Enron-inspired whistle-blower measure faces Assembly battle

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San Gabriel Valley Tribune

SACRAMENTO – Legislation narrowly approved last week by the state Senate that would require corporate executives to report a company’s suspected illegal activities now faces a tough battle in the Assembly where consumer advocates say many Democrats are more beholden to business interests.

Introduced to foil future Enron Corp. style financial debacles in which shareholders lost millions, Senate Bill 1452 would require corporate executives of publicly held companies and members of limited liability companies to report suspected accounting wrongdoing to the state Attorney General’s Office or face fines up to $100,000.

Lauded as one of the most significant reforms to come forth since the fall of Enron and its accounting firm, Arthur Andersen, the measure by state Sen. Martha Escutia, D-Norwalk, would expand California’s whistle-blower protections, which were first enacted in 1984.

“When regular folk see their 401(k) shrivel yet see Martha Stewart potentially dumping her stock because of insider training, people start thinking that there is an unfair marketplace,” said Escutia, chairwoman of the Senate Judiciary Committee.

“We need to give investors and all Americans a semblance of faith in the American marketplace,” she continued. “We can only do that if we establish tough rules of accountability in the hope that if everyone follows the rules that everyone will prosper.”

Under her proposal, corporate executives must inform the state attorney general within 15 days of any false statements they discover as to the soundness and value of the company. A special whistle-blower hotline would be established for employees at all levels of the company to report financial improprieties and regulatory misconduct.

Acknowledging that “big business” has a larger influence on Assembly lawmakers than held in the Senate, one consumer rights advocate said even so he is optimistic that Escutia’s proposal will clear the Assembly Judiciary Committee, where it will likely be heard next week.

“The Assembly has turned their back on the public a few too many times,” said Doug Heller, a lobbyist for the Foundation for Taxpayer and Consumer Rights, sponsor of the bill. “The question is: Will they decide to turn their backs again. They need to do something to restore their credibility with the average citizen.”

Critics, however, argue the bill would create a state of snitches.

Calling the bill “fundamentally flawed and un-American,” a spokeswoman for the California Chamber of Commerce said Escutia’s bill would punish businesses and executives for not reporting something that they merely heard.

“In America we don’t punish people for what they hear. We punish them for something that they’ve done,” said chamber lobbyist and attorney, Cher Gonzalez. “This bill could be ruinous for people and businesses both.”

Consumer Watchdog
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