Fraud reform measures touted at town meeting

Published 5:00 am Monday, July 15, 2002

JACKSON — Fourth District Rep. Ronnie Shows touted corporatefraud reform proposals while some members of a town hall meetingaudience, mostly lawyers, sought retroactive penalties againstcorporate leaders accused of wrongdoing.

About 30 people attended Saturday’s meeting at the Jim Buck RossAgriculture and Forestry Museum. Shows, a member of the HouseFinancial Services Committee investigating an alleged $4 billionWorldCom scam, discussed pending legislation that has arisen in thewake of WorldCom and other recent corporate scandals.

“I think everybody wants accountability,” Shows said. “I thinkthat’s what the committee is trying to push for.”

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Shows, D-Miss., touched on a laundry list of corporateaccounting reform proposals and differences in House and Senatebills. The House has already passed its bill while the Senate isscheduled to vote Monday.

“We’re looking for the Senate to help us,” Shows said aboutaddressing deficiencies in the House version.

Some proposals include refining the definition of independentauditor, creation of an accounting oversight board, tough criminalpenalties for securities fraud, records retention measures and codeof ethics matters. A provision for bonus forfeiture for executiveswho file false statements was mentioned several times.

“We felt pretty strongly about that,” said Shows, who alsomentioned pension reform and 401k plan reform bills.

Shows said investors and stockholders have been let down inthree areas: auditing, analysis and leadership, includingcompanies’ boards of directors.

“It seems to me someone wasn’t living up to theirresponsibility,” he said.

Later in the meeting, while referring to a $10 million bonusthat former WorldCom chief financial officer Scott Sullivanreceived for his work, Shows again hit on the bonus forfeiture andresponsibility topics.

“If you’re willing to take a $10 million bonus, you have to bewilling to take responsibility to see that the ship is being runright,” Shows said.

Shows said his first priorities were to help investors andemployees who have lost jobs and to try and save WorldCom.

One audience member, a current WorldCom employee who did notidentify herself, mentioned the importance of saving the companyand its role in a competitive marketplace. A WorldCom stockholderasked about a government refinancing, or bailout, of the strugglingcompany.

“I think we’re a long way from that right now,” Shows said.

Other audience members inquired on the possibility ofretroactive measures, such as going after executives’s bonuses andreturning those to investors. Shows supported the idea, but saidthere may be legal questions about that approach.

“I think if they’re convicted, we ought to be able to go afterthose assets,” Shows said.

Several attorneys discussing legal remedies against WorldCom andothers. While entering the museum, participants were given a flyeradvertising a Monday meeting in Jackson with New York lawyers todiscuss the WorldCom situation.

Michael Fondren, a Jackson lawyer, praised the reform proposalsShows mentioned.

“But it’s not going to get the money back in the shareholders’pockets,” Fondren said.

Fondren’s father Louis, also an attorney, pitched for a hardpenalty against executives. He said he supported the idea that theyought to go to jail.

“They ought to have to work like hell to pay the people back,”the elder Fondren said.

Shows said there is legislation pending to create a Victims ofCorporate Fraud Compensation Fund. He also called for some kind oflegislation that would help restore investors’ confidence in thesystem.

D.W. Maxwell, of Brookhaven, attended the meeting but did notspeak during the gathering. Afterwards, the long-time friend ofShows described the meeting as “very positive.”

“It wasn’t as much emphasis placed on the executives as Ithought there would be,” said Maxwell, although adding that lawyersin the audience were trying to “egg on” legal action againstthem.

Regarding reform proposals, Maxwell said a few of them areneeded and would be helpful. But others were not needed, hesaid.

Maxwell said a proposal to require chief executive officercertification of financial statements involving potentiallyhundreds of subordinates would be a “terrific responsibility” forthe corporate leader.

Regarding WorldCom investors’ losses, Maxwell said they did notbegin with the company’s recent disclosure. He referred to thestocks’ high price of around $65 in 1999 to approximately $1 pricewhen the announcement was made last month.

“Investors lost the vast majority of their money months beforethis alleged fraud was even breathed,” Maxwell said.

Citing market conditions, Maxwell indicated WorldCom was notalone in seeing declines. He pointed to last week’s dismal resultson Wall Street.

“Even good companies are seeing decreases in the prices of theirshares,” Maxwell said.