[Congressional Record (Bound Edition), Volume 148 (2002), Part 3]
[Extensions of Remarks]
[Pages 4123-4124]
[From the U.S. Government Publishing Office, www.gpo.gov]




INTRODUCTION OF THE CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY ACT OF 
                                  2002

                                 ______
                                 

                         HON. JOHN CONYERS, JR.

                              of michigan

                    in the house of representatives

                         Tuesday, April 9, 2002

  Mr. CONYERS. Mr. Speaker, today I am introducing the ``Corporate and 
Criminal Fraud Accountability, Act of 2002,'' legislation that imposes 
tough criminal and civil penalties on corporate wrongdoers and helps 
protect employees and shareholders against future acts of corporate 
fraud. I am joined by Minority Leader Gephardt along with 
Representatives Frank, Jackson-Lee, Berman, Waters, LaFalce, Engel, 
Dingell, Jackson, Jr. (IL), Christensen, Davis (IL), Cummings, Sanders, 
Solis, Clayton, Brown (FL), Lynch, Hoeffel, Gutierrez, and Schakowsky.
  As you know, the past several months have revealed widespread 
incidences of corporate fraud and abuse committed by Enron and its 
advisers. With each passing day, a new revelation concerning the 
dissemination of misinformation, evidence shredding, obstruction of 
justice, and insider trading has been unveiled. And, as more companies 
file for bankruptcy, I am convinced that we may very well learn of 
additional instances of fraud occurring across corporate America.
  One step we can take to prevent corporate wrongdoers from preying on 
innocent investors and employees is to enact legislation that increases 
the penalties that companies face for engaging in such rapacious acts. 
The bill that I am introducing, the ``Corporate and Criminal Fraud 
Accountability Act of 2002'', does just that. Among other things, it 
creates a new 10-year felony for defrauding shareholders of publicly-
traded companies; clarifies current criminal laws relating to the 
destruction or fabrication of evidence, including the shredding of 
financial and audit records; provides whistleblower protection to 
employees of publicly-traded companies, similar to those currently 
available to many government employees; and establishes a new bureau 
within the Department of Justice to prosecute crimes involving 
securities and pension fraud.
  In the wake of the Enron debacle, I believe the time is now ripe to 
protect American investors once again. The Enron case has established 
beyond a shadow of a doubt that white collar fraud can be incredibly 
damaging, in many cases wiping away life savings and costing innocent 
Americans billions of dollars of their hard earned money. There can be 
no conceivable justification for shielding corporate wrongdoers from 
criminal prosecution for their outrageous behavior. I am hopeful that 
Congress can move quickly to enact this worthwhile and timely 
legislation.
  The following is a section-by-section analysis of the bill:

