[Congressional Record Volume 148, Number 104 (Friday, July 26, 2002)]
[Senate]
[Pages S7418-S7421]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
[[Page S7418]]
LEGISLATIVE HISTORY OF TITLE VIII OF HR 2673: THE SARBANES-OXLEY ACT OF
2002
Mr. LEAHY. Mr. President, yesterday during my floor remarks on the
final passage of H.R. 2673, the Sarbanes-Oxley Act, I requested
unanimous consent that a section by section analysis and discussion of
Title VIII, the Corporate and Criminal Fraud Accountability Act, which
I authored, be included in the Congressional Record as part of the
official legislative history of those provisions of H.R. 2673. That
unanimous consent request was granted, but due to a clerical error,
this essential legislative history was not printed in yesterday's
Congressional Record.
It is my understanding that this document will appear in yesterday's
Congressional Record when the historical volume is compiled. However,
in order to provide guidance in the legal interpretation of these
provisions of Title VIII of H.R. 2673 before that volume is issued, I
ask unanimous consent that the same document be printed in today's
Congressional Record and be treated as legislative history for Title
VIII, offered by the sponsor of these provisions, as if it had been
printed yesterday.
There being no objection, the material was ordered to be printed in
the Record, as follows:
Section-by-Section Analysis and Discussion of the Corporate and
Criminal Fraud Accountability Act (Title VIII of H.R. 2673)
Title VIII has three major components that will enhance
corporate accountability. Its terms track almost exactly the
provisions of S. 2010, introduced by Senator Leahy and
reported unanimously from the Committee on the Judiciary.
Following is a brief section by section and a legal analysis
regarding its provisions.
SECTION-BY-SECTION ANALYSIS
Section 801.--Title. ``Corporate and Criminal Fraud
Accountability Act.''
Section 802. Criminal penalties for altering documents
This section provides two new criminal statutes which would
clarify and plug holes in the current criminal laws relating
to the destruction or fabrication of evidence and the
preservation of financial and audit records.
First, this section would create a new 20-year felony which
could be effectively used in a wide array of cases where a
person destroys or creates evidence with the intent to
obstruct an investigation or matter that is, as a factual
matter, within the jurisdiction of any federal agency or any
bankruptcy. It also covers acts either in contemplation of or
in relation to such matters.
Second, the section creates a new 10-year felony which
applies specifically to the willful failure to preserve audit
papers of companies that issue securities. Section (a) of the
statute has two sections which apply to accountants who
conduct audits under the provisions of the Securities and
Exchange Act of 1934. Subsection (a)(1) is an independent
criminal prohibition on the destruction of audit or review
work papers for five years, as that term is widely understood
by regulators and in the accounting industry. Subsection
(a)(2) requires the SEC to promulgate reasonable and
necessary regulations within 180 days, after the opportunity
for public comment, regarding the retention of categories of
electronic and non-electronic audit records which contain
opinions, conclusions, analysis or financial data, in
addition to the actual work papers. Willful violation of such
regulations would be a crime. Neither the statute nor any
regulations promulgated under it would relieve any person of
any independent legal obligation under state or federal law
to maintain or refrain from destroying such records. In
Conference language was added that further clarified that the
rulemaking called for under the (b) provision was mandatory,
and gave the SEC authority to amend and supplement such rules
in the future, after proper notice and comment.
Section 803.--Debts nondischargeable if incurred in violation
of securities fraud laws
This provision would amend the federal bankruptcy code to
make judgments and settlements arising from state and federal
securities law violations brought by state or federal
regulators and private individuals non-dischargeable. Current
bankruptcy law may permit wrongdoers to discharge their
obligations under court judgments or settlements based on
securities fraud and securities law violations. The
section, by its terms, applies to both regulatory and more
traditional fraud matters, so long as they arise under the
securities laws, whether federal, state, or local.
