[Congressional Record (Bound Edition), Volume 148 (2002), Part 9]
[Senate]
[Pages 12656-12671]
[From the U.S. Government Publishing Office, www.gpo.gov]




 PUBLIC COMPANY ACCOUNTING REFORM AND INVESTOR PROTECTION ACT OF 2002--
                               Continued


                           Amendment No. 4200

  The PRESIDING OFFICER (Mr. Carper). The question is on agreeing to 
the motion to table amendment No. 4200. The yeas and nays have been 
ordered. The clerk will call the roll.
  The legislative clerk called the roll.
  Mr. NICKLES. I announce that the Senator from North Carolina (Mr. 
Helms), the Senator from Ohio (Mr. Voinovich), and the Senator from 
Idaho (Mr. Crapo) are necessarily absent.
  I further announce that if present and voting the Senator from North 
Carolina (Mr. Helms) would vote ``no.''
  The PRESIDING OFFICER. Are there any other Senators in the Chamber 
desiring to vote?
  The result was announced--yeas 62, nays 35, as follows:

                      (Rollcall Vote No. 172 Leg.)

                                YEAS--62

     Akaka
     Allen
     Baucus
     Bayh
     Biden
     Bingaman
     Boxer
     Breaux
     Byrd
     Cantwell
     Carnahan
     Carper
     Chafee
     Cleland
     Clinton
     Collins
     Conrad
     Corzine
     Daschle
     Dayton
     Dodd
     Dorgan
     Durbin
     Edwards
     Enzi
     Feingold
     Feinstein
     Graham
     Hagel
     Harkin
     Hollings
     Inouye
     Jeffords
     Johnson
     Kennedy
     Kerry

[[Page 12657]]


     Kohl
     Landrieu
     Leahy
     Levin
     Lieberman
     Lincoln
     McCain
     Mikulski
     Miller
     Murray
     Nelson (FL)
     Nelson (NE)
     Reed
     Reid
     Rockefeller
     Sarbanes
     Schumer
     Shelby
     Snowe
     Specter
     Stabenow
     Thompson
     Torricelli
     Warner
     Wellstone
     Wyden

                                NAYS--35

     Allard
     Bennett
     Bond
     Brownback
     Bunning
     Burns
     Campbell
     Cochran
     Craig
     DeWine
     Domenici
     Ensign
     Fitzgerald
     Frist
     Gramm
     Grassley
     Gregg
     Hatch
     Hutchinson
     Hutchison
     Inhofe
     Kyl
     Lott
     Lugar
     McConnell
     Murkowski
     Nickles
     Roberts
     Santorum
     Sessions
     Smith (NH)
     Smith (OR)
     Stevens
     Thomas
     Thurmond

                             NOT VOTING--3

     Crapo
     Helms
     Voinovich
  The motion was agreed to.
  Mr. SARBANES. I move to reconsider the vote.
  Mr. DASCHLE. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  The PRESIDING OFFICER. The majority leader.


                Amendment No. 4269 To Amendment No. 4187

 (Purpose: To address procedures for banning certain individuals from 
 serving as officers or directors of publicly traded companies, civil 
  money penalties, obtaining financial records, broadened enforcement 
           authority, and forfeiture of bonuses and profits)

  Mr. DASCHLE. Mr. President, I have an amendment I send to the desk on 
behalf of Senator Levin.
  The PRESIDING OFFICER. The clerk will report.
  The assistant legislative clerk read as follows:

       The Senator from South Dakota [Mr. Daschle], for Mr. Levin, 
     for himself, Mr. Nelson of Florida, Mr. Harkin, Mr. Corzine, 
     and Mr. Biden, proposes an amendment numbered 4269.

  Mr. DASCHLE. Mr. President, I ask unanimous consent reading of the 
amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (The amendment is printed in today's Record under ``Text of 
Amendments.'')
  Mr. DASCHLE. I yield the floor.
  The PRESIDING OFFICER. The Senator from Michigan.
  Mr. LEVIN. Mr. President, this amendment is offered--and I thank the 
majority leader--on behalf of myself, Senator Bill Nelson, Senator 
Harkin, Senator Corzine, and Senator Biden.
  Our amendment would grant the SEC administrative authority to impose 
civil fines on persons who violate securities laws, regulations, and 
rules. Now the SEC has to go to court, which is difficult and 
burdensome.
  We, just the other day, decided we wanted to give the SEC the power 
to remove directors and officers from public companies who violate 
rules and regulations and laws without having to go to court.
  Of course, those decisions administratively by the SEC are subject to 
an appeal. That is always true and always must be true. The same 
approach is essential relative to the imposition of civil fines. If the 
SEC is going to have power, without a lot of cumbersome, costly, and 
expensive procedures, to really take on those directors and those 
auditors who violate the law, who violate rules and regulations, the 
SEC must have the same authority which other regulatory bodies have to 
impose civil fines.
  A few examples: The Commodity Futures Trading Commission has 
authority to impose civil fines up to three times the monetary gain 
from a violation plus restitution of customer damages. The Department 
of Transportation can impose civil fines. The Consumer Product Safety 
Commission can impose civil fines. The Occupational Safety and Health 
Administration, OSHA, can impose civil fines. The Federal 
Communications Commission can impose civil fines.
  As a matter of fact, the Securities and Exchange Commission can 
impose civil fines on some of the people it regulates--brokers. But 
unless we act today, there will be a great gap in the enforcement power 
of the SEC, a continuing gap. That gap is, it does not have the power, 
without legislation, to impose an administrative civil fine on auditors 
and members of boards of directors who violate rules and regulations in 
the law of the land.
  Our amendment would give the SEC that authority to impose 
administratively civil fines on those people who violate our securities 
laws and regulations and rules. That includes officers, directors, and 
auditors of publicly traded companies.
  I emphasize, these fines would be, and must be, subject to judicial 
review, as are the other SEC administrative determinations which they 
have authority to answer at this point. That is the first objective of 
the amendment.
  Secondly, our amendment would significantly increase the civil fines 
the SEC can impose on law violators. I particularly thank Senator 
Nelson of Florida for highlighting the problem and supporting the 
inclusion of these provisions in the amendment.
  The civil fines that currently can be imposed on broker-dealers 
administratively have maximum amounts that start at $6,500 per 
violation. That is the maximum amount under the so-called tier 1 civil 
fine. If a broker-dealer now violates the securities laws under so-
called tier 1 where there is a violation found, not yet proven to be 
fraudulent but a violation nonetheless, $6,500 is the maximum fine 
under current law. Tier 2 for individuals is a $60,000 fine. That is 
where you find fraud, deceit, manipulation, and deliberate or reckless 
disregard--$60,000 for an individual for that violation.
  It is laughable. The current structure of fines which can be imposed 
on those people who administratively can be subject to a civil action 
or civil fine by the SEC is so low, these fines are a joke. We are 
talking about people who frequently are walking away, lining their 
pockets, violating rules and regulations for millions of dollars, 
sometimes tens of millions of dollars. To have a system where the 
maximum fine under tier 1 is $6,500 for an individual and under tier 2 
is $60,000 is just simply inadequate.
  Here is what the SEC staff said in June of this year: The current 
maximum penalty amounts may not have the desired deterrent effect on an 
individual or a corporate violator. For example, an individual who 
commits a negligent act is subject to a maximum penalty of $6,500 per 
violation.
  This is the conclusion of the SEC staff: The amount is so trivial 
that it cannot possibly have a deterrent effect on the violator.
  I would say that is an understatement: $6,500, given the current 
amount of money flowing through these violations of rules and 
regulations, is pitifully trivial. In fact, it is no deterrent at all. 
It might as well not be there. If we are going to have a deterrent 
system, we have to have fines which have some bite, which are real, 
which have an impact on people.
  We would, under our amendment, increase the maximum fines from a 
range of $6,500 to $600,000, which is the current range for tiers 1 
through 3, to a range which goes from $100,000 to $5 million in fines 
per violation.
  We are seeing these corporate restatements and misconduct involving 
$2 billion, $4 billion, and even $12 billion. These new fine amounts 
are critical if they are to have the desired deterrent and punitive 
effects on wrongdoers in the corporate world.
  Our bill also has language which is similar to the language in the 
Leahy and Lott amendments that were adopted relative to the removal 
from office. We do this for the sake of completeness, so that we can 
lay out the entire structure being proposed in our bill for 
administratively imposed civil fines. That part of the amendment is the 
same as the removal from office provisions adopted by the Senate 
yesterday in the Leahy and Lott amendments.
  Finally, our amendment would grant the SEC new administrative 
authority, when the SEC has opened an official investigation, to 
subpoena financial records from a financial institution without having 
to notify the subject that such a records request has been made. This 
authority would allow the SEC to evaluate financial transactions, to 
trace funds, to analyze relationships, without having to alert the 
subject of the investigation to the SEC's action.
  Under current law, the SEC either has to give the subject advance 
notice

[[Page 12658]]

of the subpoena or to obtain a court order that can delay notification 
for no longer than 90 days. That is a huge impediment to enforcement by 
the SEC. We ought to change that.
  The staff of the SEC wrote the following relative to this amendment:

       This amendment would enhance the Commission's ability to 
     trace money and relationships quickly and effectively. The 
     Commission typically requests bank records when it has reason 
     to suspect possible relationships between persons or entities 
     and that passage of money between those persons or entities 
     may be relevant to violations of the securities laws. 
     Identifying those relationships and quickly identifying 
     assets obtained or transferred in connection with possible 
     unlawful activity is critical to the Commission's ability to 
     obtain orders freezing assets and other appropriate relief.
       In many situations, the Commission could proceed much more 
     effectively if it could obtain relevant bank records without 
     providing notice to the persons whose account records are 
     sought.
       Under current law, however--

  The SEC staff wrote--

     the right to the Financial Privacy Act generally requires the 
     commission to provide those persons with notice and a 
     substantial period--10 to 14 days--in which to file a contest 
     to the commission's authority to obtain the records.

  Let me continue with the SEC staff analysis of this language that is 
in our bill:

       Because Congress recognized that the notice requirement 
     can, in some cases, compromise important and legitimate 
     commission investigative objectives, Congress provided in 
     section 21(h) of the Exchange Act that the commission may 
     seek court authorization to obtain relevant bank records 
     without notifying the customer for at least 90 days. 
     Unfortunately--

  The SEC staff wrote--

     those important investigative objectives are also compromised 
     by the inherent delay in obtaining the necessary court order.
       The proposed amendment to section 21(h)--

  Our language in this amendment--

     addresses both the notice and delay problem by allowing the 
     commission the discretion only in those cases in which it has 
     already authorized a formal investigation to proceed without 
     notice to the customer. The proposed amendment also 
     reiterates and strengthens the commission's authority to 
     require that financial institutions not compromise 
     investigations by notifying any persons or entities that 
     their bank records have been subpoenaed.

