Vol.1, No. 10, October 2002 THE LAST DAYS OF THE somewhat sparse record means that IN THIS ISSUE 107 th CONGRESS many significant issues remaining in this Congress will have to be On Thursday, October 17, the Senate followed the House action resolved, if at all, in the November taken on the previous day and left lame duck session or possibly in a THE LAST DAYS OF THE 107 TH 1 CONGRESS second lame duck session in Washington for the campaign trail. December. For example, when the Before leaving, both bodies THE RISE OF SARBANES-OXLEY: A TALE OF TWO CITIES 2 Congress left, only two of the 13 adopted a Continuing Resolution WHITE HOUSE ANNOUNCES ( H.J. Res. 123 ) which would keep regular fiscal 2003 appropriations PROPOSED GENERIC DRUG RULE 7 the government funded through bills ( H.R.5010, the Defense BIRCH BAYH TESTIFIES ON TITLE 9 November 22. Congress plans to Appropriations bill and H.R.5011, IX the Military Construction return for a post-election lame duck JIM JATRAS JOINS LEGISLATIVE Appropriations bill ) have been session in November. 10 GROUP approved by both Houses. The In the seven weeks of NEWSLETTER ARCHIVES 10 legislative activity since returning unfinished appropriations bills will from its Summer Recess, Congress have to be a priority for the lame duck session. In addition, Congress adopted Resolutions authorizing Capitol View is published by the will have to decide how, or if, it the use of United States Armed Legislative Group of Venable, Baetjer, will resolve major controversies Forces against Iraq ( S.J. Res. 45 , Howard & Civiletti. such as energy reform, the H.J.Res.114 ), passed the Help It is not intended to provide legal advice America Vote Act (H.R.3295 ) to homeland security department, or opinion. Such advice may only be terrorism insurance, and port assist states in improving and given when related to specific fact situations. security. Of these major issues, modernizing the administration of Editor: terrorism insurance appears closest elections and took final action on Kevin Faley to achieving consensus. the Medical Device User Fee and Associate Editor : Modernization Act (H.R.5651 ) The likelihood of a productive Lisa Baranello which reformed the FDA’s lame duck session will be largely procedure for approving and driven by the outcome of the November 5 elections. If either the regulating medical devices. This
Democrats or Republicans gain Congress, and its increasing largest one month withdrawal on control of both the Senate and support for more stringent record. House, they may see an advantage provisions as the bill moved This trend was not lost on in delaying resolution of these through the legislative process, was Capitol Hill where it was also issues to the 108 th Congress the fear among members of the noted that about 50% of convening in January 2003. possibility of severe reprisals households in the United States visited on Congress by investors currently own stock and two-thirds Kevin Faley is Editor of Capitol for the carnage on Wall Street. of all likely voters are invested in View and a Partner in At the beginning of 2002 the the stock market. Lawmakers Venable’s Legislative Group. Dow Jones Industrial Average quickly swung into action to help Mr. Faley can be reached at hovered around the 10,000 mark. ensure that angry investors in the 202.513.4706 or at Many Wall Street analysts were summer of 2002 would not become kofaley@venable.com pleasantly surprised that the market angry voters in the fall. In a had successfully weathered one of counter reaction to the market THE RISE OF SARBANES- the largest bankruptcies in the movement, the support among OXLEY: A TALE OF TWO history of the United States, that of members of Congress for more CITIES the Enron Corporation in stringent measures to confront the As Congress returned from its December of 2001. In mid-March corporate and accounting scandals Summer Recess in the first week of the market reached its peak of the increased as the stock losses September, a number of members year at over 10,600. However, as accelerated through the spring and expressed concern over some the year wore on a series of summer. provisions in the Sarbanes-Oxley corporate fraud scandals and The Corporate and Auditing Act (PL 107-204 ) which was irregularities in some accounting Accountability, Responsibility and signed into law by President Bush practices began to have a Transparency Act of 2002 just before Congress adjourned. significant negative impact on Wall (H.R.3763) was reported by the Sarbanes-Oxley instituted a broad Street. By the end of July, the House Financial Services reform of Federal law to confront market was trading around 8,000, a Committee on April 16, 2002. The the corporate governance