This provision is meant to prevent wrongdoers from using
the bankruptcy laws as a shield and to allow defrauded
investors to recover as much as possible. To the maximum
extent possible, this provision should be applied to existing
bankruptcies. The provision applies to all judgments and
settlements arising from state and federal securities laws
violations entered in the future regardless of when the case
was filed.
Section 804.--Statute of limitations
This section would set the statute of limitations in
private securities fraud cases to the earlier of two years
after the discovery of the facts constituting the violation
or five years after such violation. The current statute of
limitations for most private securities fraud cases is the
earlier of three years from the date of the fraud or one year
from the date of discovery. This provision states that it is
not meant to create any new private cause of action, but only
to govern all the already existing private causes of action
under the various federal securities laws that have been held
to support private causes of action. This provision is
intended to lengthen any statute of limitations under federal
securities law, and to shorten none. The section, by its
plain terms, applies to any and all cases filed after the
effective date of the Act, regardless of when the underlying
conduct occurred.
Section 805.--Review and enhancement of criminal sentences in
cases of fraud and evidence destruction
This section would require the United States Sentencing
Commission (``Commission'') to review and consider enhancing,
as appropriate, criminal penalties in cases involving
obstruction of justice and in serious fraud cases. The
Commission is also directed to generally review the U.S.S.G.
Chapter 8 guidelines relating to sentencing organizations for
criminal misconduct, to ensure that such guidelines are
sufficient to punish and deter criminal misconduct by
corporations. The Commission is asked to perform such reviews
and make such enhancements as soon as practicable, but within
180 days at the most.
Subsection 1 requires that the Commission generally review
all the base offense level and sentencing enhancements under
U.S.S.G. Sec. 2J1.2. Subsection 2 specifically directs the
Commission to consider including enhancements or specific
offense characteristics for cases based on various factors
including the destruction, alteration, or fabrication of
physical evidence, the amount of evidence destroyed, the
number of participants, or otherwise extensive nature of the
destruction, the selection of evidence that is particularly
probative or essential to the investigation, and whether the
offense involved more than minimal planning or the abuse of a
special skill or position of trust. Subsection 3 requires the
Commission to establish appropriate punishments for the new
obstruction of justice offenses created in this Act.
Subsections 4 and former subsection 5 of the Senate passed
bill, which was moved to Title 11 in Conference, require the
Commission to review guideline offense levels and
enhancements under U.S.S.G. Sec. 2B1.1, relating to fraud.
Specifically, the Commission is requested to review the fraud
guidelines and consider enhancements for cases involving
significantly greater than 50 victims and cases in which the
solvency or financial security of a substantial number of
victims is endangered. New Subsection 5 requires a
comprehensive review of Chapter 8 guidelines relating to
sentencing organizations. It is specifically intended that
the Commission's review of Section 8 be comprehensive, and
cover areas in addition to monetary penalties, additional
punishments such as supervision, compliance programs,
probation and administrative action, which are often
extremely important in deterring corporate misconduct.
Section 806.--Whistleblower protection for employees of
publicly traded companies
This section would provide whistleblower protection to
employees of publicly traded companies. It specifically
protects them when they take lawful acts to disclose
information or otherwise assist criminal investigators,
federal regulators, Congress, supervisors (or other proper
people within a corporation), or parties in a judicial
proceeding in detecting and stopping fraud. If the employer
does take illegal action in retaliation for lawful and
protected conduct, subsection (b) allows the employee to file
a complaint with the Department of Labor, to be governed by
the same procedures and burdens of proof now applicable in
the whistleblower law in the aviation industry. The employee
can bring the matter to federal court only if the Department
of Labor does not resolve the matter in 180 days (and there
is no showing that such delay is due to the bad faith of the
claimant) as a normal case in law or equity, with no amount
in controversy requirement. Subsection (c) governs remedies
and provides for the reinstatement of the whistleblower,
backpay, and compensatory damages to make a victim whole,
including reasonable attorney fees and costs, as remedies if
the claimant prevails. A 90 day statute of limitations for
the bringing of the initial administrative action before the
Department of Labor is also included.
