[Congressional Record (Bound Edition), Volume 148 (2002), Part 15]
[Senate]
[Pages 20909-20910]
[From the U.S. 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.

[[Page 20910]]

  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 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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