SEC votes to require CEOs vouch for financial reports
Move inspired by Enron’s collapse
ASSOCIATED PRESS
msnbc.com
WASHINGTON, June 12 — Federal regulators voted tentatively Wednesday to require chief executives to personally vouch for their companies’ financial reports, a Bush administration initiative inspired by the collapse of Enron Corp.
COMPANIES ALSO WOULD have to make public important changes in their operations much faster and report a wider group of changes under the new rules of by the Securities and Exchange Commission.
The “8-K” form for reporting significant events or corporate changes important to investors would have to be filed with the SEC within two business days, rather than the current requirement of five days for some items and 15 days for others.
At an open meeting, the three SEC commissioners voted unanimously to open the proposals to public comment for 60 days, after which they could become final.
Among the new items that would have to be reported in the 8-K: the sort of off-balance-sheet transactions that helped topple Enron and unexpected departures of top executives, senior managers or directors.
SEC Chairman Harvey Pitt said before the vote it was impossible to know whether the requirement for corporate chief executives to personally certify financial reports could have prevented the Enron debacle. Still, he said, “If we don’t learn from history, we’re doomed to repeat it.”
“This is not a time to be stingy with our regulatory responses to some of the chicanery and fraud” that appear to have occurred at several publicly traded companies, Pitt said.
Said Cynthia Glassman, another commissioner: “I don’t think this should be a problem for a well-managed company.”
The latest drama involving alleged corporate malfeasance unfolded Wednesday, as FBI agents arrested the former chief executive of ImClone Systems, Samuel Waksal. He was charged with conspiracy to commit securities fraud for allegedly tipping off two people to sell stock in the biotech company the day before the Food and Drug Administration rejected its application for a cancer drug.
Enron, the failed energy-trading company, which in December entered the biggest corporate bankruptcy in U.S. history, used a web of thousands of complex partnerships to hide more than $1 billion in debt from investors and the SEC. Its auditors, the Arthur Andersen accounting firm, endorsed the company’s financial statements; Andersen is accused by the government of obstructing justice for destroying Enron audit documents.
In early March, as the Enron controversy swirled, President Bush proposed having company executives personally certify financial reports as part of a package of measures designed to enforce corporate and auditor responsibility. He also said the government should strip top executives of ill-gotten bonuses and tighten oversight of the accounting industry.
Many investors have been unnerved by Enron’s collapse and distrustful of the accuracy of the financial reports of big companies, contributing to a volatile stock market also roiled by sluggish earnings and terrorism fears. A broad sell-off Tuesday sent the major market indices to their lowest closes of the year.
The rules put forward by the SEC would require chief executive officers and chief financial officers to certify that all the information in the company’s annual and quarterly reports is correct and that the reports include everything that “a reasonable investor would consider important.”
The executives would have to affix their signatures to the reports and would be subject to potential enforcement action by the SEC or lawsuits filed by company shareholders.
The Securities Industry Association, Wall Street’s biggest trade group, was still studying the proposals, spokesman Dan Michaelis said Tuesday.
“We’re supportive of efforts to improve disclosure,” he said.
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