  Mr. NELSON of Florida. Will the Senator yield for a question?
  Mr. LEVIN. I will be happy to yield for a question, but I do have an 
additional thought.
  Mr. NELSON of Florida. I am proud to be here today with my colleague 
from Michigan to offer these reforms aimed at preventing and punishing 
perpetrators of corporate fraud. The questions I wanted to ask the very 
distinguished Senator from Michigan, who has the foresight of why we 
need this at this particular time, are these: Would it not intrigue the 
Senator from Michigan and other Senators here that all of this is 
happening in an environment when 17,000 workers at WorldCom have 
received pink slips and have realized losses of over a billion dollars 
in their retirement plans; and at the same time they were receiving 
pink slips, the corporate executives were attending a retreat in 
Hawaii? That would not surprise the Senator, would it?
  Mr. LEVIN. It would not surprise me at all.
  Mr. NELSON of Florida. I doubt that it would surprise the Senator 
that one of those executives, by the way, was putting the finishing 
touches on a $15 million mansion, derived from that money from 
WorldCom. Would it surprise the Senator that late last year Global 
Crossing laid off 1,200 people, giving them no severance package, while 
the CEO of that company walked away with hundreds of millions of 
dollars?
  Mr. LEVIN. I am afraid very little would surprise me about some of 
these violations and deceptions these days.
  Mr. NELSON of Florida. I know it would not surprise the Senator, but 
I will ask him this anyway. After what went on with Enron last summer, 
while Enron executives were selling their shares for hundreds of 
millions of dollars and protecting their portfolios, their retirees and 
employees lost more than a billion dollars in retirement savings. Does 
that surprise the Senator?
  Mr. LEVIN. Tragically, it is not a surprise.
  Mr. NELSON of Florida. It is unconscionable. One of those we had 
testify in our Commerce Committee was Janice Farmer, an Enron retiree 
who lost her entire life savings that she had built up in a retirement 
plan from Enron. In her case, it was $700,000. She has nothing now.
  And then, I suppose it also would not surprise the distinguished 
Senator that, while we are talking about these excesses of corporate 
irresponsibility and corporate greed, the Florida pension fund for the 
Florida retirement system had a loss of $335 million--more losses than 
any other State--from Enron stock purchases, and that the money 
managers of that Florida pension fund, which covers all of the public 
sector retirees in Florida--the money managers kept buying Enron stock, 
based on the assertions from the company's management that everything 
was OK, that doesn't surprise us either, does it?
  Mr. LEVIN. No surprise. I am afraid that the public, having lost so 
much of its pension money, is disgusted but no longer surprised.
  Mr. NELSON of Florida. The management said everything was OK, but it 
was not OK. While the stock was dropping like a rock, but not before 
the company's management had unloaded their shares, the money managers 
were buying that stock as it dropped like a rock, and it caused to a 
dozen or so pension funds, retirement systems, public pension funds in 
this country over a billion dollars in losses. My State had the most 
losses of $335 million.
  So we have seen in the last year and a half corporate abuses of 
monumental proportions, and it is time for us to stop it. I am grateful 
to the Senator from Michigan for his leadership in bringing forth the 
amendment that he has described, which is basically going to give some 
additional teeth to the Securities and Exchange Commission to cause 
disclosure and to cause some hurt when these corporate managers, 
motivated and operated by greed, cross the line.
  I thank the Senator for his leadership.
  Mr. LEVIN. I very much thank the Senator from Florida for his 
comments and his questions, and also for the active role he has taken 
in shaping this language. He has identified the feeble nature of the 
fine structure that we have in the current law. We have some ruthless 
people out there who have lined their own pockets in violation not only 
of law and regulation, but of any code of morality and fiduciary duty. 
We have some ruthless people.
  We also have some toothless laws. The SEC, when it has to go to court 
to impose a civil fine, is put through hoops that other regulatory 
agencies are not put through. They can impose civil fines 
administratively--always subject to an appeal by the respondent or the 
defendant. But they have the capability to seek civil fines 
administratively--these other agencies. I have given examples of some 
of them. But when it comes to the SEC--outside of the brokers, where 
the SEC has that power--they have to go through the cumbersome 
proceedings of going to court.
  Now, we have cured some of this already in the bill. When it comes to 
the removal from office, yesterday we took action to give the SEC the 
ability to act administratively and to order the removal of directors 
or executives from office. What we didn't do yet, and what this 
amendment does, is add a critical component to regulatory 
effectiveness, which is the ability to impose civil fines 
administratively.
  This is what the administration said in supporting the grant to the 
SEC of the power to remove directors from office, which we have now 
already done. It says that if we didn't do that--and now I am quoting 
the Statement of Administration Policy:

       It would continue to require the SEC to expand significant 
     time and resources in order to attempt to gain similar relief 
     in the Federal courts.

  That is what we are talking about now with civil fines.

[[Page 12659]]

  If we do not adopt this amendment, if we do not give the SEC these 
enforcement tools that other agencies have relative to directors and 
auditors, we will be requiring the SEC to be wasting time and wasting 
resources that they otherwise should be using to chase these corrupt 
and immoral people.
  Mr. NELSON of Florida. Will the Senator yield for another question?
  Mr. LEVIN. I will be happy to yield.
  Mr. NELSON of Florida. The distinguished Senator from Michigan has 
laid out how this amendment will give stronger enforcement measures to 
the Securities and Exchange Commission. We have a saying in the South: 
It is beyond me. It is beyond me why there are other people in this 
Chamber, when confronted with such corporate and auditor misconduct, 
would not want to strengthen the law to prevent and punish such 
corporate abuse.
  Does the senior Senator from Michigan have any idea why people would 
oppose us trying to strengthen existing law and, indeed, strengthen the 
underlying bill?
  Mr. LEVIN. I am hopeful there will be broad support for this 
amendment, just for the reason the Senator from Florida gives. There 
should be. This is not novel. This capability of imposing civil fines 
administratively belongs to other regulatory agencies. The protection 
is always an appeal to the court, but without this tool, the SEC has a 
weaker capability. They are not in a position then to do what other 
enforcement agencies can do in the face of some of the worst deception 
this country has ever seen--the deception which is now unfolding in too 
much of corporate America.
  This is of the worst attack on our system we have seen. It is 
unfolding in front of our eyes, and the SEC should be given the powers 
to deter it or punish it--all the power.
  We want the court to be able to review administrative actions. I 
think most Members of this body do not want any administrative agency 
to be able to act without court review if they are excessive or if they 
are wrong. I think most of us believe in that. I believe in that. But I 
also believe an administrative agency has to have enforcement tools.
  We have given the SEC some additional tools in the last few days. 
Senator Leahy and Senator Lott, for instance, in the criminal law area, 
toughened the criminal penalties, and the SEC now has the capability to 
impose fines against the stockbroker, although they are pitifully 
small.
  Our amendment would include directors, corporate executives, and 
auditors in the purview of the SEC power to act administratively and 
would toughen the fines so they would be far more realistic and could 
have some deterrent effect. The current fine structure against a 
limited class of people is useless; it is toothless.
  This is a huge gap in the bill before us. This is a terrific bill, by 
the way, and I do not want anything I say to suggest otherwise. The 
Banking Committee has given the Senate, and hopefully the country--if 
we can get some support for it from the administration and if it can 
get through conference--the Banking Committee has come up with a very 
strong law. We have strengthened it so far on the floor.
  This amendment will strengthen it further by filling a gap that 
exists in the toolbox. It is the missing tool in the toolbox of 
enforcement capabilities that the SEC should have.
  Mr. NELSON of Florida. The Senator's timing is just uncanny. We need 
look back no further than to yesterday when the stock market dropped 
almost 300 points, all the way down close to 8,800, the stock market 
being a reflection of the confidence of the American people in their 
investments in public corporations. Lo and behold, that confidence is 
sinking, and the American people need some greater sense of confidence 
that, indeed, they will not be hoodwinked, that they will not be fooled 
by greedy corporate executives or greedy auditors who blur the lines on 
what their auditing duties ought to be and instead get in bed with 
those who would mismanage the finances of a corporation. The people of 
America who invest their hard-earned dollars ought to have the 
confidence that when they see the financial reports, those financial 
reports are accurate. That confidence is not there, and we saw it 
yesterday in the reaction of the people in their purchases and sales in 
the stock market.
  I thank the Senator from Michigan for his timeliness in trying to put 
some teeth in the authority of the Securities and Exchange Commission 
to give greater confidence to the Joe and Jane Citizen of America who 
invest their money because they want to invest in the future of their 
country and they need to do it and know they are getting accurate 
figures. I thank the Senator.
  Mr. LEVIN. I thank the Senator from Florida.
  Mr. President, I wish to expand for one moment on the question of the 
notice provision in our amendment.
  As I indicated before, where there are allegations that officers, 
directors of companies are misusing the accounting rules and abusing 
their powers, the SEC has to be able to look at financial records 
without giving the account holder an opportunity to move funds or to 
change accounts or to further muddy the investigative waters. Other 
agencies have that power, and this agency must have that power.
  We have carefully circumscribed that power in a number of ways. We 
have not just simply said you can subpoena any documents you want. We 
have criteria for doing that or else they have to give notice.
  One of the criteria is that it has to be an official investigation 
that has been ordered by the Commission. That is an important 
safeguard. This is not just the beginning of an investigation. This is 
not during a discovery process. This is where the Securities and 
Exchange Commission has initiated an official investigation, which is a 
very formal act on the part of the Securities and Exchange Commission.
  At that point, they should be able to subpoena documents under 
certain circumstances. These are the circumstances that we set forth in 
the amendment:
  If the Commission so directs in its subpoena, no financial 
institution or officer, director, partner, employee, shareholder, 
representative or agent can directly or indirectly disclose that 
records have been requested or provided in accordance with subparagraph 
(A).
  In other words, you cannot disclose to the subject of the 
investigation that you, as a financial institution, have been 
subpoenaed for those records if the Commission finds reason to believe 
that such disclosure may--and then we set forth the rules, and the 
rules are intended to make sure that the Commission can act after it 
has announced or determined there should be an official investigation 
but does not want to risk that the subject of the investigation is 
going to remove documents or remove money or hide assets.
  So we set forth the protections, and they are: If the Commission 
finds reason to believe that disclosing the fact of the official 
investigation to the subject of that investigation by a financial 
institution would, one, result in the transfer of assets or records 
outside of the territorial limits of the United States. So if the 
Commission says, hey, we have reason to believe if that person is 
notified in advance of those records being obtained by us or if there 
is a delay in our obtaining records that person may transfer assets or 
records outside of the United States, there could be nondisclosure.
  The second criteria which, if it exists, would permit this to happen 
is if the disclosure would result in improper conversion of investor 
assets.
  The third cause for the requirement that there be nondisclosure is 
that if such disclosure would impede the ability of the Commission to 
identify, trace, or freeze funds involved in any securities 
transaction. That speaks for itself.
  The fourth way in which nondisclosure would be permitted is that if 
it endangers the life or physical safety of an individual. If the 
Commission has reason to believe the life or physical safety of an 
individual would be compromised by disclosure, surely we ought to not 
require disclosure.
  Fifth, if it results in flight from prosecution, if they have reason 
to believe

[[Page 12660]]

that could happen, or if the Commission has reason to believe that the 
disclosure may result in destruction of or tampering with evidence, or 
if such disclosure may result in intimidation of potential witnesses or 
otherwise seriously jeopardize an investigation or unduly delay a 
trial.
  Those are carefully set forth reasons for why disclosure should not 
be required. These are similar to what other agencies have in terms of 
powers, and it seems to me with this careful delineation of this 
subpoena power that we should surely give the Securities and Exchange 
Commission that power.
  Again, staff has given the reasons for the importance of that 
amendment, and I hope that reasoning of the SEC staff would be 
persuasive on this body. We have to give the SEC some administrative 
authority to impose civil fines. It would provide a tool that is now 
missing from the toolbox. It would add this tool, this weapon, to their 
arsenal. Without this weapon in their arsenal, they still have one hand 
tied behind their back. Without this amendment, they do not have the 
same administrative authority that other agencies have.
  Given the environment we are in, that we must use all legitimate 
means to put an end to the abuses and the deceptions of too many of our 
corporate leaders, corporate executives, corporate directors, and 
auditors, we must surely bring our laws up to date in terms of the 
powers we give to the SEC, and in terms of the civil fines we authorize 
them to impose, always subject to an appeal to the courts.
  I yield the floor.
  The PRESIDING OFFICER (Mr. Corzine). The Senator from Texas.
  Mr. GRAMM. Mr. President, some of my colleagues change positions on 
issues like privacy so quickly that it gives me whiplash, and I will 
get to that point. I do not know how many people have seen the movie 
``Minority Report.'' If you have not, I want to tell you the story. I 
never thought I would see a real-life example of what happens in this 
movie, but I have found one right here on the floor of the Senate.
  In the movie ``Minority Report,'' you have a cop who has almost 
supernatural powers, and his job is to arrest people before they commit 
a crime. It starts with three people, two guys who naturally do not 
have very much ESP, and then you have this lady, who naturally is quite 
attractive, who has these massive powers of ESP. They visualize crimes 
that are going to happen, their brain waves activate a computer, and 
then it prints out what they are seeing. They see crimes happening that 
have not yet occurred.
  The action in the movie begins with a guy finding his wife in bed 
with another man. The husband is obviously a nice guy--probably an 
accountant--and he is leaving his house. His wife seems so eager for 
him to leave, he figures out something is going on. He is sort of an 
old, balding fellow and as he is leaving, he misses his bus. While he 
is waiting for the next bus, a young guy comes in and walks in his 
front door. Needless to say, the husband is upset about it. (Who 
wouldn't be upset about it? No one would want that to happen to them or 
anybody they knew.) So the husband goes in and he is sort of in shock. 
He finds himself in the bedroom, sitting by the bed. He goes crazy, and 
picks up a pair of scissors.
  At this point, the computer system (hooked up to the people with ESP) 
alerts this superwarrior for law enforcement that there is about to be 
a murder. He jumps in this sort of minijet that flies fast and stops on 
a dime. The officer zooms in--have you seen this movie, Senator 
McCain?--and just as the guy is getting ready to stab his wife, the 
officer grabs the knife, puts the handcuffs on the husband, takes him 
off and they put him in prison for murder.
  Mr. McCAIN. Will the Senator yield? That is a better description than 
the movie was.
  Mr. GRAMM. Now, I thought, the whole thing is sort of a moral 
question: Were these people really going to commit these crimes? They 
put them in prison for life. They put them in these metal cylinders and 
wired them up to control their brain waves. It is not very pleasant. So 
the question is, Do you have a right to do this to people who have not 
yet committed a crime simply because some person with extrasensory 
perception said it was going to happen?
  That is what the movie is about. It is a big hit movie. It made over 
$100 million the first week. It sounds silly when I tell it, but they 
got $100 million and I am giving this speech.
  In any case, I thought, what an absurd plot. Who in the world could 
ever believe--this is the U.S. of A, by the way. This movie is off in 
the future.
  Why would we ever have a law under which people can be punished for 
what they might do? Is that absurd? Can anybody believe that would 
happen? If you think not, you are wrong.
  Let me read from this amendment. This is in general. It is talking 
about authority of the Commission to assess monetary penalties. This is 
from the amendment that is pending.

