(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.)

President Outlines Corporate Fraud Proposals

President Bush called for stiffer penalties against company officers for unlawful conduct and supported the creation of a new interagency task force on corporate fraud. He also urged Congress to promptly pass legislation that would provide an additional $20 million to the SEC for hiring 100 new enforcement officers and to provide $100 million more in fiscal 2003 funding for enforcement purposes. Specifically, President Bush proposed to double the maximum prison term for mail and wire fraud to 10 years and to increase the prison time served for fraud committed by corporate leaders. "Defrauding investors is a serious offense, and the punishment must be as serious as the crime," stated the president.

Corporate Fraud Task Force

The president signed an executive order creating a corporate fraud task force intended to "provide direction for the investigation and prosecution of significant cases of securities and accounting fraud, mail and wire fraud, money laundering and tax fraud." The task force will be headed by the deputy attorney general and will include the assistant attorney general for the Justice Department's Criminal and Tax Divisions, the director of the FBI and U.S. attorneys from several districts representing major financial centers in New York, Illinois, Pennsylvania, California and Texas. The task force will also include representatives from the SEC, the Commodity Futures Trading Commission, Federal Energy Regulatory Commission, the Federal Communications Commission and the Treasury Department, including the IRS.

Corporate Governance and Responsibility

The president also asked Congress to authorize the SEC to freeze improper payments to corporate executives while a company is under investigation. He also supported a prohibition on loans by companies to their officers and for enhanced disclosure of stock transactions by insiders. He also called for strengthening laws that criminalize document shedding and other forms of obstruction of justice. President Bush also called on U.S. stock markets to require that a majority of a company's directors be "truly independent" so that they have no material relationship with the company. He also called for all members of a company's audit committee, nominating committee and compensation committee to be truly independent. In addition, the president urged U.S. stock markets to require listed companies to receive shareholder approval of all stock option plans.

Pitt's Response

SEC Chairman Harvey Pitt endorsed the president's call for increased SEC funding. According to the chairman, "these resources will enable us to hire additional needed accountants, lawyers and other professionals for our enforcement and corporation finance efforts, fully fund our merit-based pay parity program and begin implementing critical information technology projects directly related to investor protection." He added that the agency has already "undertaken an unprecedented number of significant and broad-ranging initiatives to correct long-festering flaws in the current system" and emphasized that the SEC is "committed to forceful, aggressive, creative, and prudent efforts to revitalize and improve our system."