[Congressional Record (Bound Edition), Volume 148 (2002), Part 9]
[Senate]
[Pages 12738-12751]
[From the U.S. Government Publishing Office, www.gpo.gov]




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

  Mr. REID. Mr. President, will the Chair inform us what the matter 
before the Senate now is?
  The PRESIDING OFFICER. The Daschle second-degree amendment to the 
Edwards first-degree amendment.
  Mr. REID. That is Daschle for Levin; is that not right?
  The PRESIDING OFFICER. That is correct.
  The Senator from Nevada.
  Mr. ENSIGN. Mr. President, I raise a point of order that the pending 
second-degree amendment is not germane to the bill postcloture.
  The PRESIDING OFFICER. The point of order is well taken. The 
amendment falls.
  The deputy majority leader.


         Amendment No. 4286, as Modified, to Amendment No. 4187

  Mr. REID. I call up amendment No. 4286, and I ask unanimous consent 
that Carnahan amendment No. 4286 be modified with the change at the 
desk.
  The PRESIDING OFFICER. Without objection, it is so ordered. The clerk 
will report.
  The legislative clerk read as follows:

       The Senator from Nevada [Mr. Reid], for Mrs. Carnahan, for 
     herself, Mr. Dodd, Mr. Durbin, Mr. Levin, Mr. Harkin, and Mr. 
     Corzine, proposes an amendment numbered 4286, as modified, to 
     amendment No. 4187.

  Mr. REID. Mr. President, I ask unanimous consent that the reading of 
the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

   (Purpose: To require timely and public disclosure of transactions 
            involving management and principal stockholders)

       At the end of the amendment, insert the following:
       (b) Electronic Filing.--Notwithstanding the provisions of 
     section 403 of this Act, section 16(a)(2) of the Securities 
     and Exchange Act of 1934, as added by section 403, is amended 
     to read as follows:
       ``(2) if there has been a change in such ownership, or if 
     such person shall have purchased or sold a security-based 
     swap agreement (as defined in section 206B of the Gramm-
     Leach-Bliley Act) involving such equity security, shall file 
     electronically with the Commission (and if such security is 
     registered on a national securities exchange, shall also file 
     with the exchange), a statement before the end of the second 
     business day following the day on which the subject 
     transaction has been executed, or at such other times as the 
     Commission shall establish, by rule, in any case in which the 
     Commission determines that such 2 day period is not feasible, 
     and the Commission shall provide that statement on a publicly 
     accessible Internet site not later than the end of the 
     business day following that filing, and the issuer (if the 
     issuer maintains a corporate website) shall provide that 
     statement on that corporate website not later than the end of 
     the business day following that filing (the requirements of 
     this paragraph with respect to electronic filing and 
     providing the statement on a corporate website shall take 
     effect 1 year after the date of enactment of this paragraph), 
     indicating ownership by that person at the date of filing, 
     any such changes in such ownership, and such purchases and 
     sales of the security-based swap agreements as have occurred 
     since the most recent such filing under this paragraph.''.

  The PRESIDING OFFICER. The Senator from Missouri.
  Mrs. CARNAHAN. Mr. President, I am offering this amendment on behalf 
of myself and Senators Dodd, Dubbin, Levin, Harkin, and Corzine.
  The Senate is engaged in an important debate about how to improve our 
Nation's financial system. Today I am offering an amendment that is 
intended to provide more timely information to average investors. 
America has the most vibrant and dynamic economy in the world. Our 
robust and resilient capital markets are the foundation of our economy. 
But the success of those markets depends on the free flow of accurate, 
reliable information.
  Recent disclosures about the inaccuracy of some companies' financial 
reports have shaken that confidence. I am pleased the Senate has acted 
quickly to take up this important reform legislation. I believe that 
this bill makes tremendous progress in improving the quality of 
information available to the markets. In the interest of further 
improvement, I am offering an amendment to modernize the method of 
disclosure required when insiders trade in their own companies' stock.
  One warning sign that a company may be in trouble is when its 
executives are selling large amounts of company stock, as occurred at 
Enron. I have learned, however, that information about insider selling 
is not easily accessible.
  Under our current system a company's officers are required to file a 
disclosure form with the Securities and Exchange Commission, SEC, any 
time they sell securities of their company. Tens of thousands of these 
forms are filed annually. These are not complicated forms. I have a 
copy here. It is a simple 2-page form.
  The Office of Management and Budget estimates that the form should 
not take more than 30 minutes to fill out. With capital markets as 
sophisticated as they are in the U.S., information must be available 
quickly to be useful. However, insiders currently have up to six weeks 
to file their disclosure forms. And the overwhelming majority of these 
forms--95 percent--are filed on paper, rather than electronically.
  The Banking Committee has already addressed the issue of timely 
disclosure. This legislation would require disclosure of sales within 2 
days, a vast improvement over the current deadlines. However, this 
legislation is silent on the issue of modernizing this arcane paper 
filing system.
  Right now, there is no way for an investor in Missouri to quickly 
learn that a company executive is selling off company stock. The only 
ways to get the information are to go to a reading room at the SEC in 
Washington, or to write a letter to the SEC. These written requests may 
take weeks to process. This is unacceptable in the electronic age.
  My amendment requires that information about insider sales of 
publicly traded companies be filed electronically. The SEC would then 
be required to make the forms available to the public over the 
Internet. Any company that maintains a corporate Web site would be 
required to post these disclosure forms on the Web site. The SEC, 
itself, has acknowledged the value of having these forms filed 
electronically.
  I have here a letter from SEC Chairman, Harvey Pitt. He wrote to me 
that ``expedited disclosure of trading by company insiders is 
imperative.'' In fact, he applauded the legislation I introduced 
earlier this year that requires electronic disclosure.
  I ask unanimous consent that a copy of this letter be printed in the 
Record.
  There being no objection, the letter was ordered to be printed in the 
Record, as follows:

                                               U.S. Securities and


                                          Exchange Commission,

                                    Washington, DC, March 1, 2002.
     Hon. Jean Carnahan,
     U.S. Senate, Hart Office Building,
     Washington, DC.
       Dear Senator Carnahan: Thank you for your February 14th 
     letter regarding S. 1897, the Fully Informed Investor Act 
     which you recently introduced. I share your concerns about 
     the issues regarding reporting of insiders' securities 
     transactions that your bill addresses. As we announced on 
     February 13th, the Commission will shortly propose rules that 
     would provide accelerated reporting by companies of insider 
     transactions in public company securities. This is an 
     integral part of our effort to supplement the periodic 
     disclosure system with ``current disclosure'' in order to put 
     information investors want and need into their hands more 
     promptly.
       I also share the view reflected in your bill that expedited 
     electronic disclosure of trading by company insiders is 
     imperative, and I applaud your initiative. As you know, the 
     Securities Exchange Act of 1934, rather than rules adopted by 
     the Commission, sets the deadlines for officers, directors 
     and beneficial owners of ten percent of a class of equity 
     securities of a public company to report their trading in 
     those securities. A legislative solution, therefore, will be 
     necessary to address fully the issue of investors' timely 
     access to information about insiders' securities 
     transactions.
       While formal Commission comment on legislation is normally 
     reserved for testimony or a response to a request from a 
     committee or subcommittee given jurisdiction over the bill, 
     we would welcome the opportunity to provide you with 
     technical assistance on your bill if you would find that 
     helpful. I have asked Casey Carter, the Director of our 
     Office of Legislative Affairs, to contact your staff to see 
     if you would like our assistance. Please feel free to call me 
     or to have your staff call Ms. Carter at (202) 942-0019 if 
     you have any questions.
           Yours truly,
                                                   Harvey L. Pitt.


[[Page 12739]]

  Mrs. CARNAHAN. This is not a new idea. In fact, more than 2 years 
ago, in April 2000, the SEC published a rulemaking for its electronic 
data system. In that rulemaking, the SEC indicated that it 
``anticipated'' making insiders file disclosure forms electronically. I 
applaud the SEC for recognizing the need to modernize, but I am 
frustrated by the delay. It has been over 2 years since the SEC made 
this proposal.
  An agency that is responsible for monitoring markets where trillions 
of dollars are electronically exchanged ought to be able to develop a 
fairly simple electronic database to make this information available.
  The Senate now has the opportunity to require the SEC to move 
quickly. I am very pleased that the bill I introduced earlier this year 
on this subject was included in the House accounting reform bill. The 
House has required that insiders file electronically, within one day of 
their transactions. The House has also required that corporations 
disclose insider sales on their corporate Web sites.
  I encourage my colleagues to support my amendment. We should not make 
investors wait any longer for these basic reforms.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from North Dakota.
  Mr. DORGAN. Mr. President, I have an amendment at the desk.
  Mr. DODD. Mr. President, I ask to be heard on the Carnahan amendment 
very briefly. Does the Senator mind?
  Mr. DORGAN. How briefly?
  Mr. DODD. Two minutes or so.
  Mr. DORGAN. I am happy to yield to the Senator from Connecticut, 
provided that I am recognized following his presentation.
  Mr. DODD. I appreciate that.
  The PRESIDING OFFICER. The Senator from Connecticut.
  Mr. DODD. Mr. President, I commend my colleague from Missouri for 
this very fine amendment. I think it is going to make a strong 
difference by improving electronic reporting. It doesn't get the kind 
of attention it should.
  This is a positive and constructive suggestion. I am a cosponsor of 
the amendment and commend the distinguished Senator from Missouri for 
offering the amendment. It makes the bill stronger. It is something all 
our colleagues will be willing to support. I commend the Senator for 
her work.


                    Amendment No. 4215, As Modified

  Mr. DORGAN. Mr. President, I have an amendment numbered 4215 at the 
desk. I have submitted a modification of that amendment which I believe 
has been reviewed by both sides. I ask for its immediate consideration 
and I ask unanimous consent that the amendment be modified.
  The PRESIDING OFFICER. Is there objection to laying aside the pending 
amendment of the Senator from Missouri?
  Mr. SARBANES. Will the Senator yield?
  Mr. DORGAN. I am happy to yield.
  Mr. SARBANES. Is this the amendment that deals with the offshore 
companies?
  Mr. DORGAN. Yes.
  Mr. SARBANES. I have no objection to setting aside the pending 
amendments in order to consider this amendment. I understand upon the 
conclusion of the consideration of this amendment we will revert to the 
Edwards-Carnahan amendment
  Mr. SCHUMER. Reserving the right to object, I believe I have two 
amendments that have been cleared by both sides. I would like to offer 
them immediately after the Senator from North Dakota.
  Mr. SARBANES. We are hoping to get to the Senator from New York. I 
make a unanimous consent request that following the disposition of the 
amendment of the Senator from North Dakota, we turn to the amendments 
referred to by the Senator from New York.
  Mr. ENSIGN. Provided that no second-degree amendments are in order to 
any of the three amendments.
  Mr. SARBANES. Furthermore, upon conclusion of the consideration of 
the Schumer amendments, we return to the regular order, which I take it 
would be the Edwards-Carnahan amendment.
  Mr. REID. Reserving the right to object, Senator Schumer has a number 
of amendments on the list. I think we better get numbers of those 
amendments before there is an agreement they be next in order.
  Mr. SARBANES. Let us withdraw the unanimous consent request and make 
it only that Senator Schumer be recognized after the disposition of the 
Dorgan amendment and we can address those questions.
  The PRESIDING OFFICER. Is there objection?
  Mr. ENSIGN. Reserving the right to object, just to make sure we have 
this clarified, the unanimous consent request is just to the Dorgan 
amendment pending, and we would not object as long as the second-degree 
amendment is not in order to his amendment.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The Senator from North Dakota.
  Mr. DORGAN. Mr. President, first of all I will offer an amendment 
that I believe will be accepted. I understand the process is that those 
who have amendments that will be accepted will be allowed to offer them 
and those whose amendments are not approved by both sides will not be 
allowed to offer them. In my judgment, this is not the kind of 
procedure we ought to use when considering this legislation. But I 
understand the Senator from Texas indicated he will object to setting 
aside or laying aside an amendment for the purpose of offering another 
first-degree amendment unless he agrees with the amendment. I will talk 
a little bit more about that in a couple of minutes.
  I had asked unanimous consent my amendment be modified. Was the 
consent agreed?
  The PRESIDING OFFICER. It was agreed to.
  Mr. DORGAN. Is amendment No. 4215 called up at this point?
  The PRESIDING OFFICER. The pending amendment is set aside and the 
clerk will report.
  The legislative clerk read as follows:

       The Senator from North Dakota [Mr. Dorgan], for himself and 
     Mr. Graham of Florida, proposes an amendment numbered 4215, 
     as modified.