       In general, in any cease and desist proceedings under 
     subsection A, the commission may impose a civil monetary 
     penalty if it finds on the record, after notice and 
     opportunity of hearing, that a person is violating, has 
     violated, or is about to violate or has been or will be the 
     cause of violation.

  Senator Levin is going to fine people because we are concluding that 
they are about to do something before they have done it. Or that they 
``will be'' the cause of a violation.
  I submit, first of all, this is not from the SEC. The SEC has not 
asked for this provision. This is from staff at the SEC--maybe ``a'' 
staff person, for all I know.
  The point is, do we really want to say we are going to penalize 
people because they are about to violate the law or we believe they are 
going to? How can you tell? How are you going to tell that they will be 
the cause of a violation? I submit that is a standard I am unaware has 
ever existed. If so, I didn't know about it or I would have tried to 
change it.
  Let me mention a second problem. The second problem has to do with 
financial records. Correct me, my colleague on the Banking Committee, 
if somehow I have fallen into a time warp and am in a different world 
than last year. Was it not last year we were going to shut down the 
Internet, we were going to put people in prison for putting out your 
mailing address or for mailing you a letter where someone could read 
your address off of it and go murder you? Were we not just in this time 
warp where privacy was the be-all and end-all of society?
  I get whiplash, we change positions so often.
  Let me state what the current law is and then read what Senator Levin 
is proposing. The current law is the following: The SEC and other 
Federal agencies have the power to get your financial records, and they 
can do it through administrative subpoena or judicial subpoena.
  Now, normally there is one little inconvenience. Normally, they have 
to tell you they have taken your financial records. Not an unreasonable 
thing, it would seem to me, if this is still America. But we are 
talking about business people here, and there is a different standard. 
Two consenting adults can engage in any activity other than commerce, 
with full constitutional protection, but if they engage in job creation 
or wealth creation, they stand naked before the world in terms of any 
rights whatever.
  Under current law, the Government can come in and take your financial 
records, but they have to tell you they have done it--``except.'' And 
there are three reasons they can do it without telling you. I think we 
all would say they make reasonably good sense. They cannot tell you if 
they have reason to believe that there is going to be a flight from 
prosecution; or if they believe there is going to be destruction of or 
tampering with evidence; or if telling you would otherwise seriously 
jeopardize an investigation of official proceedings, or unduly delay a 
trial of an ongoing official process.
  That is the current law. What is unreasonable about that? If the 
Government believes someone is doing something wrong, they can come in 
and take their records. Unless they believe there is going to be a 
flight from prosecution or there will be tampering with

[[Page 12661]]

evidence or it will jeopardize the investigation, they have to tell you 
they took the records. That is not unreasonable. But if they believe 
any of these things to be the case, they can go in and take your 
records and not tell you.
  Now, what does the amendment of the Senator from Michigan do? It says 
notwithstanding--that is always dangerous--notwithstanding sections 
1105 or 1107 of the Right To Financial Privacy Act of 1978--that law 
has been around here a long time. But notwithstanding it, which means 
throw it out, the Commission may obtain access to and copies of or 
information contained in financial records of any person held by a 
financial institution, including financial records of a customer, 
without notice to that person.
  If you think someone is going to flee prosecution or destroy evidence 
or that will jeopardize an ongoing investigation, maybe we would accept 
the limits of our individual liberty. But under the Levin amendment, 
you don't have to find any of those things. The government doesn't have 
to find that any of those circumstances is the case to be able to go in 
and take financial records.
  Since this bill is a bill that amends our securities laws and our 
financial laws, this bill falls under this jurisdiction. So what this 
literally means is that a government agency, without ever going to the 
courthouse, could come and take all of your financial records--your 
banking records, your investment records, any financial records you 
have or have ever had--and without finding that there is any risk that 
you are going to flee from justice or destroy evidence or jeopardize an 
investigation, they can take them and not tell you about it.
  There is a limit, it seems to me, to the logic in this case. If the 
Senator had an amendment that simply raised these fines for people who 
are criminals, that would be an amendment I could support. It shows how 
far we have flown from reality when we are talking about penalizing 
people because they are ``about'' to violate the law; or that ``will 
be'' the cause of a violation.
  It is very hard to know when someone is going to violate the law. I 
have not yet gotten any kickback, I am not a stockholder even, I don't 
think I have received a contribution from the PAC of the people who 
made the movie I've described--though if they had any decency, they 
would have contributed to my campaign over the years. But if you watch 
this movie, you are going to see what the problem with the Levin 
amendment is.
  The problem with the Levin amendment, as it turns out, is these 
psychics are not always right, and they don't always agree. Sometimes 
there is a ``Minority Report.'' The superwarrior cop discovers this. It 
turns out they try to frame him for a murder. A good movie. I recommend 
seeing it.
  In any case, I am opposed to this amendment. It is a thick amendment. 
There are a lot of things in it. There are some things in it that I 
support. But I do not support penalizing people for what you think they 
are going to do. I do not support taking people's financial records 
without telling them about it. It sounds to me as if somebody at the 
SEC has got the idea that maybe they are living in a different era in a 
different country and they are saying: Look, if we didn't have to fool 
with civil liberties, if we could get rid of the Bill of Rights, we 
could be a more effective law enforcement agency. If we could arrest 
people we think are going to violate the law, we could be more 
efficient. We don't live in that country.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Michigan.
  Mr. LEVIN. Mr. President, first let me assure my good friend from 
Texas that I have seen ``Minority Report.''
  Mr. GRAMM. You have?
  Mr. LEVIN. I have.
  Mr. GRAMM. Then you got the idea from it.
  Mr. LEVIN. As a matter of fact, I got the idea for the protections we 
write in here from ``Minority Report'' just because, as a tribute to 
the protections and civil liberties that are defended and protected in 
``Minority Report,'' I had to be absolutely certain we would put these 
protections in our bill, to make sure that only if there were reason to 
believe a transfer of assets was going to go outside of the United 
States, or there would be conversion of assets, or it would endanger 
the life or physical safety of an individual, or result in flight from 
prosecution--those very criteria, carefully delineated, that are a 
tribute to the civil liberties and protections and privacy rights in 
this country to which my good friend from Texas just referred.
  I can assure my good friend from Texas, the lesson of ``Minority 
Report'' is carefully reflected in this amendment. I saw that because I 
knew the Senator from Texas was going to raise that movie. With that 
kind of foresight, I decided, knowing just how he does this so 
beautifully on the floor of the Senate, I had better see ``Minority 
Report.'' That is why I want to assure the Senator from Texas that 
these very protections which he is so careful to delineate are in fact 
set forth in this amendment. We have these criteria laid out in this 
amendment.
  Mr. REID. I don't want to take away from the seriousness of the 
debate, but I haven't seen ``Minority Report.'' I have seen ``Big Fat 
Greek Wedding,'' and I would recommend that.
  (Laughter.)
  Mr. LEVIN. It sounds as if I have not been doing too much else, but I 
have also seen that--since we are giving testimonials to movies here.
  The language to which the Senator from Texas objects, about 
penalizing people for what they are going to do--that is language which 
the good Senator from Texas, as chairman and ranking member of the 
Banking Committee, has overseen for years. That is the same language 
that currently exists in the SEC law. We are not adding anything new 
here. This is the SEC law, section 77(h)(1): Cease and desist 
proceeding, authority of the Commission.
  If the Commission finds after notice and opportunity for a hearing 
that any person is violating, has violated or is about to violate any 
provision--
  That is existing law. The Senator from Texas has overseen that for 
all these years. He has done a brilliant job as chairman and ranking 
member of the Banking Committee, and we are just simply following the 
language that exists already in the SEC law and applying it to folks 
who are not now covered.
  Mr. GRAMM. Will the Senator yield?
  Mr. LEVIN. For a question, I will be happy to.
  Mr. GRAMM. What the Senator is saying is they can issue cease and 
desist orders under these circumstances, but they can't fine somebody. 
You are not only ceasing and desisting them--I have no problem. In the 
movie--and that is where you got this idea from. I thought it was.
  In the movie, I don't object to them grabbing the guy who is about to 
stab his poor wife. It is putting him in prison, not for attempted 
murder--he did that--but for killing her when she is not dead.
  Mr. LEVIN. The Senator from Texas raises an issue which, I am afraid, 
is also addressed in current law. It is not just cease and desist 
orders, it is the implementation of civil fines. We are following the 
same language. But what we are saying is, if the SEC has power to 
impose a fine on a broker, based on the standards which exist in this 
law, there is no reason the SEC should not have the same power to 
impose a fine on an auditor or on a director who violates the 
regulations and laws of this land. This is the same language. We 
haven't added anything new.
  What is new here is that for the first time there will be the 
potential, the power in the SEC, subject to an appeal to the court--
which is another protection of our civil liberties--subject to an 
appeal to the court, to impose a civil fine, administratively, on 
people who are now let off the hook. There is no reason for this gap in 
the law.
  If, in fact, there is a problem that the Senator has raised, with 
language, that language is in the existing law for SEC. It is in the 
existing law for FDIC, the Federal Deposit Insurance Corporation:

       If, in the opinion of the appropriate Federal banking 
     agency, any insured depository

[[Page 12662]]

     institution, depository institution which has insured 
     deposits, or any institution affiliated party is engaged or 
     has engaged, or the agency has reasonable cause to believe 
     that the depository institution or any institution affiliated 
     party is about to engage--

  The words which the Senator from Texas mocks are in existing law, in 
the FDIC law, in the SEC law.
  There may be reasons the Senator wants to maintain this gap in 
enforcement, but that cannot be used as the reason. That cannot be 
used.
  The PRESIDING OFFICER. The Senator from Arizona.


               Motion To Recommit With Amendment No. 4270

  (Purpose: To require publicly traded companies to record and treat 
  stock options as expenses when granted for purposes of their income 
                              statements)

  Mr. McCAIN. Mr. President, I move to recommit the bill to the 
Committee on Banking, Housing, and Urban Affairs with instructions to 
report the bill back forthwith, with the following amendment that I 
send to the desk.
  The PRESIDING OFFICER. The clerk will report the motion.
  The legislative clerk read as follows:

       The Senator from Arizona (Mr. McCain) moves to recommit the 
     bill (S. 2673) to the Committee on Banking, Housing and Urban 
     Affairs, with instructions to report back forthwith with the 
     following amendment, numbered 4270:
       At the appropriate place, insert the following:

     SEC.  . STOCK OPTIONS MUST BE BOOKED AS EXPENSE WHEN GRANTED.

       Any corporation that grants a stock option to an officer or 
     employee to purchase a publicly traded security in the United 
     States shall record the granting of the option as an expense 
     in that corporation's income statement for the year in which 
     the option is granted.

  The PRESIDING OFFICER. The Senator from Nevada.
  Mr. REID. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. REID. Mr. President, I ask unanimous consent the order for the 
quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.


                           Amendment No. 4271

  Mr. REID. Mr. President, I send an amendment to the desk.
  The PRESIDING OFFICER. The clerk will report.
  The legislative clerk read as follows:

       The Senator from Nevada [Mr. REID], for Mr. Edwards, for 
     himself, Mr. Enzi, and Mr. Corzine, proposes an amendment 
     numbered 4271 to the instructions of the motion to recommit 
     S. 2673 to the Committee on Banking.

