The better
it is for the business. The better it is for the individuals. So
shareholders are really the foundation in the corporation. They pool
their money together so that they can build a business. And that is
exactly what has happened.
Now, the shareholders are represented by a number of different people
and different people have different duties to the shareholders. Again,
keep in mind the shareholders are the owners. For example, here, the
shareholders elect a board of directors.
Now, what is a board of directors? A lot of people will tell you that
the chief executive officer, which in the old days was called the
president of the corporation, that the president of the corporation was
really the person who ran that corporation. That is not true. The chief
executive officer and, remember, that president and chief executive
officer, for the purpose of my discussion this evening, these terms are
synonymous. You can trade them off. So we will talk CEOs.
The CEO of that corporation is not the top individual of that
corporation. He or she answers to the board of directors and answers to
the shareholders. And here in this particular case, this is the
fundamental structure, you have the shareholders who elect the board of
directors. This is an election year; and they elect these board of
directors to represent their interests, the interests of the
shareholders. They do not elect this board of directors to represent
the interests of the chief executive officer. The chief executive
officer is simply a tool in the operation of this corporation.
Now, this sounds a little mundane; but you have to have a pretty good
understanding of this to figure out where this fraud is taking place,
why the checks and balances in our corporate structure in this country
have broken down, what we need to do to bring back solutions.
Let us talk about some of those checks and balances. We know that the
shareholders elect a board of directors to represent the shareholders,
to help provide a vision. And a lot of times the board of directors,
you have two different types of boards, you have two different types of
board members. You have an inside director on the board. An inside
director is somebody who is employed with the company, and in almost
all of the companies that I am aware of, the chief executive officer is
also a member of the board of directors. But because the chief
executive officer is employed by the corporation, he or she is
considered to be an inside director.
An outside director is someone who is not employed by the
corporation, but, rather, has some type of business, theoretically,
some type of business expertise outside the corporation that can bring
that expertise to the corporation to benefit the corporation in
guidance and to represent the shareholders.
So, first of all, you have the shareholders. They elect the board of
directors to represent them and then the board of directors to run the
corporation hires the chief executive officer, and that is this box
right here. Now, the chief executive officer represents, runs the day-
to-day operations of the corporation. And, remember, the chief
executive officer is not the top official in the company. The chief
executive officer has to answer to a board of directors. The board of
directors has a responsibility to be sure that the chief executive
officer is carrying out his or her duties.
On top of that, the board of directors has a fiduciary duty to the
shareholders to be sure that their chief executive officer meets the
kinds of standards and is able to run the corporation.
Now, the CEO, we have a little box right here to my left that I call
``insiders.'' You hear a lot lately, and we will go over some of the
corporations, you hear a lot lately about insiders, people inside the
corporation who get special knowledge, who know when the stock is going
to go up or down; and they have a special advantage, and they have an
advantage over somebody outside the corporation, especially on a
publicly traded corporation.
Well, we know that, and the Security Exchange Commission, and in this
country it has been the law for a long time, there are certain rules
that insiders have to follow. They cannot deal stock, for example.
Generally, they cannot buy or sell stock based on inside knowledge on a
public corporation. They have got to be able to disclose that kind of
thing. It is very obvious that fraud has been committed.
Take the example of ImClone. ImClone is the one that you probably
better know as the corporation matter that is involving Martha Stewart.
There you have insiders of the corporation who know that a particular
drug was not going to receive approval by the Federal Drug
Administration. They also knew that as soon as word got out to the
shareholders, to the people for whom they worked, that as soon as word
got out the value of that share would collapse. So what did the
insiders do? They went and sold their stock, and they called their
buddies like Martha Stewart and others and made sure they could also
sell their stock before the general knowledge within the corporation
became known. That is what is called inside knowledge.
The same thing with K-Mart Corporation. The same thing with Adelphia
Cable. The same thing with TYCO. The same thing with Enron Corporation.
That is an example we have had around for several months. WorldCom.
Scott Sullivan who, by the way, has a $19 million home down in Florida
that he is living in, a lot of it is based on insider knowledge. The
same thing with Global Crossing. Gary Winnick out in Bel Air,
California, building a $90 million home.
These people are robber barons. They were trading on inside knowledge
because they are insiders. And, unfortunately, in many of those cases,
the board of directors, who had a fiduciary responsibility to oversee
these people, in many cases did not oversee them. They joined the
robber barons. They help rob the shareholders of value.
