Bills target corporate fraud, with hot line for whistle-blowers.
The Sacramento Bee
Gov. Gray Davis on Monday signed legislation to crack down on corporate fraud and establish a whistle-blower hot line.
The governor and supporters touted the trio of bills as a major step in increasing corporate accountability in California and rebuilding public trust in the nation’s financial markets, which have been rattled in recent years by a wave of corporate scandals.
In a prepared statement, Davis said the laws will help restore fairness in the marketplace. “Corporate insiders should share the same risks and enjoy the same choices,” he said.
Consumer advocates hailed the new laws.
“This is the answer to the best line of defense to the next Enron and other state scandals,” said Jamie Court, executive director of the Santa Monica-based Foundation for Taxpayer & Consumer Rights, sponsor of two of the bills carried by Sen. Martha Escutia, D-Whittier.
The corporate governance measures signed by Davis are:
– Escutia’s SB 777 protects workers who alert authorities about illegal practices from retaliation by their employers. Employers must prove they were justified in firing a whistle-blower. It also establishes a $10,000 fine for each violation of the law.
In addition, the measure creates the state’s first permanent whistle-blower hot line operated by the California attorney general’s office. Employers also will be required to post the hot line number and employees’ rights under the whistle-blower laws.
“It really creates a very difficult burden of proof for employers to fire whiste-blowers,” Court said. “Whistle-blowers have a way of becoming persona non grata in the workplace once they talk.”
The board of the California Public Employees’ Retirement System, a major player in promoting corporate governance reforms, endorsed the bill.
– SB 523, also by Escutia, requires major corporations and publicly traded companies to quickly report to shareholders and authorities important false or misleading statements made by corporate officers. Companies could be fined up to $1 million for withholding the information.
Davis last year vetoed a similar measure, objecting to provisions that would have allowed corporate executives to be fined.
The California Chamber of Commerce had urged Davis to veto the bill again this year, arguing it would put another financial burden on corporations and could open them up to abusive lawsuits.
– AB 1031, by Assemblyman Lou Correa, D-Santa Ana, aligns state law with the federal Sarbanes-Oxley Act of 2002. The measure increases criminal penalties for securities fraud to $25 million and makes it illegal to destroy documents during a securities fraud investigation. It also strengthens the state Department of Corporations’ authority over stockbrokers and dealers and investment advisers.
“We will advance corporate accountability, increase the trust of the financial markets and bring us a bit closer to solidifying the foundation of that trust,” said Demitri Boutris, commissioner of the Department of Corporations, during a teleconference Monday.
Securities attorney Gilles Attia said the legislation should give the state more enforcement tools.
“There still a lot of concern and fear among investors. Government has taken steps to turn it around,” said Attia, managing partner of Gray Cary Ware & Freidenrich’s Sacramento office. “This has changed the landscape for public companies.”
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The Bee’s Gilbert Chan can be reached at (916) 321-1045 or [email protected]