  Mr. DORGAN. I ask unanimous consent reading of the amendment be 
dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

(Purpose: To clarify that the requirement that certain officers certify 
       financial reports applies to domestic and foreign issuers)

       On page 82, after line 24, insert the following:
       (c) Foreign Reincorporations Have No Effect.--Nothing in 
     this section 302 shall be interpreted or applied in any way 
     to allow any issuer to lessen the legal force of the 
     statement required under this section 302, by an issuer 
     having reincorporated or having engaged in any other 
     transaction that resulted in the transfer of the corporate 
     domicile or offices of the issuer from inside the United 
     States to outside of the United States.

  Mr. DORGAN. Let me describe what this amendment is briefly. There was 
a Wall Street Journal article on July 8 this week titled: ``Offshore-
based Firm's Officials Won't Have to Swear to Results.''

       The Securities and Exchange Commission's new order 
     requiring chief executives and chief financial officers of 
     the nation's biggest companies to swear to the accuracy of 
     their financial results was intended to restore investors' 
     battered confidence. But two of the companies that have 
     promised the biggest concerns don't have to comply.
       Why? Because Tyco International Ltd. and Global Crossing 
     Ltd. are based in Bermuda, even though they conduct many of 
     their operations and have main office in the United States 
     and are listed on the U.S. stock exchanges.
       Securities and Exchange Commission spokesmen said large 
     foreign-domiciled companies over which the SEC has 
     jurisdiction, such as and Global Crossing and Tyco, were 
     excluded from the list because the agency wanted to issue the 
     order ``very quickly.'' Therefore it focused only on U.S. 
     companies.

  So the Securities and Exchange Commission says that the chief 
executives and chief financial officers of some of the biggest 
companies must swear to the accuracy of their financial results. But in 
recent times, we have had U.S. corporations decide that they want to

[[Page 12740]]

renounce their American citizenship and they want to become citizens, 
for example, of Bermuda. That is called a corporate inversion. They 
have essentially renounced their American citizenship, saying we are 
now corporate citizens of another country.
  Guess what? Under the SEC order, they are rewarded for leaving the 
United States, in that their chief executives no longer have to certify 
financial results. The SEC says: We had to get this done quickly, and 
we don't expect to change it at this point.
  Why does a company renounce its U.S. citizenship? They do it because 
they don't want to pay U.S. taxes. Very simple. If they can become a 
citizen of another country and renounce their U.S. citizenship, they 
can save substantial money on their U.S. tax bill.
  At a time when we are at war with terrorists, is that a patriotic 
thing to do? No, I don't think so. I hope the Senate, and I certainly 
encourage my colleagues to do this, will shut that door tight and stop 
these corporate inversions. Stop these corporations from creating a 
sham of renouncing their U.S. citizenship in order to avoid paying U.S. 
taxes.
  It might be interesting to ask companies such as Tyco: If you get 
yourself in trouble someplace around the world, who are you going to 
call? The Bermuda navy? The Bermuda army? The Bermuda marines? You want 
the full protection of the U.S. Government and the U.S. military and 
all the benefits that being a U.S. citizen brings along. But then you 
want to renounce your citizenship and move to Bermuda, in a technical 
sense, while keeping your offices in the United States and saving big 
money on taxes. And then, under the SEC order, you don't even have to 
have your chief executive officers certify the financial results of the 
corporation.
  That is a shame. The SEC should know better. What could they have 
been thinking? I have accused them of sleeping, but this is not 
sleeping; this is making really dumb decisions.
  I have discussed my concern with the staff of the Banking Committee. 
They believe that their bill implicitly addresses the reincorporation 
problem. But Senator Graham of Florida and I said we are not satisfied 
with ``implicitly'' being covered. We want the issue addressed 
explicitly.
  Let me also say, the technical people smile when I talk about this, 
but, frankly, it took a day and a half for us to evaluate whether it 
was implicitly covered in the bill. So because of that, I think it is 
important to have an explicit provision in this bill that says those 
companies involved in inversions that renounce their citizenship, they, 
too, will be required to certify their results. Their chief executive 
officers and their CFOs will be required to certify their results.
  In a moment I will conclude and ask that this amendment be attached 
to the bill. As I do that, I ask for the attention of the Senator from 
Maryland and the manager on the other side to say that I have another 
amendment that I will offer. I understand, based on your process, you 
don't want it offered now. Let me describe it briefly.
  The other amendment deals with the issue of what is called 
disgorgement of profits.
  The top executives of these corporations make bonuses, commissions, 
and a substantial amount of compensation--some of them hundreds of 
millions of dollars. Then they issue a restatement of earnings and 
everything collapses. But they keep their profits and they keep their 
commissions and they keep their bonuses.
  This legislation says you can't do that. When you restate, and just 
prior to restatement you have made all these bonuses, you have to 
disgorge this money. It is a $2 word, but I think everybody understands 
what it means.
  The thing that is missing in this bill is that disgorgement should be 
required in cases of bankruptcy as well. So I have an amendment that 
will say: Yes, disgorgement in this bill with respect to periods prior 
to restatement, but also disgorgement for the 12 months prior to the 
filing of bankruptcy by a corporation as well.
  A fair number of people have had a lot to say about this. Former SEC 
Chairman, Richard Breeden, who was the Chairman of the SEC under 
President H.W. Bush from 1989 to 1993, said:

       We should consider disgorgement to the company of any net 
     proceeds of stock sales or option exercises within a 6-month 
     or a 1-year period prior to a bankruptcy filing.

  So he feels that way.
  Goldman Sachs CEO Henry Paulson has also spoken in favor of this 
idea.
  This bill will be incomplete if it does not include disgorgement in 
the period prior to bankruptcy. Those making a fortune, getting bonuses 
and commissions of tens of millions, yes hundreds of millions, as their 
companies are headed to bankruptcy--that is unfair. We need to do 
something about this.
  I will not ask consent at the moment because I want to get my first 
amendment approved, but I will, following some discussions, either this 
morning or else on Monday, ask consent to set aside the second-degree 
amendment so we can consider, in first-degree, this issue. My hope is 
we would have a 100-to-0 vote on this matter because, failing that, 
this bill will be incomplete.
  This bill is a great bill. I have credited Senator Sarbanes and 
others at length. This is a wonderful piece of legislation that I fully 
support. It can be and will be improved by my amendments and by the 
amendments of Senator Schumer and others. Let's complete this amendment 
process.
  Let me just say one last thing, if I might.
  I know it has taken the patience of Job to try to manage this bill on 
the floor of the Senate. I understand all the difficulties that Senator 
Sarbanes and Senator Reid and many others have had these recent days 
because I have been here every day when this bill has been on the 
floor. My aggressiveness in trying to get these amendments considered 
has nothing at all to do with the wonderful stewardship of the 
chairman. I am very proud of the result he brings to the floor, and I 
believe both of my amendments will improve it. I hope I can work with 
him from now until Monday afternoon to have the bankruptcy amendment 
included in this legislation.
  Mr. SARBANES. Will the Senator yield for just a moment?
  Mr. DORGAN. I will be happy to yield.
  Mr. SARBANES. Madam President, I simply want to say I think the 
subject matter with which the Senator's other amendment, that he just 
referred to, deals is a very important subject, and I think his 
observations are very much on point. Working with the other side, we 
are trying to work through the amendment. We are in the process of 
trying to do that. Of course, we will be continuing to talk with the 
Senator, and I hope we can resolve it. It would be very helpful. I 
appreciate his kind words.
  Mr. DORGAN. I thank the Senator from Maryland. I ask my amendment be 
considered at this point and be voted upon.
  The PRESIDING OFFICER. Is there further debate on the amendment? If 
not, the question is on agreeing to amendment No. 4215, as modified.
  The amendment, (No. 4215), as modified, was agreed to.
  Mr. SARBANES. I move to lay the motion to reconsider on the table.
  The motion to lay on the table was agreed to.
  The PRESIDING OFFICER (Mrs. Clinton). The Senator from New York.


                           Amendment No. 4295

  Mr. SCHUMER. I ask unanimous consent the Carnahan amendment be laid 
aside, and I send an amendment to the desk which we have talked about.
  Mr. SARBANES. Will the Senator describe the amendment?
  Mr. SCHUMER. Yes. This amendment is the amendment that enhances the 
conflict of interest provisions by prohibiting personal loans by 
issuers to chief officers of the issuer. It has been agreed to by both 
sides.
  Mr. SARBANES. I ask unanimous consent no second-degree amendment to 
the Schumer amendment, when it is sent to the desk, be in order.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Is there objection to laying aside the pending amendment for purposes 
of sending up a new amendment? Without objection, it is so ordered. The 
clerk will report.

[[Page 12741]]

  The assistant legislative clerk read as follows:

       The Senator from New York (Mr. Schumer) proposes an 
     amendment No. 4295.

  Mr. SCHUMER. I ask unanimous consent the reading of the amendment be 
dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

  (Purpose: To enhance conflict of interest provisions by prohibiting 
       personal loans by issuers to chief officers of the issue)

       On page 91, strike line 19 and all that follows through 
     page 93, line 22 and insert the following:

     SEC. 402. ENHANCED CONFLICT OF INTEREST PROVISIONS.

       (a) Prohibition on Personal Loans to Executives.--Section 
     13 of the Securities Exchange Act of 1934 (15 U.S.C. 78m), as 
     amended by this Act, is amended by adding at the end the 
     following:
       ``(k) Prohibition on Personal Loans to Executives.--
       ``(1) In General.--It shall be unlawful for any issuer, 
     directly or indirectly, to extend or maintain credit, or 
     arrange for the extension of credit, in the form of personal 
     loan to or for any director or executive officer (or 
     equivalent thereof) of that issuer.
       ``(2) Limitation.--Paragraph (1) does not preclude any home 
     improvement and manufactured home loans (as that term is 
     defined in Section 5 of the Home Owners Loan Act, consumer 
     credit (as defined in section 103 of the truth in lending 
     act), or any extension of credit under an open end credit 
     plan (as defined in section 103 of the Truth in Lending Act 
     (15 U.S.C. 1602)), that is--
       ``(A) made in the ordinary course of the consumer credit 
     business of such issuer;
       ``(B) of a type that is generally made available by such 
     issuer to the public; and
       ``(C) made by such issue on market terms, or terms that are 
     no more favorable than those offered by the issuer to the 
     general public for such loans.''.