and loss of about 25% since March. In legislation, sponsored by the accounting scandals that shook addition, the rate of loss was Chairman of the Committee, Wall Street over the spring and rapidly accelerating and investor Michael Oxley (R-Ohio) instituted summer. However, some members confidence in the market was various reforms concerning thought the new law may have deteriorating. At that point in the corporate governance of public gone too far. Rep. Richard Baker year, the market had lost about companies and regulation of the (R-LA), who helped draft the $3.7 trillion in the value of all accounting industry. It passed the House version of the bill, noted, traded stock since January 1. In House on a vote of 334-90 on April “There may be unintended July alone about $2.1 trillion was 24. The Administration voiced its consequences. We acted in a very lost and investors withdrew $49 support for H.R.3763 . speedy manner.” One of the prime billion from mutual funds, the Most of the opposition to the reasons for the quick action by bill came from Democratic 2
members who complained it did “I say to my colleagues that in The Public Company not go far enough in addressing Accounting Reform and Investor every one of its central provisions corporate and accounting abuses. Protection Act (S.2673) , introduced the Conference Report closely Of the 12 members of the Financial by the Chairman of the Senate tracks or parallels the provisions in Services Committee who voted Banking, Housing and Urban the Senate bill for which, as I against the bill at the Committee Affairs Committee, Paul Sarbanes indicated earlier, all Members markup, 11 were Democrats who (D-MD), was approved by the present at the time, 97 of us, voted were joined by Representative Committee on June 18, 2002 by a only a short time ago.” Cong.Rec. Bernard Sanders (I-VT) in vote of 17-4. It passed the Senate July 25, 2002, p. S.7354. complaining that the bill did not on July 15, 2002 by a unanimous On July 25, 2002, the Senate mandate sufficiently stringent vote of 97-0. The Sarbanes bill was adopted the Conference Report by reforms. As the Ranking Democrat viewed as being considerably a vote of 99-0 and the House on the Financial Services stronger on corporate governance agreed by a vote of 423-3. Committee, John LaFalce (D-NY) and accounting issues than the President Bush signed the bill into noted, during debate on the House House passed bill. It might be law as the Sarbanes-Oxley Act of Floor, “Mr. Chairman, we have an noted that the Dow Jones Industrial 2002 on July 30, 2002. The major enormous, enormous problem on Average had lost about 2,000 provisions of the new law are: our hands. Investors have lost points in the interim between Public Company Accounting Oversight hundreds of billions of dollars, and passage of the House and Senate Board sometimes it may have been due to bills. bad investment decisions they In the Senate-House The Act establishes the Public made, but an awful lot of the time Conference to reconcile the two Company Accounting Oversight it was due to earnings manipulation versions, the stronger Senate bill Board with the authority to impose or analyst hype or corporate or prevailed on virtually all the major discipline or sanctions on accounting wrongdoing. We need provisions over the weaker House registered public accounting firms to rise to the challenge. This bill provisions. Some members of the who violate the Act or any just does not do that. We could say, House had viewed the Conference securities laws relating to the well if we gave a test and as a last opportunity to insist on preparation and issuance of audit somebody gets 50% of the answers retaining some of the less stringent reports. The Board would oversee right, we would say, well, pass House provisions. However, the the audits of public companies them. I think we flunk them if that continuing meltdown on Wall subject to the securities laws, is as good as they could do, Street led to ever-increasing establish audit reporting standards especially if they do a poor job on pressures on members of Congress and rules as well as investigate, all of the important issues. I think for significant reforms, and the inspect and enforce compliance this main bill does a very poor job House receded to the Senate on the with the Act relating to registered on all of the important issues.” major issues in the legislation. As public accounting firms. It also Cong.Rec. April 24, 2002 Senator Sarbanes noted during the requires public accounting firms to p.H.1553. subsequent Senate floor debate on register with the Board and limits the Conference Report, the number of certified public 3
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