House and Senate lawmakers overwhelmingly approved a compromise corporate fraud reform bill Thursday, saying that the American public demands Congress do something in response to corporate scandals that have rocked the stock market and shaken investor confidence.
The bill can now go to President Bush's desk before the weekend for his signature.
The House voted 423-3 after negotiators agreed Wednesday to approve a bill that incorporates House penalties with Senate regulations on a corporate reform bill designed to prevent corporate executives from disguising companies' financial problems using accounting tricks.
The Senate followed up a few hours later with a 99-0 vote of approval.
"This is earthshaking legislation. It's been done with tremendous speed," said Sen. Mike Enzi, R-Wyo., a former accountant.
The sweeping changes are "a major step forward in reforming the operations of our financial market," said Rep. John LaFalce of New York, senior Democrat on the House Financial Services Committee. "It is my hope that this legislation will help to restore the reputation of American business."
"This legislation will protect investors, crack down on fraud and wrongdoing, and provide tough oversight of the accounting industry," Bush said in a statement following the House vote. "Leaders in Congress heeded the call to put the interest of investors and employees first."
Most of the provisions in the compromise deal have been pulled from the Sarbanes bill, authored by Banking Committee Chairman Paul Sarbanes, D-Md.
That measure, which passed the Senate unanimously last week, tightens oversight of the accounting industry, overhauls securities laws, imposes new criminal penalties for corporate fraud, creates a new independent oversight board to police the accounting profession, and bars accounting firms from providing consulting and other services to clients they audit.
The House features to be included in the compromise provide much tougher criminal penalties than both the previous statute and the Senate measure, including a maximum sentence up to 25 years and a new felony crime for corporate retribution against whistleblowers.
The House-born features also include modified language saying corporate fraud must be "knowing" to be subject to criminal charges, creation of a new fund to return to investors ill-gotten corporate gains, and real-time Internet disclosure by corporations when their financial health changes.
The bill creates a new independent board that will have subpoena power. Each subpoena, however, will be subject to approval by the Securities and Exchange Commission, which will effectively give the SEC authority to supersede the new independent review board's inquiries.
One unresolved issue is how to fund creation of the new board. Once created, the new board will charge fees to firms it audits to sustain itself, but how its creation will be paid for is still being worked out.
Critics say some but not all fear has been assuaged that the new independent board will create massive redundancy and overlap between the Financial Accounting Standards Board and the SEC. One source close to negotiations said on condition of anonymity that that the decision has been made to create the board and sort out the problems later.
Finally, there will be no measure to force companies to account options provided to employees as expenses.
The bill was designed to counter a rising tide of unease over a string of corporate accounting scandals that have shattered Americans' confidence in business and the markets and threatened the fragile economic recovery.
The GOP-led House had been sticking to other regulations passed in April that were criticized for being too narrow, but abandoned that Wednesday, perhaps in part after realizing the rising lack of investor confidence, particularly among voting investors, accompanying the expanding corporate scandals.
Democrats too realized the political capital of the deal, and quickly claimed credit and victory for the compromise.
"We will accept surrender from the Republicans," Rep. John LaFalce, D-N.Y., said.
"I would say, General LaFalce, it will be an unconditional surrender," added House Minority Leader Richard Gephardt, D-Mo.
But Republicans shot back that the Democrat-controlled Senate did not act until two weeks ago — months after the House passed its bill.
House Majority Whip Tom Delay, R-Texas, accused Democrats of a deliberate stall to let the economy falter for political gain.
"Democrats are engaged in a cynical strategy to extend America's retirement misery. The corporate scandal was started from greed and a lack of moral leadership. This new Democratic strategy is filled with political greed, and is morally bankrupt. Dick Gephardt and Tom Daschle are practicing the politics of economic destruction," DeLay said.
Fox News' Carl Cameron, Jim Mills and the Associated Press contributed to this report.