Section 807.--Criminal penalties for securities fraud
This provision would create a new 10-year felony for
defrauding shareholders of publicly traded companies. The
provision would supplement the patchwork of existing
technical securities law violations with a more general and
less technical provision, with elements and intent
requirements comparable to current bank fraud and health care
fraud statutes. It is meant to cover any scheme or artifice
to defraud any person in connection with a publicly traded
company. The acts terms are not intended to encompass
technical definition in the securities
[[Page S7419]]
laws, but rather are intended to provide a flexible tool to
allow prosecutors to address the wide array of potential
fraud and misconduct which can occur in companies that are
publicly traded. Attempted frauds are also specifically
included.
discussion
Following is a discussion and analysis of the Act's Title 8
provisions.
Section 802 creates two new felonies to clarify and close
loopholes in the existing criminal laws relating to the
destruction or fabrication of evidence and the preservation
of financial and audit records. First, it creates a new
general anti shredding provision, 18 U.S.C. Sec. 1519, with a
10-year maximum prison sentence. Currently, provisions
governing the destruction or fabrication of evidence are a
patchwork that have been interpreted, often very narrowly, by
federal courts. For instance, certain current provisions make
it a crime to persuade another person to destroy documents,
but not a crime to actually destroy the same documents
yourself. Other provisions, such as 18 U.S.C. Sec. 1503, have
been narrowly interpreted by courts, including the Supreme
Court in United States v. Aguillar, 115 S. Ct. 593 (1995), to
apply only to situations where the obstruction of justice can
be closely tied to a pending judicial proceeding. Still other
statutes have been interpreted to draw distinctions between
what type of government function is obstructed. Still other
provisions, such as sections 152(8), 1517 and 1518 apply to
obstruction in certain limited types of cases, such as
bankruptcy fraud, examinations of financial institutions, and
healthcare fraud. In short, the current laws regarding
destruction of evidence are full of ambiguities and technical
limitations that should be corrected. This provision is meant
to accomplish those ends.
Section 1519 is meant to apply broadly to any acts to
destroy or fabricate physical evidence so long as they are
done with the intent to obstruct, impede or influence the
investigation or proper administration of any matter, and
such matter is within the jurisdiction of an agency of the
United States, or such acts done either in relation to or in
contemplation of such a matter or investigation. The fact
that a matter is within the jurisdiction of a federal agency
is intended to be a jurisdictional matter, and not in any way
linked to the intent of the defendant. Rather, the intent
required is the intent to obstruct, not some level of
knowledge about the agency processes of the precise nature of
the agency of court's jurisdiction. This statute is
specifically meant not to include any technical requirement,
which some courts have read into other obstruction of justice
statutes, to tie the obstructive conduct to a pending or
imminent proceeding or matter by intent or otherwise. It is
also sufficient that the act is done ``in contemplation'' of
or in relation to a matter or investigation. It is also meant
to do away with the distinctions, which some courts have read
into obstruction statutes, between court proceedings,
investigations, regulatory or administrative proceedings
(whether formal or not), and less formal government
inquiries, regardless of their title. Destroying or
falsifying documents to obstruct any of these types of
matters or investigations, which in fact are proved to be
within the jurisdiction of any federal agency are covered by
this statute. Questions of criminal intent are, as in all
cases, appropriately decided by a jury on a case-by-cases
basis. It also extends to acts done in contemplation of such
federal matters, so that the timing of the act in relation to
the beginning of the matter or investigation is also not a
bar to prosecution. The intent of the provision is
simple; people should not be destroying, altering, or
falsifying documents to obstruct any government function.
