/ 1 January 2002

Knives are out for crooked US executives

Jailing crooked executives and strengthening laws against corporate wrongdoing are needed to restore Americans’ confidence in big business, lawmakers said Sunday as they surveyed the wreckage of companies such as Enron Corp. and WorldCom Inc.

The drive for change was taking centre stage this week: a House of Representatives committee hearing Monday on WorldCom and President George Bush’s speech on Tuesday to Wall Street about his ideas for tougher penalties on corporate officials.

”Some of these corporate criminals need to go to jail,” said Republican Billy Tauzin, chairman of the House Energy and Commerce Committee, which is investigating the massive bankruptcies of energy trading giant Enron and the telecommunications company Global Crossing.

”As soon as one of these major corporate leaders is indicted, confidence will generally come back,” the Republican told NBC-TV.

Current and former WorldCom executives were summoned to appear on Monday before the House Financial Services Committee. The big telecommunications company is battling to avoid bankruptcy since the recent disclosure that it disguised nearly $4-billion in hidden expenses.

The committee chairman, Michael Oxley, said he thinks the corporate world is placing too much emphasis on the bottom line, a drive for profits that can lead companies to act irresponsibly.

”I don’t think it’s as widespread, perhaps, as some people would believe, but clearly there’s some real problems here,” Oxley said on Fox News Sunday.

The Securities and Exchange Commission has filed a civil fraud suit against WorldCom, and the Nasdaq Stock Market plans to delist the company’s shares, which have plunged from more than $63 in June 1999 to 25 cents on Friday.

”I think it’s clear that particularly in the telecommunications sector, where you’ve had some real problems with overcapacity, some real problems in the business, it appears that some of these cost-cutting efforts and their cooking the books occurred to basically hide what was a failing business practice,” Oxley said.

Several lawmakers said sending corporate chiefs to jail for wrongdoing would help restore public confidence in companies.

”As long as these people can walk away with millions of stock options, having brought a company to bankruptcy, without going to a real jail, I think American investors are going to be suspicious,” Tauzin said.

Added Senate Majority Leader Tom Daschle, a Democrat: ”We have to go after the bad actors. There has to be an aggressive effort on the part of the Justice Department.”

Bush’s speech on Tuesday is intended to address the scandals and try to blunt their effect on the economy. White House officials said the president will have to straddle the line between beating up on corporate criminals and boosting shareholder confidence in American businesses, whose strength is vital to the economy.

The president is expected to recommend new criminal penalties for corporate officers who ”cook the books” or lie on financial statements, something that Bush ”absolutely, absolutely” believes should draw jail time, White House press secretary Ari Fleischer has said.

But Democratic senator Paul Sarbanes, chairman of the Senate Banking Committee and sponsor of legislation to tighten oversight of the accounting industry, said locking up executives is not enough.

”All the focus is on making the bad actors pay a price, but what also ought to happen is we ought to improve the system to prevent these things from happening,” Sarbanes said on ABC-TV.

Top market watchdog Harvey Pitt, the Securities and Exchange Commission chairman, came under criticism from Daschle for lax oversight of the corporate world.

”He has been the one who said we want a kinder and gentler SEC, just the opposite of what we should have,” Daschle said on CBS-TV.

”We can do a lot better than Harvey Pitt,” he said.

But Pitt, who represented Wall Street’s big players as a private securities lawyer before Bush named him last spring to head the agency, won votes of confidence from the White House and Oxley.

”The president believes that Harvey Pitt is doing a great job,” White House representative Claire Buchan said on Sunday. Oxley said he had ”nothing but faith in Harvey’s abilities and integrity.”

Pitt’s predecessor at the SEC, Arthur Levitt, said he hoped Congress would keep the public in the forefront when considering legislation to tighten accounting oversight and impose new rules on financial analysts to prevent conflicts of interest.

”It’s time to see to it that the American investor gets a better break than he’s ever had before,” Levitt said. ”Everybody else has their representatives up on the Hill. Not the American investor.” – Sapa-AP