{time} 2200
Not just the shareholders, but the responsibility to the public at
large, and instead of coming out with a better product, like a good
toothpaste or a better car, instead of doing that, they decided that in
the short run, it would be better to cheat the people, cheat the
shareholders. I can tell my colleagues anytime we have a chief
executive officer like Gary Winnick with Global Crossing, like the
Adelphia Cable Company and the Regis family there, or the Enron
corporation with Andrew Fastow, who paid himself $30 million, where was
the board of directors? Take a look at Kmart, the Charles Conaway,
Bernie Ebbers, I have got a bunch of names I can give my colleagues
here. Conseco, Steve Hilbert.
Any time we see a problem with the chief executive officer of whether
they are overpaid or whether they are improperly using inside
knowledge, whether they have improperly disclosed inside knowledge, we
will find two things. One, they are doing it for their own self-
enrichment, to make themselves wealthier, as demonstrated by the Scott
Sullivans of Florida, by the way he is protected from bankruptcy by a
$20 million home, or Gary Winnick with a 90-million-plus home in Bel
Air, California. We will see, number one, it is self-enrichment, and
two, we will find negligence on the board of directors.
Can my colleagues tell me that the board of directors for Enron
Corporation, for example, were carrying out their fiduciary duties in
representing the shareholders and allowed Andrew Fastow to go out there
and create several satellite companies? And just to be a little
sarcastic, I guess, or a little smartie, he named them after Star Wars
characters, and then paid himself $30- or $40- or $50 million on top of
the money that he paid to his buddies.
I mean anytime we find a bad CEO, we are going to find generally a
bad board of directors. I am not talking about a bad CEO who misreads
the market. I am talking about a CEO that has got a problem with
morality, that
[[Page H5076]]
has got a problem with honesty, that fudges the figures, like Scott
Sullivan or Bernie Ebbers, that moves expenses, capitalizes them
instead of expenses, and I know that is kind of an accounting term, but
these kind of things are fundamental to a board of directors. They know
what is going on. If they do not know what is going on, they are
breaching their duties.
Let us go on. So this is what we would call basically the insiders of
the corporation, the board of directors, the CEO and so on. They reach
outside the corporation generally for two separate functions. One of
them is outside auditing. A good chief executive officer looks at the
outside auditor, and of anybody they want to be honest with them, if
they are a good chief executive officer, the one group of people they
especially want to be straightforward with them and not hide anything
are the outside auditors because they are the ones who can tell them
whether their strategy is working or not. They are the ones who can
tell them, hey, the company, the business is going in the wrong
direction; hey, our productivity is down; hey, you have got too much
expense over here, you are not expensing properly over here. The
auditors should be noncompromised.
We have seen what has happened over time and, of course, the perfect
example there is Arthur Andersen Corporation. It is an auditing firm,
and what happens? Unfortunately, there were a lot of good employees
with Arthur Andersen and there were a lot of people who retired from
that company who saw their entire retirements eliminated because of the
misbehavior by a few of the employees of this corporation, but those
particular employees, the auditors, the accountants, they got too cozy
with the management.
What happened in Enron's case? They had their auditors who are
supposed to be at arm's length, are supposed to give an honest
assessment of the status of the corporation, and we can look at it. It
happened in Global Crossing. It happened with Kmart. It happened with
Sunbeam. It happened with ImClone, Xerox Corporation, where the
auditors who were supposed to give an independent and frank assessment
of the corporation, they did not do it, and then Enron Corporation,
what happened is the auditors, they were auditors by day, consultants
by night.
What do I mean by that? Arthur Andersen Corporation, for example,
with Enron would collect maybe $14 million a year to do auditing, but
they also collected $40 or $50 or $60 million a year to do consulting.
Do my colleagues think that when they give the CEO bad news that they
are going to want to give him the bad news if they have a consulting
arm of their corporation that makes a lot more money off him? Too cozy.
There is a solution to that, and that is we require auditors to stick
to the business that they are there for. They are not in the consulting
business. They are not there to self-enrich themselves at the expense
of the shareholders or at the expense of the employees, and of anybody,
any classification on my chart that is the most unfortunate group of
people, it is the employees. They are the ones who got hit the hardest.