Finally, this section could also be used to prosecute a
person who actually destroys the records himself in
addition to one who persuades another to do so, ending yet
another technical distinction which burdens successful
prosecution of wrongdoers.1 6
Second, Section 802 also creates a 10 year felony, 18
U.S.C. Sec. 1520, to punish the willful failure to preserve
financial audit papers of companies that issue securities as
defined in the Securities Exchange Act of 1934. The new
statute, in subsection (a)(1), would independently require
that accountants preserve audit work papers for five years
from the conclusion of the audit. Subsection (b) would make
it a felony to knowingly and willfully violate the five-year
audit retention period in (1)(a) or any of the rules that the
SEC must issue under (1)(b). The materials covered in
subsection (1)(b), which contains a mandatory requirement for
the SEC to issues reasonable rules and regulations, are
intended to include additional records which contain
conclusions, opinions, analysis, and financial data relevant
to an audit or review. Specifically included in such
materials are electronic communications such as emails and
other electronic records. The Conference added the ability of
the SEC to update its rules to specifically allow it to
capture additional types of records that could become
important in the future as technologies and practices of the
accounting industry change. The regulations are intended to
cover the retention of all such substantive material, whether
or not the conclusions, opinions, analyses or data in such
records support the final conclusions reached by the auditor
or expressed in the final audit or review so that state and
federal law enforcement officials and regulators and victims
can conduct more effective inquiries into the decisions and
determinations made by accountants in auditing public
corporations. Non-substantive materials, however, such as
administrative records, which are not relevant to the
conclusions or opinions expressed (or not expressed), need
not be included in such retention regulations. The language
of the provision is clear. The SEC ``shall'' and ``is
required'' to promulgate regulations relating to the
retention of the categories of items which are specifically
enumerated in the statutory provision. ``Reviews,'' as well
as audits are also recovered by both (a) and (b). When a
publicly traded company is involved, the precise name which
the auditor chooses to give to an engagement is not
important. Documents pertinent to the substance of such
financial audits or review should be preserved. Willful
violation of these regulations will also be a crime under
this section.
In light of the apparent massive document destruction by
Andersen, and the company's apparently misleading document
retention policy, even in light of its prior SEC violations,
it is intended that the SEC promulgate rules and regulations
that require the retention of such substantive material,
including material which casts doubt on the views expressed
in the audit of review, for such a period as is reasonable
and necessary for effective enforcement of the securities
laws and the criminal laws, most of which have a five-year
statute of limitations. It should also be noted that criminal
tax violations, which many of these documents relate to, have
a six-year statute of limitations and the regulatory portion
of the Act requires a 7 year retention period. By granting
the SEC the power to issue such regulations, it is not
intended that the SEC be prohibited from consulting with
other government agencies, such as the Department of Justice,
which has primary authority regarding enforcement of federal
criminal law or pertinent state regulatory agencies. Nor is
it the intention of this provision that the general public,
private or institutional investors, or other investor or
consumer protection groups be excluded from the SEC
rulemaking process. These views of these groups, who often
represent the victims of fraud, should be considered at
least on an equal footing with ``industry experts'' and
others who participate in the rulemaking process at the
SEC.
This section not only penalizes the willful failure to
maintain specified audit records, but also will result in
clear and reasonable rules that will require accountants to
put strong safeguards in place to ensure that such corporate
audit records are retained. Had such clear requirements and
policies been established at the time Andersen was
considering what to do with its audit documents, countless
documents might have been saved from the shredder. The idea
behind the statute is not only to provide for prosecution of
those who obstruct justice, but to ensure that important
financial evidence is retained so that law enforcement
officials, regulators, and victims can assess whether the law
was broken to begin with and, if so, whether or not such was
done intentionally, or with or without the knowledge or
assistance of an auditor.
