Bush Promises a Full Investigation by SEC

President Bush on Wednesday branded as “outrageous” revelations of massive accounting improprieties by another major American company and members of Congress said the WorldCom disclosures put new pressure on both parties to produce legislation cracking down on corporate misdeeds.

As investor confidence in the financial markets sags, Bush promised a full investigation by the Securities and Exchange Commission into the latest--and biggest--accounting miscalculation.

“We’ve had too many cases of people abusing their responsibilities. And people just need to know that the SEC is on it, our government is on it,” Bush said at the G-8 economic summit in Calgary, Canada.

Bush’s criticism of the “egregious practices” at WorldCom Inc. underscored the growing concern about the effect of the wave of corporate scandals on financial markets.

In Congress, the House voted Wednesday to nearly double the SEC budget, to $776 million for the fiscal year beginning Oct. 1. An investigation of WorldCom’s earnings restatement was launched by Rep. W.J. “Billy” Tauzin, (R-La.), and Sen. Tom Daschle (D-S.D.) promised reform legislation to increase accounting oversight.

“If the laws were broken, somebody needs to go to jail,” Daschle said.

But while the WorldCom revelations put the spotlight back on efforts to pass business reforms originally triggered by Enron Corp.’s collapse last year, it remained unclear what might emerge from a sharply divided Congress in an election year.

Indeed, Peggy Peterson, spokeswoman for the Republican chairman of the House Financial Services Committee, expressed concern that the latest revelations “could increase the appetite to do something that would make things worse.”

Democratic and Republican lawmakers differ on how far Congress should go in imposing new oversight rules on business.

The Senate is considering a bill that would limit the amount of consulting that accounting firms could provide to companies they audit. It also would create a new oversight board with the power to discipline auditors. And it would establish new rules for financial disclosure by public companies and impose new responsibilities on corporate officers.

The measure, drafted by Senate Banking Committee Chairman Paul S. Sarbanes (D-Md.) is tougher than an industry-backed measure approved by the Republican-controlled House in April.

Sen. Phil Gramm of Texas, top Republican on the Senate Banking Committee, said Wednesday that while he supports establishing an independent board to oversee accountants, the WorldCom revelation “in no way changes my opinion about the undesirability of having Congress set accounting standards or write into law a one-size-fits-all mandate that would force the smallest incorporated business in the smallest town to employ the same myriad of accounting firms that are required for General Motors.”

A hefty budget increase for the SEC could be one of the few significant business reforms to emerge from Congress this year.

Although the Republican-controlled House and Democratic-led Senate disagree over many of the proposed reforms, both favor more money for the SEC than the amount proposed in Bush’s budget.

But while the House voted overwhelmingly to authorize a funding increase, lawmakers still must take another vote during budget deliberations--something that could prove more difficult when the SEC budget comes up against other spending needs.

Experts differ on whether WorldCom’s disclosure would bolster efforts to pass tougher legislation.

“The WorldCom scandal makes it much more likely that Congress will spend a lot of time blustering about business reform, but doesn’t radically increase the likelihood of any single bill’s passage,” said Patrick Basham, senior fellow at the libertarian Cato Institute.

Others, however, said WorldCom’s restatement of earnings and losses--the latest in a wave of corporate scandals--would make it harder for financial-industry lobbyists to water down reforms.

“Congressional supporters of industry will be hammered by their opponents in the next election,” said John W. Dienhart, a business ethics professor at Seattle University.

Indeed, Democrats responded to the WorldCom imbroglio by stepping up their efforts to make a campaign issue of corporate responsibility.

“This is something that is a failure on our system’s part,” said Sen. Jon Corzine (D-N.J.), a former co-chairman of investment bank Goldman Sachs.

“It’s systemic. It is undermining to our economic welfare, undermining investment in our economy.”

In the aftermath of last year’s Enron collapse, Democratic leaders have been trying to portray Republicans as pushing deregulation and other policies that have allowed corporate greed and abuse to flourish.

House Minority Leader Richard A. Gephardt (D-Mo.) proclaimed the WorldCom scandal and other corporate misdeeds as the logical consequence of the pro-business agenda advanced by then-House Speaker Newt Gingrich (R-Ga.) after Republicans took control of Congress in 1995.

But Republicans argue that Democrats will be hard-pressed to make a political issue of corporate scandals that the public does not seem to view in partisan terms.

What’s more, Republicans say, the issue will not benefit the Democrats because people tend to view politicians of both parties with as much mistrust as business leaders.

“People don’t think politicians are best positioned to whip business into shape,” said Terry Holt, spokesman for House Majority Leader Dick Armey (R-Texas).

Daschle, however, assailed the SEC for not being more aggressive in rooting out corporate corruption. “I don’t see the kind of aggressive activity, the kind of attitude in the SEC that we need to do this right,” he said.

In a statement later on Wednesday, SEC Chairman Harvey L. Pitt responded: “In my 10 months on the job, the SEC has laid out and is actively implementing creative and effective solutions to the problems I inherited.”

Some lawmakers said the snowballing examples of corporate malfeasance underscore the need for more aggressive congressional oversight.

But corporate governance is a notoriously arcane area where lawmakers are often outgunned in their command of the details by specialists and special interests.

“How many more Enrons and WorldComs are there?” said Rep. Sherwood L. Boehlert (R-N.Y.).

“I don’t pretend to be an expert, but we ... better become an expert in a hurry.”