Press Release | Contact: Kristie Greco (202) 225-6416
WASHINGTON, DC— Congressmen Dennis Kucinich (D-OH), Peter DeFazio (D-OR) and Bernie Sanders (I-VT) today announced they will introduce legislation to ensure corporate financial integrity in an effort to prevent future disasters such as Enron. Congressman Kucinich is drafting legislation to reform corporate audits, Congressman DeFazio is drafting legislation to regulate derivatives, and Congressman Sanders is drafting legislation to protect worker pensions.
Background:
The failure of Arthur Andersen to provide an accurate audit of Enron for several years is not a new or isolated problem. All of the big five accounting firms have been implicated in failed audits that have cost investors billions of dollars when earnings restatements sent stock prices tumbling. Auditors have an inherent conflict of interest. They are hired, and fired, by their audit clients. As a result, auditors have a strong incentive to sign off on substandard financial statements rather than risk losing a big client.
Auditing a public company for the benefit of small as well as large investors requires independence. To ensure this independence, Congressman Kucinich proposes the creation of a Financial Auditing Corporation that will audit all publicly traded companies.
"Investors must be provided with honest information about the stock they own," Congressman Kucinich said. "Enron deceived its investors outright. Arthur Andersen furthered the deception and protected their own future profits. This combination of deceit and greed has shaken the American economy and ruined the financial investment of Enron employees and thousands of public stockholders. To ensure future disasters, this bill will make accounting firms and corporations accountable to their stockholders."
Under the Kucinich bill, the Securities and Exchange Commission will have oversight of the Financial Auditing Corporation, which will assess audit fees to cover its costs. The SEC will establish auditing rules and fee collection policies. Kucinich's bill is supported by Consumer Federation of America, which has called it a "straightforward approach to ridding the audit of its inherent conflicts of interest."
Background:
Congressman DeFazio's bill addresses the Enron debacle that has exposed gaping holes in the federal oversight of financial markets. The Commodities Futures Trading Commission (CFTC) exempted over-the-counter (OTC) derivatives - including energy-related derivatives - from most federal regulation in 1993. Presently, no federal agency monitors the trading of OTC derivatives, energy-related or otherwise, because Congress codified this policy of zero regulation in the Commodities Futures Modernization Act (CFMA) approved late in the 106th Congress. The collapse of Enron and Long-Term Capital, both of which were heavily involved in derivatives, highlight the need to strengthen federal oversight of financial markets to protect the integrity of these markets and to protect consumers from spectacular failures that could spread to the entire financial system.
Congressman DeFazio's legislation will establish safety and soundness rules for derivatives trading and make these markets transparent. In order to prevent regulatory loopholes, the DeFazio legislation will merge the CFTC and the Securities and Exchange Commission (SEC) into a single, independent regulatory body - the Securities and Derivatives Oversight Commission (SDOC). Besides the current functions of the CFTC and the SEC, the legislation will authorize the SDOC to regulate OTC derivatives. Derivative dealers will have to register with the SDOC and report to federal regulators on their market activities. They will also be required to maintain adequate capital as a financial institution, and collateral on their transactions. This will bring OTC derivatives markets in line with similar requirements that already exist for securities markets.
The DeFazio legislation recognizes that coordinated federal regulation of financial markets is critical given the extraordinary growth of trading in derivatives and other unregulated financial instruments.
"It's clear that the relentless drive to deregulate financial markets has left investors and consumers vulnerable. Consolidating and strengthening federal regulation of derivatives and other financial products and players will ensure our free capitalist markets work as Adam Smith envisioned," said DeFazio.
Background:
Congressman Sanders's bill addresses the massive loss of Enron pensions. Sanders has said that while the management of Enron made out like bandits as the company was collapsing, the retirements of thousands of workers were destroyed. In fact, at the same time Enron was apparently cooking its books, the top 29 executives at Enron cashed in their stock to the tune of $1.1 billion. Meanwhile from California to New York, pension funds for teachers, police officers, firefighters and other public employees lost at least $1.3 billion investing in Enron. Its time to right that wrong.
Congressman Sanders proposes that Enron employees, to cover the pensions they lost, get top priority of Enron assets in bankruptcy court and that the government pursue the top executives of Enron to recoup the monies lost by individuals and pension funds. Furthermore, 401k and other defined-contribution pension plans should have safeguards similar to traditional pension plans.Currently, defined-benefit pension plans are federally insured. Congress should also establish rules that give employees full control over their pensions.
Sanders said, "The conduct of top officials at Enron was deplorable. Every nickel they have should be made available to compensate the individuals and pension funds that lost money in the Enron collapse. Congress needs to move vigorously forward to pass pension protections that will keep all companies from destroying the value of their employee's pensions whether it be through conduct like Enron's or that of IBM and other companies who cheated their older workers by manipulating the type of pension program they offered."