Statement of Senator Patrick Leahy,
Chairman, Senate Judiciary Committee,
Press Conference on Corporate Responsibility
Tues., July 9, 12:30 p.m.

I welcome the President to the urgent need to restore trust in our markets, and I welcome his ideas.  A few of them are very familiar.

We invited the President to join in this effort.  For months, the White House declined that invitation.  Now that the President is part of this effort, we have the opportunity to work together to achieve real reform.

This week the Senate will debate a wide range of solutions, and stronger criminal penalties must be part of the answer.  We should tighten reporting requirements and do what we can to shame the corporate wrongdoers.  But if these insiders think that after robbing their investors, bankrupting their firms and stranding their employees they still will be able to grab their money and walk away, it will take the prospect of hard time in prison to get their attention.

Getting tough means criminal penalties, and getting tough is the aim of the Corporate and Criminal Fraud Accountability Act, which Senator Daschle and I offered today on the Senate floor.

The chance for accountability and real punishment under current laws is minimal.

Although it is important to instill good corporate ethics, fraud culprits and would-be  culprits also need to know that, if they break the rules, they will be caught and punished.

Our bill is about accountability and transparency.  Transparency instills confidence, and accountability helps enforce transparency and forthright financial decisions.

The bill provides tools that restore accountability in three ways: punishing criminals who commit securities fraud; preserving evidence that is needed to prove such fraud; and protecting victims’ rights to recover from those who have cheated them.

Our bill creates a new crime for any “scheme or artifice” to defraud shareholders in publicly traded companies.

 It protects evidence by giving corporate whistleblowers, for the first time, an effective remedy in federal court if the wrongdoers retaliate against them.  These insiders are often key witnesses needed to prove fraud cases.

Our legislation also creates two new anti-shredding laws that close loopholes in the current obstruction of justice offenses and create a clear rule that corporate audit papers must be kept for at least five years, the statute of limitations for many federal crimes.

We propose protecting victims by ending the current system that rewards fraud artists who can conceal their crimes. 

Following the advice of the last two SEC chairmen from both parties, our legislation lengthens the statute of limitations to give securities fraud victims five years to bring their fraud cases.  In the Enron state pension fund litigation, the current short statute of limitations has forced some states to forgo claims against Enron based on securities fraud allegations from 1997 and 1998. Victims of securities fraud should have a reasonable time to discover the facts underlying the fraud.

The President has drawn some of our ideas into his proposal, and that is real progress.   The President now joins us in proposing a new felony for document shedding and in supporting some other enhanced penalties. 

But the President’s plan fails to create a new securities fraud penalty.  What he calls for are penalties that are indirect and hard to prosecute, using mail and wire fraud statutes.

We propose creating a new ten-year felony for any scheme to defraud shareholders.

The President’s plan also fails to offer any protections to corporate whistleblowers.  Sherron Watkins and others could be fired in retaliation for reporting fraud to the proper authorities. 

The President’s plan also fails to protect victims, as we do by extending the statute of limitations, by preserving documents, and by keeping executives from avoiding responsibility for judgments against them through bankruptcy.

I am also concerned that the President continues to prefer the halting steps of the House bill instead of the comprehensive Senate plan. 

To succeed in driving this blight from the marketplace, reforms to restore trust should not be grudging, and reform must not come in half-measures.

The message to the bad apples must be clear:  If you defraud your investors, your employees and the public, you will not be able to run away with your loot and leave your company behind in shambles.  You’ve got some hard time ahead of you, in jail.

We have been in a period in which greed has been inflated and accountability devalued.  We cannot legislate against greed, but we can stop greed from succeeding.

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Below is a fact sheet on Leahy's corporate fraud amendment

CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY ACT
S. 2010

Unanimously Reported By Senate Judiciary Committee

PUNISHING CRIMINALS

/Creates New 10 Year Securities Fraud Felony: Currently prosecutors are forced to use criminal laws either not specifically written for securities fraud or overly technical and with weaker penalties.  Creates a new crime for any Ascheme or artifice@ to defraud shareholders.

/Enhances Fraud and Obstruction of Justice Sentences: Directs U.S. Sentencing Commission to raise penalties in obstruction of justice cases where evidence is destroyed and in fraud cases where there are many victims or where victims are financially devastated.

/Enhances Penalties on Corporate Crimes: Directs U.S. Sentencing Commission to consider raising fines and punishments for corporate misconduct.

PRESERVING EVIDENCE OF FRAUD                                                                          

/Establishes New Felony Anti-Shredding Provision: Creates new 10 year crime to close loopholes in current obstruction of justice offenses.  The destruction of evidence to obstruct an investigation is made illegal whether or not shredding occurs when records are under subpoena.

/Encourages Witnesses to Report Fraud to Authorities:   Protects corporate employees who blow the whistle on fraud.  As shown by the Enron case, these insiders are often the only witnesses that can prove what the criminals knew and when they knew it.

/Preserves Audit Documents for 5 Years: Sets a clear requirement to preserve key financial audit documents for five years (the statute of limitations for most federal crimes) and creates a new 5 year felony for intentionally destroying such documents.

PROTECTING VICTIMS     

/Creates New Protections for Corporate Whistleblowers: Gives corporate whistle blowers an effective remedy if they are retaliated against, freeing them from patchwork of state laws.

/Lengthens Statute of Limitations In Fraud Cases: Ends current system that rewards fraud artists who can conceal their crimes for three years.  Follows advice of recent SEC chairmen from both parties (Breeden and Levitt) to give victims 5 years to bring their fraud cases or 2 years from date of discovery of the fraud.

/Allows Fraud Victims to Recover in Bankruptcy: Prevents securities law violators from using bankruptcy to shield debts based on fraud judgments and settlements from their victims.