(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

In a letter to SEC Chairman Harvey L. Pitt, Senators Carl Levin and Susan Collins urged the Commission to resist any weakening of the ban on loans to corporate executives embodied in the Sarbanes-Oxley Act. The legislators mentioned recent media reports indicating that some companies are lobbying the SEC to weaken the loan prohibition. Sen. Levin is chairman of the Permanent Subcommittee on Investigations, and Sen. Collins is the subcommittee’s ranking member. They emphasized that the SEC should resist efforts to weaken what they called "a significant post-Enron reform" and enforce this "bright-line" measure to end corporate loan abuses by top executives.

In Section 402, the Sarbanes-Oxley Act bans loans by a public company to any of its directors or executive officers. The statute provides limited exceptions to the loan prohibition, which is designed to sharply limit the types of hidden compensation that can be offered to corporate executives. In the letter, the senators point out that the statutory prohibition makes it clear that public companies are not supposed to be using corporate funds to provide personal financing to company directors or officers for any reason. Media reports indicate, however, that some companies may be pressing the SEC to narrow the scope of the prohibition or otherwise weaken it through regulation, guidance, or other means.

These media reports suggest that opponents want exemptions for company loans used by executives to purchase company stock, exercise stock options, obtain insurance, relocate for work or pay taxes. The act's legislative history provides no basis for creating these exemptions or otherwise weakening the provision, emphasized the senators. They emphasized that the statutory prohibition makes it clear that public companies are not supposed to be using company funds to provide personal financing to directors or officers for any reason.