They are the ones who risked their jobs. In many cases, tens of
thousands lost their jobs, and it is pretty upsetting when we see
people who did not have meager retirements, had those retirements wiped
out, while Gary Winnick of Global Crossing lives in a $90 million
mansion in Bel Air or Andrew Fastow in Dallas today, as I am speaking
right now, sitting in a multimillion dollar home, or Scott Sullivan
down there with the WorldCom, Scott Sullivan. He is still building his
$20 million home.
These people have betrayed not just the shareholders but they have
also betrayed the very people that worked so hard for them, and this is
where accountability comes in. These people should have been revealed
very early on. None of these little cooking-the-book maneuvers, none of
this fraud that took place, none of this deceit to the board of
directors or even with the board of directors to the shareholders, none
of this should have occurred had the auditors been on their toes, had
the auditors done what they were supposed to be doing.
In the case, for example, of Enron, Arthur Andersen did not do what
they were supposed to be doing. In fact, they cozied up to the
management because they could self-enrich themselves. That is what we
are seeing happening here.
By the way, we are not seeing poor people, hardworking poor people
that are enriched by this. We are seeing in a lot of cases people that
are already wealthy and have to become wealthier. We see these people,
the wealthiest people of the company, robbing the least fortunate
people of the company. Let me continue on here.
We have got to fix the auditing and, of course, the most obvious
thing for auditing is to draw what they call a Chinese wall. We draw a
wall between the auditing aspect of a company and the consulting. There
is a need for consulting, corporate consulting, but in my opinion, it
should not have anything at all to do with the auditing branch. Audits
should be separate. The auditor should not be allowed to have any type
of conflict of interest with the corporation. They should not be
allowed to own stock in the corporation that they are auditing. They
should not even get a free cup of coffee from the corporation that they
are auditing. They should not announce their arrival. They should go
in, they should do their work, they should summarize their results
outside the corporate offices.
Arthur Andersen actually had offices set up in the Enron office
building. They mingled, had coffee, ate lunch, played golf, went to the
theater and did investments with the very people they were supposed to
keep an eye on. There is a saying, when the cat is away, the mice will
play, and that is exactly what happened.
One of our checks-and-balances on these corporations were bad, and
let me say, again, not all of them were bad. We have a lot of good
companies out there that produce a lot of good products that treat
their employees right, and we have a lot of people who have jobs and we
want to preserve their jobs. Jobs are very important, but the fact is,
here, the cat, the auditor, went away and what happened? The mice did
play. So we have got to work on that.
Legal counsel, we have got legal counsel out there. I used to
practice law. I know what they have to do. I know what the code of
ethics is. That attorney with Tyco, and I can give my colleagues his
name, general counsel, Mark Belnick, gave himself a $20 or $30 million
bonus. Every corporation has to give public reports if they are public
corporations, and these are supposed to be readable. They are supposed
to be honest. And what did the attorney with Tyco Corporation do, Mark
Belnick? He is an attorney. He has certain standards he is expected to
meet to pass the bar, to be allowed to enter the bar of the State in
which he was working.
What did he do? He paid himself a $20 or $30 million bonus, of
course, at the expense of the employees, and by the way, at the expense
of the retired employees who have now had their pensions wiped out, and
the shareholders. Not only did he do that, he made sure it was broken
up in such a way it did not have to show up in the public report. Why
this person still has a license to practice law is beyond me. I think
he resides in New York State. Why New York State, their bar in that
State, has not already called him in front of the bar to yank his
license, I do not know.
Those are the things that our society, those are the things that we
have got to get serious about, and it requires a bipartisan effort. We
have got to hit this corruption hard and quick. The corruption is not
widespread. The perception is that the corruption is widespread out
there, and it will become very widespread if we allow it to continue
without punishment.
These chief executive officers, these lawyers, these auditors that
are not performing to the standards that are expected of them, need to
be punished very quickly. We cannot allow them to go unscathed. We
cannot allow the Scott Sullivan in Florida to go ahead and finish his
$20 million home or Gary Winnick with Global Crossing who now lives in
a $90 million, can my colleagues imagine a $90 million dollar home? Do
we think he got that $90 million because he figured out a cure for
cancer? Do we think he made his $90 million house because he invented a
new seat belt? Do we think he got $90 million because he came up with a
drug that would cure the common cold? Do we think he lives in a $90
million house
[[Page H5077]]
because he came up with a textbook that would help our students in
elementary school or some type of computer programming that would help
our young people learn better? No, he did not get it that way. He got
it because he breached the trust of his corporation. He breached the
trust of his employees. Gary Winnick paid himself out of Global
Crossing. I think he walked away with $790 million. Show me anybody in
our society worth $790 million.
