Davis Vetoes Nation's Toughest Corporate Accountability Proposal
Santa Monica, CA -- California Governor Gray Davis vetoed SB 783 (Escutia), which would have been the nation's toughest corporate accountability law. The bill would have required corporate officers directors and top managers to report financial fraud within 15 days of learning of the fraud in their company; it imposed fines of up to one million dollars on corporations and $100,000 on executives for knowing of the fraud and not reporting it to law enforcement. The bill was sponsored by the Foundation for Taxpayer and Consumer Rights (FTCR).
"Corporate America was afraid of this legislation, and Governor Davis gave into that fear," said FTCR's organizing director Carmen Balber. "It is the public that now has the most to fear, because the Governor did not seize this opportunity to punish the kind of executive silence that led to the multi-billion dollar heists at Enron and WorldCom. California's retirees, workers and other investors need protections against fraud that just don't exist without this bill."
FTCR, a nonprofit organization, criticized Davis for vetoing the bill. In his veto message, Davis acknowledged the merits of the bill but took issue with the section that would hold executives accountable for covering up fraud even if they, in the Governor's words, "did not actually commit the wrongful act themselves." The penalties for executive silence is, according to FTCR, what made the bill particularly relevant in the wake of the corporate accounting scandals.
"You would not have had the level of fraud that we've seen if corporate executives knew that they could be punished for staying silent about company misdeeds. Indeed, the point of this provision is to hold executives liable for knowing about fraud but not stopping it either internally or through law enforcement," said FTCR's senior consumer advocate, Doug Heller.
In addition to punishing executive silence, the bill would have created a confidential whistleblower hotline and added new protections for employees who refuse to participate in illegal activities conducted by their employer.
Throughout the state, volunteers with California's Oaks Project gathered thousands of letters and postcards in support of SB 783 since the wave of corporate scandals erupted.
"I personally spoke to hundreds of Californians who do not trust corporations to reform themselves. We need to create an environment where whistleblowers can safely come forward, and executives are compelled to report the fraudulent practices of their associates. We are extremely disappointed with Governor Davis's decision," said Tom O'Meara, an Oaks Project volunteer.
SB 783 would have:
- created a confidential whistleblower hotline,
- protected employees who refuse to participate in illegal activities at work, and
- required executives to report financial fraud to the California Attorney General within 15 days of learning of the fraud or face a $100,000 fine for withholding critical information from the authorities.
Consumer advocates and citizen volunteers have vowed to continue the push for corporate reform and whistleblower protections at the state and federal level. The group is reviewing a series of legislative proposals to prevent another wave of corporate fraud. FTCR also plans to work with District Attorneys and Attorneys General to step up efforts to prosecute white-collar crime.