  Mr. SCHUMER. Madam President, I also ask unanimous consent that 
Senator Feinstein be added as a cosponsor of this amendment.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. SCHUMER. Madam President, I am going to be very brief because I 
know we do not have too much time and we have other business. I thank 
both the majority and minority managers, Senator Sarbanes and Senator 
Gramm, for their work on this amendment. I have also spoken to the 
people in the White House who were supportive of this amendment. It is 
a very simple amendment. It basically says that with certain narrow 
exceptions, CEOs and CFOs of companies will not be able to get loans 
from those companies.
  In his speech before Wall Street yesterday, President Bush forcefully 
stated: ``. . . I challenge compensation committees to put an end to 
all company loans to corporate officers.''
  I couldn't agree more. It seems like we didn't learn our lessons 
during the S&L crisis in the 1980's? These same kinds of transactions 
were used then to ``cook the books'' and our Nation's economy and 
financial institutions paid the price for it. Once again, history 
repeats itself.
  My amendment is very simple: it makes it unlawful for any publicly 
traded company to make loans to its executive officers. Let me give a 
few examples as to why we should do this.
  Executives of major corporations, including Enron, WorldCom, and 
Adelphia, collectively received more than $5 billion in company funds 
in the form of personal loans. For example, Bernard Ebbers, CEO of 
WorldCom, borrowed a mind-boggling $408 million from the corporation 
over several years, while receiving a compensation package valued at 
over $10 million annually, all the while the company was facing massive 
losses. In the case of Adelphia, the Rigas Family received loans and 
other financial benefits totaling a staggering $3.1 billion, while that 
company has also reported huge financial losses.
  The question is: Why can't these super rich corporate executives go 
to the corner bank, the Suntrust's or Bank of America's, like everyone 
else to take loans?
  In the case of WorldCom, Ebbers had funded his personal stock market 
activities by borrowing on margin. When the value of those investments 
plunged, Ebbers had to pay up. How did he do it? He borrowed money from 
his board of directors to pay for the stock he had bought that was now 
being called in.
  This is just wrong, and it must be stopped.
  I urge the amendment be agreed to.
  The PRESIDING OFFICER. Is there further debate on the amendment? If 
not, the question is on agreeing to the amendment.
  The amendment (No. 4295) was agreed to.
  Mr. SARBANES. I move to reconsider the vote.
  Mr. CRAIG. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.


                           Amendment No. 4296

  Mr. SCHUMER. I have a second amendment that has also been agreed to, 
so I ask, again, the Carnahan amendment be laid aside, and I send the 
amendment to the desk and ask for its consideration. I ask unanimous 
consent Senator Shelby be added as a cosponsor on this amendment on the 
SPEs.
  Mr. SARBANES. I ask unanimous consent no second-degree amendment be 
in order to the Schumer amendment being sent to the desk.
  The PRESIDING OFFICER. Without objection, it is so ordered. Is there 
objection to laying aside the pending amendments for the purpose of 
introducing a new amendment? Without objection, it is so ordered. The 
clerk will report.
  The assistant legislative clerk read as follows:

       The Senator from New York (Mr. Schumer), for himself and 
     Mr. Shelby, proposes an amendment numbered 4296.

  Mr. SCHUMER. I ask unanimous consent the reading of the amendment be 
dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

  (Purpose: To require a study of the accounting treatment of special 
                           purpose entities)

       On page 91, between lines 18 and 19, insert the following:
       (c) Study and Report on Special Purpose Entities.--
       (1) Study required.--The Commission shall, not later than 1 
     year after the effective date of adoption of off-balance 
     sheet disclosure rules required by section 13(j) of the 
     Securities Exchange Act of 1934, as added by this section, 
     complete a study of filings by issuers and their disclosures 
     to determine--
       (A) the extent of off-balance sheet transactions, including 
     assets, liabilities, leases, losses, and the use of special 
     purpose entities; and
       (B) whether generally accepted accounting rules result in 
     financial statements of issuers reflecting the economics of 
     such off-balance sheet transactions to investors in a 
     transparent fashion.
       (2) Report and recommendations.--Not later than 6 months 
     after the date of completion of the study required by 
     paragraph (1), the Commission shall submit a report to the 
     President, the Committee on Banking, Housing, and Urban 
     Affairs of the Senate, and the Committee on Financial 
     Services of the House of Representatives, setting forth--
       (A) the amount or an estimate of the amount of off-balance 
     sheet transactions, including assets, liabilities, leases, 
     and losses of, and the use of special purpose entities by, 
     issuers filing periodic reports pursuant to section 13 or 15 
     of the Securities Exchange Act of 1934;
       (B) the extent to which special purpose entities are used 
     to facilitate off-balance sheet transactions;
       (C) whether generally accepted accounting principles or the 
     rules of the Commission result in financial statements of 
     issuers reflecting the economics of such transactions to 
     investors in a transparent fashion;
       (D) whether generally accepted accounting principles 
     specifically result in the consolidation of special purpose 
     entities sponsored by an issuer in cases in which the issuer 
     has the majority of the risks and rewards of the special 
     purpose entity; and
       (E) any recommendations of the Commission for improving the 
     transparency and quality of reporting off-balance sheet 
     transactions in the financial statements and disclosures 
     required to be filed by an issuer with the Commission.

  Mr. SCHUMER. Madam President, I will again be brief. This amendment 
relates to a second problem that we have seen in the latest crisis that 
we have faced in our financial markets, and that is the special purpose 
entities. Sometimes special purpose entities have a valid purpose. Many 
companies use them for valid purposes.
  We have seen, particularly most egregiously in the case of Enron, 
these have been entities that have been used to take losses off the 
books, and then

[[Page 12742]]

shareholders, and everybody else, don't know much about them.
  Enron, for instance, conducted business through thousands of these 
with names such as LJM, Cayman LP, and Raptor. They become pretty 
famous and the Enron's former CFO, Andrew Fastow, contributed hard 
assets and related debt to Raptor SPE and then Raptor would turn around 
and borrow large sums of money from a bank to purchase assets or 
conduct other business.
  This is the key. The debts of this SPE, Raptor, never showed up on 
Enron's financial statements.
  People make money on it. Fastow made $30 million in management fees. 
These things go way overboard. The way we had proposed originally 
legislating on this was too complicated, but there are some good ones. 
There are some with legitimate purposes and many with bad purposes.
  Congress can't set these accounting standards, nor should we. Rather, 
that is the SEC and FASB's job.
  We have asked in this amendment that the SEC do a comprehensive study 
of the SPEs to show where the damage is, point the way to reform, and 
make recommendations. This amendment does not put Congress in the 
business of setting accounting standards.
  It does, however, say to thousands of Enron and other employees who 
have lost pensions that we are stepping up to the plate now to stop 
these kinds of egregious practices.
  I add that there are probably many of these SPEs for bad purposes 
floating around in other companies, and this study cannot come too 
soon.
  We have received agreement. I thank Senators Sarbanes and Gramm.
  I ask unanimous consent that the amendment be agreed to.
  The PRESIDING OFFICER. Is there objection?
  Without objection, it is so ordered.
  The amendment (No. 4296) was agreed to.
  Mr. SARBANES. Mr. President, I move to reconsider the vote.
  Mr. SANTORUM. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  The PRESIDING OFFICER. The Senator from New York.
  Mr. SCHUMER. Madam President, I thank Senator Sarbanes and his staff 
as well as Senator Gramm and his staff for their work on accepting 
these two important amendments that I think improves the bill, which is 
a very fine bill that I am proud to support.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Idaho.
  Mr. CRAIG. Madam President, let me spend a few minutes talking about 
the underlying legislation, S. 2673.
  There has been a great deal of debate over the last good number of 
days on this issue. I am pleased that we were able to get cloture. It 
is time we move on to this issue.
  The American public, a good many stockholders, a good many pension 
plans, a good many retirement plans are discussing what are we going to 
do about the meltdown that last occurred in corporate America at the 
executive level with some key corporations. It is really, in most 
instances, a crisis of confidence.
  There are a lot of well-run corporations across America that are 
publicly held. They have historically observed the prudent rules. Their 
boards have acted responsibly. But there are bad players. There are 
big, bad players that have had a dramatic impact on the markets. There 
is no question that we have to deal with this straight away.
  When I look at the whole of this issue, it isn't just in the markets 
where there is a crisis of confidence that Americans share: When you 
look at 9/11, then Enron, then WorldCom, and, of course, all the 
scandals that have occurred, and out in the West with the Ninth Circuit 
suggesting that the Pledge of Allegiance isn't constitutional, put all 
of that together, and America has to be scratching its head at this 
moment, asking: Where does all of this take us? Where is that rock of 
stability that we have come to rely on for so long?
  I suggest that when we are debating this issue, while this is an 
issue that has to be dealt with, and we are now moving appropriately, 
it is one of a combination of factors that is critically important for 
our country to deal with.
  One issue we have to deal with is the war on terrorism. The DOD 
appropriations ought to be the first bill we deal with on the defense 
side to begin to shore up again this sense of confidence in the 
American structure. Certainly, protecting our soldiers in the post-9/11 
fighting that has gone on in Afghanistan is appropriate, and now, as we 
search out terrorism around the world, that is critical.
  The next step I would suggest is the confirming of judges. It is 
important that we deal with judges. For the judicial system of this 
country to remain strong, vacancies need to be filled. People should 
receive their day in court in a timely fashion. That has been one of 
the hallmarks and the strengths of this country throughout its history, 
and it ought to be today.
  Clearly, I hope we appoint judges who will not act as the ones in the 
Ninth Circuit who suggested that the Pledge of Allegiance is 
unconstitutional. I think President Bush has gone a long way in 
nominating good judges to the Senate.
  Yet, the politics here in the Senate today is obvious: Withhold as 
long as you can. Withhold as long as you can.
  The President spoke the other day on Wall Street relating to 
corporate accounting. The U.S. Senate is speaking today, as they 
should.
  I ask unanimous consent that a commentary by Lawrence Kudlow be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

               [From the Washington Times, July 11, 2002]

                A Class Above the Corruption and Critics

                          (By Lawrence Kudlow)

       In front of a New York audience on Tuesday, President Bush 
     unveiled a revised plan to counter corporate wrongdoing and 
     accounting fraud, saying, ``There can be no capitalism 
     without conscience, no wealth without character.'' Adam 
     Smith, the father of free-market economics, couldn't have 
     said it better.
       Smith always argued that smooth-functioning markets require 
     ethical behavior at their center. From Day One of his 
     presidency, Mr. Bush has applied this rule even more broadly, 
     emphasizing the need for ethical clarity and moral certitude 
     in all areas of American life. He has successfully applied 
     the rule of ethics to the war on terror, and now he is 
     transferring the very same principle to root out corporate 
     corruption.
       From the election campaign to today, poll after poll shows 
     that the public believes Mr. Bush is a leader with strong 
     character and unshakable moral principles. Following the 
     blowups of WorldCom, Enron and Tyco--and many other rotten 
     apples--Mr. Bush's honest outrage has been heartfelt, and not 
     political.
       It has also shone above the political carping of Tom 
     Daschle, Al Gore, Richard Gephardt and other national 
     Democrats who would locate the source of the contagious virus 
     of accounting fraud and corporate corruption within the Bush 
     administration. Theirs is a political, reckless, and silly 
     approach to a serious situation. The bad-business bug gained 
     strength and spread well before George W. Bush became 
     president. And today it is a grave problem that requires 
     sober solutions.
       Serious Democrats, such as Senate Banking Committee head 
     Paul Sarbanes and Senate Investigations Subcommittee Chairman 
     Carl Levin, have taken a completely different tack from the 
     business-as-usual partisan politics of the Daschle gang.
       Mr. Sarbanes has crafted a significant proposal to set up 
     an independent accounting-standards board--one that will end 
     conflict of interests between the auditing and consulting 
     functions, properly score stock options, create new pressure 
     for independent boards of directors, and legislate tough 
     legal sanctions on executives, bankers, auditors, accountants 
     and others who violate the new standards.
       The accounting system desperately needs a fix; it is even 
     more incoherent than the dreaded tax code. A new accounting-
     standards board should come under the aegis of the Securities 
     and Exchange Commission. Along with proposals from the New 
     York Stock Exchange to create truly independent boards of 
     directors, this action will promote honest accounting and 
     shareholder-based corporate governance.
       Meanwhile, Mr. Levin has just as seriously proposed giving 
     the SEC, the federal government's principal accounting 
     overseer, the right to levy tough fines on corporate 
     evildoers without having to go to court first.
       Suburban liberals like Sens. Sarbanes and Levin, its seems, 
     have suddenly become conservative lawmakers who will ``move 
     corporate accounting out of the shadows,'' as

