VideoThe din of over corporate accounting, touched off by WorldCom's $3.8 restatement, got a whole lot louder yesterday.
On Thursday, no less than SEC chairman Harvey Pitt, Treasury Secretary Paul O'Neill and President Bush each publicly promised to get very tough on corporate criminals.
And, perhaps, not coincidentally, the stock market enjoyed a strong day for a change.
For example, the SEC said that beginning August 14, CFOs and CEOs of public companies with revenues exceeding $ 1.2 billion in the past fiscal year must provide written statements, under oath, regarding the accuracy of their companies' financial statements.
In addition, the execs must declare in writing, under oath, whether or not the contents of the statement have been reviewed with the company's audit committee, or in the absence of an audit committee, the independent members of the company's board of directors, according to the SEC.
The Commission said these new tough rules are necessary because of "recent reports of accounting irregularities at public companies, including some large and seemingly well-regarded companies."
The Commission added it wants to "provide greater assurance to the Commission and to investors that persons have not violated, or are not currently violating, the provisions of the federal securities laws governing corporate issuers' financial reporting and accounting practices."
Regulators at the SEC also want to see if it's necessary for the Commission "to adopt or amend rules and regulations governing corporate issuers' reporting and accounting practices and/or for the Commission to recommend legislation to Congress concerning these matters."
"We are going to take away excuses," said Treasury Secretary Paul O'Neill in an interview Thursday on ABC's Good Morning America. "If CEOs and CFOs certify what is true, and if they falsely certify, they are going to go to jail, and we think that is the right step."
O'Neill also said that President Bush and Congress are working on a law that would give the SEC the ability to go after the money that execs have reaped from their companies, "so that they don't get away with ripping off millions or even hundreds of millions of dollars and leaving everyone in the lurch," O'Neill said. "We want the law to be strong enough (so that) the SEC would even be able to go in and freeze accounts and freeze assets, so that while these cases are being litigated the money doesn't flow away and can be redistributed to the employees and shareholders."
Meanwhile, President Bush made his second comment in two days after WorldCom's stunning news, saying he is "concerned about the economic impact of the fact that there are some corporate leaders who have not upheld their responsibility."
Speaking to reporters before his meeting with Russian President Vladimir Putin at the G-8 meeting in Alberta, Bush warned, "If you are a responsible citizen and you run a corporation in America, you must fully disclose all assets and liabilities, and you must treat your shareholders and employees with respect."
In fact, next month Bush plans to deliver a speech solely addressing corporate governance issues, according to wire service reports, citing an administration official.
House to Subpoena WorldCom CFO, Others
No surprise, Congress is also determined to figure out who knew what and when at WorldCom.
The House Financial Services Committee said Thursday it will subpoena three current and former executives of WorldCom -- including former CFO Scott Sullivan -- for hearings scheduled for July 8 that will look into the nearly $4 billion fraud committed by WorldCom.
Subpoenas will also be issued to: Bernard J. Ebbers, former CEO of WorldCom; John W. Sidgmore, current president and CEO of WorldCom, and Jack Grubman, a telecommunications analyst at Salomon Smith Barney. Grubman has become something of a lightening rod for the colossal collapse of a slew of telecom companies.
"The WorldCom news dramatically underscores the need for legislative and regulatory reform," said Chairman Michael G. Oxley (OH). "Problems with accounting in telecommunications are, unfortunately, damaging a key growth sector of the economy that is already facing other, steep challenges."
"We are in a very difficult period, having endured attack, recession, and war," Oxley added. "Regulatory and legislative responses are already well underway, and we need to push those forward to completion as soon as possible. I urge the full Senate to act, so that we may conference corporate responsibility legislation as soon as possible."
The Witch Hunt is On
It's bad enough that seemingly a company each day is embroiled in some sort of scandal.
Now companies are finding it necessary to refute rumors of accounting scandals -- before the scandals even occur.
On Thursday, at least two major companies -- General Motors and Clear Channel Communications Inc. -- had to convince investors that their accounting is by the book.
A GM spokesman late in the day read a statement to reporters, saying, "General Motors is not subject to an accounting investigation and strongly believes that its accounting is appropriate. GM believes that rumors of irregularities in its accounting are unfounded."
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