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MARKETS IN CRISIS

Deal on Corporate Reform Nears

Congress: The tougher Senate measure is used as a baseline. Bush may get final bill next week.

July 20, 2002|RICHARD SIMON | TIMES STAFF WRITER

WASHINGTON — With their differences narrowed to a few core issues, House and Senate negotiators said Friday that they hope to send President Bush a bill next week that would increase oversight of accountants and stiffen penalties for corporate crime.

The unusual speed with which the lawmakers are moving on the complex bill is a strong sign of the powerful political force behind the legislation--a momentum given new urgency by the falling stock market.

Members of both parties are eager to act on business reforms before returning home for their summer recess and facing voters asking what they have done about the corporate accounting abuses that have cost investors billions of dollars.

"It's time for us to come together, recognize our common ground and finish crafting a good piece of legislation to get to the president's desk by the end of next week," said Rep. Michael G. Oxley (R-Ohio), who is presiding over the negotiations.

In their first meeting Friday, negotiators agreed to use the Senate bill as the underlying text for their talks, a sign that House Republicans may be willing to accept much of the tougher Senate measure. The staffs planned more talks over the weekend.

Thomas Mann, an expert on Congress at the nonpartisan Brookings Institution, said the decision to use the Senate bill, drafted by Sen. Paul S. Sarbanes (D-Md.), "reflects the fact that Republicans are near panic on the market collapse and its connection to the corporate scandals, and are prepared to quickly accept virtually the entire Sarbanes bill, with a few get-tougher measures added on."

The major sticking points are proposals to create an accounting oversight board and extend the time frame from three years to five for plaintiffs to bring securities fraud lawsuits against companies.

Bush, in his radio address today, is expected to again urge Congress to resolve its differences and send him a bill to sign before lawmakers go home for a monthlong recess.

"Republicans particularly fear that if they don't get something done quickly the voters will be bearish about them as well as the market," said Marshall Wittmann, a political scholar at the conservative Hudson Institute.

A key House Republican negotiator, Rep. W.J. "Billy" Tauzin of Louisiana, said that if negotiations drag on past midweek, he was prepared to urge the House to jettison its own bill and simply pass the Senate version.

"The administration is very clear that they would rather have us pass a bill that is not necessarily the best bill than to not act," he said.

Lawmakers are attempting to work out their differences over how powerful a new accounting oversight board should be.

Under the Senate bill, the board would operate independently of the Securities and Exchange Commission. It would have the power to set auditing and ethics rules and discipline auditors. The five-member board would be appointed by the SEC, with two members--but no more--having accounting backgrounds.

The House bill delegates much of the details of the new board's authority to the SEC. House Republicans also favor a panel with four of the five members having an accounting background. The Bush administration has expressed concern that the board created by the Senate bill could compete with the SEC, making it more difficult to enforce auditing standards.

On another contentious issue, business groups have expressed concern that extending the statute of limitations for securities fraud could lead to frivolous lawsuits.

But Sen. Patrick J. Leahy (D-Vt.) said the current statute of limitations has prevented fraud victims from suing Enron Corp. for misdeeds dating to 1997.

House Republicans are pushing to make sure the bill includes a requirement for companies to more rapidly disclose information affecting their financial health and the establishment of a system for returning ill-gotten gains to investors who have lost money as a result of corporate malfeasance.

One issue that may not be as contentious as originally thought is a provision of the Senate bill that goes further in limiting the amount of consulting that accounting firms can do for companies they audit. "I would doubt it would be a huge issue in the conference," Oxley said.

SEC Chairman Harvey Pitt urged Congress on Friday to pass legislation quickly. He also defended his record in cracking down on corporate wrongdoing and again rejected calls for his resignation.

Critics have charged that the SEC chairman's past work as a lawyer for the accounting industry makes him unsuitable for the job. But Pitt, in a speech at the National Press Club, termed his background a plus.

"I really believe that they need somebody who knows where the bodies are buried, knows how business is done, has credibility both in the business community and in the legal community, and is not afraid to take decisive action," he said.

"I really refuse to believe that the American public would be happier with somebody who knew absolutely nothing about the securities markets or how to fix them."

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