[[Page 12743]]

     Mr. Bush rightly put it, and protect the basic workings of 
     our wealth-creating capitalist system.
       President Bush, in tune with these focused Democrats, has 
     proposed a doubling of the maximum prison term for mail- and 
     wire-fraud statutes from five to 10 years. This severe jail-
     time penalty will greatly concentrate the executive mind. And 
     so will Mr. Bush's proposal that fraudulently earned bonuses 
     and compensation must be returned; and so will his request 
     that corporate officers and directors who engage in serious 
     misconduct be barred from again sitting in corporate-
     leadership positions. More, if the Bush corporate doctrine 
     moves through Congress, top executives will now have to 
     certify their financial statements with their own signatures. 
     False reporting could lead to jail.
       It seems that our more serious men in Washington want to 
     bolster the rue of law by strengthening the incentive to 
     choose right from wrong.
       Incentives matter. If you tax something more you get less 
     of it. If you tax something less you get more of it. A 10-
     year jail term for rotten corporate apples--or their 
     accountants--is a huge legal tax on wrongful actions.
       Of course, standing behind higher ethical standards in 
     business is the great American investor class. Covering more 
     than 50 percent of American households and more than 80 
     million people, this group is positively changing financial 
     practices and the political culture. These shareholders have 
     lost enormous wealth, in part from dishonest accounting and 
     egocentric corporate misdeeds. And they're furious.
       Financial markets have been democratized in the past 15 
     years with the rise of this investor class. They have already 
     voted to depress the stock market as a signal of their 
     indignation, and they're now prepared to vote this November 
     against the silly politicians who fail to realize the 
     enormity of the current problem. Consider this: Slightly more 
     than 60 percent of the investor class voted in the last 
     election. This may be the most powerful lobby in America.
       In no uncertain terms, this new political movement is 
     forcing Washington to renew the rule of law, strengthen 
     accounting and financial standards across the board, and 
     restore a proper incentive system that will return Adam 
     Smith's ethical epicenter to the greatest wealth-creating 
     machine in all of history. The days of egocentric and corrupt 
     Soviet-style corporation have come to an end. In the stock 
     market, moral amnesia is dead.

  Mr. CRAIG. Madam President, I see Chairman Sarbanes on the floor. It 
is not often that Lawrence Kudlow praises the chairman, but he did the 
other day in an op-ed and commentary that he often writes. He talked 
about the Sarbanes bill and said:

       Serious Democrats, such as the Senate Banking Committee 
     head Paul Sarbanes and Senate Investigations Subcommittee 
     Chairman Carl Levin, have taken a completely different tact 
     from the business as usual--

  I will not repeat the remainder of it. But that ought to be a part of 
the Record because I think it reflects the spectrum of the thinking on 
the floor of the U.S. Senate at this moment. Whether you are 
conservative, moderate, or liberal, we know that we have to regain the 
confidence of the American investing public and the world investing 
public, and for that matter, the market systems of our country and in 
corporate America.
  As long and as loud as many of us speak about the good corporations 
out there and how well run they are, the moment another Enron occurs or 
someone else speaks out about misdealings, that confidence is once 
again dashed.
  This legislation moves to create a bright line between, good and bad 
accounting by separating auditing and consulting services for 
accountants in public corporations. It requires disclosure of off-
balance sheet transactions and other obligations that might affect the 
corporate financial condition, and it establishes independent auditing 
boards to oversee corporate accounting.
  All of those are very critical in creating bright lines of clarity, 
understanding, confidence, and stronger enforcement of criminal 
behavior.
  Someone in my State said the other day: You don't have to strengthen 
the accounting procedure, Craig. Put the bums in jail. Those are 
criminal acts. When you knowingly are distorting the financial strength 
of a company which affects its stock, destroys retirement funds, 
employee's stock options, and all of that, it is, in fact, a criminal 
act.
  Our President has said it. Others have spoken on the floor. But there 
is a line we have to draw. It is not one of grandstanding for political 
purposes but doing the right thing, to set in place good public policy 
that directs the free market system in the appropriate fashion. Do we 
want to make it so restrictive that decisionmaking in the board room 
means always looking over their shoulder to see that they have done it 
exactly right against a Federal law when the marketplace is a dynamic 
place and laws are static?
  We know there have to be some static lines attached. There is no 
doubt about it. Those have to be clear. At the same time, we cannot be 
so restrictive that we blight the market and send investments outside 
the United States to the rest of the world.
  The Wall Street Journal wrote yesterday that everything you are 
hearing now from Washington is aimed at winning the November elections 
and not at calming financial markets. I hope this bill is all about 
calming financial markets. And I believe the majority of this bill does 
have that goal. Some of rhetoric may not reflect it. But I truly 
believe the chairman and the ranking member are working in the 
direction of building a substantive bill that will go to conference, 
that works out our differences between the House and that goes to the 
President's desk.
  I hope the Wall Street Journal is wrong. I hope we refrain from 
making corporate accountability simply another political exercise. It 
ought not be. It has not been. It should never be.
  In Idaho they say: ``You can't hang the same man twice.'' ``You can't 
hang the same person twice.''
  So let's make the laws clear, easily defined, not arbitrary, not like 
our tax laws today where even the best consultants cannot give good 
advice.
  What we are working with, I hope, is clean and clear and appropriate. 
There are more than 16,000 corporations under the jurisdiction of the 
SEC. Of those, no more than a handful have been accused of criminal 
wrongdoing. In the end--when all the dust settles, the market 
stabilizes, and investors begin again to regain confidence, and the 
Congress has acted--no more than a handful of corporations will have 
been the bad actors.
  So I hope and I trust we can finalize what we are doing here today, 
and Monday possibly. It is important. The bottom line is very simple: 
Congress needs to act, and act now, and reaffirm the confidence the 
American people have in our public institutions.
  I just came from a Republican bicameral meeting between the House and 
the Senate Republican leaders. They said: Get us the bill immediately. 
Assign conferees. Let's go to work. Let's get this out before the 
August recess.
  Let's send a message to the American and the world investor that we 
have acted timely, that we have acted responsibly. The President has 
laid down his marker. The House has laid down their marker. It is now 
time for us to do the same. And in doing so, and in moving with 
expeditious action--not haste, not in an irresponsible way--I think we 
can turn to the American people and say: We have put in place the right 
safeguards, the right protections, the right firewalls. Study the 
papers, study the financials, and begin, once again, to reinvest in the 
American marketplace because it will be the right place to put your 
money.
  Madam President, I yield floor.
  The PRESIDING OFFICER. The Senator from Pennsylvania.
  Mr. SANTORUM. Madam President, I want to pick up on what the Senator 
from Idaho just said, which is, we were just meeting on the House side 
among the leadership. One of the messages that was very clear was, when 
this bill passes, the House is very eager to appoint conferees and to 
move forward to get a bill out as quickly and as responsibly as 
possible, to send all the right messages to the investing public and to 
Wall Street that Congress has seen the problem and that we are ready, 
willing, and able to act, and act in an expeditious way.
  I think it is important for us to act. I agree with that sentiment. 
The House, obviously, acted months ago in dealing with this problem. We 
have taken a little bit longer, which we have a tendency to do in the 
Senate--take a little longer to get things done. But we

[[Page 12744]]

are now moving forward, and we should not delay in getting to 
conference. We should not delay in appointing conferees in the Senate. 
And we should have a process by which we engage in these meetings 
earnestly and come up with a product, if possible, by the August 
recess.
  It is little difficult. The House is going to be out a week before 
the Senate. So it is a pretty big task ahead of us, but we should go 
about it in earnest, and we should do our best to move this forward and 
send the signals that the Congress has moved as expeditiously as 
possible to meet the concerns of the investing public about the markets 
and the reliability of the numbers that corporations are sending out to 
the investing public.
  I have to say, as one of the four members of the committee who voted 
against this bill in the committee, I have some concerns about the 
underlying bill that came out of committee. I have some concerns about 
particularly the impact on some of the small companies that will be 
governed by this legislation.
  A lot has been made that this is a piece of legislation that just 
deals with publicly traded companies, and so we are talking about the 
big companies. As any of you who have watched the market for any length 
of time know, there are a lot of small companies that go into the 
equity markets and are publicly traded, particularly a lot of 
technology companies.
  A lot of the economic growth engines of our economy are small 
publicly traded companies. One of the concerns I have is this bill may 
be appropriate for large multinational corporations--such as General 
Motors or IBM; you can go down the list; Xerox, whatever--but it may 
not be particularly an appropriate vehicle of regulation for small-cap 
stocks.
  As you know, there are small-capital stocks, mutual funds, small-cap 
funds. To apply the same rigorous accounting standards and rules and 
regulations that very well may be appropriate for these large companies 
to these smaller companies could have a very significant negative 
effect on economic growth in our country.
  To put these kinds of rules and regulations in place for these small 
companies is going to be very expensive, very onerous, and make it very 
difficult for them to conduct business. And remember, folks, who is 
responsible for economic growth in America, job creation in America. 
Let me underscore this. We have job claims up again just last week. The 
economic engine for job creation is smaller businesses. A lot of them 
are these small publicly traded companies.
  It is a very grave concern to me that, yes, we look at these 
companies we are talking about here. These are big companies that have 
done a lot of things that, obviously, they should not have done, and 
with big accounting firms. We are not hearing about scandal in these 
smaller publicly traded companies that use small accounting firms in 
most cases. To apply these rules to these smaller companies is really 
problematic and has a negative effect on our economy.
  The last thing I want to see us do--yes, we want to strengthen 
confidence in the capital markets. Yes, we want to deal with the 
problems of fraud, and we want to hold people who commit fraud more 
accountable, and toughen punishments, which is what we have done on the 
floor. Those are very important things to do. But we should not do that 
at the expense of jobs and economic growth in our economy.
  I understand there is a provision in the bill that allows smaller--
any company, I guess, to seek a waiver as to some of the provisions of 
this act. I know a lot of small businesses, and most of them do not 
have a lot of money to hire lobbyists and lawyers and other people to 
come here to Washington, DC, or to New York and plead their case that 
they should somehow be preempted from the provisions of this act.
  You are talking about 16,000 publicly traded companies, most of 
which--well over 75 percent--are relatively small in size. Imagine the 
burden of the regulators having to deal with petition after petition 
after petition.
  Senator Gramm has an amendment, which I presume he will offer on 
Monday. I am hopeful that the Senate will seriously consider giving the 
regulatory body some flexibility in providing blanket waivers to 
classes of companies, or based on some sort of rational scheme of 
determination of size and scope of a company, that we give a little 
flexibility to the regulators not to sort of throw all the babies in 
this one big basket, and understand that there are real significant 
consequences to jobs and future growth of this economy if we did that.
  So I know that is an issue on which we are going to have a discussion 
next week. But, to me, it is a very significant issue, one where you 
can be for tougher regulation, you can be for increased accountability, 
you can be for tougher penalties--all those things, setting up this 
governing board, having standards in place--you can be for all these 
things in the bill, but you have to understand that General Motors and 
ABC Tech Company in Scranton, PA, are fundamentally different entities 
and should not be treated the same way.
  It really is important for us to have some sort of provision for the 
regulatory body to exempt some of these smaller entities, where some of 
these regulations do not really apply or misapply, from this scheme of 
regulation that is in this bill.
  So with that, it looks as if we have another Member who might be 
interested in offering an amendment or giving a speech.
  I am happy to yield.
  The PRESIDING OFFICER. The Senator from Maryland.
  Mr. SARBANES. Madam President, later I want to address a couple of 
points made by the Senator from Pennsylvania, but the Senator from 
Delaware is in the Chamber and wishes to speak. So I yield the floor.
  The PRESIDING OFFICER. The Senator from Delaware.
  Mr. CARPER. Madam President, I know the Senator from Maryland is 
getting tired of receiving all these bouquets, but he deserves them. 
Senator Enzi is not on the floor, but he deserves one or two as well, 
along with others of our colleagues, not just on the Banking Committee 
but other Members as recently as this morning who offered amendments to 
this legislation which improve it materially, especially the amendment 
offered by the Senator from Missouri, Mrs. Carnahan. It is all well and 
good that we say to those who are senior officials within companies, if 
you have a stock transaction, you have to report it. Give them the 
paperwork, they report it, and it goes somewhere where few people ever 
have a chance to see it or be aware of it. It is quite another thing to 
list that transaction, do it electronically so anyone who has access to 
the Internet can find out about it. Senator Carnahan's amendment 
includes this electronic disclosure, and that is a very good 
improvement to the legislation.
  I like what the Senator from North Dakota, Mr. Dorgan, has offered 
today, with respect to the process where we have companies normally 
registered and incorporated here in a State in America who somehow slip 
off to Bermuda and incorporate. We actually provide an incentive; if we 
don't adopt the Dorgan amendment, we provide an incentive for that kind 
of behavior. Not only does that have an adverse effect on States such 
as New York or Delaware or Maryland or Pennsylvania, it also has an 
adverse effect on shareholders because the heads of companies that are 
registered or incorporated in a place such as Bermuda would otherwise 
not have to sign off and vouch for the financial statements they are 
providing.
  Even as recently as this morning, a good bill has gotten better.
  I appreciate the amendment offered earlier by Senator Lott on behalf 
of the President and the addition of a number of provisions in the bill 
that the administration supports, and, frankly, I think we all should.
  I came across an interesting column this week. I didn't know if I 
would read it, but given that the Senator from New York is presiding, I 
have to at least read the first paragraph. This is a

