Escutia Business Fraud Bill Advances

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San Gabriel Valley Tribune

SACRAMENTO – Legislation that would force corporate executives to report their company’s illegal accounting practices or face stiff penalties won approval Tuesday in the state Assembly.

The 43-20 vote, on the proposal by state Sen. Martha Escutia, D-Norwalk, comes as federal lawmakers try to restore investor confidence by preventing future Enron and MCI-World Com-style financial debacles in which shareholders and employees lost millions.

Specifically, the Whittier-area lawmaker’s proposal would require corporate executives of publicly traded companies and members of limited liability companies to report accounting wrongdoing to the state Attorney General’s Office or face fines up to $100,000.

“If corporate executives are cooking the books, then they have a responsibility to come forward,” said Escutia, immediately following the Assembly vote. “And, if they don’t come forward they should pay the price, when your actions will impact somebody’s livelihood.”

Under her proposal Senate Bill 783 top-ranking corporate executives must inform the state Attorney General’s Office within 15 days of any false statements they discover as to the soundness and value of the company.

Corporations or limited liability companies could be liable for a $1 million fine for deceptively “painting a rosy picture” for investors by not warning them in writing of wrongdoing if the misconduct is not abated within 15 days.

A special whistle-blower hotline would be established for employees at all levels of the company to voluntarily report financial improprieties and regulatory misconduct. The bill would also protect whistle-blowers against retaliation by their employer.

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

A spokeswoman for the California Chamber of Commerce said while her organization doesn’t oppose increasing penalties for illegal accounting practices, or even offering employees a hotline to voluntarily report wrongdoing, the group is opposed to compulsory reporting statutes.

The bill will next be considered by the state Senate, where it is expected to pass, and then be sent to the governor.


Chris Rizo can be reached at (916) 296-3097.

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