SACRAMENTO — Business executives would have to reveal corporate fraud or face the possibility of being hit with fines of up to $100,000 under a bill approved Tuesday by the California Assembly.
Assemblywoman Ellen Corbett, D-San Leandro, said the measure would fill some holes left in federal anti-fraud legislation passed in response to the collapse of Enron Corp. and related business scandals.
“We’ve all been reading the newspapers,” she said. “We all know what a terrible problem corporate fraud has been.”
But critics said the bill by Sen. Martha Escutia, D-Commerce, could create unfair pitfalls for corporate executives and discourage businesses from locating in California.
“This is a measure that’s well intended,” said Assemblywoman Charlene Zettel, R-San Diego. “Certainly we need to crack down on corporate crime. But this is a measure that will send a message once again that California is a hostile place to do business.”
Assemblyman John Dutra, D-Fremont, said the bill could make corporate executives the victims of ambitious rivals.
“This is very dangerous to executives in very tough positions,” he said. “It’s very easy for someone to say, ‘He expensed that, it changed revenue and obviously decreased the value of the stock. That’s fraud.’ That’s not fraud.”
The bill would authorize fines of up to $100,000 for corporate officers and directors and members of limited liability companies who fail to notify the attorney general within 15 days when they know about improper business activities that would harm investors.
The corporation or limited liability company itself could be fined up to $1 million, and company managers responsible for financial transactions could be fined up to $50,000 for failing to make the required disclosures.
The bill would also require the attorney general to set up a telephone hot-line that employees could use to report possible violations of state or federal business laws or regulations or violations of fiduciary responsibility by corporations or limited liability companies.
And it would bar employers from retaliating against employees who report business violations or refuse to engage in illegal activities.
The 43-20 vote returned the bill to the Senate for a vote on Assembly amendments. Approval there would send the bill to the governor.
A consumer organization, the Foundation for Taxpayer and Consumer Rights, called the bill the toughest corporate accountability legislation in the United States.
“This bill will create a new culture of accountability in corporate
boardrooms by punishing executive silence and creating a new duty to come forward with information about accounting fraud,” said Doug Heller, the foundation’s senior consumer advocate.