Letter to the Senate on the S. 2673
July 15, 2002
To Members of the United States Senate:
I am writing on behalf of the U.S. Chamber of Commerce, the world's largest business federation, representing more than three million businesses and organizations of every size, sector, and region, with respect to S. 2673, the Public Company Accounting Reform and Investor Protection Act of 2002. The U.S. Chamber appreciates the work begun by the Chairman of the Senate Banking Committee and continued by you and your colleagues to address what we all agree are deeply troubling developments in our economy.
There are approximately 17,000 public companies in the United States and the vast majority of these companies conduct their business activities according to the highest standards of honesty and integrity. As the U.S. Chamber works to preserve the greatness of our free market system and protect the interests of honest companies and hardworking Americans, we deplore the recent episodes of corporate misconduct that have come to light. This inexcusable and unethical behavior has undercut confidence in business and the markets – helping to drive down stock prices and depleting the retirement savings of American families. The full weight of the marketplace, the regulators and the legal system should fall upon those who have abused the trust placed in them.
To this end, the U.S. Chamber supports many of the proposals included in S. 2673 to restore confidence in our corporate community and the capital markets and to strengthen corporate transparency and accountability. The Chamber supports provisions that disgorge bonuses and other incentive-based forms of compensation in cases of accounting restatements resulting from misconduct. We agree that executives and directors who clearly abuse their powers or are derelict in their duties should be removed from their positions and believe the SEC should be able to fully exercise its authority to take such individuals to court to seek their removal. We support the provisions prohibiting senior executives from selling personally-held company stock while employees are subject to "blackout" periods prohibiting their own sales. We support the provision requiring that the CEO and CFO certify annually the accuracy and completeness of information provided to investors in all material respects. We fully support increases in the SEC's funding to better equip the agency in undertaking its enforcement responsibilities. Finally, the Chamber supports vigorous criminal prosecution of corporate officers who fraudulently influence an accountant preparing an audit.
Despite the appropriate things contained in S. 2673, we continue to have questions with the bill as amended on the Senate floor. We oppose the creation of the Public Company Accounting Oversight Board because it will, at best duplicate – or at worst – conflict, with existing SEC oversight, thus confusing business with respect to the body of rules and regulations to observe and with which to comply. We also do not support the provision, included in S. 2673, that bans publicly traded companies from freely choosing the accounting firm they deem most suitable for providing non-audit services.
In our view, some of the language contained in S. 2673 is very sweeping and appears designed to either encourage speculative, fee-driven litigation or is unnecessary given the requirements of current law. In addition, we are especially concerned about efforts to weaken or repeal the Private Securities Litigation Reform Act (the PSLRA) or the Securities Litigation Uniform Standards Act (the Uniform Standards Act). There are a number of items of concern in these areas.
First, the document destruction provision would criminalize innocent conduct, by making it a felony to knowingly destroy materials with the intent to "influence" an on-going agency or criminal investigation, or even "in contemplation of" such an investigation. The nearly limitless scope of conduct covered by the "influence" factor, would likely turn the provision into a recipe that could be used by overly zealous prosecutors. We believe that the risk of prosecutorial abuse created by this provision far outweighs any benefit.
Second, the bill requires that auditors maintain "all audit or review workpapers" for five years, rather than just those documents necessary to support the auditor's conclusions. The number of documents that potentially fall within the scope of the bill's excessive requirement is overwhelming. The cost to collect, maintain, and store these documents would be staggering and the bill indicates that failure to preserve them would be a crime, punishable by fines and imprisonment. In addition, the bill also fails to define the key term, "work paper" thus creating dangerous uncertainty.
Third, the creation of a new crime for securities fraud in the bill is redundant and ambiguous. Securities fraud is already a crime under Section 32(a) of the Securities and Exchange Act of 1934. Decades of enforcement and court interpretations of the current crime have created a known, consistent, and effective deterrence policy. This over-broad securities fraud provision, however, would create a parallel crime that would disrupt the existing enforcement regime.
Fourth, the bill would unnecessarily extend the statute of limitations on securities fraud claims, thereby exposing issuers and auditors to liability on stale claims for an unreasonably lengthy period. While the amendments made to this provision on the Senate floor improved the provision from what came out of committee, we believe that the current period of three years from the date of the fraud or one year after its discovery has worked well for over a decade and is more than sufficient to provide time to file a claim.
We thank you for your careful consideration of these extremely important, but complex issues. We are eager to engage you and your colleagues to make meaningful changes to S. 2673 as it moves through the Conference Committee, and to the President for his signature.
R. Bruce Josten
Executive Vice President, Government Affairs
U.S. Chamber of Commerce