[[Page 12745]]

column by a fellow who writes in the LA Times and is syndicated across 
the country, Ronald Brownstein. I will read a paragraph and perhaps ask 
unanimous consent that the entire column be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

              Bush Needs to Drop the Velvet Glove Approach

                         (By Ronald Brownstein)

       It's easy to imagine the frenzy that would be engulfing 
     Washington if it was President Clinton now revising his 
     explanation of a controversial 12-year-old stock deal.
       Bush Limbaugh would be roaring in outrage. Robert H. Bork 
     would be decrying the loss of moral authority in the Oval 
     Office. Sen. Arlen Specter, R-Pa., would be demanding a 
     special prosecutor. Congressional committees would be 
     subpoenaing the president's old business partners.
       President Bush probably will be spared all that, even after 
     suddenly altering his explanation for why he was eight months 
     late in reporting to the Securities and Exchange Commission 
     his 1990 sale of stock in Harken Energy Corp., a company on 
     whose board he sat, shortly before it announced large losses. 
     (For years he blamed it on the SEC; now he's fingering 
     Harken's lawyers.)
       After the fanatical ethics wars of the Clinton years, few 
     in Washington have much stomach for a full-scale 
     confrontation--though the Washington Post raised eyebrows by 
     revealing Bush's former personal attorney was the SEC general 
     counsel at the time commission cleared him of wrongdoing in 
     the stock sale. The attorney, James Doty, says he recused 
     himself.
       The demands of the war against terrorism also will 
     discourage a political firefight over the sale. But even so, 
     the disclosures were still creating awkward moments for Bush 
     as he prepared to call for greater corporate responsibility.
       Actually, the focus on Bush's behavior 12 years ago may 
     frame the wrong debate. It's likely that the dominant 
     argument in Washington will be over whether it's credible for 
     Bush to demand better corporate behavior while facing these 
     personal questions. The more relevant issue is whether it's 
     credible for Bush to threaten a crackdown now after his 
     administration spent its frist 18 months promising business 
     kinder and gentler enforcement of the range of federal laws 
     against corporate misconduct--from the environment to the 
     stock markets to the workplace.
       In other words, can Bush plausibly shake the iron fist 
     after stroking the Fortune 500 for so long with a velvet 
     glove?


                           business as usual

       For all the nouvelle elements of Bush's thinking on social 
     issues such as education or home ownership, he's always been 
     a conventional conservative on government oversight of 
     business. As governor of Texas, presidential candidate and 
     president, Bush has focused more on intrusive government than 
     irresponsible corporations.
       His consistent message has been that, in pursuing its goals 
     and enforcing its laws, government should be more cooperative 
     and less coercive. During the 2000 campaign, he crystallized 
     his view on government's relationship with business when he 
     insisted: ``I do not believe you can sue your way or regulate 
     your way to clean air and clean water.''
       Bush has put flesh on that philosophy by staffing many 
     federal agencies with alumni of the industries they now 
     regulate. The Interior Department is crowded with former 
     lobbyists for the coal and oil industries. A former timber 
     lobbyist is watching the national forests: Harvey L. Pitt, 
     the SEC chairman, came from the accounting industry; Bush 
     already has appointed another accounting industry alum to the 
     five-member commission and nominated yet a third. (That means 
     Bush is seeking to construct an SEC, for the first time, with 
     a majority of commissioners tied to accounting.)
       To monitor safety in the workplace, Bush found an executive 
     from the chemical industry. To monitor safety in the mines, 
     he appointed an executive from the mining industry. The list 
     goes on.
       In chorus, Bush's appointees have sung the same tune. At 
     her confirmation hearing last year, Environmental Protection 
     Agency Administrator Christie Whitman promised more 
     negotiation and less litigation against recalcitrant 
     companies. ``Instilling fear does not solve problems,'' she 
     insisted.
       Over at the Occupational Safety and Health Administration, 
     director John Henshaw as late as last month told a business 
     audience: ``Hopefully we can put the days of OSHA as an 
     adversary behind us.''
       And before Enron and WorldCom and Martha Stewart forced the 
     SEC chair to try to morph into Harvey Pitt-bull, he was 
     sending the same message, telling the accounting industry 
     last fall that he viewed them as the agency's ``partner'' and 
     pledging ``a new era of respect and cooperation'' after the 
     confrontations of the Clinton years.
       Partnership with industry has its place. But enforcing 
     federal law to police the market place isn't it. No cop 
     anywhere would agree with Whitman; they instead would argue 
     that the best way to discourage drug dealing or street crime 
     is to instill fear--of relentless enforcement. The same is 
     true in the boardroom. Polluters or stock swindlers are more 
     likely to stop because they fear being caught than because 
     Washington asks them nicely.

  Mr. CARPER. Here is the first paragraph:

       It's easy to imagine the frenzy that would be engulfing 
     Washington if it was President Clinton now revising his 
     explanation of a controversial 12-year-old stock deal. Rush 
     Limbaugh would be reacting in outrage. Robert Bork would be 
     decrying the loss of moral authority in the Oval Office. [One 
     of our Senators] would be demanding a special prosecutor. 
     Congressional committees would be subpoenaing the president's 
     old business partners.

  This is a whole lot more important than trying to find political 
advantage in a particularly difficult debate and a difficult time in 
this economic recovery. This is about the economy.
  As a nation, we are trying to come out of a recession. There is a 
fair amount of financial data which suggests we are heading in the 
right direction. The number of people being laid off is slowing. 
Manufacturing activity is increasing. Even economic activity among some 
of the most hard-hit sectors of the economy, technology sectors, is 
showing signs of life. I am encouraged by that.
  If you look at the stock exchange for much of the last several weeks 
and months, it does not really reflect the returning, emerging vibrancy 
in the rest of the economy. That is not a good thing.
  One of the reasons why it is so important for us to pass this 
legislation is to send a clear signal to investors not just around the 
country, but around the world that the United States is a good place in 
which to invest. Our trade deficit last year was about $300 billion. 
This year it is going to be even more than $300 billion.
  We are starting to see the value of American currency, the dollar, 
which was robust and strong for the last several years, deteriorate. 
The worst thing that could happen for us, at a time when we need to 
attract foreign investments, would be to send a message that the United 
States is not a good or safe place in which to invest. When we are 
looking to much of the rest of the world to help finance a trade 
deficit of over $300 billion, it is important that we send a strong 
message throughout the world that the U.S. remains the best place in 
which to invest.
  There are a number of provisions. I will not go through this bill 
provision by provision. I want to talk about some of the groups that 
have the greatest interest, the most at stake, what our obligation is 
to them, and how this legislation seeks to make sure that we not only 
recognize that obligation but that we act on it.
  Shareholders of companies, publicly traded companies, should have 
confidence. They should have confidence not only in the CEOs and top 
officials, but they should have confidence in the board of directors 
whose job it is to represent the interest of the shareholders and to 
know that that board is indeed independent. Shareholders should have 
confidence in the audit committees of the board. Investors should know 
that the audit committees of the board are comprised of independent-
minded board members, knowledgeable board members who will act, not as 
a lap dog, but as a watchdog every day as they serve on the audit 
committee.
  Shareholders should have confidence that there are rigorous auditing 
standards that exist in this country and not that there are rigorous 
auditing standards that are on a piece of paper somewhere, but there is 
a strong, independent, knowledgeable entity that is going to make sure 
that those auditing standards are enforced.
  How about the auditors of publicly traded companies? We should take 
away from them the temptation to look the other way or give the benefit 
of the doubt to a company that they are auditing because of the 
temptation from some other part of the auditing company which deals 
with consulting services; in many cases, these are lucrative services. 
We want to make sure the folks doing the audits of publicly traded 
companies are interested in doing a good job because that is their

