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Congress OKs Corporate Reforms

Business: Measure wins quick approval, as more action is vowed to help restore confidence in the economy. Bush sees a 'victory for America's shareholders.'

July 26, 2002|RICHARD SIMON | TIMES STAFF WRITER

WASHINGTON — The House and Senate overwhelmingly approved a sweeping business reform bill Thursday, and lawmakers pledged to consider more measures aimed at punishing corporate crime and restoring confidence in the economy.

President Bush called the congressional action a "victory for America's shareholders and employees." His signature on the bill, expected within the next few days, will usher in the most significant strengthening of business regulation since the Depression era.

After a sustained slide, the stock market had recorded huge gains Wednesday that were credited in part to word of the bill's anticipated passage. That enthusiasm was tamed Thursday.

The Dow Jones industrial average fell as much as 246 points by early afternoon, then recovered most of that to close with a small loss, 4.98 points at 8,186.31.

The market's performance underscored doubts about the impact the reform bill will have, at least initially, in easing investor concerns sparked by corporate scandals. Experts said it was still too early to say whether the worst bear market in a generation had finally hit bottom.

With that in mind, lawmakers worried about the political fallout from continued market turmoil quickly focused on the next steps they can take.

These could include passing a pension reform bill, extending to dishonest corporate executives a law used to seize the assets of drug kingpins and cracking down on offshore tax havens. Also possible is a bid to require companies to account for stock options on their books, a proposal that was blocked from the bill that cleared Congress on Thursday.

The House passed the measure, 423 to 3. The Senate quickly followed suit, approving it 99 to 0.

The legislation creates an independent board to oversee the accounting industry, requires corporate officers to attest to the accuracy of their company's financial statements and limits the consulting that accounting firms can do for companies they audit. It also bans personal loans from companies to their executives and mandates new rules to prevent conflicts of interest among Wall Street analysts.

"Our markets will be stronger tomorrow than they were this morning" because of the legislation, predicted Sen. Charles E. Schumer (D-N.Y.).

Reflecting a strong desire to toughen treatment of white-collar criminals, the measure makes it easier to prosecute securities fraud and establishes prison sentences of up to 25 years for corporate crime.

"Today's message from Congress to CEOs and corporate boardrooms is clear," said House Speaker J. Dennis Hastert (R-Ill.): "If you steal, cheat or commit some other white-collar crime, you'll face the same consequences as lawbreaking street thugs by spending time behind bars."

Barely more than a month ago, the reform bill's prospects had appeared uncertain, with Congress deeply divided along partisan lines over how much more government regulation of business was needed. That changed after the revelation in late June of accounting irregularities by WorldCom Inc., reports of other corporate misdeeds and the stock market decline.

Thursday's lopsided votes for the reform bill were testament to the powerful political winds now blowing from Wall Street and Main Street to Washington.

"This really is quite a new environment," said Rep. Richard H. Baker (R-La.). "My constituents are asking where are the leg irons" for corporate wrongdoers.

The three House members voting against the bill, all Republicans, were Mac Collins of Georgia, Jeff Flake of Arizona and Ron Paul of Texas.

Sen. Paul S. Sarbanes (D-Md.), the bill's chief architect, said it is the "first big step" in restoring stability to the marketplace and the economy.

But with the accounting scandals costing investors billions of dollars, the conduct of corporate America is expected to remain a hot issue as the political battle heats up for control of the House and Senate in this November's election.

Patrick Basham, senior fellow at the libertarian Cato Institute, said he expects Congress' next target to be companies that move their legal address to tax havens like Bermuda to avoid U.S. taxes.

"Clearly, the Republicans have dumped their ideology overboard on this issue and are rowing furiously toward their version of 'Political Paradise Island,' namely stockholder-friendly voting records for the fall campaign," he said.

The Republican-controlled House earlier this year passed a bill that would give employees new rights to sell company stock and diversify investments in their 401(k) retirement accounts. It was enacted in response to huge losses suffered by Enron Corp. employees whose retirement accounts consisted heavily of company stock.

Bush on Thursday called on the Democrat-controlled Senate to act quickly on its version of the pension reform bill. Senate Majority Leader Tom Daschle (D-S.D.) already has indicated it will be at the top of his agenda when lawmakers return from their summer recess in early September.

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