Or take a look at Kmart Corporation, what those guys did, the
executives of Kmart Corporation and Charles Conaway.
Charles Conaway, the chief executive officer, they made themselves
loans from Kmart. Kmart is not a bank. I do not think I have to tell
anybody in here Kmart is not a bank, but these chief executive officers
treated it like their own bank, and Conaway, for example, loaned
himself from the corporation money and then a week before he took the
corporation into bankruptcy, he went ahead and had the loan forgiven,
had the loan forgiven, and we see that incident time and time and time
again.
I have a whole packet here of the names of these individuals, and I
am going to go through a couple of examples, for example, of inside
knowledge here in a moment. The point is that we have to have auditors
to do their jobs and we have to have attorneys who are legal counsel,
that attorney, who know what their role is. Their role is not self-
enrichment in the corporation. Sure, they should be paid for their
services, but they were not brought into that corporation to make
themselves millionaires.
This is exactly what happened in Tyco, for example. Tyco, of course,
was tied in with Dennis Kozlowski, and my colleagues may remember
Dennis. He is the guy that is worth three or $400 million and decided
to cheat the State of New York by not paying sales tax on a few art
pictures. Not much money relative to how much money he was worth.
So what happens? I tell my colleagues, whenever we see this kind of
cancer, whenever we see this in a corporation, it spreads. When we have
the Dennis right here and the legal counsel in that particular case,
both of them corrupt, what happens? Take a look. We better look at the
books of that corporation real carefully.
Let me go on here for a few moments. The management team. The
management team. How could a management team at Enron Corporation that
in any way whatsoever was looking out for the interest of the
shareholders or living up to its civic responsibilities in the
community, oh, sure they went out and put their name on the football
stadium, and, sure, they went out and donated to charities, and, sure,
they paid their board of directors a lot of money, but the way they did
that was through fraud. It is very simple. It is not a complicated
case. Do not let them tell you that this brings up the debate of
whether or not this fraud should or should not occur.
The reality is we do not allow somebody like Andy Fastow to go out
and pay himself $30 million to live in multimillion dollar homes to run
these corporations that the board of directors now claims they did not
know anything about. We do not care whether they knew about it or not.
It was their job to know about it and they are responsible at any one
of these levels, at the management team, at the CEO, at the board of
directors, at the auditing, at the legal counsel. That is where the
buck ought to stop.
{time} 2215
The buck stops here. Any one of those you could put that plaque on
their desk.
Well, let us talk now about the bottom bracket I have here, the
employees. In all this corporate fraud that we have heard about and
these chief executives, like Ken Lay, and Sam Waksal, or Frank Walsh,
or Charles Conaway, or Bernie Ebbers, or Scott Sullivan, in all of this
the attention is focused on them. You know where the attention should
be focused? You know what we should do with that $90 million house of
Gary Winneck's in Bel Air? We ought to take that house and make it into
apartments and let the employees at WorldCom live there for free that
had their retirements wiped out.
And Enron Corporation. Now, you may say, wait a minute, Enron was not
that old, or WorldCom was not that old, so how could people lose their
retirement; how could people have been working for that company for so
long? Well, what happens is WorldCom bought other companies, smaller
companies that had employees who had worked there for a long time. They
merged these companies together. Do you think any of these retired
employees are living in a house like that right now? Do you think they
got a square deal?
This home is Scott Sullivan's home. If you want to see it, you can
see it down in Florida. Why is it built in Florida? Because he can
exempt it from the bankruptcy law. I hate to tell Mr. Sullivan this,
but it is not going to be exempt from criminal indictments. I hope the
U.S. Attorney and the IRS and the INS, and all the people that have
jurisdiction over this matter, look at this very carefully. This home
ought to be given to the retired people of WorldCom who have lost their
entire retirement. Even if it only gives them back a few cents on the
dollar, at least there is some equity in that.
