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Congress finishes compromise bill to boost investor confidence
WASHINGTON -- Mindful of midterm elections just three months away, Congress sent legislation to President Bush on Thursday creating stiff penalties for corporate fraud and document shredding in hopes of easing economic jitters and restoring confidence in the markets.
In overwhelming votes, the House and then the Senate approved the sweeping compromise legislation, which rivals revisions to federal laws responding to the stock market crash of 1929.
Bush said he would sign the bill.
"This legislation will protect investors, crack down on fraud and wrongdoing, and provide tough oversight of the accounting industry," Bush said in a statement.
Sen. Mike Enzi, R-Wyo., a former accountant, called the legislation "earthshaking," adding that it was approved with "tremendous speed."
In the compromise measure, House Republicans accepted most of the stricter parts of a bill that the Democratic-controlled Senate passed unanimously last week.
The House approved the measure 423-3 and the Senate 99-0.
"Today's message from Congress to CEOs and corporate boardrooms is clear," said House Speaker Dennis Hastert, R-Ill.: "If you steal, cheat or commit some other white-collar crime, you'll face the same consequences as lawbreaking street thugs by spending time behind bars."
The sweeping changes are "a major step forward in reforming the operations of our financial market," said Rep. John LaFalce of New York, senior Democrat on the House Financial Services Committee.
Lawmakers in both parties were seeking to rebuild Americans' shattered confidence in business and the market, mindful that they must face voters in November.
The House vote drew quick praise from Bush.
"This legislation will protect investors, crack down on fraud and wrongdoing, and provide tough oversight of the accounting industry," Bush said in a statement. "Leaders in Congress heeded the call to put the interest of investors and employees first."
At the same time, Bush said, his administration is getting tough and "will haul in and prosecute any CEO who breaks the law."
On Wednesday, news that a House-Senate compromise agreement was near and that executives of bankrupt Adelphia Communications were arrested for alleged financial fraud fueled Wall Street's second largest point gain ever after nine weeks of punishing losses. The Dow Jones industrials climbed more than 480 points and crossed back over the 8,000 mark.
But attempts to extend the rally failed Thursday amid concern about a slump in the semiconductor industry and word of yet another accounting investigation, this time at AOL Time Warner.
With congressional elections looming, Republicans gave ground, aware that a string of corporate accounting scandals has unnerved investors and the stock market, hitting Americans' retirement savings hard.
GOP Sen. Phil Gramm of Texas, the sole dissenter among the House and Senate negotiators, acknowledged, "In the environment that we're in, virtually anything could have passed the Congress."
The legislation creates criminal penalties and prison terms for company fraud and document shredding, and establishes an independent, private-sector board -- with subpoena power -- to oversee the accounting industry.
The measure imposes restrictions on accounting firms doing consulting for corporations whose books they audit. It prohibits personal loans from companies to their top officials and directors. And it orders new rules for financial analysts designed to prevent conflicts of interest.
In addition, the bill extends the time in which defrauded investors may bring lawsuits against companies -- a hard pill to swallow for Republican lawmakers who acted several years ago to stem what they maintained was a spate of frivolous shareholder suits.
Senate Democrats agreed to the House version's longer prison terms and bigger fines for fraud and shredding documents.
The negotiators agreed to include a GOP-pushed plan to create a federal account for defrauded investors that would take in all the civil fines, payments and assets from corporate wrongdoers.
Only three House members, all Republicans, voted against the legislation Thursday: Reps. Michael Collins of Georgia, Jeff Flake of Arizona and Ron Paul of Texas.