  Mr. REID. Mr. President, I ask unanimous consent reading of the 
amendment be dispensed with.
  Mr. McCAIN. I object. I would like to hear what the amendment says.
  The PRESIDING OFFICER. Objection is heard. The clerk will continue to 
read the amendment.
  Mr. REID. I say to my friend, I will be happy to have it read, but it 
is the exact same amendment that was pending beforehand.
  Mr. McCAIN. Thank you.
  The PRESIDING OFFICER. Is there objection?
  Without objection, it is so ordered.
  The amendment is as follows:

     (Purpose: To address rules of professional responsibility for 
                               attorneys)

       At the end of the instructions add the following:
       ``(c) Rules of Professional Responsibility for Attorneys.--
     Not later than 180 days after the date of enactment of this 
     section, the Commission shall establish rules, in the public 
     interest and for the protection of investors, setting forth 
     minimum standards of professional conduct for attorneys 
     appearing and practicing before the Commission in any way in 
     the representation of public companies, including a rule 
     requiring an attorney to report evidence of a material 
     violation of securities law or breach of fiduciary duty or 
     similar violation by the company or any agent thereof to the 
     chief legal counsel or the chief executive officer of the 
     company (or the equivalent thereof) and, if the counsel or 
     officer does not appropriately respond to the evidence 
     (adopting as necessary, appropriate remedial measures or 
     sanctions with respect to the violation), requiring the 
     attorney to report the evidence to the audit committee of the 
     board of directors, or to another committee of the board of 
     directors comprised solely of directors not employed directly 
     or indirectly by the company, or to the board of directors.

  Mr. REID. Mr. President, I ask for the yeas and nays.
  The PRESIDING OFFICER. Is there a sufficient second?
  There appears to be.
  The yeas and nays were ordered.


                Amendment No. 4272 To Amendment No. 4271

 (Purpose: To address procedures for banning certain individuals from 
 serving as officers or directors of publicly traded companies, civil 
  money penalties, obtaining financial records, broadened enforcement 
           authority, and forfeiture of bonuses and profits)

  Mr. REID. Mr. President, I send a second amendment to the desk.
  The PRESIDING OFFICER. The clerk will report.
  The legislative clerk read as follows:

       The Senator from Nevada [Mr. REID], for Mr. Levin, for 
     himself, Mr. Nelson of Florida, Mr. Harkin, Mr. Corzine, and 
     Mr. Biden, proposes an amendment numbered 4272 to amendment 
     No. 4271.

  Mr. REID. Mr. President, I ask unanimous consent reading of the 
amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (The amendment is printed in today's Record under ``Text of 
Amendments.'')
  Mr. REID. Mr. President, I appreciate the cooperation of the Senator 
from Arizona. There are other ways we could have gotten to the point we 
are now. This just made it a lot easier. I appreciate that very much.
  I say this, before I yield the floor, to my friend from Arizona. We 
are now in the exact same posture we were in prior to the Senator from 
Arizona offering his amendment--his instructions, I should say.
  The PRESIDING OFFICER. The Senator from Arizona.
  Mr. McCAIN. Mr. President, before the Senator from Nevada leaves the 
floor, I wonder if he would respond to a question. Do we intend to vote 
on these pending amendments and the motion to recommit?
  Mr. REID. I say to my friend, we have been trying very hard. I have 
received instructions--it is probably the wrong word, but Senator 
Edwards has been here for 2 days, and he left here for a while this 
afternoon waiting to vote on his amendment. Senator Levin has been here 
for several days--2 days. We would like very badly to vote on the Levin 
second-degree amendment and the Edwards first-degree amendment.
  I have spoken to the manager of the bill for the minority. It appears 
very unlikely that we are going to be able to do that. I think that is 
a disappointment. I think some of these relevant--I shouldn't say 
some--I think all of these relevant amendments we can get up to prior 
to the cloture vote, we should try to dispose of.
  But I understand the rules of the Senate. I am disappointed to say, 
my friend from Texas also understands them, so even though I would like 
votes, it does not appear we are going to be able to have votes.
  Mr. McCAIN. Mr. President, I thank my friend from Nevada for his 
candor. I think it is pretty obvious. Everybody ought to understand 
what is happening as we go through these arcane procedures.
  The whole purpose of this--the whole purpose of what we just went 
through--is to not have a vote on anything that has to do with stock 
options. Let's be very clear what that is all about.
  Whatever side you are on on the issue, the fix is in, as we say all 
too often in the sport of boxing. The fix is in and we will now have 
cloture invoked and there will not be a vote on stock options.
  While my friend from Nevada is still here, I can tell him, I 
understand the rules of the Senate. I have been through other difficult 
issues on which I have been blocked from getting votes. I tell my 
friend from Nevada, and all of my colleagues, we will have a vote on 
stock options. We will have--sooner or later--a vote on stock options. 
And I only regret that we cannot do it now, get it over with, and get 
everybody on record.
  I also would make one additional comment. I hope I do not harm the 
feelings of any of my colleagues. This is an important issue. This is a 
very important issue, no matter where you stand on the issue of stock 
options and how they should be accounted. It is a very important issue.

[[Page 12663]]

  Why is it that this body would not take up the issue and have an up-
or-down vote on how stock options are treated? I would ask the manager 
of the bill, why would we not at least allow a vote up or down?
  I will read editorials. In fact, it may be sometime before I give up 
the floor because I have a lot to say about this issue. I will read 
from Mr. Greenspan's speech, a fairly widely respected individual, who 
says--well, I will read his speech in just a minute. He is in favor of 
treating stock options as an expense.
  So is Mr. Stiglitz and Mr. Buffett, and so many others, who are aware 
of this issue and its impact and the way it has been terribly abused by 
the same people we are trying to go after, the same people we are 
after.
  Mr. SARBANES. Will the Senator yield for a response to his question?
  Mr. McCAIN. According to a recent analysis from 1996 to 2000, Enron 
issued nearly $600 million in stock options, collecting tax deductions, 
which allowed the corporation to severely reduce their payment in 
taxes. According to reports that I think I have here, over $1 billion 
in stock options were issued to the senior executives of WorldCom.
  This is an important issue. I respect the views of my colleagues who 
disagree with my position and that of Mr. Greenspan, Mr. Stiglitz, and 
Mr. Buffett in various op-eds and editorials in newspapers throughout 
America. But why would we not vote on it? That is the question.
  Why would the distinguished Senator and friend from Nevada feel it 
incumbent upon himself to not allow a vote on stock options? I guess 
that question can be answered by observers.
  But here is the deal. I want to tell my friend from Nevada again, 
there will be a vote on how stock options are treated. I will repeat 
the amendment. I will repeat the amendment and will repeat it again 
several times before I finish discussing this issue. The issue, no 
matter how you feel, should be addressed. But through the invocation of 
cloture, everybody knows that the amendment and the motion to recommit 
will fall.
  I want to repeat. The amendment is fairly clear-cut, fairly simple. 
We deal with a lot of arcane issues in the discussion of this 
regulatory reform. But I repeat:

       Any corporation that grants a stock option to an officer or 
     employee to purchase a publicly traded security in the United 
     States shall record the granting of the option as an expense 
     in that corporation's income statement for the year in which 
     the option is granted.

  It is very simple. It does not say anything about the tax treatment 
of it. It does not say anything about a number of other rather 
controversial aspects. It just says it will ``record the granting of 
the option as an expense in that corporation's income statement. . . . 
''
  Mr. President, it is curious to me--actually, it is not curious to 
me--why a vote on this amendment is blocked. It is because every 
lobbyist in this town for the high-tech community has said: Don't do 
it. Don't do it. The one thing that the folks in Silicon Valley are 
scared of more than anything else is that they would lose their 
precious stock options--all of it, of course, in the interest of the 
employee, only the employees, the secretaries, the workers, those 
people who are down there toiling in the bowels of the corporation, 
trying to get some incentive to stay there and have their retirement.
  Meanwhile, Mr. Ellison, the CEO of Oracle, last year, cashes in $706 
million worth of stock options, $706 million worth of stock options in 
1 year. Are we going to vote on it? Yes, we will vote on it. Maybe not 
now, but unless there is cloture on every single bill that comes before 
this body, there will be a vote on stock options. I want to assure my 
friend from Nevada of that.
  I will just remind him, there were many who wanted to block a vote on 
campaign finance reform for a long period of time. Well, we got our 
vote on campaign finance reform, and we will get a vote on stock 
options.
  We have to end the double standard for stock options. Currently 
corporations can hide these multimillion-dollar compensation plans from 
their stockholders or other investors because these plans are not 
counted as an expense when calculating company earnings.
  I want to make it perfectly clear to all, I am not in favor of doing 
away with stock options. Stock options have a valuable place in 
American corporate life. What we are addressing here is how they are 
treated so investors can know exactly what the profit and loss of a 
corporation is.
  I repeat: I am not in favor of eliminating stock options. What I am 
trying to do is exactly in accordance with Mr. Greenspan's comments 
from which I will quote. Federal Reserve Chairman Alan Greenspan, New 
York University, March 26, 2002:

       Some changes, however, appear overdue. In principle, stock-
     option grants, properly constructed, can be highly effective 
     in aligning corporate officers' incentives with those of 
     shareholders. Regrettably, the current accounting for options 
     has created some perverse effects on the quality of corporate 
     disclosures that, arguably, is further complicating the 
     evaluation of earnings and hence diminishing the 
     effectiveness of published income statements in supporting 
     good corporate governance. The failure to include the value 
     of most stock-option grants as employee compensation and, 
     hence, to subtract them from pretax profits has increased 
     reported earnings and presumably stock prices. This would be 
     the case even if offsets for expired, unexercised options 
     were made. The Financial Accounting Standards Board proposed 
     to require expensing in the early to middle 1990s but 
     abandoned the proposal in the face of significant political 
     pressure.
       The Federal Reserve staff estimates that the substitution 
     of unexpensed option grants for cash compensation added about 
     2\1/2\ percentage points to reported annual growth in 
     earnings of our larger corporations between 1995 and 2000. 
     Many argue that this distortion to reported earnings growth 
     contributed to a misallocation of capital investment, 
     especially in high tech firms.

  Especially in high-tech firms? Where is most of the opposition coming 
from to the proper accounting of stock options? From the high-tech 
firms. I repeat:

       Many argue that this distortion to reported earnings growth 
     contributed to a misallocation of capital investment, 
     especially in high tech firms. If market participants indeed 
     have been misled, that, in itself, should be surprising, for 
     there is little mystery about the effect of stock-option 
     grants on earnings reported to shareholders. Accounting rules 
     require enough data on option grants be reported in footnotes 
     to corporate financial statements to enable analysts to 
     calculate reasonable estimates of their effect on earnings.
       Some have argued that Black-Scholes option pricing, the 
     prevailing means of estimating option expense, is 
     approximate. But so is a good deal of other earnings 
     estimates, as I indicated earlier. Moreover, every other 
     corporation does report an implicit estimate of option 
     expense on its income statement. That number for most, of 
     course, is zero. Are option grants truly without any value?

  I repeat Mr. Greenspan's question: Are option grants truly without 
any value?

       Critics of option expensing have also argued that expensing 
     will make raising capital more difficult. But expensing is 
     only a bookkeeping transaction. Nothing real is changed in 
     the actual operations or cash-flow of the corporation. If 
     investors are dissuaded by lower reported earnings as a 
     result of expensing, it means only that they were less 
     informed than they should have been. Capital employed on the 
     basis of misinformation is likely to be capital misused.
       Critics of expensing also argue that the availability of 
     options enables corporations to attract more-productive 
     employees. That may well be true. But option expensing in no 
     way precludes the issuance of options. To be sure, lower 
     reported earnings as a result of expensing could temper stock 
     price increases and thereby exacerbate the effects of share 
     dilution. That, presumably, would inhibit option issuance. 
     But again, that inhibition would be appropriate, because it 
     would reflect the correction of misinformation.

  I am not sure this debate is between me and the high-tech community. 
I think the debate is somewhat different. When you look at the 
preponderance of opinion, not only that stock options need to be 
expensed but the incredible effect that it has had on the whole 
distortion of the market, then it is an important issue.
  I ask again: How can we really address the entire issue we are facing 
without addressing the issue of stock options? That is like playing a 
baseball game without third base.
  Mr. Joseph Stiglitz, noble laureate professor of economics at 
Columbia University on Tuesday, March 12, 2002:


[[Page 12664]]

       Some contend that it is difficult to obtain an accurate 
     measure of the value of the options. But this much is clear: 
     zero, the implicit value assigned under current arrangements, 
     is clearly wrong. And leaving it to footnotes, to be sorted 
     out by investors, is not an adequate response, as the Enron 
     case has brought home so clearly. At the Council of Economic 
     Advisers, we devised a formula that represented a far more 
     accurate lower bound estimate of the value of the options 
     than zero. Moreover, many firms use formulae for their own 
     purposes, in valuing stock options (charging them against 
     particular divisions of the firm). However, Treasury, in its 
     opposition to the FASB concerns, was singularly uninterested 
     in these alternatives. I leave it to others to hypothesize 
     why that might have been the case.
       If we are to have a stock market in which investors are to 
     have confidence, if we are to have a stock market which 
     avoids the kind of massive misallocation of resources that 
     result when information provided does not accurately report 
     the true condition of firms, we must have accounting and 
     regulatory frameworks that address these issues. As 
     derivatives and other techniques of financial engineering 
     become more common, these problems too will become more 
     pervasive. While headlines and journalistic accounts describe 
     some of the inequities--those who have seen their pensions 
     disappear as corporate executives have stashed away millions 
     for themselves--what is also at stake is the long run well 
     being of our economy. The problems of Enron and Global 
     Crossing are part and parcel of the current downturn.