Where is the equity in a home like that for an individual who has run
a corporation into the ground not because they misjudged the product,
not because the economy went south on them, but because they committed
fraud, because they wanted to enrich themselves.
Take a look at Gary Winneck's home. This is a $20 million home. Gary
Winneck of Global Crossing has a $90 million home, five times the size
of that home. That is what we ought to do with these homes, take them
back. We need to grab those assets that were taken improperly from the
corporation and return them to the people of the corporation, to the
shareholders. Most importantly to try to provide some justice to the
retired employees and the employees that lost their jobs.
Over the weekend, WorldCom Corporation went into bankruptcy. How many
people do you think today working for WorldCom, that still have their
job today, are sitting around relaxed in their front room tonight,
wondering about their job security? You think they are relaxed about
that? They are probably sick at their stomachs. Will I have my job
tomorrow?
They would have their jobs tomorrow, and I hope they do have their
jobs tomorrow, if we had had some integrity in the board room, if we
would have had some integrity in the management. WorldCom is an
excellent example. Tens of thousands of people, current employees, are
worried whether they are going to have a job tomorrow. The head of it,
Bernie Ebbers, made sure before the corporation went into a bankruptcy
he got a $408 million loan from the board of directors. Now, tell me
those board of directors are watching with the fiduciary responsibility
on behalf of the employees by loaning Bernie Ebbers, the chief
executive officer, $408 million.
All of these people that are losing their jobs, these are jobs that
did not need to be lost. These are people they were not engaged in the
fraud. They were not engaged in self-enrichment. They showed up at work
every day at 8, went home at 5, 6, 7. A lot of them put their heart and
soul into the company. And a lot of the retired employees cannot
rebuild. They are in their 60s. They cannot rebuild. Who is speaking
for those people?
That is what we have to keep in mind when we take this legislation
through. When these individuals are prosecuted, like the Rigas family,
with Adelphia Cable, the Rigas family bought their own professional
sports team, they took $3.5 billion out of the corporation. We have to
make sure that we reach back out and pull that back in, if for no other
reason than to help the employees and the retired employees of that
company. They deserve more than they have gotten.
Well, let me go on. I want to talk jump back up here, because I think
it is a good time to go over an inside deal. What I am talking about,
when I talk about an inside deal is, remember that I said earlier an
inside deal is where you have people inside the corporation, inside the
house, so to speak, who have information that people outside the house
do not have. Well, the people outside the house are supposed to get it
on somewhat of an equal basis so that
[[Page H5078]]
you have a square deal, so that you have an equal playing field.
Here is a good example of a corporation that did a lot of inside
dealing, and I think the facts are going to bear out that it involves
an awful lot of people, including one well-known individual by the name
of Martha Stewart. December 4. Let us look at this. Here is the
company, ImClone Systems, Incorporated. What did ImClone do? ImClone's
stock went through the roof because ImClone, the President and CEO of
ImClone came out and said they thought they had a cure for cancer. The
president was Sam Waksal. The president came out, or the CEO, and led
people to believe they had a cure for cancer. They thought they did
when they went to the FDA, the Federal Drug Administration.
They also buddied up with the stock broker, the analyst that was
figuring out whether this was a good buy for the buying public. An
analyst is supposed to be an outside person. In several of these cases,
including WorldCom, you will find out that the outside analyst, a guy
named Grubman, and by the way there is an article on the front page of
the Wall Street Journal about him today, is supposed to be an outside
consultant, but he was actually attending board meetings, yet he was
supposed to give some kind of independent analysis.
Well, what happened here is the stock was hot because they thought
they had a drug that could cure cancer. Well, around December 4, 2001,
the Food and Drug Administration officials informed ImClone that the
drug was not going to get certified; that they did not believe that the
trial tests indicated that the drug really was effective as a treatment
against cancer.
Now, what do you think is going to happen to the value of the stock
when word gets out on the street that the drug is not going to work. Of
course the stock is going to good through the floor. But the chief
executive officer, the CEO and the other top executives of this
company, they found out 2 or 3 days, in fact, several days, they got
the hint around December 4 that this drug may not be approved.
Now look what happens from September 6 to the 11. All of a sudden the
executive officials, as if they got some kind of hunch that fell out of
the air, as if they are brilliant strategists, instead of sharing that
information with the general public, instead of sharing that
information with their employees who had worked so hard for them,
instead of following the Securities and Exchange Commission regulations
of how this information is disseminated out there, they start selling
their stock.