Section 803 amends the Bankruptcy Code to make judgments
and settlements based upon securities law violations non-
dischargeable, protecting victims' ability to recover their
losses. Current bankruptcy law may permit such wrongdoers to
discharge their obligations under court judgments or
settlements based on securities fraud and other securities
violations. This loophole in the law should be closed to help
defrauded investors recoup their losses and to hold
accountable those who violate securities laws after a
government unit or private suit results in a judgment or
settlement against the wrongdoer. This provision is meant to
prevent wrongdoers from using the bankruptcy laws as a shield
and to allow defrauded investors to recover as much as
possible. To the maximum extent possible, this provision
should be applied to existing bankruptcies. The provision
applies to all judgments and settlements arising from state
and federal securities laws violations entered in the future
regardless of when the case was filed.
State securities regulators have indicated their strong
support for this change in the bankruptcy law. Under current
laws, state regulators are often forced to ``reprove'' their
fraud cases in bankruptcy court to prevent discharge because
remedial statutes often have different technical elements
than the analogous common law causes of action. Moreover,
settlements may not have the same collateral estoppel effect
as judgments obtained through fully litigated legal
proceedings. In short, with their resources already stretched
to the breaking point, state regulators must plow the same
ground twice in securities fraud cases. By ensuring
securities law judgments and settlements in state cases are
non-dischargeable, precious state enforcement resources will
be preserved and directed at preventing fraud in the first
place.
Section 804 protects victims by extending the statute of
limitations in private securities fraud cases. It would set
the statute of limitations in private securities fraud cases
to the earlier of five years after the date of the fraud or
two years after the fraud was discovered. The current statute
of limitations for most such fraud cases is three years from
the date of the fraud or one year after discovery, which can
unfairly limit recovery for defrauded investors in some
cases. It applies to all private securities fraud actions for
which private causes of actions are permitted and applies to
any case filed after the
[[Page S7420]]
date of enactment, no matter when the conduct occurred. As
Attorney General Gregoire testified at the Committee hearing,
in the Enron state pension fund litigation the current short
statute of limitations has forced some states to forgo claims
against Enron based on alleged securities fraud in 1997 and
1998. In Washington state alone, the short statute of
limitations may cost hard-working state employees,
firefighters and police officers nearly $50 million in
lost Enron investments which they can never recover.
Especially in complex securities fraud cases, the current
short statute of limitations may insulate the worst offenders
from accountability. As Justices O'Connor and Kennedy said in
their dissent in Lampf, Pleva. Lipkind, Prupis, & Petigrow v.
Gilbertson, 111 S. Ct. 2773 (1991), the 5-4 decision
upholding this short statute of limitations in most
securities fraud cases, the current ``one and three''
limitations period makes securities fraud actions ``all but a
dead letter for injured investors who by no conceivable
standard of fairness or practicality can be expected to file
suit within three years after the violation occurred.'' The
Consumers Union and Consumer Federation of America, along
with the AFL-CIO and other institutional investors, strongly
support the bill, and views this section in particular as a
needed measure to protect investors.
The experts agree with that view. In fact, the last two SEC
Chairmen supported extending the statute of limitations in
securities fraud cases. Former Chairman Arthur Levitt
testified before a Senate Subcommittee in 1995 that
``extending the statute of limitations is warranted because
many securities frauds are inherently complex, and the law
should not reward the perpetrator of a fraud, who
successfully conceals its existence for more than three
years.'' Before Chairman Levitt, in the last Bush
administration, then SEC Chairman Richard Breeden also
testified before Congress in favor of extending the statute
of limitations in securities fraud cases. Reacting to the
Lampf opinion, Breeden stated in 1991 that ``[e]vents only
come to light years after the original distribution of
securities, and the Lampf cases could well mean that by the
time investors discover they have a case, they are already
barred from the courthouse.'' Both the FDIC and the State
securities regulators joined the SEC in calling for a
legislative reversal of the Lampf decisions at that time.
In fraud cases the short limitations period under current
law is an invitation to take sophisticated steps to conceal
the deceit. The experts have long agreed on that point, but
unfortunately they have been proven right again. As recent
experience shows, it only takes a few seconds to warm up the
shredder, but unfortunately it will take years for victims to
put this complex case back together again. It is time that
the law is changed to give victims the time they need to
prove their fraud cases.
