Saturday, June 28, 2008

For Immediate Release
Wednesday, Jul 10, 2002

Washington, DC – U.S. Senator John McCain (R-AZ) today continued his fight against corporate corruption in the marketplace by supporting the "Corporate and Criminal Fraud Accountability Act of 2002" sponsored by Sen. Patrick Leahy (D-VT). His floor statement follows:

"Our publicly owned companies are an essential component to the economic health of our country. As we have seen over the past few months, the continued lapses of our corporate leaders, whether they are ethical, criminal or just plain ignorant, have a significant, sometimes crippling, effect on the welfare of our nation. We must make some fundamental changes in the current system of corporate oversight to protect Americans from avarice, greed, ignorance and criminal behavior. Now is the time for Congress to restore investor confidence and take the necessary action to protect the interests of the public shareholders and place those interests above the personal interests of those entrusted with managing and advising those companies. The deterioration of the checks and balances that safeguard the public against corporate abuses must be reversed.

"We have to address the shortcomings in federal law and send the message that prosecutors now have the tools to incarcerate persons who defraud investors or alter or destroy evidence in certain Federal investigations. This amendment is a step in the right direction. It creates two new criminal statutes that would clarify current criminal laws relating to the destruction or fabrication of evidence and the preservation of financial and audit records. The Enron debacle clearly indicated that there were gaping holes in the current framework. There will be a 10 year criminal penalty for the destruction or creation of evidence with the intent to obstruct a federal investigation. There will be a new 5 year criminal penalty for the willful failure to preserve, for a minimum of five years, audit papers of companies that issue securities.

"The amendment also provides for the review and enhancement of criminal penalties in cases involving obstruction of justice and serious fraud cases. All of these actions are necessary to deter future criminal action. Until somebody responsible goes to jail for a significant amount of time, I am not sure that these people are going to get the message. Defrauding the shareholder has to carry a penalty of more than a fine. Many corporate decision-makers are making millions of dollars a year. A relatively small fine is not a deterrent; it's a slap on the wrist. The threat of jail is a deterrent that will make people pay attention.

"This amendment also creates a new securities fraud offense. This provision makes it easier, in a limited class of cases, to prove securities fraud. Currently prosecutors are forced to resort to a patchwork of technical offenses and regulations that criminalize particular violations of securities law, or to treat the cases as generic mail or wire fraud that results in a five-year maximum penalty. This new provision would criminalize any scheme or artifice to defraud persons in connection with securities of publicly traded companies or to obtain their money or property. This new ten-year felony is comparable to existing bank and health care fraud statutes. To those who'd say that it's hard to define a scheme or artifice to defraud, I'd say that full and honest disclosure of material dealings and accounting treatments is the best way for the officers who run America's corporations to protect themselves and those who invest in their companies. There are plenty of felony laws on the books that provide long prison terms for crimes that cause less damage than the losses to shareholders in Enron or WorldCom.

"It is important to emphasize that when criminal charges are pursued, it is not necessarily the firm that should be charged but the individuals at the helm of the corporate ship who should be prosecuted. If they are the ones making the decisions out of self-interest, they are the ones that should be held accountable. I also believe that we must protect the "corporate whistleblower" from being punished for having the moral courage to break the corporate code of silence. This amendment does that.

"This amendment also extends the current statute of limitations for matters concerning securities fraud, deceit or manipulation. The current statute of limitations for securities fraud cases is unfairly short given the complexity of many of these matters. Innocent, defrauded investors may be wrongly stopped short in their attempts to recoup their losses under current law. The existing statute of limitations for most securities fraud cases is one year after the fraud was discovered but no more than three years from the date of the fraud regardless of when it was discovered. Because this statute of limitations is so short, the worst offenders may avoid accountability and be rewarded if they can successfully cover up their misconduct for merely three years. The more complex the case, the easier it will be for these wrongdoers to get away with fraud. According to at least one state Attorney General, the current short statute of limitations has forced some states to forgo claims against Enron based on alleged securities fraud in 1997 and 1998.

"This situation essentially encourages offenders to attempt to cover up their misdeeds however they can, including by using questionable accounting procedures and financial shell games. Furthermore, in some cases, the facts of a case simply do not come to light until years after the fraud. If a person does not and cannot know they have been defrauded, it is unfair to bar them from the courthouse.

"These limitations are even more unfair when considered in light of the obstacles that current law can place between a victim and the courthouse in securities fraud cases. By the time a victim learns enough facts to file a complaint, survives a motion to dismiss, begins discovery, and learns that an additional wrongdoer or theory should be added to the case, that claim may be barred and the wrongdoer is able to avoid liability. Thus, current law sets up a perverse incentive for victims to race into court, so as not to be barred by time. Indeed, the short statute of limitations may even encourage frivolous cases, as a plaintiff operating in bad faith would have little trouble meeting the one-year deadline simply by naming every possible defendant and asserting every possible claim. We need to recognize the sophistication and complexity of modern-day schemes designed to defraud investors. It is long past time to give innocent victims a more reasonable chance to recover their losses.

"Finally, this provision amends the federal bankruptcy code to prevent the corporate wrongdoer, the CEO or CFO, from sheltering their assets under the umbrella of bankruptcy and protecting them from judgments and settlements arising from federal and state securities law violations. Too many of these highly paid corporate officers are using bankruptcy laws to protect their assets while maintaining their high-rise penthouses and ski chalets. It is time to force accountability and punish the person, not the institution, who is not willing to abide by the moral and legal codes that accompany leadership and public trust."


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