From December 6 through December 11, they unload over $5 million in
stock. Now, they would like you to think it was a coincidence. December
26, the CEO finds out that, in fact, the FDA is not going to approve
the drug and they are going to make the announcement on December 27 or
December 28, 2 days later. He immediately transfers $5 million in stock
to his daughter. Then what happens? On December 27, he contacts his
daughter and she starts selling the stock, because they know the
announcement is coming the next day.
Then her broker, who is in all of this, happens to also be Martha
Stewart's broker, and he contacts Martha Stewart. There is a message
that is left for Martha Stewart, and that message is right here:
ImClone is going to start trading downward. Now, this broker's name is
a guy named Peter Bacanovic, B-A-C-A-N-O-V-I-C, and Bacanovic, it
seems, would be the pronunciation, but Peter, we will call him. Peter
would like us to think he had this instinct the stock was going to go
down.
Now, Peter, by the way, was a very close friend and used to work for
this corporation and was very tight with the CEO. In other words, every
angle you look at any large sale of stock during that period of time by
the chief executive officers or the broker or the Martha Stewart, every
one of them smacks of inside information. Every one of them.
The conflicts are overwhelming in what happened in this particular
company. And who got cheated here? The people that got cheated here are
the people that did not know. And under our system of corporate
governance, we are supposed to have an equal playing field. We are
supposed to have a square deal. But that is not what happened. That is
a result of inside information. Inside trading information.
That is why we here in Congress, on a bipartisan basis, and not
following the focus of the gentleman from Missouri (Mr. Gephardt),
whose primary focus is to gain 40 seats from the Republicans, our
primary focus should be to save these jobs. My primary focus here is to
stop this inside trading. My primary focus here is to restore corporate
governance credibility. We have lots of people in this country that are
shareholders and they are shareholders because they have some faith
that these kind of deals should not go on, like what went on with
ImClone.
And they are not alone. It went on in Global Crossing, it went on in
Enron, obviously, it went on with Kmart, Xerox, WorldCom, Sunbeam,
Conseco. These shareholders want to know that there is something to
clean it up if it goes on and that there is checks and balances, like
an independent auditor, unlike the demonstration of Arthur Andersen,
that can go in there and tell you it is not happening; that the
standards and the credibility of the corporation are intact. That is
why I am calling upon my colleagues to act swiftly and firmly to stop
this before it spins out of control.
As I said earlier in my comments, this is not typical of the average
business in this country. Remember, most corporations in this country,
by and large, are small businesses, and these small businesses are mom
and pop operations and they run good businesses. And the American
economic machine is dependent on these businesses. So we cannot just
throw out all business. And it would be wrong for us to say all
business is bad. It would be like saying all Catholic priests are bad
because you have to get rid of a few bad apples.
But the fact is if you have a bad apple in the bushel, you better
find out where that apple is and you better get rid of it because it
ruins the other apples in the bushel over time. This is the opportunity
we are presented with today. Our opportunity today is to take these
corporations and ensure that we go back to where we are supposed to go.
We have plenty of examples, and I want to show a few of them.
Here are a few examples. Commonly known names. These companies have
bad apples in the bushels. They have bushels of apples that we have to
go through and get rid of the bad apples. Let us start with Tyco. That
is where the chief executive officer tried to cheat New York State out
of sales tax on a few pieces of art and paid himself hundreds of
millions of dollars from the corporation.
His lawyer, who was supposed to be kind of a check and balance here,
his lawyer paid himself $30 million. And this lawyer's name was Mark
Belnick. Mark paid himself $30 million in this corporation and then he
structured the payments from that corporation in such a way that it
would be concealed from the reports that they gave to the public. In
other words, he kept two sets of books, one set to enrich himself, the
other set for the public to take a look at.
Now, WorldCom. We know all about WorldCom.
{time} 2230
It declared bankruptcy this weekend. How many thousands have lost
their jobs? And what is happening to the chief executive officers
there?
Bernie Ebbers made sure before he resigned, he made sure they agreed
to pay him $1.5 million a year for the rest of his life. That is on top
of the $408 million loan. The board of directors of that corporation,
theoretically representing the interests of the shareholders and the
interests of the employees, gave Bernie Ebbers a $408 million loan. How
many corporations in the world have ever loaned their chief executive
officer anything close to that?
