Washington President Bush called for stiff new penalties for corporate criminals and a crackdown on boardroom scandals Tuesday, promising in a speech on Wall Street that his administration would "end the days of cooking the books, shading the truth and breaking our laws."
Confronting a wave of corporate wrongdoing that has undermined investor confidence and threatened political damage to the White House, Bush said, "We will use the full weight of the law to expose and root out corruption." He proposed doubling the maximum prison term for mail fraud and wire fraud to 10 years and strengthening laws criminalizing document shredding and other forms of obstruction of justice.
The president called on the U.S. Sentencing Commission to recommend longer prison terms for corporate executives guilty of fraud and announced a new task force for the pursuit and prosecution of corporate criminal activity. The task force would be headed by Deputy Attorney General Larry Thompson and include FBI Director Robert Mueller and investigators from the Justice Department and other agencies.
Bush likened it to a "financial crimes SWAT team."
Titters of knowing laughter rippled through the ballroom when Bush took after stock analysts who have misled clients in order to inflate stock prices. '"Buy' should not be the only word in an analyst's vocabulary, and they should never say 'hold' when they really mean 'sell,"' Bush said.
Democrats called the proposals inadequate, and Wall Street appeared unexcited about the changes, many of which had been made public before the speech. Stocks drifted mostly lower while Bush spoke, but the losses in the indexes were relatively limited and in keeping with the tone of trading earlier in the session.
"I don't think the speech had that much of an impact. Everybody expects him to say something that's going to foster some kind of confidence in corporate America," said Jack Francis, managing director and head of Nasdaq trading at UBS Warburg. "I think actions speak louder than words. If somebody goes to jail, maybe people will take corporate America a little more seriously."
Bush said the mushrooming corporate scandals threaten economic recovery and the financial well-being of workers.
"The business pages of American newspapers should not read like a scandal sheet," Bush said. "I am calling for a new ethic of personal responsibility in the business community an ethic that will increase investor confidence, make employees proud of their companies and regain the trust of the American people."
Bush, wearing a Big Apple lapel pin, spoke from a hotel ballroom on Wall Street. His audience sat silently through most of his speech, in which he pledged to:
Enhance the ability of the Securities and Exchange Commission to freeze improper payments to corporate executives while a company is under investigation.
Call for a stronger SEC one with 100 new enforcement officers, plus more investigators and an extra $100 million to work with. Earlier this year, the White House proposed a "zero-growth" budget for the SEC that calls for staff reductions in securities fraud investigations.
Persuade publicly traded companies to prevent corporate officers from receiving loans from their own companies.
Ask stock markets to require that a majority of a company's directors and all members of the company's audit, nominating and compensation committees have no material relationship with the company so that they are truly independent.
At a news conference Monday, Bush was bombarded by questions about his record as a director at Harken Energy Corp. in the early 1990s. The SEC forced the company to amend its books to reflect millions of dollars in losses that had been hidden by the sale of a subsidiary to a group of insiders.
As Bush described it Monday, when the SEC cried foul on Harken's sale of a subsidiary to a partnership of its own executives, which had the effect of concealing $10 million in losses, "There was an honest difference of opinion as to how to account for a complicated transaction."
Asked if he, as a member of Harken's board at the time, approved of the questionable transaction, Bush shrugged. "You need to look back on the directors' minutes," he said.
Bush, who was on the company's audit committee, was the subject of a separate insider-stock trade investigation. The SEC took no action against Bush in that inquiry, which also found he had disclosed his sales of Harken stock later than the law requires on four occasions.
The president is calling for swift disclosure of such insider stock sales.
Pressed to explain his eight-month delay in reporting such a sale on one occasion, Bush said, "I still haven't figured it out completely."
Democrats pounced on the Harken history to promote their argument that Bush's strong financial and political ties to the business world undercut his credibility as a reformer.
Congress' top Democrats Senate Majority Leader Tom Daschle and House Minority Leader Richard Gephardt appeared with former WorldCom and Enron employees to announce their own "investor's bill of rights" Tuesday.
"It is not enough to talk about accountability; you have to act to ensure it," Daschle said. "The test for the president today is not whether he shares the outrage that the workers and shareholders in these companies feel. ... The question is whether he is willing to take action on that outrage and support the legislation which will actually help solve the problem."
Without support for the bill before the Senate to tighten oversight of the accounting industry, Daschle said, Bush's speech "will ring hollow."
Gephardt dismissed Bush's assertion Monday, when explaining transactions at his old oil firm, that "Sometimes things aren't exactly black and white when it comes to accounting procedures."
"Mr. President, with all due respect, accounting should be black and white, clear, precise and easy for every employee and every investor to understand," Gephardt said. "We've got to get rid of the gray areas that exist today by eliminating conflicts of interests and ending corporate abuse once and for all."