|FOR IMMEDIATE RELEASE:
CONTACT: Jesse Jacobs - 202-224-4524
|Friday, July 19, 2002
Craig Davis - 202-224-7391
OPENING STATEMENT OF SENATOR PAUL S. SARBANES (D-MD)
HOUSE-SENATE CONFERENCE ON THE PUBLIC COMPANY ACCOUNTING
AND INVESTOR PROTECTION ACT OF 2002
I am pleased to take part in this conference committee meeting.
It is the custom between the House Financial Services Committee and the Senate Committee on Banking, Housing, and Urban Affairs to rotate the chairmanship of our conference committees. Since I served as chairman of the last conference committee, it is Chairman Oxley's turn to serve as chairman of this conference.
I therefore move that Chairman Oxley be the Chairman of this conference committee.
Chairman Oxley and I have also agreed that the Senate bill, S. 2673, will serve as the base text for the conference committee. I would note that in our last conference committee on the Export-Import Bank bill in May, which I chaired, we used the House bill as the base text. So we are working off some precedent.
I would observe at the outset that this conference committee has an extraordinary opportunity to respond at a critical moment to help restore confidence in our capital markets. Our financial markets have been widely regarded as the fairest, most transparent, and most efficient in the world. But now it's becoming increasingly clear that something has gone wrong – seriously wrong. We are facing a crisis of confidence that is eroding the public's trust in our markets, and poses a real threat to our economic health.
The Senate bill , the Public Company Accounting Reform and Investor Protection Act, is a carefully developed effort to put in place a statutory framework within which the SEC, the other public regulatory and law enforcement agencies, and private sector entities such as the NYSE and the NASD can act to come to grips with the problems which confront us. It is an indispensable, though not by itself sufficient step to restore investor confidence in our financial markets.
The Senate bill, passed by a unanimous 97-0 vote, has the following key components:
It establishes a strong independent board to oversee auditors of public companies. The board has the authority to set standards, and to investigate and discipline accountants. Overseen by the SEC, it will have independent funding and membership. The bill also provides independent funding for FASB, the Financial Accounting Standards Board.
It ensures auditor independence by prohibiting accounting firms from providing certain consulting services to public company audit clients because of the inherent conflicts of interest the consulting services create.
It strengthens corporate responsibility by requiring CEOs and CFOs to be personally responsible for the accuracy of their company's financial reports, and requiring independent audit committees of public company boards to be responsible for the appointment, compensation, and oversight of outside auditors.
It establishes safeguards to protect against investment analysts' conflicts of interest.
It gives the SEC the expanded resources it needs to fully fund pay parity, update computer technology, and hire more staff.
It contains provisions added by Senator Leahy, Senators Biden and Hatch, and Senator Lott to strengthen the criminal penalties imposed on those who commit securities fraud.
This is a bill that has been widely recognized as a strong, balanced response to the accounting and corporate responsibility problems confronting our financial markets.
I would note that the House acted on its bill on April 24, while the Senate acted on its bill just this past Monday, July 15. During that interim the following events took place:
May 2 – Adelphia Communications restates earnings by $1.6 billion due to its treatment of off-balance sheet loans and guarantees to its founder's family.
May 15 – Kmart Corp. posts $2.42 billion loss for its most recent fiscal year after restating its quarterly financial statements.
May 21 – Merrill Lynch agrees to pay $100 million in penalties and revamp stock analyst compensation in a settlement agreement with the New York Attorney General.
June 5 – Henry M. Paulson Jr., Chairman and CEO of Goldman Sachs Group, decries "a crisis in confidence" in the way companies do business. Calls for change in corporate accounting, governance and conflicts of interest.
June 15 – A federal grand jury convicts Arthur Andersen LLP of a felony count of obstructing justice.
June 17 – Enron Corp. discloses that it made $754 million of payments and stock awards to senior executives in the year prior to the company's bankruptcy-law filing.
June 25 – WorldCom Inc. unveils massive accounting fraud, with $3.8 billion in expenses that were improperly booked as capital expenditures.
June 26 – WorldCom Inc. announces that 17,000 of the company's 80,000-strong workforce are expected to lose their jobs.
June 27 – The California Public Employees' Retirement System (CalPERS), which has more than $150 billion in assets, estimates that it lost more than $580 million on WorldCom bonds and stock.
July 10 – Qwest Communications announces that it is under criminal investigation by the U.S. Justice Department.
July 11 – Bristol-Myers Squibb announces that the SEC is investigating whether the company improperly inflated revenues by as much as $1 billion through the use of sales incentives.
July 12 – ImClone Systems ex-CEO is indicted on insider trading charges.
July 13 – Announced losses among twenty-five states' public pension funds due to just WorldCom and Enron reaches $3 billion.
Since the Senate acted I would note the following:
July 17 – PricewaterhouseCoopers agrees to pay $5 million in a settlement with the SEC, stemming charges concerning a lack of auditor independence between PwC and sixteen clients.
July 18 – The Dow closes at 8,409.49, down from 10,089.24 (16.6 percent) on April 24th. The NASDAQ closes at 1,356.98, down from 1,730.29 (21.5 percent) on April 24th.
I point this out to indicate that by the time the Senate acted on its bill, it had the opportunity to observe a significantly broader range of events in our financial markets that I believe significantly influenced the action taken by the Senate.
Let me conclude by saying that I hope we can move expeditiously in this conference committee to resolve the differences between us and act on a bill that will be widely perceived by the investing public as a strong, meaningful response to the problems we confront. To do less would be worse than doing nothing at all.