Section 805 of the Act ensures that those who destroy
evidence or perpetrate fraud are appropriately punished. It
would require the Commission to consider enhancing criminal
penalties in cases involving obstruction of justice and
serious fraud cases where a large number of victims are
injured or when the victims face financial ruin.
The Act is not intended as criticism of the current
guidelines, which were based on the hard work of the
Commission to conform with the goals of prior existing law.
Rather, it is intended to join the provisions of the Act
which substantially raise current statutory maximums in the
law as a policy expression that the former penalties were
insufficient to deter financial misconduct and to request the
Commission to review and enhance its penalties as appropriate
in that light.
Currently, the U.S.S.G. recognize that a wide variety of
conduct falls under the offense of ``obstruction of
justice.'' For obstruction cases involving the murder of a
witness or another crime, the U.S.S.G. allow, by cross
reference, significant enhancements based on the underlying
crimes, such as murder or attempted murder. For cases when
obstruction is the only offense, however, they provide little
guidance on differentiating between different types of
obstruction. This provision requests that the Commission
consider raising the penalties for obstruction where no cross
reference is available and defining meaningful specific
enhancements and adjustments for cases where evidence and
records are actually destroyed or fabricated (and for more
serious cases even within that category of case) so as to
thwart investigators, a serious form of obstruction.
This provision and Title 11, also require that the
Commission consider enhancing the penalties in fraud cases
which are particularly extensive or serious, even in addition
to the recent amendments to the Chapter 2 guidelines for
fraud cases. The current fraud guidelines require that the
sentencing judge take the number of victims into account, but
only to a very limited degree in small and medium-sized
cases. Specifically, once there are more than 50 victims, the
guidelines do not require any further enhancement of the
sentence. A case with 51 victims, therefore, may be treated
the same as a case with 5,000 victims. As the Enron matter
demonstrates, serious frauds, especially in cases where
publicly traded securities are involved, can affect thousands
of victims.
In addition, current guidelines allow only very limited
consideration of the extent of devastation that a fraud
offense causes its victims. Judges may only consider whether
a fraud endangers the ``solvency or financial security'' of a
victim to impose an upward departure from the recommended
sentencing range. This is not a factor in establishing the
range itself unless the victim is a financial institution.
Subsection (5) requires the Commission to consider requiring
judges to consider the extent of such devastation in setting
the actual recommended sentencing range in cases such as the
Enron matter, when many private victims, including individual
investors, have lost their life savings. Finally this
provision requires a complete review of the Chapter 8
corporate misconduct guidelines, which should include not
only monetary penalties but other actions designed to deter
organizational crime, such as probation and compliance
enforcement schemes.
Section 806 of the Act would provide whistleblower
protection to employees of publicly traded companies who
report acts of fraud to federal officials with the authority
to remedy the wrongdoing or to supervisors or appropriate
individuals within their company. Although current law
protects many government employees who act in the public
interest by reporting wrongdoing, there is no similar
protection for employees of publicly traded companies who
blow the whistle on fraud and protect investors. With an
unprecedented portion of the American public investing in
these companies and depending upon their honesty, this
distinction does not serve the public good.
In addition, corporate employees who report fraud are
subject to the patchwork and vagaries of current state laws,
even though most publicly traded companies do business
nationwide. Thus, a whistleblowing employee in one state
(e.g., Texas, see supra) may be far more vulnerable to
retaliation than a fellow employee in another state who takes
the same actions. Unfortunately, companies with a corporate
culture that punishes whistleblowers for being ``disloyal''
and ``litigation risks'' often transcend state lines, and
most corporate employers, with help from their lawyers, know
exactly what they can do to a whistleblowing employee under
the law. U.S. laws need to encourage and protect those who
report fraudulent activity that can damage innocent investors
in publicly traded companies. The Act is supported by groups
such as the National Whistleblower Center, the Government
Accountability Project, and Taxpayers Against Fraud, all of
whom have written a letter placed in the Committee record
calling this bill ``the single most effective measure
possible to prevent recurrences of the Enron debacle and
similar threats to the nation's financial markets.''