       Section 1. Title. ``Corporate and Criminal Fraud 
     Accountability Act.''
       Section 2. Criminal Penalties for Altering, Destroying, or 
     Failing to Maintain Documents--provides two new criminal 
     statutes which would clarify and plug holes in the current 
     criminal laws relating to the destruction or fabrication of 
     evidence, including the shredding of financial and audit 
     records. Currently, those provisions are a patchwork which 
     have been interpreted in often limited ways in federal court. 
     For instance, certain of the 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 have been narrowly interpreted by courts, 
     including the Supreme Court in United States v. Aquillar, 115 
     S. Ct. 593 (1995), to apply only to situations where the 
     obstruction of justice can be closely tied to a pending 
     judicial proceeding.
       First, this section would create a new 5 year felony which 
     could be effectively used in a wide array of cases where a 
     person destroys or creates evidence with the specific intent 
     to obstruct a federal agency or a criminal investigation. 
     Second, the section creates another 5 year felony which 
     applies specifically to the willful failure to preserve audit 
     papers of companies that issue securities.
       Section 3. Criminal Penalties for Defrauding Shareholders 
     of Publicly Traded Companies--creates 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, comparable to the bank fraud and 
     health care fraud statutes. The provision would be more 
     accessible to investigators and prosecutors and would 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.
       Section 4. Review of Federal Sentencing Guidelines for 
     Obstruction of Justice and Extensive Criminal Fraud--requires 
     the United States Sentencing Commission (``Commission'') to 
     consider enhancing criminal penalties in cases involving the 
     actual destruction or fabrication of evidence or in fraud 
     cases in which a large number of victims are injured or when 
     the injury to the victims is particularly grave--i.e. they 
     face financial ruin.
       This provision first requires the Commission to consider 
     sentencing enhancements in obstruction of justice cases where 
     physical evidence was actually destroyed. The provision, in 
     subsections (3) and (4), also requires the Commission to 
     consider sentencing enhancements for fraud cases which are 
     particularly extensive or serious. Specifically, once there 
     are more than 50 victims, the current guidelines do not 
     require any further enhancement of the sentence, so that a 
     case with 51 victims may be treated the same as a case with 
     5,000 victims. In addition, current guidelines allow only 
     very limited consideration of the extent of financial 
     devastation that a fraud offense causes to private victims. 
     This section corrects both these problems.
       Section 5. Debts Non-dischargeable if Incurred in Violation 
     of Securities Fraud Laws--amends 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. This loophole 
     in the law should be closed to help defrauded investors 
     recoup their losses and to hold accountable those who 
     perpetrate securities fraud.
       Section 6. Increased Protection of Employees' Wages Under 
     Chapter 11 Proceedings--increases the amount in unsecured 
     claims (wages, commissions, etc.) an individual could claim 
     in bankruptcy proceedings from $4,300 to $10,000. This change 
     would aid employees who are usually only paid their priority 
     wage claims early in the case. The rest of the employee's 
     wage claim is a general unsecured debt and may not be paid 
     except on a pro rata basis at the end of the case, which 
     could be several years later. In the Enron case, employees 
     were paid only their priority wage claims while certain 
     individuals were given generous ``retention bonuses.'' This 
     change would make it possible for the court in similar cases 
     to provide a more realistic buffer to employees who have been 
     laid off or who have not been paid in the period leading up 
     to the bankruptcy.
       Section 7. Statute of Limitations for Securities Fraud--
     sets the statute of limitations in private securities fraud 
     cases to the earlier of 5 years after the date of the fraud 
     or three years after the fraud was discovered. The current 
     statute of limitations for private securities fraud cases is 
     the earlier of three years from the date of the fraud or one 
     year from the date of discovery. In the Enron state pension 
     fund litigation, the current short statute of limitations has 
     forced some states to forgo claims against Enron based on 
     securities fraud in 1997 and 1998. Victims of securities 
     fraud should have a reasonable time to discover the facts 
     underlying the fraud.
       The Supreme Court, in Lampf v. Gilbertson, 501 U.S. 350 
     (1991), endorsed the current short statute of limitations for 
     securities fraud in a 5-4 decision. Justices O'Connor and 
     Kennedy wrote in their dissent in the Lampf decision: ``By 
     adopting a 3-year period of repose, the Court makes a 
     Sec. 10(b) action 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. In so doing, the Court also turns its 
     back on the almost uniform rule rejecting short periods of 
     repose for fraud-based actions.''
       Section 8. Whistleblower Protection for Employees of 
     Publicly Traded Companies who Provide Evidence of Fraud--
     provides whistleblower protection to employees of publicly 
     traded companies, similar to those currently available to 
     many government employees. It specifically protects them when

[[Page 4124]]

     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. Since the bill's provisions only apply to ``lawful'' 
     actions by an employee, it does not protect employees from 
     improper and unlawful disclosure of trade secrets. In 
     addition, a reasonableness test is also set forth under the 
     information providing subsection of this section, 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 or 
     leading to admissible evidence would be strong indicia that 
     it could support of such a reasonable belief. If the employer 
     does take illegal action in retaliation for lawful and 
     protected conduct, subsection (b) allows the employee to 
     elect to file an administrative complaint or to bring a case 
     in federal court, with a jury trial available in cases where 
     the case is an action at law. See United States Constitution, 
     Amendment VII; Title 42 United States Code, Section 1983. 
     Subsection (c) would require both reinstatement of the 
     whistleblower, double backpay, compensatory damages to make a 
     victim whole, and would allow punitive damages in extreme 
     cases where the public's health, safety or welfare was at 
     risk.
       Section 9. Establishment of a Retirement Security Fraud 
     Bureau--establishes a Bureau within DOJ that, among other 
     things, will advise the Assistant Attorney General of the 
     Criminal Division on matters pertaining to pension and 
     securities fraud, and assist federal, state and local law 
     enforcement authorities in combating pension and securities 
     fraud-related activities.

     

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