  I was under the impression this legislation was all about trust and 
transparency--regaining the trust of the American people and investors 
in the stock market and, frankly, the economic system that drives 
America and has been so successful, and transparent. Perhaps under this 
legislation, by beefing up many of the penalties and regulations and 
many other things--many of which I have recommended and strongly 
supported and will have in further amendments, but how in the world do 
we say that we have given transparency when, in the view of most 
experts, this is one of the greatest hindrances to transparency in the 
system as it exists today?
  I would now like to read the opinion of Mr. Warren Buffett, in the 
Washington Post, April 9, 2002, Stock Options and Common Sense:

       In 1994 seven slim accounting experts, all intelligent and 
     experienced, unanimously decided that stock options granted 
     to a company's employees were a corporate expense.

       Six fat CPAs, with similar credentials, unanimously 
     declared these grants were no such thing.
       Can it really be that girth, rather than intellect, 
     determines one's accounting principles? Yes indeed, in this 
     case. Obesity--of a monetary sort--almost certainly explained 
     the split vote.
       The seven proponents of expense recognition were the 
     members of the Financial Accounting Standards Board, who 
     earned $313,000 annually. Their six adversaries were the 
     managing partners of the (then) Big Six accounting firms, who 
     were raking in multiples of the pay received by their public-
     interest brethren.
       In this duel the Big Six were prodded by corporate CEOs, 
     who fought ferociously to bury the huge and growing cost of 
     options, in order to keep their reported earnings 
     artificially high. And in the pre-Enron world of client-
     influenced accounting, their auditors were only too happy to 
     lend their support.
       The members of Congress decided to adjudicate the fight--
     who, after all, could be better equipped to evaluate 
     accounting standards?--and then watched as corporate CEOs and 
     their auditors stormed the Capitol. These forces simply blew 
     away the opposition. By an 88-9 vote, U.S. senators made a 
     number of their largest campaign contributors ecstatic by 
     declaring option grants to be expense-free. Darwin could have 
     foreseen this result: It was survival of the fattest.
       The argument, it should be emphasized, was not about the 
     use of options. Companies could then, as now, compensate 
     employees in any manner they wished. They could use cash, 
     cars, trips to Hawaii or options as rewards--whatever they 
     felt would be most effective in motivating employees.
       But those other forms of compensation had to be recorded as 
     an expense, whereas options--which were, and still are, 
     awarded in wildly disproportionate amounts to the top dogs--
     simply weren't counted.
       The CEOs wanting to keep it that way put forth several 
     arguments. One was that options are hard to value. This is 
     nonsense: I've bought and sold options for 40 years and know 
     their pricing to be highly sophisticated. It's far more 
     problematic to calculate the useful life of machinery, a 
     difficulty that makes the annual depreciation charge merely a 
     guess. No one, however, argues that this imprecision does 
     away with a company's need to record depreciation expense. 
     Likewise, pension expense in corporate America is calculated 
     under widely varying assumptions, and CPAs regularly allow 
     whatever assumption management picks.
       Believe me, CEOs know what their option grants are worth. 
     That's why they fight for them.
       It's also argued that options should not lead to a 
     corporate expense being recorded because they do not involve 
     a cash outlay by the company. But neither do grants of 
     restricted stock cause cash to be disbursed--and yet the 
     value of such grants is routinely expensed.
       Furthermore, there is a hidden, but very real, cash cost to 
     a company when it issues options. If my company, Berkshire, 
     were to give me a 10-year option on 1,000 shares of A stock 
     at today's market price, it would be compensating me with an 
     asset that has a cash value of at least $20 million--an 
     amount the company could receive today if it sold a similar 
     option in the marketplace. Giving an employee something that 
     alternatively could be sold for hard cash has the same 
     consequences for a company as giving him cash. Incidentally, 
     the day an employee receives an option, he can engage in 
     various market maneuvers that will deliver him immediate 
     cash, even if the market price of his company's stock is 
     below the option's exercise price.
       Finally, those against expensing of options advance what I 
     would call the ``useful fairy-tale'' argument. They say that 
     because the country needs young, innovative companies, many 
     of which are large issuers of options, it would harm the 
     national interest to call option compensation as expense and 
     thereby penalize the ``earnings'' of these budding 
     enterprises.
       Why, then, require cash compensation to be recorded as an 
     expense given that it, too, penalizes earnings of young, 
     promising companies? Indeed, why not have these companies 
     issue options in place of cash for utility and rent 
     payments--and then pretend that these expenses, as well, 
     don't exist? Berkshire will be happy to received options in 
     lieu of cash for many of the goods and services that we sell 
     corporate America.
       At Berkshire we frequently buy companies that awarded 
     options to their employees--and then we do away with the 
     option program. When such a company is negotiating a sale to 
     us, its management rightly expects us to proffer a new 
     performance-based cash program to substitute for the option 
     compensation being lost. These managers--and we--have no 
     trouble calculating the cost to the company of the vanishing 
     program. And in making the substitution, of course, we take 
     on a substantial expense, even though the company that was 
     acquired had never recorded a cost for its option program.
       Companies tell their shareholders that options do more to 
     attract, retain and motivate employees than does cash. I 
     believe that's often true. These companies should keep 
     issuing options. But they also should account for this 
     expense just like any other.
       A number of senators, led by Carl Levin and John McCain, 
     are now revising the subject of properly accounting for 
     options. They believe that American businesses, large or 
     small, can stand honest reporting, and that after Enron-
     Andersen, no less will do.
       I think it is normally unwise for Congress to meddle with 
     accounting standards. In this case, though, Congress fathered 
     an improper standard--and I cheer its return to the crime 
     scene.
       This time Congress should listen to the slim accountants. 
     The logic behind their thinking is simple.
       One, if options aren't a form of compensation, what are 
     they?
       Two, if compensation isn't an expense, what is it?
       Three, and if expenses shouldn't go into the calculation of 
     earnings, where in the world should they go?

  Mr. President, I have to admit to you that I stood fifth from the 
bottom of my class at the Naval Academy. I don't pretend to understand 
a lot of the nuances and hidden workings of the stock market or many of 
the issues we are facing today because there were some very imaginative 
CEOs and corporate officers who have deprived investors of their money 
and hundreds of thousands of people of their jobs. But even I can 
understand Mr. Buffett's questions:

       If options aren't a form of compensation, what are they?
       If compensation isn't an expense, what is it?
       And if expenses should not go into the calculation of 
     earnings, where in the world should they go?

  Mr. President, that is why this amendment is simple:
  Any corporation that grants a stock option to an officer or employee 
to purchase a publicly traded security in the United States shall 
record the granting of the option as an expense in that corporation's 
income statement for the year in which the option is granted.
  That is not a complicated issue, and there will be discussion from 
time to time about what the tax implications are and all those things. 
I would be glad to have smarter people than I figure it out.

[[Page 12665]]

  I want to read a letter to the editor of the New York Times by Steven 
Barr, senior contributing editor of CFO Magazine, April 5, 2002. 
Reference: ``Leave Options Alone'' by John Doerr and Frederick W. 
Smith:

       What if, in the mid-1990s, accounting-rule makers had not 
     caved in to lobbyists and instead had forced companies to 
     recognize options as a compensation expense on financial 
     statements?
       There would still have been a technology boom, a bear 
     market, and a period of recession. Such cycles are immutable. 
     But there may have been less of the accounting gamesmanship 
     that is now the object of government investigation and 
     investor ire.
       Options should count as an expense to the corporation, and 
     the ability to exercise them should be based on stock 
     performance that exceeds an index of peers.

  Mr. President, one of the more egregious activities we have seen with 
some of these really unsavory people has been that while their company 
stock was declining, they exercised their stock options and sold them, 
making hundreds of millions of dollars.
  As I said earlier, in the case of Enron--I heard WorldCom was $1.8 
billion, or Enron, I am not sure which--at the same time in the case of 
Enron, the employees, in testimony before the Commerce Committee, said 
they were urged to hang on to the stock, hang on to the Enron stock. 
Meanwhile, the executives were selling the stock. I do not know of 
anything quite as egregious as that.
  As I mentioned, according to a recent analysis from 1996 to 2000, 
Enron issued nearly $600 million in stock options, collecting tax 
deductions which allowed the corporation to severely reduce their 
payment in taxes.
  I repeat, no other type of compensation gets treated as an expense 
for tax purposes without also being treated as an expense on the 
company books. This double standard is exactly the kind of inequitable 
corporate benefit that makes the American people irate and must be 
eliminated.
  If companies do not want to fully disclose on their books how much 
they are compensating their employees, then they should not be able to 
claim a tax benefit for it.
  The Washington Post, Thursday, April 18, 2000:

       Alan Greenspan, perhaps the nation's most revered 
     economist, thinks employee stock options should be counted, 
     like salaries, as a company expense. Warren Buffett, perhaps 
     the nation's foremost investor, has long argued the same 
     line. The Financial Accounting Standards Board, the expert 
     group that writes accounting rules, reached the same 
     conclusion eight years ago. The London-based International 
     Accounting Standards Board recently recommended the same 
     approach. In short, a rather unshort list of experts endorses 
     the common-sense idea that, whether you get paid in cash or 
     company cars or options, the expense should be recorded. Yet 
     today's Senate Finance Committee hearing on the issue is 
     likely to be filled with dissenting voices. There could 
     hardly be a better gauge of money's power in politics.

  The Washington Post said:

       There could hardly be a better gauge of money's power in 
     politics.
       Why does this matter? Because the current rules--which 
     allow companies to grant executives and other employees 
     millions of dollars in stock options without recording a dime 
     of expenses--make a mockery of corporate accounts. Companies 
     that grant stock options lavishly can be reporting large 
     profits when the truth is they are taking a large loss. In 
     2000, for example, Yahoo reported a profit of $71 million, 
     but the real number after adjusting for the cost of employee 
     stock options was a loss of $1.3 billion. Cisco reported $4.6 
     billion in profit; the real number was a $2.7 billion loss.

  Mr. President, those numbers are staggering. Let me repeat:

       Yahoo reported a profit of $71 million, but the real number 
     after adjusting for the cost of employee stock options was a 
     loss of $1.3 billion. Cisco reported $4.6 billion in profits; 
     the real number was a $2.7 billion loss. By reporting make-
     believe profits, companies may have conned investors into 
     bidding up their stock prices. This is one cause of the 
     Internet bubble, whose bursting helped precipitate last 
     year's economic slowdown.
       It is not surprising, therefore, that the expert consensus 
     favors treating options as a corporate expense, which would 
     mean that reported earnings might actually reflect reality. 
     But the dissenters are intimidated by neither experts nor 
     logic. They claim that the value of options is uncertain, so 
     they have no idea what number to put into the accounts. But 
     the price of an option can actually be calculated quite 
     precisely, and managers have no difficulty doing the math for 
     purposes of tax reporting. The dissenters also claim options 
     are crucial to the health of young companies. But nobody 
     wants to ban this form of compensation; the goal is merely to 
     have it counted as an expense. Finally, dissenters say that 
     options need not be so counted because granting them involves 
     no cash outlay. But giving employees something that has cash 
     value amounts to giving them cash.
       The dissenters include weighty figures in both parties. 
     Sen. Joe Lieberman (D-Connecticut) is the chief opponent of 
     options sanity in the Senate, and last week President Bush 
     himself declared that Mr. Greenspan is wrong on this issue. 
     What might be behind this? Many of the corporate executives 
     who give generously to politicians are themselves the 
     beneficiaries of options--often to the tune of millions of 
     dollars. High-tech companies, an important source of campaign 
     cash, are fighting options reform with all they've got. But 
     if these lobbyists are allowed to win the argument, they will 
     undermine a key principle of the financial system. Accounting 
     rules are meant to ensure investors get good information. 
     Without good information, they cannot know which companies 
     will best use capital, and the whole economy suffers in the 
     long run.

