Bush Urges Tougher Laws to Fight Corporate Fraud

President Bush, launching a new effort to combat corporate corruption, Tuesday demanded longer prison sentences for business executives who commit fraud and announced the creation of a federal task force to help pursue and prosecute such criminals.

Taking the presidential bully pulpit to Wall Street, Bush delivered a stern lecture on business ethics and personal responsibility as he unveiled his second plan this year to deal with the accounting scandals and financial irregularities that have shaken consumer faith in corporate America.

The president vowed to “end the days of cooking the books, shading the truth and breaking our laws” during the 27-minute speech that was designed, in part, to restore investor confidence.

But much of the initial reaction was negative, with critics faulting Bush for failing to call for groundbreaking policy changes some think are necessary to respond to the corporate accounting scandals.

In both his words and proposals, Bush put more emphasis on pursuing and punishing individual wrongdoers than imposing systemic changes to toughen oversight of the accounting industry or rules governing pension plans. And while he called for more money and personnel for the Securities and Exchange Commission, Congress already is considering even larger increases.

Specifically, the president called on Congress to enact legislation to double to 10 years the maximum prison term for mail fraud and wire fraud, laws often used in prosecuting corporate crime.

He also called for strengthening laws that criminalize document-shredding and other forms of obstruction of justice. A senior administration official said that under Bush’s proposal, the government would be able to charge individuals with obstruction of justice even if evidence-tampering took place before a subpoena had been issued for documents.

The Corporate Fraud Task Force, which Bush created with an executive order, is responsible for better coordinating cross-agency federal probes of financial crimes.

Bush named Deputy Atty. Gen. Larry Thompson--Atty. Gen. John Ashcroft’s top deputy--to head what the president described as a “financial crimes SWAT team.” The task force will include top officials from several other agencies.

Democratic lawmakers in Washington welcomed Bush’s tough words but said they were empty rhetoric unless accompanied by support for a pending Senate bill that would tighten oversight of the accounting industry and hold corporate officers more accountable for their company’s financial statements.

“The test for the president today is not whether he shares the outrage that the workers and shareholders ... feel,” Senate Majority Leader Tom Daschle (D-S.D.) said. “The question is whether he is willing to take action on that outrage and support the legislation that will actually help solve the problem.”

Daschle made his comments at a news conference where he was joined by employees laid off by Enron Corp. and WorldCom Inc., the two businesses whose financial irregularities have played the major role in spotlighting corporate misdeeds.

Senate Democrats vowed to press ahead with their bill, sponsored by Sen. Paul S. Sarbanes (D-Md.). It is expected to pass this week, increasing the pressure on Bush and House Republicans to accept a measure that they have resisted as excessive.

Bush’s speech did not comfort investors. The Dow Jones industrial average fell 178.81 points, to 9,096.09, also as a result of a number of corporate earning reports. But analysts said investors were unlikely to be looking for Bush to provide a quick fix for the market’s various woes.

“Bush said the right things, but the problem is there’s no magic bullet here,” said Carl Domino, manager of the Northern Large Cap Value stock mutual fund in West Palm Beach, Fla. “Clearly, some guys need jail time, but the judicial system doesn’t work overnight.”

The Business Roundtable, an association of chief executives of major U.S. companies, said it “actively supports” Bush’s proposals.

The speech represented a notable turnabout for Bush, long a critic of government meddling in the marketplace, to deliver a lecture to Wall Street that the government would be closely watching its behavior. It underscored the administration’s concern about how the accounting scandals could damage the economy and the president’s popularity.

Bush reiterated his view that most business leaders are law-abiding citizens, but added: “The business pages of America’s newspapers should not read like a scandal sheet.”

Aside from the task force, Bush’s proposals require action by Congress, corporate executives, regulators, the stock exchanges or companies themselves to take effect.