K-Mart's chief executive officer was Charles Conaway before they took
that company into bankruptcy, and a lot of Members have been in K-Mart.
There are a lot of hard-working people, and they do not make big wages.
Those people barely get by on the wages that they make. But at the top,
that is not the case. Those executives enriched themselves by giving
themselves loans from the corporation. But these loans were a little
peculiar. The chief executive officer knew what the definition of
[[Page H5079]]
a loan was, and that is what you pay it. But they wanted to keep the
money. So right before they took K-Mart into bankruptcy, they passed a
board proclamation forgiving the loans.
Xerox Corporation, they overstate their earnings. They cook the
books.
Arthur Andersen, these are supposed to be the CPAs. That is supposed
to be the check and balance in the system. They end up cozying up to
the chief executive officer and getting a share of the deal, and it
compromises them. It compromises them to the point that things that
should have been caught and avoided a long time ago by the auditors
were not.
We always deal with greed. It is human nature. I do not care what
country, what religion it is, you always deal with greed as a fact of
human nature. As a check and balance we know that, we know that. That
is why we have auditors. I can tell Members, we are going to get people
like the Andy Fastows or the Scott Sullivans of WorldCom, but we expect
the auditors to catch that.
As I look back at these corporate problems, which as I said earlier
are limited in nature, but it can spread very, very quickly. If I were
to look at one place, the first fire call that came in, the first fire
truck that should have picked up the problem, I keep looking at the
auditors. I am severely and deeply disappointed by the auditing
industry in general, by the accounting industry in general. Remember,
Arthur Andersen is not the lone one. In Enron, Waste Management,
WorldCom, Sunbeam, Adelphia, Conseco, every one had different auditing
firms.
The auditing and the accounting industry has got to clean house, and
they have to do it themselves and do it quickly. I do not think that
auditors should be consultants. I do not think consultants should be
the auditors. We have to have that separation. But the fact that the
first people that should have picked this up were the auditors and it
did not happen, that is an important check and balance. That is Arthur
Andersen.
Enron is pretty self-explanatory: self-enrichment. A board of
directors that has conflicts as far as the eye can see. We have
private, secret companies that are paying $30 million to people like
Andrew Fastow over a 6-month period, and his buddies made 5 to $10
million a month in little side deals he feeds them. Where does that
money come from? Not because Enron figured out a better way to deliver
electricity or natural resources for minerals or developed a better
product or mouse trap, as the old saying goes, because Enron allowed
this fraud to go on; and they were abetted in the fraud by legal
counsel and Arthur Andersen.
What happens to these people? This is how we solve that problem. They
go to jail and when they go past go, they do not collect their money.
That is the only way we are going to get this message across. There are
other solutions, and I have mentioned a couple.
One, the auditors should not be allowed to consult and the
consultants should not be allowed to be doing the auditing. But there
are some others. We have to look at the board of directors and what
kind of conflicts of interest the board has with the company. Enron is
a good example, or WorldCom.
We have a director at WorldCom who uses a corporate jet. Let me tell
Members about a corporate jet. If it is a jet of medium size, let us
say it seats 8 to 10 passengers, that jet probably costs $15 million to
$20 million, probably costs the corporation, even if it is just
sitting, the expenses probably run $100,000 a month; so on a 15 to $20
million jet, it is probably around a million dollars a year.
WorldCom on its board of directors makes a deal with one of the board
members. We will rent this jet to you, and we have to be fair because
that jet does not belong to me, Bernie Ebbers; it belongs to the
corporation and that jet is used to move people around. So we cannot
just let you use the jet. We are going to lease you the jet. The board
of director, just to make it convenient, we will park the jet on a
full-time basis at an airport closest to where you live. It costs about
$100,000 a month to have this jet; we will lease it to you for $1 a
year. That is what happened at WorldCom.
Mr. Speaker, we have to have some different standards for our board
of directors. Board of directors should not have things that the common
sense, the prudent man, the reasonable-man standard would say look,
that smells. That is not ethical. Common sense would say it is just not
right.
I would assume that today in corporate boards throughout America,
probably throughout the free world, as well as the executive officers,
are probably taking a pretty harsh look at how they handle these
issues.
