Senate Floor: LEGISLATIVE HISTORY OF TITLE IX OF THE SARBANES-OXLEY ACT OF 2002

Madam President, I rise today to offer the following section-by-section analysis of Title IX of the "Sarbanes-Oxley Act of 2002," P.L. 107-204, of which I was the primary author along with my good friend from Utah, Senator Hatch. Title IX was derived from S. 2717, the "White-Collar Crime Penalty Enhancement Act of 2002," which I introduced with Senator Hatch on July 10, 2002. That same day, Senator Hatch and I offered the text of S. 2717 as a floor amendment to the Public Company Accounting Reform and Investment Protection Act of 2002, S. 2673. Our amendment was unanimously adopted by the Senate on July 10, 2002, by a 96-0 vote. S. 2673 was overwhelmingly approved, as amended with the inclusion of S. 2717, on July 15, 2002, by a vote of 97-0. S. 2673 then went to a House-Senate conference. The Biden-Hatch amendment was retained in the final conference report as Title IX, and in substantially identical form to that in S. 2673. The conference report, the Sarbanes-Oxley Act, H.R. 3763, was passed by the Senate on July 25, 2002, by a 99-0 vote. The President signed the Sarbanes-Oxley Act into law on July 30, 2002.

As I mentioned, Title IX of the Sarbanes-Oxley Act, entitled the "White-Collar Crime Penalty Enhancement Act of 2002," closely mirrors the original S. 2717. In order to provide guidance in the legal interpretation of these provisions, I have compiled the following analysis and discussion, which are intended to augment, and not supplant, the legislative history and explanatory statements that accompanied passage of H.R. 3763. This legislative history is intended also to supplement my remarks at the time of the Sarbanes-Oxley Act's final passage. See S7426-S7425 (July 26, 2002). I ask unanimous consent that this section-by-section analysis be included in the Congressional Record as part of the official legislative history of these provisions.

The content of Title IX was developed partly in response to a series of white-collar crime hearings I held in my capacity as Chairman of the Senate Judiciary Subcommittee on Crime and Drugs. Through those hearings, the subcommittee heard from a wide range of witnesses with expertise in both corporate law and white-collar crime -- including current and former high-ranking officials from the United States Securities and Exchange Commission (SEC), the United States Departments of Justice and Treasury, and the Federal Reserve; business and law professors; corporate practitioners; as well as victims of corporate fraud.

The first hearing, held on June 19, 2002, focused on the disparity in sentences between white-collar offenses, including pension fraud, and federal "street crimes" like car theft. Specifically, the hearing explored four broad areas: it focused on the human consequences of white-collar crimes; defined and quantified the problem, including an evaluation of the use of the criminal sanction against white-collar criminals and the severity of penalties typically imposed; explored the reasons that might explain the lighter sentences that white-collar offenders often receive; and discussed recent amendments to the federal sentencing guidelines that purport to address the historic, disparate treatment of economic crimes. The first-panel witnesses included Charles Prestwood, a retiree who lost his retirement savings in the bankruptcy of the Enron Corporation; Janice Farmer, a retiree who similarly lost her retirement savings in the Enron bankruptcy; and Howard Deputy, a former employee of the Metachem Company in Delaware who was at risk of losing a portion of his pension in Metachem's bankruptcy. The second-panel witnesses included James B. Comey, United States Attorney for the Southern District of New York; Glen B. Gainer, Chairman of the Board of Directors of the National White Collar Crime Center and West Virginia State Auditor; Bradley Skolnik, Chief of the Enforcement Section of the North American Securities Administrators Association and Securities Commissioner for the State of Indiana; Frank O. Bowman, Associate Law Professor at the University of Indiana School of Law; and Paul Rosenzweig, Senior Legal Research Fellow at the Heritage Foundation.

The second hearing, held on July 10, 2002, also addressed the adequacy of criminal penalties for white-collar crimes and evaluated the use of the criminal sanction to deter wrongdoing and encourage corporate responsibility. We were particularly interested in learning whether the current federal criminal law, as opposed to civil enforcement mechanisms, was sufficient to address the range of corporate scandals that were then unfolding. Specifically, the hearing addressed the issue through the lense of the recent accounting scandals -- exploring the pattern of corporate irresponsibility and the cultural and economic conditions that made the scandals possible; the impact of the scandals on investor confidence and economic health; and the need for investor protection and anti-fraud legislation which includes stiffened criminal penalties. The first-panel witnesses included Michael Chertoff, Assistant Attorney General for the Criminal Division at the United States Department of Justice; and William W. Mercer, United States Attorney for the District of Montana and head of the United States Attorneys' White-Collar Crime Working Group. The second-panel witnesses included John C. Coffee, Jr., Adolf A. Berle Professor of Law at Columbia University School of Law; Thomas Donaldson, Mark O. Winkelman Professor at the Wharton School of Business at the University of Pennsylvania; Charles M. Elson, Edgar S. Woolard, Jr. Chair at the Center for Corporate Governance at the University of Delaware; George Terwilliger, former Deputy Attorney General at the United States Department of Justice; and Tom Devine, Legal Director at the Government Accountability Project.

The third hearing, held on July 24, 2002, continued the discussion initiated in the earlier hearings and featured three former, high- ranking officials in the Executive Branch who commented on a host of suggested reforms -- including S. 2717 which, by that time, had been amended to the Senate precursor to the Sarbanes-Oxley Act (the Public Company Accounting Reform and Investment Protection Act of 2002, S. 2673). The witnesses included G. William Miller, former Secretary of the Treasury under President Carter and former Chairman of the Federal Reserve Board; Roderick Hills, former Chairman of the Securities and Exchange Commission under President Ford; and James Doty, former General Counsel to the Securities and Exchange Commission and head of the corporate and securities practice at Baker Botts LLP.

On a final note, the legislation was introduced and subsequently enacted against the backdrop of the Sentencing Commission's ongoing efforts in the area of economic crime. We are aware of the "Economic Crime Package," which was approved by the Commission in April 2001 and went into effect in November 2001. These amendments to the federal sentencing guidelines consolidated the guidelines for theft, property destruction, and fraud offenses; revised the definition of "loss," which largely informs the range of sentencing available for an offense; increased penalties for offenses involving moderate and high-dollar losses and reduced penalties on some lower-level offenses; and revised the loss table for tax offenses to provide for higher penalty levels for offenses involving moderate and high tax losses. Title IX was developed and enacted with full awareness of these new amendments to the guidelines.

I ask unanimous consent that the section-by-section analysis be printed in the Record.