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responsibility. Auditors should not be interested in cutting corners, 
looking the other way because doing so might enable their accounting 
company to attract and to retain lucrative consulting services.
  This bill goes a long way--some would say too far--toward curtailing 
that activity. To me, it strikes the right balance.
  Most of us know of someone who used to work for one of the big eight, 
then big five, now the big four accounting firms who actually went to 
work for one of the companies that they audited. I do. I suspect all of 
us could think of someone who has made that transition in their lives. 
There is nothing wrong with that. However, the revolving door can be 
more troublesome when the person moves from the auditing company one 
day, the company responsible for doing the audit, and the next day, the 
next week, the next month ends up as a senior official of the company 
that last week, last month they were auditing.
  This measure doesn't completely stop that revolving door, but it 
slows it down.
  Another area that this bill tries to address is the question: How 
often is it appropriate to have a fresh set of eyes in charge of those 
independent auditors doing that independent audit of a publicly traded 
company? Under current standards every 7 years we say that the lead 
partner of an audit should be changed. This measure takes it down to 5 
years. Not everyone agrees with that. Some would like to have a change 
in auditing companies, requiring auditing companies to rotate every 5 
or 7 years. I don't think that is a good idea. I do believe the 
approach we take in this measure, moving from 7 to 5 years the period 
of time after which the lead auditor, the lead partner has to be 
changed, is sound.
  How about investors? I talked about shareholders, about the auditors 
themselves. How about investors? The investors in this country and 
other countries need to be comforted by the knowledge that when they 
hear an analyst on television or read of an analyst's recommendation of 
a particular stock or stocks, when an analyst says buy, they mean buy. 
When an analyst says sell, they mean sell. When an analyst says hold, 
they mean hold.
  Investors have the right to know that the analysts whose advice they 
are following or attempting to follow are not being pressured to color 
their recommendations of a buy, sell, or hold by what is happening on 
the investment banking side of the business, and to know that the 
analyst's compensation is going to be derived more from how well the 
analyst does his job, providing good analysis and investment advice, 
and not about how much new business that analyst can help bring to the 
investment banking side of their company.
  How about the CEOs and senior management? When they break the law, 
they should be fully prosecuted under the law, and if what they have 
done is an offense for which they can be imprisoned, they ought to be. 
Our job in the Congress is to pass laws and to say what the crime or 
penalty should be when people violate those laws.
  It is the job of the Justice Department to fully prosecute--with the 
help of the SEC and the other watchdog agencies--people who violate the 
laws. Senator Leahy, on behalf of a number of Senators, earlier this 
week--yesterday, I believe--offered legislation that provides a new law 
that says not only can we prosecute some of the corporate wrongdoers--I 
am tempted to call them criminals, but I won't--who violate the trust, 
and to not only say you have to go after them under the mail and fraud 
provisions of the criminal code, but to broaden that--which is 
sometimes difficult to do--and make the prosecutions more easily done 
and with very tough penalties under another part of the code.
  CEOs should not be allowed to profit from financial misinformation or 
from manipulation of their books. I commend the President and those who 
have worked on this legislation to say, to the extent that this does 
happen--a CEO or senior official benefits financially from tampering or 
cooking the books--they would be compelled to give that money back.
  I mentioned earlier the legislation offered by Senator Carnahan of 
Missouri which would actually make sure there is a disclosure of sale 
when a CEO or senior official sells their stock; that the transaction 
would not only have to be reported to the SEC, but disclosed 
electronically.
  Another provision in the bill that I think is especially good and 
timely, given what has gone on at WorldCom, where apparently a senior 
official of that company received a $360 million loan from the 
company--a loan which I don't believe the shareholders ever knew 
about--at least when they found out about it, it was too late for a lot 
of them. That kind of information should be fully disclosed promptly 
and through a medium that allows those who have some need to know--
investors and shareholders--to have that information in a timely way.
  Finally, a word about the employees who work for some of these 
companies that have gone through, or are going through, a meltdown. 
They need, I think, recourse when they are urged, on the one hand, by 
senior officials to buy company stock for their 401(k) investment plans 
at the very time when senior officials are bailing out of the company 
stock. There should be some kind of recourse for employees when that 
happens. In the belief of what is good for the goose is good for the 
gander, employees should never again face the situation that Enron 
employees faced where, during a lockdown period of time, employees 
could not sell their stock while senior officials were able to bail out 
and sell their stock. What is good for the goose is good for the 
gander. To the extent that employees in a lockdown period are not able 
to sell their company stock in their 401(k) plan, the senior officials 
of the company should not be able to enter into transactions involving 
their stock either.
  There is one thing I don't believe we address in this bill; the 
others I mentioned, we do. One area we do not address--and I suspect it 
comes later--and a member of the staff will tell me if I am mistaken. 
One of the problems we have with 401(k)s for the employees, the 
investors, is that they don't get very good advice. The companies don't 
want to be held liable if they provide bad advice when all is said and 
done. And when we move on to other issues, I hope we will have agreed 
on a way to better ensure that the employees who are not getting very 
good advice do get that good advice.
  I worry about the concentration of assets and investments. I know 
some people believe there should be a cap and that they should not be 
able to invest any more than half or a quarter in company stock for 
your 401(k). If I am an employee and I am buying company stock, maybe I 
should have to sign a form that is an acknowledgment that I am about to 
do something very stupid--something similar to what the employees did 
at Enron, where they put all their eggs in one basket--and acknowledge 
that is not a bright thing to do, and acknowledge that I am doing that 
unwise thing myself. Maybe that is needed here. In addition to that 
kind of disclosure, I think we do need to address the need for better 
advice for employees.
  I will go back to where I started; that is to say, a lot is riding on 
this legislation--a whole lot more than we would have guessed 6 months 
ago. Six months ago, as we saw Enron melt down and the disclosures come 
forward, we thought it was one company that was poorly run, maybe 
fraudulently run. A lot of people were hurt who worked at that company. 
A lot of people who worked for the auditor, the accounting firm, Arthur 
Andersen, have lost their jobs and were, frankly, fully innocent, but 
they have been harmed. Six months ago, there was a full sense of 
outrage at Enron and the people who led it to its fall.
  We know now that what happened at Enron may not be precisely the same 
as other companies, but it is symptomatic of the behavior in other 
companies, where the people who run those companies do not meet their 
obligations to the shareholders, to the employees, and where greed has 
corrupted too many people. While it is difficult

[[Page 12747]]

for us to pass a law outlawing greed, we can try to outlaw fraud. But 
it is tough to do that; I acknowledge that.
  With the developments within a whole host of other companies--
disclosures of financial mismanagement and misstatements, 
misrepresentation of performance of other companies in recent months--
the importance of what we are doing this week and next has grown. We 
need to get this economy moving in the right direction. I believe that, 
underneath, a lot of the fundamentals are pretty sound. If you look at 
growth, and productivity, and the manufacturing activity to which I 
alluded earlier, there is some good news. The troubling news is what is 
going on in the stock market, as investors are skittish, and that is 
understandable.
  We can begin to restore, in a very meaningful and tangible way, the 
confidence of those investors in America and in American companies, and 
we ought to do that.
  The last word I will say is this. I commend Chairman Sarbanes. He is 
not presently on the floor. I also commend the committee staff and 
personal staffs for the kinds of hearings that have been held this year 
which have led us to this day. Chairman Sarbanes is not the sort of 
person who is interested in rushing out and being on television every 
night. He is not interested so much in seeing his name or picture in 
the newspaper. He is interested in getting at the truth. I think the 
hearings that were held over many months have led us to finding the 
truth and, maybe just as important, to finding the right course for us 
to take as a nation, to be able to right some of the wrongs that have 
been done and to reduce the likelihood that further wrongs will occur 
in the future.
  I know some have been impatient for us to get to this day and to take 
up this legislation, pass it, and to send it to the President. I think 
it has been worth the wait. I acknowledge that not everything that 
needs to be done ought to be done by the Congress. The stock exchanges 
have made a number of excellent changes, and they are to be commended. 
Many companies and many corporate boards, that have sort of been tarred 
with the same brush, and senior officials and CEOs who are doing a good 
job in acting and behaving in a most important way, have been tarred 
and feathered with the same brush.
  A lot of companies have said, themselves, they have taken a look in 
the mirror--boards of directors, audit committees, and others--and 
said: We can do better. And they have adopted reforms. Shareholders--
market forces--have come to bear on companies, their boards of 
directors, as they should, and that is helpful as well.
  In the end, there are some things the Congress can do and ought to 
do, maybe not all of them, but a lot of them are included in this 
legislation before us. I am proud to have participated as a member of 
the Banking Committee in its development and proud to be a witness to 
the work that is going on in this Chamber to make a good bill even 
better. I yield the floor.
  The PRESIDING OFFICER. Who yields time? The Senator from Michigan.
  Mr. LEVIN. Madam President, in a moment I am going to ask unanimous 
consent that the pending amendment be set aside and that I be allowed 
to call up amendment No. 4283. This amendment relates to stock options. 
The amendment is one line. It says that the standard-setting body for 
accounting principles that is set up in this bill shall review the 
accounting treatment of employee stock options--just review it--and 
shall within a year of enactment of this act adopt an appropriate 
generally accepted accounting principle for the treatment of employee 
stock options. They shall review it within a year and adopt an 
appropriate standard.
  There has been a huge amount of debate about stock options. Recently 
the Republican Senate staff of the Joint Economic Committee issued a 
report about ``Understanding the Stock Option Debate.'' In that report, 
it concluded that, ``Basic principles of financial accounting imply 
that stock option awards should be treated as a cost in corporate 
financial statements, and this cost should be recognized at the time of 
grant.''
  We have a Republican Senate staff report which, after reviewing all 
of the pros and cons, concludes that stock option awards should be 
treated as costs in financial statements. It is a very strong document. 
It is an analysis that I recommend to people to read.
  Our amendment, however, does not do that. Our amendment, which is an 
amendment I am offering on behalf of myself, Senator McCain, and 
Senator Corzine, simply says that the board we are funding in this bill 
should review the accounting treatment of employee stock options and 
adopt an appropriate standard.
  How anybody can be opposed to the proper accounting board doing a 
review and coming up with an appropriate standard is something beyond 
my understanding. I can understand the arguments, the pros and the 
cons. I have been through them for 10 years. I have argued that we 
ought to treat stock options like any other form of compensation, and I 
believe we should. But I do not set accounting standards. That is not 
my job. That is the job of this newly independent board to set 
accounting standards, and we should urge them to take a look at this. 
This is where this matter should be referred and at a minimum, Madam 
President, I ought to be allowed to get a vote on this amendment.
  This is a germane amendment. We are in a postcloture situation, and I 
do not know of a time--there may be; I have not been around here as 
long as some--but I do not know of a time when a germane amendment 
postcloture has not been permitted to go to a vote.
  Apparently, that is what is going to happen, from what I hear. I hope 
it is not true, and I do not want to be unfair to my good friend from 
Pennsylvania. He may not object. But I think it is a misuse of our 
rules now I am going to get to a process issue--to not permit a germane 
amendment postcloture to be voted on. And this amendment is germane.
  On the stock option issue, we have everyone from Alan Greenspan to 
economists. Let me read the list of some of the people who support a 
change in stock option accounting: Alan Greenspan; Paul Volcker; Arthur 
Levitt; Warren Buffett; TIAA-CREF, one of the largest pension funds in 
the United States for teachers; several economists; Paul O'Neill; 
Standard & Poors; Council for Institutional Investors; Citizens for Tax 
Justice; Consumer Federation of America; Consumers Union; AFL-CIO; on 
and on. They believe that stock options are a form of compensation, 
they have value, and they should be part of the expenses on the books 
of a corporation just as they are taken as a tax deduction at this 
point.
  One of the driving factors in the corporate abuses that we have seen 
are the huge gobs of stock options which have been handed out to 
executives. Then executives push accounting principles beyond any 
comprehension to raise the value of the stock and then exercise their 
options and sell the stock. We have seen this situation repeated in 
corporation after corporation, and I believe we ought to try to put an 
end to it, but that is not what this amendment does. This amendment 
simply says: We are creating a newly independent board. This 
independent board should decide on what the appropriate standard is. 
That is why we are providing independent funding for it.
  I want to read a part of a Washington Post editorial of April 18, 
2002:

       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.

  Skipping down:

       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. . . .
  Why does this matter? Because the current rules--which allow 
companies to grant executives and other employees millions of dollars 
in stock options

[[Page 12748]]

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 that 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 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.

