Jul 25, 2002 4 min read

By Marcy Gordon AP Business Writer

WASHINGTON (AP) – Key lawmakers reached agreement Wednesday on legislation to crack down on corporate fraud and stiffen penalties for wrongdoers, and officials said the measure could be on President Bush’s desk within days.

Rep. John LaFalce of New York, senior Democrat on the House Financial Services Committee, said the agreement closely tracks a bill passed unanimously last week by the Democratic-controlled Senate. He called it “a victory for investors, workers and for Democrats.”

The legislation creates new criminal penalties and jail terms for company fraud and document shredding and an independent, private-sector board to oversee the accounting industry. It also will include Senate provisions for an accounting oversight board with subpoena power and restrictions on accounting firms doing consulting services for corporate clients whose books they audit.

LaFalce said Republicans had agreed to Democratic demands to strengthen a competing bill passed by the House last week and that “we will accept surrender from the Republicans” when negotiators meet later in the day.

Peggy Peterson, spokeswoman for Rep. Michael Oxley, the Ohio Republican who heads the Financial Services Committee, said the negotiators agreed to include a GOP-pushed provision creating a new federal account for defrauded investors that would take in all the civil fines, payments and assets from corporate wrongdoers. The money currently goes to government coffers unless the SEC sets up a special fund for investors in a case against a company.

Final agreement could lead to enactment of legislation on Thursday or Friday before lawmakers begin a monthlong summer break.

The issue has moved with extraordinary speed through Congress in the three weeks since WorldCom announced it had erroneously accounted for $3.9 billion in expenses and the stock market suffered through its worse hit in a quarter-century.

And while lawmakers in both parties have said they hope to restore confidence among nervous investors, election-year politics have also contributed to the rapid progress of the legislation.

Both parties have maneuvered for political gain, Democrats accusing Republicans of waiting far too long to crack down on corporate fraud, and the GOP responding by proposing stronger penalties for wrongdoers than ever the Democratic-controlled Senate approved.

Peterson made her comments several hours after congressional leaders expressed confidence that agreement was within sight.

“I think we need to assure the investors and employees and employers that we’re making the right moves to straighten out the system,” House Minority Leader Dick Gephardt told reporters after congressional leaders met with President Bush at the White House.

“We’re very confident that we can complete our work,” over the next 10 days, said Senate Majority Leader Tom Daschle, D-S.D.

Senate Minority Leader Trent Lott, R-Miss., predicted that the final compromise on the corporate fraud measure would include the strongest provisions of measures passed by both chambers.

And House Speaker Dennis Hastert, R-Ill., said, “The House will be in next week and the Senate concludes in two weeks. So there’s a lot of legislation … we’re trying to move through.”

The most sweeping revision of accounting standards, now before a House-Senate conference committee, could be on the president’s desk by Thursday or Friday.

The White House indicated Tuesday that Bush would sign the legislation.

Bush wants it done this week, spokesman Ari Fleischer told reporters.

“It’s now up to Congress. Congress is very close. But the president hopes that Congress won’t leave this week without finishing that legislation and sending it to him,” Fleischer said.

House Republicans, who pushed through accounting oversight legislation in April – before now-bankrupt WorldCom disclosed that it hid nearly $4 billion in expenses – appear to have little leverage.

“We all want something by the end of the week, but we don’t want just any damn thing that happens to satisfy the next political pollster,” House Majority Leader Dick Armey, R-Texas, told reporters.

The Securities and Exchange Commission already has ordered the 1,000 largest corporations to provide sworn statements from their chief executive officers vouching for the accuracy of financial reports. Now the SEC on Wednesday was proposing requiring financial analysts to certify that their recommendations for a stock aren’t influenced by their firms’ investment business for that company.

At a hearing, a Senate investigator testified that major investment banks gave Enron Corp. – the second-largest bankruptcy after WorldCom – multimillion-dollar loans that helped the company disguise its true financial condition and, in some cases, they knew that Enron was using deceptive accounting for the loans.

The investigative panel of the Senate Governmental Affairs Committee found in a bipartisan review that some banks actively aided Enron in its dodgy accounting in return for big fees and favors in other deals.