Bush conceded that stricter enforcement of existing laws and tougher new ones can do only so much. “Ultimately, the ethics of American business depend on the conscience of America’s business leaders,” the president said at a luncheon sponsored by the Assn. for a Better New York and attended by about 1,000 community leaders.

“We need men and women of character, who know the difference between ambition and destructive greed, between justified risk and irresponsibility, between enterprise and fraud,” Bush said.

Bush in March offered a 10-point plan for combating corporate misconduct, with most of the proposals aimed at providing investors with better information. His speech Tuesday signaled his awareness that the plan had failed to quell public outrage over such scandals--and had not inoculated his administration against the perception that it is too close to big business.

Rather than proposing a dramatic new regulatory system, Bush’s new plan focuses on beefing up the existing tools that the government has in place.

He called for new authority that would enable the SEC to freeze improper payments to executives while their company is under investigation.

He asked Congress to approve an additional $100 million for the SEC for fiscal year 2003, which begins Oct. 1. Earlier this year, the administration proposed an SEC budget of $467 million, a 6.6% increase over this year. Bush also called on Congress to pass a $20-million supplemental funding request that would allow the SEC to hire 100 new enforcement officers.

But even many of Bush’s Republican allies in Congress, along with Democrats, have pushed to boost the SEC budget much more--to $776 million--to deal with the growing demand for more scrutiny of the accounting practices of public companies.

Bush directed some of his harshest language at corporate leaders, who as a group have been among his strongest supporters.

“Responsible leaders do not collect huge bonus packages when the value of their company dramatically declines,” he said. “Responsible leaders do not take home tens of millions of dollars in compensation as their companies prepare to file for bankruptcy, devastating the holdings of their investors.”

Following up with recommendations, he called on public companies to stop lending money to their officers and for chief executive officers to “describe in plain English” their compensation packages and explain how the payments serve the best interest of stockholders.

Embracing a goal of many investor groups, he urged the exchanges to approve rules requiring a majority of all corporate boards be composed of outside directors.

And he espoused what amounts to a one-strike-and-you’re-out stance against dishonest executives, saying that the SEC should be allowed to bar them from ever serving again as officers or directors of publicly held corporations.

Bush’s administration has drawn heavily from business ranks and includes two former CEOs--Vice President Dick Cheney and Treasury Secretary Paul H. O’Neill. Both men benefited from the type of lucrative compensation packages that have become common in the corporate world.

Cheney, former chairman and chief executive of the Texas energy firm Halliburton Co., caused controversy during the 2000 presidential campaign by collecting an early-retirement stock package variously valued from $20 million to almost $34 million. The company’s board granted Cheney the early-retirement send-off the day Bush named him as his running mate. Executives at the time described the package as “perfectly normal” and “plain vanilla.”

In his last year as Alcoa’s chief executive, O’Neill made $36.2 million, including $33.1 million in stock options.

Bush received a rousing welcome from his audience Tuesday as he entered the ballroom of the Regent Wall Street Hotel in Lower Manhattan--and again as he gave a brief update on the war on terrorism. But his remarks on business morality and malfeasance rarely evoked more than tepid applause.

On Capitol Hill, reaction to the speech among Democrats was typified by Sen. Christopher J. Dodd (D-Conn.). He called it “long on rhetoric and very short on details.”

“I welcome the fact that he has finally said something,” Dodd said. But, referring to the Sarbanes bill, he added: “Here we are debating ... the most comprehensive reforms of the accounting industry that this Senate has considered in years, and the president had almost nothing to say about it.”

Sen. Patrick J. Leahy (D-Vt.) criticized Bush for not embracing other measures, such as establishing a new securities fraud felony, new protections for corporate whistle-blowers and extending the time frame for investors to file securities fraud lawsuits.

GOP lawmakers dismissed the criticism as election-year politicking. “Democrats are griping about cooked books so their goose isn’t cooked come November,” said Rep. Mark Foley (R-Fla.).

Times staff writers Josh Friedman, Peter Gosselin, Walter Hamilton and Janet Hook contributed to this report.