  Mr. President, again, transparency and trust. Transparency and trust. 
Without transparency, we are not going to have trust.
  A Washington Post, April 21, 2002, editorial; byline David S. Broder. 
Mr. Broder writes:

       Thanks to the Enron scandal, the public is getting to know 
     about a scheme that corporate executives have used for years, 
     but that most of us were not smart enough to understand.

  I include myself in that group that Mr. Broder describes.

       You can call it the have-your-cake-and-eat-it-too ploy.
       It involves stock options, the rights to buy company stock 
     some time in the future at the (presumably bargain) price at 
     which it is selling currently. Stock options awarded to 
     senior management by their (usually hand-picked) boards of 
     directors mushroomed from $50 billion in 1997 to $162 billion 
     just three years later. As Business Week pointed out in its 
     April 15 issue, boards have been ``lavishing options on 
     executives'' so profligately ``that they now account for a 
     staggering 15 percent of all shares outstanding.''
       This is obviously a good deal for the executives. One of 
     them, Oracle Corporation's Lawrence Ellison, exercised 
     options worth $706 million in one week. A nice mouthful of 
     cake, by any standard.
       But here's how his company--and all others like it--can 
     have its cake, too. The value of the stock options granted 
     Ellison is a cost to Oracle for tax purposes, but it doesn't 
     come off the bottom line when Oracle is reporting its 
     earnings for the year.
       This would seem to defy common sense--and it does. Almost a 
     decade ago, as the options craze was getting under way, the 
     Federal Accounting Standards Board--the watchdog group--said 
     that when options are granted, they should be treated as an 
     expense in company reports as well as in tax returns. The 
     corporate CEOs and the accounting firms they hire went nuts, 
     and the next thing you knew, the Senate in 1994 was passing a 
     resolution . . . telling the watchdog: forget it.

  Mr. GRAMM. Mr. President, will the Senator yield? I do not want to 
break in, but a key point I would like to make--and I thought the 
Senator might want a breather----
  Mr. McCAIN. I would appreciate it if the Senator would phrase it in 
the form of a question, as he is very adept at doing. I will be glad to 
yield for his question.
  Mr. GRAMM. I thought it was very important to make this point. What 
happened almost a decade ago when we saw this blossoming of stock 
options? The answer is, in 1993, we passed a law that said that if you 
paid a corporate executive more than $1 million a year in a plain old 
paycheck, you could not deduct it as an expense in running the 
business.
  At that time, the largest companies in America--and I am trying to 
make a point that is in no way contradicting anything the Senator says, 
though I do not agree with a word of it, but what we said was you could 
not pay a corporate executive, through their paycheck, more than a 
million a year, even though the 50 largest companies in America were 
paying their corporate executives $3 million a year, on average.
  When we passed that law, what happened? What happened is that 
corporate America, being clever--you do not make $3 million a year if 
you are not pretty smart--figured out ways around the law. Some of the 
ways

[[Page 12666]]

around the law were getting loans from the company at low interest 
rates and getting stock options, which are now criticized as giving 
corporate leadership a very short-term horizon.
  The only point I want to make is that everybody has forgotten that in 
1993 Congress, in a demagogic amendment aimed at ``rich people,'' 
started this whole process.
  It struck me when you were saying this group of accountants got 
together in 1994, what they were doing was responding to a bad law, and 
the bad law helped trigger this. One of the things--and God knows it is 
not going to happen in the environment we are in now--but one of the 
things Congress ought to do is to repeal that law so General Electric 
could pay its CEO with a paycheck, like everybody else, instead of 
trying to find all these ways around the law. I just wanted to get in 
that advertisement.
  Mr. McCAIN. I would like to respond to the Senator's question by 
saying that I think the Senator makes a very valid point. I think this 
is probably none of Congress's business as to what salaries should be 
bestowed on a corporate executive, with truly independent boards of 
directors and with a voice of the stockholders.
  Let me say to the Senator before he leaves, I am not talking about 
doing away with stock options. I am talking about how they are treated. 
They may have gotten around that, but it is how they are treated. As we 
get into the debate further, I would be glad to hear him respond to Mr. 
Buffett's three questions.
  Mr. GRAMM. I would be happy to respond to Mr. Buffett.
  Mr. McCAIN. I ask unanimous consent for Senator Gramm to respond 
without me losing my right to the floor.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. GRAMM. I would be happy to respond to him. First, I would have 
been happy to have voted on the Senator's amendment.
  Mr. McCAIN. I thank the Senator.
  Mr. GRAMM. Second, this is something I am happy to debate. The only 
point I wanted to make is that while we are all damning corporate 
America, our law, which said if you paid somebody more than $1 million 
a year it could not count as a business expense, really helped trigger 
all of this. One of the things we ought to be doing in the name of 
reform is to repeal that law.
  When I tried today in Finance--the Senator said this would not be 
brought up in Finance, but today in the Finance Committee I thought we 
ought to have one Good Government amendment, and it failed, like logic 
and truth, for the lack of a second. That is my only point.
  Mr. McCAIN. I thank the Senator. I especially thank him for agreeing 
because the Senator from Texas--we have had our agreements, mostly 
agreements and occasional disagreements--has never, in all the years we 
have known each other, which goes back to our days in the other body, 
wanted to deprive anybody of a vote on an issue, no matter where he 
stood on that issue.
  I regret deeply that it is clear, as I said earlier, the fix is in; 
there is not going to be a vote on this issue before cloture is 
invoked, but I want to again assure my colleagues there will be a vote. 
There will be a vote on this issue, just like when I was blocked for a 
long time on the line-item veto, I was blocked for a long time on 
campaign finance reform, I have been blocked on a lot of other issues 
but we always got a vote because that is my right as a Senator to get a 
vote.
  It is not my right as a Senator to determine the outcome, but it is 
my right as a Senator to get a vote on an issue, particularly when, in 
the view of any observer, stock options are a key issue in this entire 
debate.
  Again, I respect the views of the Senator from Texas who disagrees 
with my position. I think it is a respectful disagreement that we have. 
I look forward to debating him. I do so at some disadvantage because he 
is a trained economist and former professor of economics.
  I can also see why he would want to do away with that million-dollar 
cap because I am sure the Senator from Texas will make more than a 
million dollars when he leaves this body, and justifiably so given his 
talent, expertise, and experience. I wish him well. I wish him every 
success in doing so.
  At least the Senator from Texas is in agreement that we should have a 
vote on this issue.
  The question is going to be raised by me and others, time after time: 
Why did we not have a vote on this issue? If we are truly committed to 
reforming the system, restoring trust and transparency to the system, 
why do we not have a vote on it? That is a very legitimate question. 
There will be a vote.
  I will return to Mr. Broder's editorial. He talks about that:

       The Federal Accounting Standards Board said that when 
     options are granted, they should be treated as an expense.

  And the Senate passed a resolution telling the watchdogs, forget it.

       And that has had a truly wondrous effect. On average, the 
     Federal Reserve Board estimates, the ruling has boosted the 
     reported earnings growth of corporations by 3 percentage 
     points from a realistic 6 percent to an inflated 9 percent. 
     Enron, it is estimated, used that same ruling in 2000 to 
     inflate its earnings by more than 10 percent. Overstated 
     earnings, of course, boost stock prices, thus benefiting the 
     executives who have been given stock options.

  By the way, I might add, not only stock options but it increases 
compensation because the stock value is inflated.

       But that is not the end of it. Because these stock options 
     are deductible for tax purposes, and their cost can be 
     carried forward for years, they also enable companies that 
     hand out a lot of options to stiff-arm the IRS. In Enron's 
     case, they allowed the company to cut its tax bill by $625 
     million between 1996 and 2000.

  Especially on my side of the aisle, there is this continuous 
drumbeat: Let us make the tax cuts permanent; let us do away with the 
death taxes; let us make the tax cuts permanent; let us help the 
American taxpayer. Should we not try to make a corporation pay its 
legitimate taxes? In Enron's case, because of the use of stock options, 
they allowed the company to cut its tax bill by $625 million over a 
period of 4 years. Amazing.

       Thanks to Enron, another push is under way to stop the 
     double-dealing. But it faces tough sledding. The Coalition to 
     Preserve and Protect Stock Options, which includes 32 
     influential trade associations, is flooding Congress with 
     `talking points' claiming that `stock options are a vital 
     tool in the battle for economic growth and job creation . . . 
     (and) to attract, retain and motivate talent.'
       The coalition is trying to kill a bill that would not end 
     stock options but simply specify that companies could not use 
     them to reduce their taxes unless they also report them as an 
     expense in their financial statements.
       The bill has bipartisan sponsorship: Democratic Senators 
     Carl Levin of Michigan, Mark Dayton of Minnesota and Dick 
     Durbin of Illinois; Republican Senators John McCain of 
     Arizona and Peter Fitzgerald of Illinois. Fitzgerald is 
     particularly interesting. He is from a wealthy banking family 
     and is a staunch conservative, but Enron has made him almost 
     a raging populist.
       It has had no such effect on President Bush. Concerned as 
     always for the deserving rich, he told the Wall Street 
     Journal he opposes this kind of legislation. . . . But 
     Federal Reserve Board Chairman Alan Greenspan testified 
     recently in support of expensing stock options. The only 
     issue, he said, is whether under current rules, ``is income 
     being properly recorded? And I would submit to you that the 
     answer is no.''

  That is what Alan Greenspan says: Is income being properly reported? 
And I would submit to you that the answer is no.

       And superinvestor Warren Buffett, who hands out bonuses but 
     not stock options to his employees--

  By the way, I have not heard of any bad morale or failure to attract 
employees out at Berkshire Hathaway out in Omaha, a lovely place to 
live--for years has been asking three questions: ``If options aren't a 
form of compensation, what are they? If compensation isn't an expense, 
what is it? And if expenses shouldn't go into the calculation of 
earnings, where in the world should they go?"
  That is what Mr. Broder has to say.
  Paul Krugman, on May 17, 2002:

       On Tuesday Standard & Poor's, the private bond rating 
     agency, announced that it would do something unprecedented: 
     It will try to impose accounting standards substantially 
     stricter than those required by the federal

[[Page 12667]]

     government. Instead of taking corporate reports at face 
     value, S.&P. will correct the numbers to eliminate what it 
     considers the inappropriate treatment of ``one-time'' 
     expenses, pension fund earnings and, above all, stock 
     options--a major part of executive compensation that, 
     according to federal standards, somehow isn't a business 
     expense. S.&P.'s estimate of ``core earnings'' for the 500 
     largest companies slashes reported profits by an astonishing 
     25 percent.
       Why does S.&P.--along with Warren Buffett, Alan Greenspan 
     and just about every serious financial economist--think that 
     current accounting standards require a drastic overhaul? And 
     if such an overhaul is needed, why doesn't the government do 
     it? Why does S.&P. think that it must do the job itself?
       To see the absurdity of the current rules, consider stock 
     options. An executive is given the right to purchase shares 
     of the company's stock, at a fixed price, some time in the 
     future. If the stock rises, he buys at bargain prices. If the 
     stock falls, he doesn't exercise the option. At worst, he 
     loses nothing; at best, he makes a lot of money. Nice work if 
     you can get it.
       Yet according to federal accounting standards, such deals 
     don't cost employers anything, as long as the guaranteed 
     price isn't below the market price on the day the option is 
     granted. Of course, this ignores the ``heads I win, tails you 
     lose'' aspect; executives get a share of investors' gains if 
     things go well, but don't share the losses if things go 
     badly. In fact, companies literally apply a double standard: 
     they deduct the cost of options from taxable income, even 
     while denying that they cost anything in their profit 
     statements.
       So how could it possibly make sense not to count options as 
     a cost? Defenders of the current system argue that stock 
     options align the interests of executives with those of 
     investors. Even if that were true, however, it wouldn't 
     justify ignoring the cost--no more than it would make sense 
     to deny that wages, which provide incentives to workers, are 
     a business expense. Furthermore, it's now clear that stock 
     options, far from reliably inducing executives to serve 
     shareholders, often create perverse incentives. At worst, 
     they handsomely reward managers who run their companies as 
     pump-and-dump schemes, executives at Enron and many other 
     companies got rich thanks to stock prices that soared before 
     they collapsed.

