[Congressional Record (Bound Edition), Volume 148 (2002), Part 9]
[Senate]
[Pages 12720-12721]
[From the U.S. Government Publishing Office, www.gpo.gov]




                            SECURITIES FRAUD

  Mr. SHELBY. Madam President, over the course of the last 6 months, 
the longstanding, systemic fraudulent activities of numerous 
corporations have been exposed in America and around the world. This 
fraud has cost American investors massive amounts, perhaps hundreds of 
billions of dollars, perhaps more. Beyond the tangible losses, investor 
confidence in the integrity of our capital markets has also taken a 
tremendous hit, as the Presiding Officer knows.
  As we move forward to address the shortcomings in the oversight of 
our financial markets, we must carefully consider the true impact of 
what has occurred. Thousands of people have lost billions of dollars. 
Thousands of people have lost jobs. Millions of people have lost or are 
losing faith in our capital markets every day.
  The fact is, none of this is made any easier because of the manner in 
which this has happened. Americans don't feel better because the 
mugging took place in the boardroom rather than the back alley. In many 
ways, what has happened is even worse. Because of the sheer size and 
number of participants in our markets, the corporate scams have been 
much more efficient and much more effective than the average boiler 
room fraud.
  The bottom line is this: Real people are facing tremendous losses, 
and confidence in our system is eroding.
  I believe we must address this situation with concrete measures. 
Fraud, even if committed by white-collar individuals--indeed, 
especially if committed by white-collar individuals--needs to be 
severely punished with criminal sanctions.
  I commend the efforts to create new, tough penalties for people who 
commit fraud through our securities markets. I supported that, as most 
of the people in the Senate did.
  Additionally, I believe there is more that we can do to stop or slow 
down the kinds of conduct that lead to situations where investing 
Americans are swindled out of hundreds of billions of dollars. The fact 
is, in one key area, the appropriate disincentives for participating in 
securities fraud are just not in place today.
  Since 1994, after the Supreme Court ruling in the Central Bank case, 
there has been no liability for secondary actors who aid and abet 
securities fraud in America. Think about that. Since 1994, there has 
been no liability for secondary actors who aid and abet securities 
fraud. In effect, the decision in the Central Bank case led to legions 
of accountants, lawyers, and other security specialists who play a 
vital yet behind-the-scenes role in securities transactions, off the 
hook for down-the-line fraud in the sale of securities.
  Think of it like this: The guys who procure the getaway car before 
the robbery, tune it up, fill it up with gas, put air in the tires, and 
sometimes even drive it away, face no financial liability for their 
involvement.
  Does that make any sense? Not to me. I believe not to the majority of 
the Senate, if we could get a vote on the Shelby-Durbin amendment. And 
we will someday because this is not an issue that is going to go away.
  When attorneys, accounting firms, and other securities professionals 
know that assisting securities fraud is nothing to worry about, as it 
is today, there is no wonder there has been a proliferation of audit 
failures, restatements, Enrons, Global Crossings, WorldComs, and many 
more to come. Civil and criminal penalties are important and necessary, 
but they are not sufficient. They serve a separate but important 
purpose of punishing fraudulent behavior. But they do nothing to ensure 
that investors, the victims, have an opportunity to seek financial 
redress. Civil liability supplements criminal and civil penalties and 
acts as a further disincentive to engage in or assist fraudulent 
activities.
  Here are a couple of basic questions we all need to answer. Why 
shouldn't investors--that is, so many million in America--be able to 
recover losses from aiders and abettors of securities fraud? What 
public interest do we serve by inoculating aiders and abettors of 
securities fraud from civil liability? Why should this type of tort, 
this fraud, not give rise to a civil claim, particularly when the loss 
to the investor and impact on the markets is so great, as it is today?
  Investors are intentionally being defrauded. Yet they have no remedy 
at the moment to seek monetary redress from those who aid and abet 
these crimes. Why? The answer is, aiders and abettors play a vital role 
in allowing primary actors to commit fraud. They should, accordingly, 
be held proportionately liable for their participation in these 
fraudulent schemes.
  I believe for our capital markets to function properly, it is not 
sufficient that financial information is accurate. The public must also 
have full faith and confidence that it is honest, that we have 
integrity there.
  Accountants, lawyers, and other securities professionals perform, by 
design, a gatekeeping function within our securities markets. It is 
unacceptable, I believe, that those upon whom so many rely--all of us--
those whose activities can literally move markets, are not held to the 
highest standards. Something is wrong.
  Forty years ago, at a time when securities transactions were 
considerably less sophisticated than they are today, Judge Henry 
Friendly, a distinguished jurist remarked:

       In our complex society, the accountant's certificate and 
     the lawyer's opinion can be instruments for pecuniary lost 
     more potent than the chisel or the crowbar.

  Today's staggering shareholder losses demonstrate that over time 
legal and accounting gimmicks have only grown more potent.
  I believe we must create greater disincentives for those who would 
assist securities fraud. Restoring liability for aiders and abettors of 
securities fraud should make securities professionals think once, 
twice, even three times before they put their seal of approval on 
information sent to the marketplace. Such carefulness will serve 
investors and our markets well in the future.
  Our economy has provided the best material standard of living in the 
world because our capital markets have traditionally favored clarity 
over complexity, disclosure over dissembling, and fairness over 
favoritism. For the sake of future economic growth and prosperity, I 
believe we must put those principles back into practice.
  Senator Durbin and I are going to continue to pursue our amendment. 
As I said earlier, this is not going to go away because there are going 
to be more scheduled. I wish we could have done it on this bill. I 
yield the floor.

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