This provision would create a new provision protecting
employees when they take lawful acts to disclose information
or otherwise assist criminal investigators, federal
regulators, Congress, their supervisors (or other proper
people within a corporation), or parties in a judicial
proceeding in detecting and stopping actions which they
reasonably believe to be fraudulent. Since the only acts
protected are ``lawful'' ones, the provision would not
protect illegal actions, such as the improper public
disclosure of trade secret information. In addition, a
reasonableness test is also provided under the subsection
(a)(1), which is intended to impose the normal reasonable
person standard used and interpreted in a wide variety of
legal contexts (See generally Passaic Valley Sewerage
Commissioners v. Department of Labor, 992 F. 2d 474, 478).
Certainly, although not exclusively, any type of corporate or
agency action taken based on the information, or the
information constituting admissible evidence at any later
proceeding would be strong indicia that it could support such
a reasonable belief. The threshold is intended to include all
good faith and reasonable reporting of fraud, and there
should be no presumption that reporting is otherwise, absent
specific evidence.
Under new protections provided by the Act, if the employer
does take illegal action in retaliation for such lawful and
protected conduct, subsection (b) allows the employee to
elect to file an administrative complaint at the Department
of Labor, as is the case for employees who provide assistance
in aviation safety. Only if there is not final agency
decision within 180 days of the complaint (and such delay is
not shown to be due to the bad faith of the claimant) may he
or she may bring a de novo case in federal court with a jury
trial available (See United States Constitution, Amendment
VII; Title 42 United States Code, Section 1983). Should such
a case be brought in federal court, it is intended that the
same burdens of proof which would have governed in the
Department of Labor will continue to govern the action.
Subsection (c) of this section requires both reinstatement of
the whistleblower, backpay, and all compensatory damages
needed to make a victim whole should the claimant prevail.
The Act does not supplant or replace state law, but sets a
national floor for employee protections in the context of
publicly traded companies.
Section 807 creates a new 25 year felony under Title 18 for
defrauding shareholders of publicly traded companies.
Currently, unlike bank fraud or health care fraud, there is
no generally accessible statute that deals with the specific
problem of securities fraud. In these cases, federal
investigators and prosecutors are forced either to resort to
a patchwork of technical Title 15 offenses and regulations,
which may criminalize particular violations of securities
law, or to treat the cases as generic mail or wire fraud
cases and to meet the technical elements of
[[Page S7421]]
those statutes, with their five year maximum penalties.
This bill, then, would create a new 25 year felony for
securities fraud--a more general and less technical provision
comparable to the bank fraud and health care fraud statutes
in Title 18. It adds a provision to Chapter 63 of Title 18 at
section 1348 which would criminalize the execution or
attempted execution of any scheme or artifice to defraud
persons in connection with securities of publicly traded
companies or obtain their money or property. The provision
should not be read to require proof of technical elements
from the securities laws, and is intended to provide needed
enforcement flexibility in the context of publicly traded
companies to protect shareholders and prospective
shareholders against all the types schemes and frauds which
inventive criminals may devise in the future. The intent
requirements are to be applied consistently with those found
in 18 U.S.C. Sec. Sec. 1341, 1343, 1344, 1347.
By covering all ``schemes and artifices to defraud'' (see
18 U.S.C. Sec. Sec. 1344, 1341, 1343, 1347), new Sec. 1348
will be more accessible to investigators and prosecutors and
will provide needed enforcement flexibility and, in the
context of publicly traded companies, protection against all
the types schemes and frauds which inventive criminals may
devise in the future.
____________________