  I hope the opponents of this provision, including my friend from 
Texas, will put it into the real-world context. It is nice to talk 
about economic theory. I know of no one better at that than the Senator 
from Texas. What happened at Enron? What happened at Enron when it 
cashed in $600 million worth of stock options and the stock tanks and 
there are 10,000 or so employees out of work? And there was a period of 
time where the employees were not allowed, because they were undergoing 
some managerial change of their portfolio, to cash in their stock 
options. But the executives were not prohibited from doing so. They 
kept on doing it. They kept on doing it.
  So I hope we can have this debate not in the world of theories of 
economics. I am not a CPA, nor am I a professor of economics, nor am I 
as smart as most of the Members of this body, but I know what happened 
to these people. I know of the thousands left penniless. I know of the 
thousands whose retirement savings were wiped out.
  Meanwhile, the very people this whole stock option deal was supposed 
to be protecting were not protected, and yet somehow the executives all 
made out like bandits.
  Perhaps my colleagues, as they oppose this legislation, can talk 
about the real-world examples--not the theoretical world of economics, 
which I will immediately grant them a distinct advantage on. I would 
like for them to have the opportunity to meet some of these employees, 
as I have, who were told by the executives of the corporation the stock 
was in great shape, while they were dumping the stock. I would like for 
them to talk to the employees or the retirees who invested enormous 
amounts of their money and their life savings, in some cases in a 
stock, and were told by their employers and executives that everything 
was great, things could not be better, estimates of double the stock 
value over the next few years.
  That is the framework of this debate, not the framework of whether 
certain economic theories are valid or not.

       Options are only part of an accounting system in deep 
     trouble. As David Blitzer, S.&P.'s chief investment 
     strategist, recently wrote, ``Financial markets are as much a 
     social contract as is democratic government.'' Yet there is a 
     growing sense that this contract is being broken, undermining 
     the trust that is so essential to the operation of financial 
     markets. Clearly, major reforms are needed. And bear in mind 
     that this isn't a left-right issue; it's about protecting 
     investors--middle-class and wealthy alike from exploitation 
     by self-dealing insiders. So who could possibly be opposed? 
     You'd be surprise.
       Harvey Pitt, the accounting industry lawyer who heads the 
     Securities and Exchange Commission, has clearly been dragging 
     his feet on reform.

  Bear in mind, this is not a left-right issue. It is about protecting 
investors, middle class and wealthy alike, from exploitation by self-
dealing insiders. So who could possibly be opposed? You would be 
surprised. Harvey Pitt, the accounting industry lawyer who heads the 
Securities and Exchange Commission, has clearly been dragging his feet 
on reform. Mr. Blitzer of S&P points out that in previous periods of 
corporate scandal, legislatures and prosecutors took the lead with 
public concerns over the market.
  It is a sad commentary on our leadership that this time he believes 
he must do the job himself--referring to Standard and Poors--and 
announced that it would impose accounting standards substantially 
stricter than those required by the Federal Government.
  Boston Globe, June 10, 2002:

       Stock options have become the currency of choice to reward 
     high ranking executives in part because under current rules 
     the company need not count them as an expense with much of 
     their compensation. Depending on the difference between the 
     option price of the stock and the market price, it is no 
     wonder that some executives have used trickery to show 
     quarterly growth and inflate the worth of their companies. 
     Excessive reliance on stock options is a license for some 
     executives to drive their companies along treacherous roads.

  I have a number of other views, but I think I have made my point. The 
point is this: Why should we, in the name of restoring confidence, 
trust, and transparency to the American people on an issue of this 
import, not have a vote? That is the first question.
  The second question that needs to be answered is Mr. Buffett's 
question, not mine; not mine because I don't claim to have a corner on 
expertise and knowledge on this issue. But I believe that Mr. Buffett 
does. I believe that Mr. Greenspan does. I believe that literally every 
outside observer and economist does. If options aren't a form of 
compensation, what are they? If compensation isn't an expense, what is 
it? And if expenses shouldn't go into the calculation of earnings, 
where in the world should they go?
  I know what I will hear in response. In fact, most of those have 
already been responded to so I don't intend to engage in extended 
debate about it. We all know where the majority stock options have 
gone--to the executives, not to the workers. Mr. Buffett, and many 
others, have been able to attract good and talented employees and 
retain them without having to resort to stock options.
  But the real question is not whether stock options are good or bad 
because the intent of the amendment is not to do away with stock 
options. The intent of the amendment is simply to give an accurate 
depiction of what stock options are. And that is clearly compensation. 
Depreciation is listed as an expense. In the view of many, that is much 
harder to calculate than a stock option.
  Another argument I anticipate will be, how do you treat it taxwise? 
Frankly, I would be glad to treat it taxwise as to how the smartest 
people at the SEC would say it should be treated. I would leave that up 
to the two experts. But to not treat it as an expense, as Mr. Buffett 
says, of course is just Orwellian. It is Orwellian.
  Mr. LEVIN. Will the Senator yield for a question?
  Mr. McCAIN. I am sorry my colleague will not allow a vote. I will be 
glad to respond to my colleague from Michigan.
  Mr. LEVIN. I appreciate the Senator's yielding for a question. I 
wonder if the Senator would agree that the following individuals and 
organizations support the change in accounting for stock options, which 
the Senator has outlined: Alan Greenspan, Paul Volcker, Arthur Levitt, 
Warren Buffett, as the Senator mentioned, TIAA-CREF, Paul O'Neill, 
Standard &

[[Page 12668]]

Poor's, Council for Institutional Investors, Consumer Federation, 
Consumers Union, AFL/CIO--among others? Would the Senator agree that 
those organizations support a change in the accounting for stock 
options?
  Mr. McCAIN. I would say to my friend, yes. I think there is another 
important organization, the Federal Accounting Standards Board--I 
believe it is--the international.
  Mr. LEVIN. There are some additional organizations.
  Mr. McCAIN. Yes.
  Mr. LEVIN. I wanted to give the Financial Accounting Standards Board.
  Mr. McCAIN. Yes.
  Mr. LEVIN. Does the Senator remember, as I do very vividly because I 
appeared before the Federal Financial Standards Board in the middle 
1990s to support their independence, when they decided that you had to 
expense options, that it was compensation, that it had value like all 
other forms of compensation?
  Does the Senator remember what the Financial Accounting Standards 
Board decided when they left it optional, as to whether or not to 
either expense options or to show them as a footnote--just to disclose 
them without actually expensing them? Because if the Senator does not, 
I would like to read what the Financial Accounting Standards Board said 
about the pressure they were put under, the horrendous, horrific 
pressure they were put under, and how they could have, indeed, been put 
out of existence if they went forward with what they believed was 
right, which is what Warren Buffett says.
  If the Senator does not remember those words, I wonder if he might 
yield to me to read them, without losing his right to the floor.
  Mr. McCAIN. Yes.
  Mr. LEVIN. This is what the Financial Accounting Standards Board 
said. They had proposed that stock options be expensed. That was their 
proposal. This is the board of accountants.

       The debate on accounting for stock-based compensation, 
     unfortunately, became so divisive that it threatened the 
     Board's future working relationship with some of its 
     constituents. Eventually the nature of the debate threatened 
     the future of accounting standards setting in the private 
     sector. The Board continues to believe that financial 
     statements would be more relevant and representationally 
     faithful if the estimated fair value of employee stock 
     options was included in determining an entity's net income, 
     just as all other forms of compensation are included. To do 
     so would be consistent with accounting for the cost of all 
     other goods and services received as consideration for equity 
     instruments. However, in December 1994, the Board decided 
     that the extent of improvement in financial reporting that 
     was envisioned when this project was added to its technical 
     agenda and when the Exposure Draft was issued was not 
     attainable because the deliberate, logical consideration of 
     issues that usually leads to improvement in financial 
     reporting was no longer present.

  That is the climate that was created for this Board in 1994. And when 
the accountants, the Board, the Financial Accounting Standards Board of 
this country, said they have value, these options, they are 
compensation, they should be accounted for in the financial statement, 
they were hit upon so hard that even when they said we are throwing in 
the towel because it could destroy us, even when they said we will 
allow it to be shown as a footnote, not required to be taken as an 
expense--even then, they said this is not the right way to proceed.
  We are now creating--I should ask a question, I think, given the 
request I made.
  Does the Senator not agree that ideally what we should be allowing 
here is an independent Financial Accounting Standards Board to 
determine the rules?
  Mr. McCAIN. I could not agree more with the Senator from Michigan. I 
think he knows how strongly I believe that options should be expensed 
because they are compensation and they have value and there is no other 
form of compensation that is not expensed. It is a stealthy form of 
compensation and has driven the excesses of the 1990s. These options 
have driven the deceptions that make these financial statements for 
corporations look better than those corporations' situations really are 
because they have created so much value in those options that then 
executives--mainly executives--were able to cash in on these options 
and make tens of millions of dollars based on financial accounting 
which was deceptive.
  Would the Senator agree with that and agree that ideally these 
standards should be set by an independent financial accounting 
standards board?
  Mr. McCAIN. I say to my friend from Michigan, first of all, it was 
the Senator from Michigan who first initiated discussion with me on 
this issue several years ago. We were treated as virtual pariahs for 
having the audacity to challenge what was then, as we now know, a high-
tech bubble in the way stock options were being disbursed.
  By the way, let's do away with the myth that these stock options are 
for the average worker. The fact is the overwhelming majority of the 
stock options have gone to the chief executives. That is just a matter 
of record and fact.
  But I think the Senator is correct. I think the Senator has also an 
additional, I think important, corollary to this amendment, that we 
could have certain direction from FASB, as it is known. But I think it 
is also a clear-cut, black-and-white issue as to how stock options 
should be treated.
  I would be glad to agree with the Senator from Michigan that some of 
these aspects of it can be better handled by the experts.
  Finally, the Senator from Nevada and the Senator from Maryland are in 
the Chamber. I hope they will reconsider and allow a vote postcloture 
at some time on this important amendment. I do not see how you can 
possibly go to the American people and say: Look, we have discussed and 
debated all these issues, but we wouldn't allow a vote on the issue of 
stock options.
  There is no observer who does not believe that the issue of stock 
options is one of significant importance in this entire scenario of 
returning trust and transparency so we can regain the confidence of the 
American investor.
  Again, I assure my friends, we will have a vote on this issue at some 
time, whether it be now on this bill or whether it be the next bill or 
the bill after that. So I hope my colleague from Nevada and my 
colleague from Maryland will allow an up-or-down vote on this 
amendment.
  Mr. LEVIN. Will the Senator yield for one last question?
  Mr. McCAIN. I am glad to.
  Mr. LEVIN. Assuming cloture is invoked, there is still, does my 
friend agree, the possibility at least of voting on germane amendments 
relating to this subject? So the amendment which is germane postcloture 
does not state what the Senator from Arizona and I believe, which is 
that unless we deal with this, we are missing a huge problem, we are 
not addressing a huge problem that has driven the situation that we now 
face in terms of deceptive financial statements. But, in any event, 
will the Senator from Arizona agree that at least postcloture, if an 
amendment is germane which says it is determined that FASB or an 
independent accounting board reviewed this matter, that at least there 
could be a vote at that time on something which carries out the spirit 
of what the Senator from Arizona and I have been fighting for, which is 
that an independent accounting board be allowed to proceed without 
threatening its very existence to determine what is the proper 
accounting for stock options?
  Mr. McCAIN. I apologize to my colleagues for taking as much time as I 
have on this subject. As I said, I believe it is one of transcending 
importance in the minds of average American citizens. Yes. I would 
support the Senator's amendment postcloture. But I would also have to 
add that it doesn't address the issue completely. Here is why.
  The Senator from Michigan just talked about how these boards have 
been intimidated and bullied into backing off of a position they had 
before. I can't have the confidence that any board that is subject to 
the kind of intimidation and bullying that has happened in the past 
would properly carry out what is a pretty simple operation.
  I understand the Senator's point. I will support his amendment

