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House Gets Tough On Fraud, Quickly Passing Corporate Accountability Legislation
(RIVERWOODS, ILL., July 18, 2002) – Shoring up what
had been perceived as weak spots in the Republican-backed House
accounting reform bill that passed in April, the House on Tuesday passed
a bill that creates new penalties for corporate fraud. The Corporate
Fraud Accountability Act of 2002 increases penalties for activities such
as mail and wire fraud and provides additional tools for prosecutors to
crack down on corporate criminals, according to CCH INCORPORATED (CCH),
a leading provider of securities law information and software.
Passage of the new House bill on corporate fraud came
less than a day after the Senate passed its own reform bill and
President Bush called for accounting reform legislation he could sign
into law before Congress leaves for its August recess.
Below, CCH provides an overview of this new, stand-alone
House bill and how it compares to the Senate bill in the areas of
corporate accountability, specifically new criminal and monetary
Securities Fraud. Both the House and Senate bill
seek jail terms for securities fraud. Securities fraud has
been interpreted broadly by the courts to include almost any
deceptive act or intentionally
misleading statement or omission of material fact that affects a securities
transaction; for example, deliberate false
statements by company officials in a press release that influences
the company's stock price, deceptive practices by
a broker against a client, or delivery of an intentionally misleading prospectus. The House
seeks to impose up to 25 years in jail while the Senate calls for a
maximum of 10 years jail time for securities fraud.
Whistleblower Protections. The bills both
include whistleblower protections, but differ in their approach. The
House bill creates criminal sanctions against those who retaliate
against whistleblowers and includes both fines and up to 10 years in
jail. The Senate bill only goes as far as creating a civil cause of
action by whistleblowers who faced retaliation, thereby limiting
sanctions to fines.
Bankruptcy Loopholes. Both bills seek to close
the loopholes allowing corporate officers to use bankruptcy to
discharge liabilities. The bills call for changing the bankruptcy
code to make judgments and settlements based upon securities law
violations non-dischargeable, thereby helping to protect victims of
fraud by preventing corporate wrongdoers from sheltering their
assets under the umbrella of bankruptcy.
Document Destruction. The House bill strengthens
laws that criminalize obstruction of justice, such as document
shredding. Similarly, the Senate bill declares that destroying
evidence to obstruct an investigation is illegal whether or not
records are subject to a subpoena.
Financial Statement Certification. Monetary
penalties as well as potential jail time are higher under the House
bill. Both the Senate and House bills now call for top corporate
executives to certify that financial statements of the company
fairly and accurately represent the financial condition of the
company. Under the House bill, however, company executives who fail
to comply with this provision could face fines of up to $5 million
and 20 years in jail, or both. Under the Senate bill, fines are
capped at $1 million, and the jail term at 10 years.
Under a recently issued SEC order, CEOs at more than 900
public companies based in the U.S. must certify their company’s most
recent filings. The Senate bill would extend this requirement to U.S.
companies that have moved their headquarters overseas for tax purposes.
About CCH INCORPORATED
CCH INCORPORATED, founded in 1913, has served four
generations of business professionals and their clients. The company
produces approximately 700 print and electronic products for securities,
tax, legal, banking, securities, human resources, health care and small
business markets. CCH is a wholly owned subsidiary of Wolters Kluwer
North America. The CCH web site can be accessed at cch.com.
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