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News Release
Contact:
Leslie Bonacum
— 847-267-7153, bonacuml@cch.com
Neil Allen —
847-267-2179, allenn@cch.com
CCH Securities Group Media Advisory
House Quickly Passes Corporate Accountability
Legislation
(RIVERWOODS, ILL.,
July 18, 2002) -- Shoring up what had been perceived as
weak spots in the Republican-backed House accounting reform bill that passed in
April, the House on Tuesday passed a bill that creates new penalties for
corporate fraud. The Corporate Fraud Accountability Act of 2002 increases
penalties for activities such as mail and wire fraud and provides additional
tools for prosecutors to crack down on corporate criminals, according to CCH
INCORPORATED (CCH), a leading provider of securities law information and
software.
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:
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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.
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Securities Fraud . Both the House
and Senate bill seek jail terms for securities fraud. Securities fraud has
been interpreted broadly by the courts to include almost any deceptive act
or intentionally misleading statement or omission of material fact that
affects a securities transaction; for example, deliberate false statements
by company officials in a press release that influences the company's stock
price, deceptive practices by a broker against a client, or delivery of an
intentionally 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.
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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.
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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.
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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.
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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.
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