Proposed California Law Would Punish Executive Silence and Stop Fraud Early On
Santa Monica, CA — President Bush‘s plan to crack down on corporate fraud placed too much responsibility in the hands of CEOs and will not go far enough to stop financial fraud before it devastates pensioners, employees and investors, said consumer advocates with the Foundation for Taxpayer and Consumer Rights (FTCR). FTCR is sponsoring California legislation [SB 1452 — Escutia] that would require any officer, director or financial manager to report financial fraud in the company when they learn of it or face substantial penalties.
As CNN’s Moneyline noted, FTCR’s proposal is at the forefront of corporate reform: “Lawmakers are struggling to find a way to combat financial fraud, especially after the collapse of Enron and the scandal surrounding WorldCom. So far, Congress has failed to pass any reforms. Now one state is trying to lead the way.” FTCR called upon Bush to adopt this standard for the nation.
“Bush’s plan deals with the symptoms, not the disease. The California proposal creates an early warning system that would expose financial fraud before the damage is done,” said Doug Heller in a statement today.
In his statement, Heller continued: “Corporate corruption has boiled over and is devastating the lives of millions of Americans. The disease of financial fraud will cost billions of dollars, and it will not be enough to punish the criminals after the fact. But the Bush plan offers too little, too late. It is like chemotherapy after the cancer has spread: it may punish the targeted fraud, but only once the damage is done, which is cold comfort for the pensioners, employees with 401Ks and other investors who have lost all because the fraud has metastasized.
“Corporate America needs preventative medicine that will root out fraud before it spreads and devastates investors. President Bush is focusing too much on the CEOs, and ignoring the institutional silence that keeps fraud hidden. To effectively protect the public from more fraud, we must punish the executives who stay silent while investors are duped. President Bush should add to his reform agenda an early warning system such as that proposed in California, in which silence about financial fraud, not just the fraud itself, is punished.”