Corporate Fraud Bill Clears House

The House overwhelmingly approved a crackdown on corporate fraud Thursday in hopes of restoring investor confidence in the ailing stock market.

The vote for the compromise measure was 423-3.

The Senate is expected to take up the bill later Thursday, with the aim of getting the legislation to President Bush for him to sign into law as soon as possible.

The measure would create criminal penalties and harsh jail terms for wrongdoers and set up an independent board to oversee accounting firms.

The sweeping changes, which create stiff criminal penalties for corporate fraud and document shredding, are " major step forward in reforming the operations of our financial market," said Rep. John LaFalce of New York, senior Democrat on the House Financial Services Committee. "It is my hope that this legislation will help to restore the reputation of American business."

In a further sign of congressional urgency, Senate Majority Leader Tom Daschle, D-S.D., said the measure would likely be on the Senate floor on Friday.

Lawmakers in both parties were seeking to restore Americans' shattered confidence in business and the market, mindful that they must face voters in November.

Treasury Secretary Paul O'Neill said the agreement will "nail on the wall the clear requirement for corporate accountability."

"I am confident that no CEO will take the risk of certifying falsely. So we are providing the basis for a clean start," O'Neill said in remarks to the National Association of Manufacturers.

News that an agreement was near added momentum to Wall Street's second-largest point gain ever Wednesday after nine weeks of punishing losses. The Dow Jones industrials climbed more than 480 points and crossed back over the 8,000 mark.

Also buoying the market were the arrests of the founder of bankrupt Adelphia Communications Corp. and two sons for alleged financial fraud.

Rep. Richard Baker, R-La., said in floor debate that the public is crying out for corporate wrongdoers to be punished. "The American people are not only expecting it; they're demanding it," he said.

House Republicans ended up accepting most of the stricter parts of a bill that the Democratic-controlled Senate passed unanimously last week.

With congressional elections looming in November, Republicans gave ground, aware that a string of corporate accounting scandals has unnerved investors and the stock market, hitting Americans' retirement savings hard.

GOP Sen. Phil Gramm of Texas, the sole dissenter among the House and Senate negotiators, acknowledged that "in the environment that we're in, virtually anything could have passed the Congress."

The legislation creates criminal penalties and prison terms for company fraud and document shredding, and establishes an independent, private-sector board — with subpoena power — to oversee the accounting industry.

The measure imposes restrictions on accounting firms doing consulting services for corporate clients whose books they audit. It prohibits personal loans from companies to their top officials and directors. And it orders new rules on financial analysts designed to prevent conflicts of interest.

In addition, the bill extends the period of time in which defrauded investors may bring lawsuits against companies — a hard pill to swallow for Republican lawmakers who acted several years ago to stem what they maintained was a spate of frivolous shareholder suits.

Senate Democrats agreed to the longer prison terms and bigger fines for fraud and shredding documents contained in the House version.

The negotiators agreed to include a GOP-pushed plan to create a federal account for defrauded investors. The account would take in all the civil fines, payments and assets from corporate wrongdoers. The money now goes to the government unless the Securities and Exchange Commission sets up a special fund for investors in a case against a company.

Democrats accused Republicans of waiting far too long to crack down on corporate fraud. The GOP responded by proposing stronger penalties for wrongdoers than even the Democratic-controlled Senate had earlier approved.

Consumers Union called the legislative accord "a tough measure that will truly help restore corporate accountability and the public trust." The GOP-led House had passed less stringent accounting oversight legislation in April before now-bankrupt WorldCom Inc. disclosed it had hidden nearly