[[Page 12669]]

postcloture. I think it is an important one. But there has to be a 
clear signal sent. That clear signal is this: As Mr. Buffett says, if 
it isn't compensation, what is it? If options are not a form of 
compensation, what are they? If compensation is not an expense, what is 
it? If expenses shouldn't go into the calculation of earnings, where in 
the world should they go? This answers Mr. Buffett's question. We know 
where it should go--as an expense.
  Again, I am not trying to do away with stock options but how it is 
treated so the American people can restore their confidence.
  Mr. LEVIN. Will the Senator yield for a couple of questions which his 
comments have raised?
  Mr. SARBANES. Will the Senator yield? The Senator directed a 
question.
  The PRESIDING OFFICER. The Senator from Arizona has the floor.
  Mr. McCAIN. I would be glad to yield to the Senator from Maryland for 
a comment without yielding my right to the floor.
  Mr. SARBANES. I wanted to respond at this point because the Senator 
just directed a question. We are not trying to prevent a vote on your 
amendment. We have been trying repeatedly to get votes on these 
amendments. Senator Edwards has had an amendment pending in here for 
now more than a day. We can't get a vote on it. Senator Levin has had 
an amendment pending. We have a list of people who want to offer 
amendments. We have been trying to work through these amendments. Now 
the Senator has come with his amendment. There are a lot of amendments 
around here on which people are trying to get votes. I think they are 
entitled to those votes.
  I know you have a problem. But I take some umbrage as sort of having 
it placed on my shoulders. In fact, I think that is totally inaccurate, 
and I just want to make sure I put that on the record.
  Mr. McCAIN. Thank you.
  I ask unanimous consent that the McCain amendment be allowed 
postcloture.
  Mr. REID. Objection.
  Mr. McCAIN. So you see.
  Mr. SARBANES. No. That doesn't approve anything. The Senator wants 
his amendment----
  Mr. McCAIN. I have the floor.
  Mr. SARBANES. And denies everybody else.
  The PRESIDING OFFICER. The Senator from Arizona has the floor.
  Mr. McCAIN. I thank the Chair.
  I think I have made my point.
  Mr. SARBANES. No. You haven't made your point.
  The PRESIDING OFFICER. The Senator from Arizona has the floor.
  Mr. McCAIN. I would like to respond to the question of the Senator 
from Michigan, if he would like.
  Mr. SARBANES. Will the Senator yield?
  Mr. McCAIN. I would be glad to yield, if the Senator from Michigan 
would be glad to yield.
  Mr. SARBANES. It is a very clever trick, but you haven't made your 
point. There are other Members here with amendments that are very 
important to them which they are trying to have considered. We have 
been trying to process those amendments in an orderly way. The Senator 
arrives on the scene and apparently thinks, well, there should be a 
special set of rules for the Senator to do his amendment. So he just 
now tried to jump ahead of other people, and a reasonable objection was 
made. And I think it ought to have been made. The Senator from Arizona 
comes in, and, all of a sudden, there is going to be a special set of 
rules to deal with his amendment. The Senator doesn't even recognize 
what is in the bill, which does try to address to some extent this 
problem with independent funding and FASB that this legislation 
provides for--which everyone agrees is long overdue and is an important 
contribution.
  But we have these people lined up here who want to do amendments. We 
have the Edwards amendment, we have the Levin amendment, and we have a 
whole list of people with amendments. We have been trying to process 
those amendments, and we have not been able to do it.
  As one who is down here trying to work overtime to get these 
amendments processed, I want to very strongly register that point.
  Mr. REID addressed the Chair.
  The PRESIDING OFFICER. The Senator from Arizona has the floor.
  Mr. McCAIN. I still have the floor. I thank the Senator from 
Maryland. I appreciate his hard work managing the legislation. I have 
managed bills in my time. I know that sometimes it gets very 
frustrating and difficult.
  I have some suggestions. One is that the Senator oppose cloture so 
that we can address all of these issues and prevail on his colleagues 
to do so so that we can have relevant amendments considered.
  I also think--it is not just in this Senator's view but in the view 
of almost everyone, in the view of Alan Greenspan, in the view of 
Warren Buffett, in the view of the Washington Post and the New York 
Times, and everybody--that this is a serious and vital issue.
  So my suggestion is that we not have a cloture vote, and that we go 
ahead and take up the amendments in an orderly fashion. The Senator 
from Nevada, obviously, will not allow my amendment to be considered 
postcloture.
  The Senator from Michigan has a question. Would the Senator from 
Nevada, the distinguished whip, like to wait until the Senator from 
Michigan is finished, or would you like to go ahead?
  Mr. LEVIN. My question was actually touched upon by the Senator from 
Arizona relative to the independence of the Financial Accounting 
Standards Board, and as to whether or not the Senator was aware--at 
least now in this bill--that we have the source of financing for that 
board which hopefully will not only allow it to reach its own 
conclusion, as it did once before, that options have value and should 
be expensed but also that it carry through with it without threatening 
their own survival.
  I think that is an important part of this. But at least that gives us 
hope this time that when the Financial Accounting Standards Board 
reviews this matter--if it does--it will reach a conclusion not only 
that it believes it, but it can then implement it through an accounting 
standard.
  That was my question about that funding source in this bill.
  Mr. McCAIN. I would like to respond. I understand that. I did know it 
is part of the bill. I also know what has happened in the past. The 
fact is that we have not made the changes which are necessary because 
of enormous pressures that have been brought to bear.
  The Senate should be on record on this issue. This is not a minor 
issue. This is not a small item. The Senate should be on record on this 
issue, and it apparently will not be at this time.
  I thank my colleagues, though I do think that it is an important step 
forward. But I also believe this is something that we could address in 
a straightforward fashion.
  Mr. LEVIN. Mr. President, will my colleague yield for 60 seconds so I 
can make a statement on this subject prior to a unanimous consent, or 
an address on a different part of my amendment?
  Mr. McCAIN. Mr. President, I yield the floor.
  The PRESIDING OFFICER. The Senator from Michigan.
  Mr. LEVIN. Mr. President, I thank Senator McCain for his steadfast 
support of the issue which is critically important.
  Unless we address the way stock options are dealt with in this 
country--the fact that it is now a free ride, and stealth compensation 
which has caused, in large measure, the problems because accepted 
accounting practices, as we have seen, are significantly driven by the 
option accounting which allows options to be left off the financial 
statements as an expense, and, therefore, cashed in when those books of 
the company show great value, which is not reality, but nonetheless 
drives up stock prices--I want to say that I agree with the Senator 
from Arizona. Unless we address this issue, we are leaving a huge gap 
in our reform efforts.
  The PRESIDING OFFICER. The Senator from Nevada.
  Mr. REID. Mr. President, the Senator from Maryland has tried now for 
several days to figure out a way to have

[[Page 12670]]

amendments. We have tried to negotiate. We have had those which have 
been arbitrated. We have had some cajoling. We have had a little bit of 
begging. We have gotten nowhere. But the rules of the Senate are the 
rules of the Senate. Therefore, it would be contrary to my beliefs to 
have a special set of rules for the Senator from Arizona, as well 
intentioned as his amendment may be.
  I have had phone calls. I have had personal visits from at least 15 
Democratic Senators saying they have amendments that they believe in 
very strongly. They and their staffs have worked on some of these 
amendments for months. They are not going to be able to offer those 
amendments.
  Mr. GRAMM. There are 58 Democratic amendments.
  Mr. REID. So it would be totally unfair to have a nongermane 
amendment that would be available for us postcloture. That is why I 
object. If I had to do it again, I would do the same thing.
  But let me say this. People can complain--and I have no problem with 
their doing so--that we have not been able to go through the relevant 
amendments, but this legislation that has been brought to us by the 
Banking Committee and has now been improved upon by the Judiciary 
Committee's amendment of Senator Leahy is a very fine piece of 
legislation.
  Let's not lose track of that. This is a very fine vehicle. Maybe we 
could do a better job--put some rearview mirrors on both sides of it, 
maybe improve the upholstery a little bit, but the legislation we have 
that will be voted on and approved by the Senate is very good.
  The Public Company Accounting Reform and Investor Protection Agent 
would establish the Public Company Accounting Oversight Board to set 
standards for auditing public companies.
  It would inspect accounting firms. It would conduct investigations 
into possible violations of its rules and impose a full range of 
sanctions. It would restrict the nonaudit services a public accounting 
firm may provide to its clients that are public in nature. It would 
require a public accounting firm to rotate its lead partner and review 
partner on audits after 5 consecutive years of auditing a public 
company.
  It would require chief executive officers and chief financial 
officers to certify the accuracy of financial statements and 
disclosures. It would require CEOs and CFOs to relinquish bonuses and 
other incentive-based compensation and profit on stock sales in the 
event of accounting restatements resulting from fraudulent 
noncompliance with Securities and Exchange Commission financial 
reporting requirements.
  It would prohibit directors and executive officers from trading 
company stock during blackout periods. It would require scheduled 
disclosures of adjustment statements. It would establish bright-line 
boundaries to prohibit stock analyst conflicts of interest.
  It would authorize about $300 million more than the President's 
budget for the SEC next year to enhance its investigation and 
enforcement capabilities.
  I will not go through all the details of the amendment that has been 
approved by the Senate, offered by Senator Leahy, making certain things 
criminal in nature and increasing the penalties.
  This is a fine piece of legislation. But I do say this. The Senator 
from Maryland is in the Chamber. I am confident the Senator from 
Maryland would agree to a unanimous consent request that on relevant 
amendments, determined by the Parliamentarian, we have a half hour on 
each one, and as soon as the half hour is up, vote on them.
  I ask the Senator from Maryland, you would agree to that, wouldn't 
you?
  Mr. SARBANES. It would be one way of trying to deal with these 
amendments and dispose of them. A request of that sort ought to be 
carefully considered, certainly.
  We have this problem. Members have amendments pending. We have been 
trying to move the amendments forward. We have not been able to do 
that. I know how frustrated they are. I share their frustration.
  (Mrs. CARNAHAN assumed the chair.)
  Mr. REID. But in spite of all this, I want the Record to be spread 
with the fact that we have a good piece of legislation. I would like, 
as I said before, to have some of the fancier upholstery----
  Mr. SARBANES. If the Senator will yield, it is interesting, in the 
debate we just had, until the Senator from Michigan underscored the 
fact, it was not pointed out that we provide independent funding in 
this legislation for the Financial Accounting Standards Board, which 
has the responsibility of setting these accounting standards.
  Their problem in the past has been that they are voluntarily funded 
from the industry. They have to go to them and beg for money in order 
to carry out their activities. And if the industry thinks they are 
going to do a ruling that is contrary to what they want, then they are 
not as willing to support their activity.
  We eliminate that in this bill because we have a mandatory fee that 
must be paid by all issuers, and the Board will be funded out of that 
money. So that, in itself, is a very important and significant step in 
establishing the independence of the Accounting Standards Board.
  Mr. REID. Madam President, I have spoken with the Presiding Officer 
and staff on several occasions. Yours is our next amendment in order. 
You have been waiting 2 days to have that amendment offered, a very 
important amendment. And you are just one of several. You are fortunate 
in that you are the next one, if we can ever get to the next one.
  I would ask my friend----
  Mr. GRAMM. I have the next Republican amendment.
  Mr. REID. We know we have to be burdened with a Republican amendment 
once in a while.
  I say to my friend, would the Senator consider my proposal to have 
relevant amendments debated--and the relevancy would be determined by 
the Chair--for a half hour on each one of those and, at the end of the 
half hour, have a vote up-or-down on that amendment?
  Mr. GRAMM. The Senator is already in a big fight with Senator McCain. 
I do not know why he wants to try to pick one with other people.
  Where we are is, we are going to cloture. And there are rules in the 
Senate. And postcloture, for an amendment, the ticket to get into the 
arena is it has to be germane, which means it must be directly related 
to a provision in the bill. It cannot amend the bill in more than one 
place. There is a certain set of rules.
  If the Senator would indulge me a second, we have 36 Republicans who 
want to offer an amendment. My amendment is next on the list. I am the 
ranking member of this committee, and it appears I am not going to get 
an opportunity to offer an amendment. Now, I could cry and pout about 
it, but it would not change anything and would not change the world 
either. There are 58 Democrat amendments.
  The point is, we all agree on one thing: Whether you like this bill 
or you do not like it, it is an important bill and we need to get on 
with it. We need to pass it. We need to go to conference. We need to 
work out an agreement with the House and with the White House. If we 
sat here and tried to do 36 Republican amendments and 58 Democrat 
amendments--and some of them having to do with things such as the Ninth 
Circuit Court of Appeals and bankruptcy law--we would literally spend 3 
or 4 months. So there is no other alternative than following the rules 
of the Senate. And that is exactly what I want to do.
  Mr. REID. Reclaiming the floor, I have always enjoyed the Texas drawl 
of my friend, the senior Senator from Texas. But even through the 
drawl, I understood that to be a no.
  Mr. GRAMM. Yes. Yes, it was a no.
  Mr. REID. My friend, the other Senator from Arizona, is on the floor. 
We are waiting for the Republican leader. I assume that will be soon.
  I ask my friend from Wyoming, when the Republican leader does appear, 
if he would be kind enough to allow us to attempt to enter into an 
agreement.
  I ask the Senator, if you see him come to the floor, would you be so 
kind

[[Page 12671]]

as to yield the floor for just a short time? It would be appreciated.
  Mr. ENZI. I would be happy to interrupt my remarks at that time. I 
would hope my remarks would appear as uninterrupted.
  Mr. REID. I would agree.

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