[Congressional Record Volume 148, Number 136 (Wednesday, October 16, 2002)]
[Senate]
[Pages S10563-S10564]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
ONE YEAR ANNIVERSARY OF ENRON SCANDAL
Mr. LEVIN. Mr. President, one year ago today, the public first began
to learn of the accounting frauds that led to the collapse of Enron
Corporation. For the first time, investors learned of special purpose
entities used to make Enron's financial condition look better than it
was and of partnerships run by Enron's chief financial officer. One
year ago today, the press first reported the $1 billion loss in Enron's
shareholder equity and a $700 million loss in earnings. Less than 2
months later, Enron's reputation as a well-run company and a good
investment morphed into that of a bankrupt operation with billions in
unpaid debt.
As the scandal unfolded, Enron's employees lost their jobs and their
pensions. Its stockholders lost their shirts. Its accounting firm lost
its credibility and its ability to operate as an auditor. About the
only ones to walk away from Enron's fall intact were a number of
executives who pocketed millions of dollars in compensation despite the
company's collapse. Other executives are now beginning to pay the piper
for their misdeeds.
Of course, Enron was only the beginning. Within 6 months, the press
was inundated with reports of multi-billion-dollar accounting frauds at
other major publicly traded corporations in the United States. We
learned that Worldcom had misreported $3 billion in expenses, a figure
which has since doubled to more than $7 billion. We learned that
Adelphia had made billions of dollars in unsecured loans to corporate
insiders, especially members of the Rigas family. We learned that Tyco
had made not only unreported loans to corporate executives and
directors, but its CEO appears to have cheated on his taxes. The list
of companies associated with accounting frauds or other corporate
misconduct kept increasing, shaking not only Wall Street, but also Main
Street where more than half of U.S. households are directly or
indirectly invested in the stock market.
The result is that, today, investor confidence in U.S. financial
statements and the U.S. accounting profession lies in tatters. The
stock market itself has compiled its worst record in years.
The breadth and depth of this corporate misconduct galvanized
Congress. Over the past year, we conducted detailed investigations into
what happened. We subpoenaed documents. We held hearings. We issued
reports. And during the summer, we enacted into law the Sarbanes-Oxley
Act, a corporate reform law which calls for a host of changes in the
way U.S. business operates, including overhauling accounting oversight,
restoring auditor integrity, and strengthening investor protections.
This legislation was a strong response to the corporate scandals, but
the work is far from over.
Enron's 1-year anniversary is a good time to recall what still needs
to be done.
First, the SEC needs to implement the Sarbanes-Oxley Act. The most
important next step here is naming the members of the new Public
Company Accounting Oversight Board. This Board is charged with
strengthening auditor ethics, disciplinary proceedings, and conflict of
interest prohibitions to restore confidence in the U.S. accounting
profession. This work will require a frank acknowledgment of past
problems, a fresh examination of what works and what has failed, and a
willingness to break from past practice to increase investor
protections.
Some impressive candidates have stepped forward to express their
willingness to serve on this board. One terrific candidate is John H.
Biggs who is about to retire from his post as chairman and CEO of TIAA-
CREF. Mr. Biggs has the stature, expertise, and backbone needed to lead
this board. He is the right man at the right moment to restore
integrity to U.S. financial statements and the U.S. accounting
profession, and the SEC ought to immediately accept his offer to serve
the public as a member of this important new board.
The SEC also has a host of important regulations to issue over the
coming year--a task that will require continued congressional
oversight. One of the most important is the requirement that companies
disclose all material off-the-books transactions, arrangements,
obligations and relationships. While the Financial Accounting Standards
Board, or FASB, has issued a proposal to strengthen accounting rules
regarding special purpose entities, that addresses only a portion of
the problem and the SEC can and must do much more to strengthen
disclosure.
The SEC must also set up the policies and procedures necessary to
identify and administratively bar those persons who are substantially
unfit to serve as officers or directors of public companies. Too many
officers and directors have turned their eyes away from misconduct,
failed to ask tough questions, or allowed fraudulent or questionable
activities to continue unchecked at the companies that are now the
subject of legal proceedings. We need stronger leadership in corporate
America and to eliminate those unwilling or unable to act as
fiduciaries for investors.
These are just two of the many pressing regulatory issues facing the
SEC in implementing the Sarbanes-Oxley reform law. But it will take
more than Sarbanes-Oxley to end corporate misconduct and restore
investor confidence in U.S. markets. The list of unfinished business
includes at least the following items.
First, Congress needs to recognize that the SEC is outgunned and
outspent and give the SEC the resources it needs to police financial
statements and detect and punish corporate misdeeds.
Second, we need to give the SEC new civil enforcement authority to
impose administrative fines on company officers, directors, auditors,
lawyers, and others who violate federal securities laws. Right now, the
only wrongdoers the SEC can fine in administrative proceedings are
broker-dealers and investment advisers. My amendment to broaden its
authority to fine other violators of the securities laws never received
a vote during consideration of the Sarbanes-Oxley Act. I intend to keep
trying until that vote takes place.
Another festering problem involves stock options. Stock option abuses
have not stopped, and dishonest accounting of stock option expenses
continues. That means that Congress still needs to set a deadline for
FASB to take appropriate action on the issue of expensing stock
options. Over 120 publicly traded companies have announced their
intention--on a voluntary basis--to begin expensing options. That is a
huge and welcome change from past practice. But many other public
companies have indicated they have no intention of expensing options
until required to do so. It is time to level the playing field in favor
of honest accounting of stock options.
Still another continuing problem involves so-called corporate
inversions, when U.S. companies pretend to move their headquarters to
an offshore tax haven in order to avoid paying their fair share of
taxes. These offshore shenanigans are not only unpatriotic, they are
unfair to the taxpayers who have to
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pick up the slack and pay for this country's military, security, law
enforcement, and other needs, many of which benefit the companies
avoiding their fair share of taxes. I plan to spend a significant
amount of time over the next year looking at issues related to offshore
tax evasion and corporate nonpayment of tax.
A few years ago, this country had billions of dollars in surplus and
a growing economy. But that is over. One contributing cause is the
corporate scandals over the last year. Those arguing for tepid reforms
or the status quo will not provide the leadership needed to end the
corporate misconduct and investor fears now plaguing U.S. markets. We
need not only to complete the implementation of the Sarbanes-Oxley law,
but also to move ahead with additional measures needed to restore
investor faith in U.S. business. The one-year anniversary of the Enron
scandal is a good time to renew the call for that unfinished business.
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