Senate passes corporate reform bill
CNN Washington Bureau
WASHINGTON (CNN) -- The U.S. Senate unanimously passed legislation Monday aimed at reforming the accounting industry and enacting new tough penalties for chief executives convicted of cooking their companies' books.
The Senate approved 97-0 a bill creating an independent accounting board to police the accounting profession and prohibits accountants auditing a company from also providing consulting advice.
The bill, written by Senate Banking Committee Chairman Paul Sarbanes, D-Maryland, was originally designed to deal with problems associated with the fall of Enron, but was pushed through with rare speed as stories of scandals at other companies such as WorldCom and Imclone put pressure on lawmakers to act.
The bill now also contains new penalties for securities fraud. An amendment sponsored by Sen. Patrick Leahy, D-Vermont, makes it a felony to knowingly defraud shareholders and provides whistleblower protections for employees of publicly traded companies.
The legislation also includes a measure offered by Senate Minority Leader Trent Lott, R-Mississippi, that incorporates several proposals President Bush offered in a speech last week on Wall Street.
They include increasing jail time for corporate wrongdoing from five to 10 years and allowing the SEC to freeze payments to corporate executives under investigation.
The bill includes a prohibition on excessive loans to corporate executives from company funds, another proposal Bush advocated last week.
The president has come under fire from Democrats after it was revealed Bush was given a loan from Harken Energy when he was chairman more than a decade ago.
Bush hailed the vote and urged the Senate and the House, which passed its own corporate reform package in April, to have a final bill on his desk before lawmakers recess next month.
"I am pleased the Senate has now acted on a tough bill that shares my goals and includes all of the accounting and criminal reforms I proposed," Bush said in a statement.
He pointed to initiatives he offered earlier in the year to protect pensions, improve shareholder information, strengthen corporate governance and create a more independent accounting system.
The House bill, sponsored by Rep. Michael Oxley, R-Ohio, does not go as far as the Senate package in reforming the accounting industry and does not include new penalties for executives.
Although the House legislation had the tacit support of the Bush administration, Lott predicted Congress would send a bill to Bush that looks more like the Senate version.
"This bill is stronger in several aspects than the house passed bill, but I think a lot of it has been done thoughtfully and that they will move through a conference relatively quickly," Lott said.
"I've discussed this with the president ... and I've discussed it with the speaker [of the House] ... and they both feel like the Sarbanes bill is within the range that they can support."
One thing not addressed in the bill is the question of whether companies should list their stock options on their balance sheets, which they currently are not required to do and which many say leads to inaccurate or overblown listing of assets.
Sen. John McCain, R-Arizona, tried to get a vote on his amendment last Friday that would require companies to list stock options as an expense, but Senate Assistant Majority Leader Harry Reid, D-Nevada, used parliamentary tactics to deny the vote.
Sen. Carl Levin, D-Michigan, attempted to get a vote Monday on his less-aggressive measure that would require the accounting board to study the issue of stock options. He was blocked by Sen. Phil Gramm, R-Texas.
McCain maintains it is impossible to reform corporate America without addressing the issue of stock options and blames powerful business lobbyists for blocking attempts to debate the issue.
"There was no vote allowed on my amendment, which is a clear-cut, absolutely unequivocal statement about the use of stock options for accounting," McCain said. "The fix is in."
"The use of a technical blocking tactic to prevent a vote on my stock option amendment leaves one of the most important post-Enron reforms unaddressed," Levin said in a statement.
"Alan Greenspan has said that accounting for stock options is the most important post-Enron reform, and I couldn't agree more."
The Sarbanes bill passed out of committee by a vote of 17-4 and had been expected to get at least some opposition on the floor. But the torrent of bad news stories about corporate fraud made it politically untenable to vote against the bill.
The Senate decided to wait until the fall to debate the question of pension and 401(k) protections for employees. Many employees at companies such as Enron and WorldCom lost their retirement savings as their company stock plummeted as accusations of corporate fraud became public.
But limiting the amount employees can invest in their own company is a politically charged issue that could have bogged down the whole bill, so leaders on both sides agreed to address it at a later date.
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