House Gets Tough On Fraud, Quickly Passing Corp. Accountability Legislation
Passage of the new House bill on corporate fraud came less than a day after the Senate passed its own reform bill and President Bush called for accounting reform legislation he could sign into law before Congress leaves for its August recess.
Below, CCH provides an overview of this new, stand-alone House bill and how it compares to the Senate bill in the areas of corporate accountability, specifically new criminal and monetary penalties.
- Mail and Wire Fraud. The House bill increases the penalties for mail and wire fraud. Executives found guilty of committing these types of fraud could be sentenced to up to 20 years of jail time under the House bill. The Senate bill calls for a maximum sentence of 10 years.
- Securities Fraud. Both the House and Senate bill seek jail terms for securities fraud. Securities fraud generally has been interpreted broadly by the courts to include any intentionally misleading act or statement or omission by almost anyone that affects a securities transaction, for example, intentionally false statements by company officials in an earnings press release that reaches the markets and affects the company's stock price, fraud by a broker against his client or a misleading prospectus. The House seeks to impose up to 25 years in jail while the Senate calls for a maximum of 10 years jail time for securities fraud.
- Whistleblower Protections. The bills both include whistleblower protections, but differ in their approach. The House bill creates criminal sanctions against those who retaliate against whistleblowers and includes both fines and up to 10 years in jail. The Senate bill only goes as far as creating a civil cause of action by whistleblowers who faced retaliation, thereby limiting sanctions to fines.
- Bankruptcy Loopholes. Both bills seek to close the loopholes allowing corporate officers to use bankruptcy to discharge liabilities. The bills call for changing the bankruptcy code to make judgments and settlements based upon securities law violations non-dischargeable, thereby helping to protect victims of fraud by preventing corporate wrongdoers from sheltering their assets under the umbrella of bankruptcy.
- Document Destruction. The House bill strengthens laws that criminalize obstruction of justice, such as document shredding. Similarly, the Senate bill declares that destroying evidence to obstruct an investigation is illegal whether or not records are subject to a subpoena.
- Financial Statement Certification. Monetary penalties as well as potential jail time are higher under the House bill. Both the Senate and House bills now call for top corporate executives to certify that financial statements of the company fairly and accurately represent the financial condition of the company. Under the House bill, however, company executives who fail to comply with this provision could face fines of up to $5 million and 20 years in jail, or both. Under the Senate bill, fines are capped at $1 million, and the jail term at 10 years.
Under a recently issued SEC order, CEOs at more than 900 public companies based in the U.S. must certify their company’s most recent filings. The Senate bill would extend this requirement to U.S. companies that have moved their headquarters overseas for tax purposes.
About CCH INCORPORATED
CCH INCORPORATED, founded in 1913, has served four generations of business professionals and their clients. The company produces approximately 700 print and electronic products for securities, tax, legal, banking, securities, human resources, health care and small business markets. CCH is a wholly owned subsidiary of Wolters Kluwer North America. The CCH web site can be accessed at cch.com.
LESLIE BONACUM NEIL ALLEN
CCH Securities Group Media Advisory