Letter to the Senate Public Company Accounting
Reform and Investor Protection Act of 2002
July 15, 2002
To Members of the United States Senate: I am
writing on behalf of the U.S. Chamber of Commerce, the world’s
largest business federation, representing more than three million
businesses and organizations of every size, sector, and region, with
respect to S. 2673, the Public Company Accounting Reform and
Investor Protection Act of 2002. The U.S. Chamber appreciates
the work begun by the Chairman of the Senate Banking Committee and
continued by you and your colleagues to address what we all agree
are deeply troubling developments in our economy. There
are approximately 17,000 public companies in the United States and
the vast majority of these companies conduct their business
activities according to the highest standards of honesty and
integrity. As the U.S. Chamber works to preserve the greatness
of our free market system and protect the interests of honest
companies and hardworking Americans, we deplore the recent episodes
of corporate misconduct that have come to light. This
inexcusable and unethical behavior has undercut confidence in
business and the markets – helping to drive down stock prices and
depleting the retirement savings of American families.
The full weight of the marketplace, the regulators and the legal
system should fall upon those who have abused the trust placed in
them. To this end, the U.S. Chamber supports
many of the proposals included in S. 2673 to restore confidence in
our corporate community and the capital markets and to strengthen
corporate transparency and accountability. The Chamber
supports provisions that disgorge bonuses and other incentive-based
forms of compensation in cases of accounting restatements resulting
from misconduct. We agree that executives and directors who
clearly abuse their powers or are derelict in their duties should be
removed from their positions and believe the SEC should be able to
fully exercise its authority to take such individuals to court to
seek their removal. We support the provisions prohibiting
senior executives from selling personally-held company stock while
employees are subject to “blackout” periods prohibiting their own
sales. We support the provision requiring that the CEO and CFO
certify annually the accuracy and completeness of information
provided to investors in all material respects. We fully
support increases in the SEC’s funding to better equip the agency in
undertaking its enforcement responsibilities. Finally, the Chamber
supports vigorous criminal prosecution of corporate officers who
fraudulently influence an accountant preparing an
audit. Despite the appropriate things contained in S.
2673, we continue to have questions with the bill as amended on the
Senate floor. We oppose the creation of the Public Company
Accounting Oversight Board because it will, at best duplicate – or
at worst – conflict, with existing SEC oversight, thus confusing
business with respect to the body of rules and regulations to
observe and with which to comply. We also do not support the
provision, included in S. 2673, that bans publicly traded companies
from freely choosing the accounting firm they deem most suitable for
providing non-audit services. In our view, some of the
language contained in S. 2673 is very sweeping and appears designed
to either encourage speculative, fee-driven litigation or is
unnecessary given the requirements of current law. In
addition, we are especially concerned about efforts to weaken or
repeal the Private Securities Litigation Reform Act (the PSLRA) or
the Securities Litigation Uniform Standards Act (the Uniform
Standards Act). There are a number of items of concern in
these areas. First, the document destruction provision
would criminalize innocent conduct, by making it a felony to
knowingly destroy materials with the intent to “influence” an
on-going agency or criminal investigation, or even “in contemplation
of” such an investigation. The nearly limitless scope of
conduct covered by the “influence” factor, would likely turn the
provision into a recipe that could be used by overly zealous
prosecutors. We believe that the risk of prosecutorial abuse
created by this provision far outweighs any
benefit. Second, the bill requires that auditors
maintain “all audit or review workpapers” for five years, rather
than just those documents necessary to support the auditor’s
conclusions. The number of documents that potentially fall
within the scope of the bill’s excessive requirement is
overwhelming. The cost to collect, maintain, and store these
documents would be staggering and the bill indicates that failure to
preserve them would be a crime, punishable by fines and
imprisonment. In addition, the bill also fails to define the
key term, “work paper” thus creating dangerous
uncertainty. Third, the creation of a new crime for
securities fraud in the bill is redundant and ambiguous.
Securities fraud is already a crime under Section 32(a) of the
Securities and Exchange Act of 1934. Decades of enforcement
and court interpretations of the current crime have created a known,
consistent, and effective deterrence policy. This over-broad
securities fraud provision, however, would create a parallel crime
that would disrupt the existing enforcement
regime. Fourth, the bill would unnecessarily extend the
statute of limitations on securities fraud claims, thereby exposing
issuers and auditors to liability on stale claims for an
unreasonably lengthy period. While the amendments made to this
provision on the Senate floor improved the provision from what came
out of committee, we believe that the current period of three years
from the date of the fraud or one year after its discovery has
worked well for over a decade and is more than sufficient to provide
time to file a claim. We thank you for your careful
consideration of these extremely important, but complex
issues. We are eager to engage you and your colleagues to make
meaningful changes to S. 2673 as it moves through the Conference
Committee, and to the President for his
signature.
Sincerely,
R. Bruce Josten Executive
Vice President, Government Affairs U.S. Chamber of
Commerce
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