WASHINGTON – The Senate adopted a ban on personal loans from companies to their top officials and directors on Friday as it cleared the way for passage early next week of legislation creating stiff penalties for business fraud.
The White House has been defending President Bush's low-interest loans of $180,000 a decade ago from a Texas oil company where he was a director, a type of transaction that Bush now wants to ban as part of a crackdown on corporate wrongdoing.
Bush's loans in the 1980s, with which he bought stock in Harken Energy Corp., carried a 5 percent annual interest rate. Harken didn't require Bush to repay the principal for eight years.
Senators approved, on a voice vote, an amendment by Sen. Charles Schumer, D-N.Y., that would prohibit such loans as a way to prevent conflicts of interest.
Earlier, the Senate voted 91-2 to limit debate to 30 additional hours on the legislation to impose new sanctions on corporation wrongdoing and tighten oversight of the accounting industry. The only dissenters were Sens. John McCain, R-Ariz., and Carl Levin, D-Mich., whose efforts to add other, far-reaching measures to the bill were rebuffed Thursday by their Senate colleagues.
The measure has broad bipartisan support. The leader of the GOP-controlled House expressed approval Thursday of amendments adopted this week by the Democratic-led Senate to impose tough penalties for corporate fraud.
At the White House, press secretary Ari Fleischer said, "The House bill is a tough bill, the Senate bill is a tough bill, and (Bush is) looking forward to signing a tough bill into law." He said it was too early to say whether Bush would sign a final compromise bill crafted from the competing House and Senate versions.
With corporate accounting scandals dragging down the stock market and putting Bush and the Republicans on the defensive, senators on Thursday weighed strengthening the powers of federal securities regulators to go after executives who violate the law.
House Speaker Dennis Hastert, R-Ill., told reporters the House was "looking at what the Senate does" with the legislation. "I think they have acted responsibly so far. We'll have to see what the rest of the amendments are on their bill."
McCain implored his colleagues to adopt his proposal requiring companies to count executives' stock options as an expense against earnings. Otherwise, investors will continue to get misleading information on companies' financial performance, McCain said on the Senate floor.
The debate over stock options has taken on new urgency since the collapse of Enron Corp. in December and the subsequent string of accounting scandals at big corporations. Executives at Enron and other big companies reaped millions of dollars in profits by cashing in their options before the companies' share prices plunged. On the other hand, many ordinary Enron employees who had heavily invested in company stock lost their retirement savings.
Stock options have been "terribly abused by the same people" that a unified Senate targeted in adopting new criminal penalties on Wednesday, McCain said.
Prospects for adoption of his plan — a change urged by Federal Reserve Chairman Alan Greenspan but opposed by the business community — appeared weak. McCain accused Senate colleagues, including some fellow Republicans, of bowing to lobbyists for high-tech companies and using delaying tactics to block a vote on his proposal.
The new criminal sanctions, including 10-year prison terms for securities fraud, were added to an accounting oversight bill inching toward passage amid a crisis of investor confidence. They include, and go beyond, proposals Bush made in a speech Tuesday on corporate responsibility.
Bush has given only qualified support to the bipartisan bill, which would create an independent private body with authority to discipline auditors and establish auditing and ethics rules. A new corporate fraud task force that the president announced Tuesday will hold its first meeting Friday.
An accounting oversight bill passed by the House in April is considered weaker than the Senate version by consumer groups and some Democrats and does not contain the new penalties against corporate fraud and executives who deceive investors. After the Senate passes its bill, it will have to be reconciled with the House version by a committee of lawmakers from both chambers.
Hastert acknowledged that the Senate measure goes further than the House package, but added, "I support it so far. ... We certainly know more now than we did in April when we passed that bill."
But Rep. Michael Oxley, R-Ohio, chief architect of the House bill, suggested a "cooling off period" until the fall before drafting a final compromise.
Oxley, chairman of the House Financial Services Committee, derided the Senate's labors as a "feeding frenzy ... get an amendment out and send out your press release."