  Then this editorial goes on:

       But nobody wants to ban this form of compensation; the goal 
     is merely to have it counted as an expense.

  Madam President, that is what most of the accounting profession, 
economists, and business people, other than those executives who are 
taking such huge amounts of stock options, want to do. This is what the 
Accounting Standards Board wanted to do in 1993, but then were beaten 
down so badly that they had to come up with an alternative instead 
called disclosure.
  Even when the accounting board decided to do that--which was not an 
independent accounting board because it did not have an independent 
source of financing, unlike this accounting board will have after we 
enact this bill--and now to read their report of 1994. The board issued 
an exposure draft called, ``Accounting for Stock-Based Compensation,'' 
and they decided that stock option values should be expensed. Then they 
said the draft was extraordinarily controversial, and the board not 
only expects but actively encourages debate on issues. Then they 
pointed out in the FASB document that the controversy escalated 
throughout the exposure process.
  Then in paragraph 60 of their findings, the FASB board said the 
following, that ``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. The nature of the 
debate threatened the future of accounting standards-setting in the 
private sector.''
  This is an extraordinary document and everybody should read it so 
people understand the kind of pressure that not only that board was 
under--hopefully, the newly independently funded board will not be 
under--but the kind of pressure which exists in this Congress. We have, 
in essence, a new board, because it has an independent source of 
funding. We ought to let that board reach an independent conclusion on 
one of the most controversial, contentious issues we have before us.
  This is a tremendous bill we are voting on. But it can be 
strengthened. It is not a perfect bill, and from the point of view of 
pure fairness and deliberation, this Senate should be allowed to vote 
on a germane amendment postcloture.
  I will read one additional paragraph from the FASB document report to 
set out the extent of the pressure which exists in this area and why it 
is so important there be a review of this whole matter by an 
independent board.
  In December 1994, the board said it decided that ``the extent of 
improvement in financial reporting that was envisioned when this 
project was added to its technical agenda was not attainable.''
  Why was it not attainable, the FASB said? Because the ``deliberate, 
logical consideration of issues that usually leads to improvement in 
financial reporting was no longer present.'' These are incredible 
words. This is from the board that is supposed to set accounting 
standards in this country. They wrote in their report that when their 
proposal to expense stock operations was issued, it was not attainable 
because the ``deliberate, logical consideration of issues that usually 
leads to the improvement in financial reporting was no longer 
present.''
  Why was it no longer present? Because the debate had become so 
divisive, in their words, that it threatened the board's future working 
relationship with some of its constituents.
  The nature of the debate, they wrote, threatened the future of 
accounting standards-setting in the private sector.
  Finally, the board, beaten down, threatened with extinction, said 
this: ``The board chose a disclosure-based solution for stock-based 
employee compensation to bring closure to a divisive debate on this 
issue, not because it believes the solution is the best way to improve 
financial accounting and reporting.''
  That was in 1994. We have seen what has happened in terms of stock 
option abuses because this board, if it had proceeded in the way it 
thought best, would have gone out of existence.
  This bill creates a newly independent board, a board that has an 
independent source of revenue. This bill, it seems to me, is not 
complete, is not strong, unless we now say to this country that the 
newly independent board should review this accounting standard and 
reach an appropriate conclusion.
  This amendment, which is cosponsored by Senators McCain and Corzine, 
does not say what that conclusion is. It does not, unlike the McCain 
amendment which was not allowed a vote yesterday, conclude that stock 
options should be expensed. It does say we have an independently funded 
board which should review this matter and reach the appropriate 
conclusion.
  Mr. REID. Will the Senator yield for a question?
  Mr. LEVIN. I would be happy to.
  Mr. REID. I am just curious. I am not sure I should get involved at 
this stage because the Senator knows the subject so well, but this 
board that is set up in this proposed law, they would not have 
authority to do that on their own?
  Mr. LEVIN. They would.
  Mr. REID. Why do we need your amendment?
  Mr. LEVIN. Because this Congress has been on record as saying what 
the accounting standard should be. In the early 1990s we took a 
position. This neutralizes that position. This says, the accounting 
board is the right place. The Senate is on record by a vote of 88 to 9 
as saying there should not be the expensing of stock options. What this 
amendment says is that the board should decide. It should review this 
matter. It takes a neutral position, thereby clearing the record as to 
what the position of this Senate is.
  As of now, all we have on record is that stock options should not be 
expensed. What this amendment would say is, you should review this and 
reach an appropriate standard.
  Mr. REID. My question to the Senator was, If we did not have the 
Senator's amendment, would the board not have that authority anyway?
  Mr. LEVIN. They could do it, but all that there would be on the 
record would be our last statement saying they should not expense. That 
same kind of pressure we put on them would still be on the record, and 
I think that should not be the last statement this Senate should make 
on this subject.
  The last statement we ought to make on this subject is that the 
accounting board is the appropriate place to make that decision, not 
the Senate.
  Mr. REID. I still ask my friend for the third time, if we have no 
Levin amendment, it would seem to me this newly created board would 
still have authority to do what the Senator is talking about.
  Mr. LEVIN. Under the cloud we created in 1994. I would refer my 
friend to the debate in this body back on May 3, 1994, where the Senate 
reached a conclusion that it is the sense of the Senate, that was 
approved by, again, a vote of 88 to 9 or something like that, that the 
Financial Accounting Standards Board should not change the current 
generally accepted accounting treatment of stock options.
  Mr. SARBANES. Will the Senator yield?
  Mr. LEVIN. I am happy to yield.
  Mr. SARBANES. I asked the Senator to yield because I do want to 
underscore that the legislation that is before us takes a major step in 
trying to guarantee the independence of the Financial Accounting 
Standards Board in terms of how it provides for its funding, and that 
is a dramatic improvement of the situation because heretofore the 
standard board had to seek voluntary funding. So the standards board 
ended up going to the people for whom it was establishing the standards 
in order to get money to fund its operations. Well, when it came to the

[[Page 12749]]

crunch--and this issue was one such crunch as far as the Financial 
Accounting Standards Board was concerned--the people from whom they 
were voluntarily getting the money said we are not going to give you 
any money. You are not going to be able to carry out your activities.
  So we moved in this legislation because one of the things we require 
is that the issuers pay a mandatory fee. If you are an issuer, you are 
registered with the SEC and you have to pay a fee. That goes into a 
fund and that fund pays for the budget of the Public Accounting 
Oversight Board and the budget of the Financial Accounting Standards 
Board, so they are assured a revenue source.
  I urge people to stop and think about that because it is a very 
important step to ensuring the independence of both boards. But here we 
are talking about the Financial Accounting Standards Board, and the 
dramatic change from its previous situation.
  So it really will have, at least on the budget side, the independence 
to go ahead and make these decisions as they choose to call them. The 
issue that becomes involved in all of this otherwise is the question, 
Should the Congress of the United States be itself actually 
establishing accounting standards? Of course, as the Senator indicated, 
when an opinion was voiced on that a few years ago, it went in one 
direction. And now people want the Congress to come along and express 
an opinion in another direction. I have some sympathy. Obviously, we 
have seen things happen. Most people might have sympathy.
  But we come back to the basic question, whether the Congress should 
be doing this. We set up this accounting standards board so it could 
make independent judgments. Unfortunately, there is no question about 
the fact that previously the standards board was subjected to 
tremendous pressure which affected its ability to make an independent 
judgment. It got tremendous pressure from industry groups, pressure 
from Congress reflecting the pressure of industry groups, and of course 
this exposure on its budget.
  We have tried in the legislation to address this very basic question 
of making sure this board has its independence. That does not reach to 
the specific issue the Senate is now addressing, but I wanted that on 
the record. It is important that be understood.
  Mr. REID. Mr. President I ask unanimous consent I be allowed to speak 
using my own time for up to 2 minutes.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. LEVIN. I will conclude, but I need to reclaim the floor because 
apparently all time otherwise is counted against my allotted time 
postcloture.
  Mr. President, I ask unanimous consent the pending amendment be set 
aside and that I be allowed to call up the amendment I filed at the 
desk relative to this subject which I understand has been ruled 
germane.
  The PRESIDING OFFICER. The Senator from Pennsylvania.
  Mr. SANTORUM. Reserving the right to object, I want to make a couple 
of points.
  No. 1, the Senator from Michigan suggested that all amendments that 
are germane postcloture should be allowed to be offered. I wish that 
were the case. I wish we had the opportunity to do that in all 
situations, but that has not been the case in this Senate, or has not 
been necessarily the history of the Senate. There have been many 
instances where germane amendments have not been allowed to be offered 
postcloture.
  No. 2, I make a point and reiterate the point that the chairman of 
the committee has made. The Senator from Michigan has made the point 
that FASB has been compromised because it wanted to do things and it 
felt constrained by the constituency which funds it. We have set up an 
independent funding source for FASB now, and I think that would allow a 
lot more independence to be able to deal with these accounting issues, 
such as the way we treat stock options, in a way that allows an 
independent judgment.
  Finally, while we do have a sense of the Senate that is 8 years old 
on this issue, the Congress has never directed FASB to study an issue 
of accounting. This is precedent setting. There is nothing in this bill 
that directs FASB to do anything. It is an independent board. It sets 
up the accounting standards. I think there is no question that it will 
in all likelihood review this issue.
  For the Congress to begin to weigh in--even 8 years ago, we did not 
direct FASB to do this; we simply expressed our opinion. To direct FASB 
to do something would be a very bad precedent to set.
  I object.
  The PRESIDING OFFICER. The objection is heard.
  The Senator from Michigan.
  Mr. LEVIN. Mr. President, I see no reason that a vote should not be 
permitted on this amendment. That is what this objection leads to. I 
urge we come back on Monday, or whenever we do come back, and I will 
make this motion again because this is a critical issue, that is not 
addressed in this bill, which is a big part of the lack of credibility 
we have right now in our markets. It needs to be addressed in some way. 
This is a neutral way to do it.
  The arguments given by our friend from Pennsylvania are reasons to 
vote no on an amendment. They are not reasons to prevent an amendment 
from being called up and being offered.
  I will say again, I don't know where an amendment that is ready to be 
offered is not permitted to be offered because postcloture one side of 
the aisle has decided it is going to leave a first-and second-degree 
amendment standing out there without a vote in order to prevent other 
germane amendments from being voted on. I don't think that has ever 
happened. Obviously, we have reached the end of the 30 hours at times 
and there are still germane amendments that are pending. But this is 
not that situation.
  There is no further debate on the Carnahan amendment that I know of. 
Why not vote on the Carnahan amendment? There is no further debate--or 
if there is, let the debate take place so that other people can offer 
their germane amendments. That is being precluded here. I believe it is 
a misuse of postcloture rules to do that.
  That being the situation, I will be offering a unanimous consent at 
this time that my amendment be made in order at 2 p.m. on Monday.
  The PRESIDING OFFICER. Is there objection?
  Mr. SANTORUM. I object.
  Mr. LEVIN. I thank the Chair, and I will make a unanimous consent 
request again on Monday that we be allowed to offer germane amendments 
in the time that remains on Monday and that we not be precluded by a 
blocking action which, it seems to me, is a distortion and a misuse of 
the postcloture rules which are intended to allow 30 hours to consider 
germane amendments. If that 30 hours is being used up and either being 
sworn off or not used, it seems to me that then precludes consideration 
of highly relevant--indeed, germane--amendments which are important to 
strengthening this bill.
  I thank the sponsors of this bill. It is a strong bill. There is no 
reason we should not be able to vote on a way to make it stronger.
  I yield the floor.
  Mr. GRAHAM. Mr. President, I appreciate the chance to speak about the 
Public Company Accounting Reform and Investor Protection Act. I would 
like to strengthen section 302 of this legislation which is entitled, 
``Corporate Responsibility For Financial Reports.''
  I have discussed several ideas with Senator Sarbanes and greatly 
appreciate his leadership on this legislation. He has been tireless in 
his efforts to strengthen corporate accountability and protect the 
American investing public.
  My first area of concern involves companies that have chosen to move 
their headquarters overseas. This legislation requires that CEOs and 
CFOs sign a statement saying that the financial documents they have 
filed are fair and accurate. This is consistent with an order just 
issued by the Securities and Exchange Commission, SEC, that requires 
CEOs and CFOs to attest to the accuracy of their company's most recent 
financial statement.