I can tell Members there was an interesting editorial the other day
in the Denver Business Journal. They wrote about me saying a staunch
Republican standing up on business discussing WorldCom and the comments
I make.
Mr. Speaker, I used to be a police officer, and there used to be a
saying out in the police business. The worst thing for good cops is a
bad cop, and it is the same thing here. The worst thing for good
business is a corrupt business person, somebody who cheats. That is the
worst thing we can get. The worse thing for a sport is somebody who
cheats. In the short run, your favorite team wins because somebody
cheated; but over the long run it hurts the sport and the people
participating in it and the people who have participated in it like the
retired employees.
What else can we do. Clearly, our board meetings should not be open
to the stock analysts. The stock analysts, and we can take a look at
the stock analysts with WorldCom. We can look at Grubman that is on the
front page of today's Wall Street Journal, or the stock analysts which
worked with ImClone, that is the one that Martha Stewart is involved
with, those people were like they were brothers and sisters with the
corporate board. They were like they were hatched in the CEO's office.
Those people are supposed to be independent.
We heard about some of them. They stand in front of the TV and say,
What a wonderful stock. I will give you a little advice, buying public.
If you want to ensure your retirement and retire early, buy this stock
on its way up. Off the TV camera, they have them sending e-mails, this
stock is a sucker. Boy, does this stock stink. Corporations across the
country have to move quickly to put a stop to that kind of thing.
Does more regulation help? Generally, I am not too sold on more
regulation, but I think this has taught us in the government some
lessons. We have to tighten up some areas. We should require that
options are expensed. Right now, stock options are not. We should
require, I think, for example, that auditing and consulting should not
be done by the auditing firm. There should be a separation.
But the regulation, the loopholes we can close, and we will close a
number of them this week thanks to the leadership, and help from both
Democrats and Republicans and President Bush, we are going to close
some of those loopholes this week. But that is only part of the
formula. The other two things for this to work is the industry itself.
Business itself, whether it is a mom and pop or a Xerox, they have got
to have a self-cleansing. They have to get that bad apple out of the
bushel, and they have to do it now.
The third thing we have to do, and I will conclude with this, but the
third thing that we have got to do is we have got to punish those who
have enriched themselves at the expense of others. We cannot allow, for
example, Gary Winnick to live in his $90 million home after he took
$790 million out of the company. We should not allow Scott Sullivan to
bathe in his private pool at his $20 million home he is right now
building at the expense of WorldCom employees, at the expense of
WorldCom investors and mutual funds across the country.
We should take the ill-gotten gains, and that is the buzz word. We
must act. Our U.S. Attorney's office should act. The IRS should act.
The Security and Exchange Commission should act, and I am confident
that they all are; but they must act with haste. They must move
quickly, firmly, and constitutionally. I am not saying that we infringe
on legal rights.
But look at ImClone. There is so much evidence that we need to punish
the people. We cannot have a repeat sequence of this. We have to let
people know if you are going to lie to the employees and cheat them out
of their retirements and cook the books, if you are going to misuse
corporate assets and self-enrich yourself, it is not tolerable. We need
to go after that kind of behavior.
[[Page H5080]]
Mr. Speaker, I know that some of my comments appear repetitive, but I
am worried about this. There is no reason that our stock market should
be dropping like it is. The fundamentals are pretty solid. Our recovery
will not be a big boom economy because the recession was not that deep
of a recession. The techie stuff, the telecom, that bubble burst; but
we are still on the way to a recovery. This market is overselling right
now, and one of the factors why it is overselling is because we have to
figure out the integrity on corporate governance. It is not the kind of
thing that is going to be solved by the gentleman from Missouri (Mr.
Gephardt) claiming that he is going to take 40 seats from the
Republicans, and that is why they love this issue and why they are
going to focus on it.
It is going to be solved by a bipartisan effort from both sides of
the aisle along with the Senate and the President by saying here are
the regulatory things that need to take place; business, here is what
we expect you to do in order to restore credibility to the market. That
is what will help stabilize our stock market. In the end, an honest
business person is a winner for everybody. We have to remember that
because the backbone of our economy is small business and most of what
we deal with is small business, not the ones that I just talked about.
Let us get rid of the big bad apples in the bushel so the rest of the
apples are as good as we know they can be.
____________________