US Senate panel to make stock fraud a felony
Maximum penalty is a 10-year jail term; those who obstruct a probe by destroying documents face up to five years in prison
WASHINGTON - A Senate committee on Thursday approved a Bill that would make securities fraud a federal felony and establish new guidelines on document shredding, in the latest legislative response to Enron's bankruptcy.
The measure would also strengthen 'whistle-blower' protections and give investors more time to file civil lawsuits against corporations accused of wrongdoing.
Under the Bill, securities fraud would carry a maximum 10-year jail sentence. Currently, prosecutors must use criminal provisions that are not designed for securities fraud to punish violators, Senate Judiciary Committee chairman Patrick Leahy said.
'If you don't protect this safeguard for the public, then frankly, you're saying this is the Wild West,' said Illinois Senator Dick Durbin, a Democrat. That would have a 'negative impact on the stock market and corporations across the board'.
The measure goes beyond President George W. Bush's proposals for legal and regulatory changes in response to Enron's Dec 2 filing of the largest bankruptcy in the United States.
More than 10 congressional panels are investigating Enron, and at least 32 Bills have been introduced to deal with accounting and corporate practices blamed for the decline of the world's No 1 energy trader.
Also on Thursday, Securities and Exchange Commission (SEC) chairman Harvey Pitt said it will begin a formal investigation into conflicts of interest among Wall Street research analysts, joining an investigation already under way by the office of New York's Attorney-General. Mr Pitt called it the logical 'next step' in what he said has been a year-long SEC review of analyst practices.
A formal inquiry means the SEC commissioners voted to approve it, and the staff will have the authority to issue subpoenas.
SEC officials offered few specifics about the nature of their probe. They said the inquiry will look both at past conduct to see if laws have been broken and to the future to see if new regulations are needed.
The Senate Bill, approved by a unanimous vote, would extend the period in which fraud victims have to pursue lawsuits to five years from three years.
It would require companies and auditors to maintain financial audit documents for five years. Those who destroy documents to obstruct an investigation would face up to five years in prison.
Enron's former auditor, Arthur Andersen, has been charged by the Justice Department with destroying Enron documents illegally.
Under the measure, if employees at listed companies report misdeeds and face retaliation by managers, they would be allowed to take their disputes to federal court if the Labour Department does not act on their claims within 180 days.
Currently, there is no enforceable deadline for the Labour Department review, and the employees cannot proceed to federal court until that review is completed.
Mr Tom Devine, legal director of the Government Accountability Project, said the measure could become 'the strongest federal law on the books for public policy dissent'. If enacted, the Bill would apply to future crimes, not past actions taken in the Enron case.
'This Bill is going to send wrongdoers to jail and save documents from the shredder, and that sends a powerful message to potential wrongdoers,' Mr Leahy said in a statement. 'Don't do it.'
On Wednesday, the House of Representatives approved a Republican Bill to establish a board to discipline accountants who violate professional ethics and competence standards. --Bloomberg News, Washington Post |