[[Page 12750]]

  But there is a glaring omission to this recent SEC order. Only 
companies that are U.S.-based would be required to send in these signed 
documents. If a company once based in the U.S. has fled our shores and 
gone overseas for tax reasons, they now just received a reward for 
leaving our Nation. Those CEOs and CFOs would not have to sign 
financial documents and attest to their accuracy.
  The SEC has also overlooked the accuracy of future financial 
documents by non-U.S.-based companies. Under a proposed rule, that is 
in the ``open comment period,'' foreign based companies are again 
enjoying a lesser standard of accountability. This is wrong, and unfair 
to American companies.
  In the proposed rule, the SEC does invite comments on how to cover 
overseas-based companies. However, this could be a case of ``too little 
too late.'' If companies are being publicly traded in the United 
States, regardless of where their headquarters are located, they ought 
to be required to meet the same level of accountability that we are 
establishing for everyone else in this legislation.
  Let's not give U.S.-based companies one more reason to leave our 
Nation and incorporate someplace else. We need to hold all companies in 
our markets to the same high standard--there should be no reward of a 
lower standard if your company leaves the U.S. for a new overseas 
headquarters.
  My staff placed a call to the SEC to uncover the reason why foreign 
based companies were excluded from their recent order. To the credit of 
the SEC, they wanted to act quickly. They thought that the quickest way 
to promulgate this order was to cover only U.S.-based companies. 
However, in doing this quickly, they ended up sending the wrong 
message. U.S.-based CEOs and CFOs are ``on the hook'' in signed 
statements. Foreign-based CEOs and CFOs, simply put, are not.
  Senator Dorgan and I want to change this. We want it to be clear in 
the statute that no matter where your company is based, you must comply 
with this obligation. Senator Dorgan has filed an amendment to correct 
this, amendment No. 4125.
  I appreciate the consideration that the floor managers, Senator 
Sarbanes and Senator Gramm, have given our amendment and I encourage 
all my colleagues to support us in this effort. I look forward to 
seeing it in the final legislation.
  Mr. JOHNSON. Mr. President, I rise today to urge my colleagues to 
take swift and decisive action to stem the tide of corporate greed that 
is eroding the integrity of America's capital markets. I am a strong 
believer in the free enterprise system, and I am proud of America's 
leadership in creating tremendous economic opportunity for all 
investors, big or small, domestic or foreign. However, it is time that 
Congress curb the appalling corporate excesses and misinformation that 
have hurt investors, employees and taxpayers. Passage of the Public 
Company Accounting Reform and Investor Protection Act is a critical 
step in addressing these concerns.
  It is tempting to blame the problems corporate America is facing on 
just a few bad actors. For the most part, America's business men and 
women are industrious, innovative, and honest people who work hard to 
build our economy and provide jobs for our communities. However, we 
simply cannot ignore the shocking number and size of failed or failing 
companies, the marked increase in earnings restatements, and the 
profound toll this has taken on hard-working Americans. In fact, state 
pension funds have plummeted more than $1 billion from the WorldCom 
restatement and billions more from other companies involved in the 
scandals.
  In light of these inexcusable revelations, it is hard to believe that 
these problems are just isolated instances. Almost daily discoveries of 
accounting irregularities at some of America's largest and most highly 
respected companies, such as Enron, WorldCom, Tyco, and Xerox, to name 
just a few, clearly demonstrate the need for systemic accounting and 
corporate governance reform. Just recently, in fact, the Wall Street 
Journal reported that the drug company Merck may have understated 
revenue by over $12 billion.
  We must address systemic problems that are undermining the efficiency 
and transparency of our free market system, and which are eroding the 
faith of everyday Americans in the fundamental fairness of American 
business practices. We must clean up the current corporate culture that 
rewards misleading financial reporting and lax or corrupt corporate 
governance. We need strong legislation that will end the conflicts of 
interest and lack of disclosure that have misled investors and shaken 
their faith in America's financial markets. And we need to ensure that 
the SEC has the tools and money it needs to become a strong and 
formidable enforcer of securities laws. A kinder and gentler SEC serves 
only those corporate executives who have something to hide.
  The Public Company Accounting Reform and Investor Protection Act 
addresses these problems in a way that limits regulatory burden but 
provides affirmative measures to restore the integrity of our free 
market system. I support the bill's creation of a strong Public Company 
Accounting Oversight Board and restrictions on non-audit services 
accounting firms can provide to public company audit clients. Further, 
the bill imposes tough new corporate responsibility standards and 
implements controls over stock analyst conflicts of interest. Also, the 
bill requires public companies to quickly and accurately disclose 
financial information, so that high-level executives don't have a head 
start over small investors in bailing out when a company is in trouble. 
Finally, the bill ensures that the SEC has the resources to accomplish 
its mission of regulating the securities markets.
  On this last point, I was disappointed that President Bush's budget 
did not include money that the Banking Committee authorized last year 
that would have strengthened the SEC. The SEC has long been hobbled by 
its inability to compete for top-notch employees because of a pay scale 
that was out of line with other financial regulators. Late last year, 
Congress passed, and the President signed, H.R. 1088, which provided 
pay parity for SEC employees. Unfortunately, the President's budget did 
not allocate additional funds, making it difficult if not impossible 
for the SEC to carry out its enforcement mission. I am pleased that 
President Bush is now calling for additional funding for the SEC, which 
should be better able to police public companies with adequate 
resources.
  Without the threat of real consequences, however, dishonest corporate 
executives have little to fear from being caught with their hands in 
the cookie jar. For this reason, Congress must implement a plan to hold 
irresponsible corporate executives responsible for their actions. We 
must not allow these criminals to hide behind the corporate veil, while 
stealing millions of dollars from hard-working Americans. In that vein, 
I support provisions contained in the Corporate and Criminal Fraud 
Accountability Act, sponsored by Senator Leahy. The bill would provide 
stronger criminal penalties for corporate managers who defraud 
investors of publicly traded securities, criminal prosecution of 
persons who alter or destroy documents related to investigations, and 
protection for corporate whistleblowers against retaliation by their 
employers, among other provisions designed to protect investors from 
corporate greed.
  Finally, I believe that we should take a strong stance against 
another form of corporate greed: corporations that profit from American 
consumers, yet intentionally dodge U.S. taxes by moving their 
headquarters abroad. It is outrageous that these so-called ``American'' 
companies take advantage of the benefits of operating in this country 
and yet shirk even the most basic responsibilities of corporate 
citizenship. That's why I strongly support the Tax Shelter Transparency 
Act, sponsored by Senator Baucus, which would close the loopholes that 
allow corporate executives to use evasive accounting tactics to enrich 
themselves on the backs of American taxpayers.
  Before I close, I would like to thank Chairman Sarbanes for his 
leadership

[[Page 12751]]

on this important issue. I also want to thank the Chairman as well as 
the Banking Committee staff for conducting a series of ten inclusive 
and comprehensive hearings on the issues addressed in his bill. The 
content of those hearings provided a conceptual foundation for our 
subsequent discussions of Senator Sarbanes' bill and a previous bill 
proposed by Senators Dodd and Corzine. In addition, our work has been 
enhanced by the fine contributions of Senator Enzi, who is the Senate's 
only Certified Public Accountant. The deliberative process used to 
develop this legislation has led to an appropriate, thoughtful, 
bipartisan bill that makes great strides in addressing the problems in 
our financial markets and restoring investor confidence.
  Ms. LANDRIEU. Mr. President, I would like to voice my strong support 
for S. 2673, the Public Company Accounting Reform and Investor 
Protection Act. This legislation will bring accountability to our 
corporate boardrooms and end the accounting abuses that threaten to 
undermine the free enterprise system.
  The hallmark of our economic system is free, fair, and open 
competition. The system rewards innovation, efficiently, and hard work. 
It allows individuals to take an idea, a dream, or an invention; build 
a business around it; and turn it into a livelihood. Some of our 
greatest corporations today started with just one idea.
  The recent revelations from Wall Street have thrown much of this in 
doubt. For the Enrons, and WorldComs of the world, success was based on 
hiding losses, misstating earnings, destroying documents, and getting 
cozy with their so-called ``independent'' auditors and the stock 
analysis who are supposed to give the stock buying public objective 
information. Instead of winning through open competition, these 
companies and others won through accounting sleight-of-hand.
  The price of this deception has been too high. While much has been 
made in the media about how far the Dow, the NASDAQ, and the S & P 500 
have fallen on Wall Street, the real pain is being felt on Main 
Street--in retirement plans, pensions, and the investment portfolios of 
hard working people in our country. The pain is being felt by the very 
wealthy and people with modest means. Fortunately no Louisiana-based 
corporation has been caught up in this mess and hopefully that will 
remain the case, but many Louisiana investors were not so lucky.
  Many have said that all of these problems have been caused by a few 
bad apples. But when we hear about corporations hiding losses, creating 
off-book partnerships, insider trading, and inside loans to corporate 
officers, it means that something may be wrong with the whole tree: the 
tree is rotten because of loopholes in regulations and limited 
oversight.
  My State of Louisiana is home to a large number of small businesses--
94,000 of the employer businesses in my state employ fewer than 500 
people-- and they employ about 54 percent of the state's workforce. 
This does not include the estimated 135,000 self-employed people in my 
state. I find myself wondering what small business owners think of all 
of the news reports about these big, sophisticated corporations and 
their crooked accounting?
  Small business owners work hard to keep clean books. They do not have 
a team of creative accountants that turn losses into gains. The small 
business does not create sham, off-book partnerships to hide losses. I 
have never heard of a small business being forced to restate its 
earnings. Small business grow by playing by the rules. Many small 
business owners dream of taking the honest approach to turning their 
ideas and dreams into big businesses. How disheartening must it be for 
them to see that in the world of big corporate business the way to get 
ahead is by cheating.
  The bill before us today will help restore faith in the free market. 
It creates a strong oversight board that will set auditing standards 
for public companies backed up with the power to investigate abuses. It 
gets rid of the inherent conflict of interest faced by accounting firms 
that provide management consulting services to their auditing clients. 
Here on the floor we have added tough criminal penalties to this bill 
and given greater protections to whistles blowers. The whistle blower 
protections are an especially needed reform. We want the honest people 
in business to know that there is still a place for them.
  We must take this opportunity to restore confidence in the free 
market. I urge my colleagues to vote in favor of this legislation and I 
want to commend the chairman of the Committee, Mr. Sarbanes, for 
bringing this legislation to the floor.


                            Vote Explanation

 Mr. KERRY. Mr. President, due to a longstanding commitment I 
was necessarily absent for the vote on cloture on the Public Company 
Accounting Reform and Investor Protection Act of 2002 (S. 2673). 
Although my vote would not have affected the outcome, had I been 
present, I would have voted for cloture on the bill.

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