California enacts accountability laws

Simon Avery

Monday, Aug. 26, 2002 | 9:54 a.m.

CULVER CITY, Calif. -- Vowing to bring greater trust and transparency to California business, Gov. Gray Davis signed three bills into law Friday aimed at strengthening corporate accountability.

"Free market does not mean free from ethical standards," Davis said during a news conference at a senior assisted-living center. "No CEO should have the right to abuse his own employees, much less the general public," he said.

The governor signed:

"It's about protecting the pensions we'll be retiring on and college savings for our children," Assemblyman Lou Correa, D-Anaheim, co-author of two of the bills, told about 30 retirees attending the governor's news conference.

While the new rules were well received by consumer activists, some experts questioned how much impact they will have.

"On balance, they can only be helpful. There's no downside to these proposals," said Thomas White, director of the Center for Ethics and Business at Loyola Marymount University.

"But the issues that they address aren't the ones that drove the massive scandals. We're kidding ourselves if we think it's just a bunch of crooked CEOs and accountants," he said.

Scores of people have proven willing to carry out the corrupt policies of their CEOs as a normal way of doing business, White said.

The bigger problem is a general culture of "greed and irresponsibility" that's rooted in American life, he said.

The governor also endorsed a bill before the Assembly that would increase fines and prison terms for violations of securities laws. Under the initiative, anyone convicted of securities fraud would face a fine of up to $25 million and a prison term of up to 20 years, the governor said. That compares to existing penalties of up to $10 million and five years behind bars.

In addition, fines for general securities law convictions would increase to $5 million from $1 million, he said.

Hammering on the issue of corporate responsibility offers Davis some potential gains over his Republican gubernatorial rival, Bill Simon, whose family investment firm recently lost a $78 million civil fraud judgment. The Internal Revenue Service also has sued two accounting firms over foreign tax shelters they allegedly set up for wealthy investors, including Simon. The candidate has denied investing in any offshore tax shelters.

The governor also announced Friday that the state agency responsible for licensing accountants is seeking to bar Arthur Andersen from the public accounting business in California after the firm's failure to protect investors from the Enron scandal.

But Andersen spokesman Patrick Dorton said the firm has already notified the California Board of Accountancy that it has ceased all accounting operations in the state as part of a plan to surrender all its state licenses by Aug. 31.

Last week, the board that regulates the Texas accounting profession voted unanimously to revoke Andersen's license to practice in the home state of its former client Enron.

Andersen was convicted by a Houston jury in June of obstruction of justice in a federal investigation of Enron's financial collapse. The collapse led to a December bankruptcy for the Houston-based energy trader.

Davis himself has been linked through campaign contributions to Andersen and several other companies embroiled in criminal investigations.

Asked about a $39,000 contribution his campaign received from Andersen, the governor said: "I can't, nor can any other public official, be blamed for inappropriate conduct made years after a contribution. I show no favors to friends or foes. I'm cracking down on fraud and corruption."

Steve Frank, a member of Simon's campaign team handing out leaflets outside Davis' press conference, responded: "That still doesn't answer why he didn't give the money back."