Carl Levin

Mr. LEVIN

Mr. LEVIN. I very much thank the Senator from Florida for his comments and his questions, and also for the active role he has taken in shaping this language. He has identified the feeble nature of the fine structure that we have in the current law. We have some ruthless people out there who have lined their own pockets in violation not only of law and regulation, but of any code of morality and fiduciary duty. We have some ruthless people. We also have some toothless laws. The SEC, when it has to go to court to impose a civil fine, is put through hoops that other regulatory agencies are not put through. They can impose civil fines administratively--always subject to an appeal by the respondent or the defendant. But they have the capability to seek civil fines administratively--these other agencies. I have given examples of some of them. But when it comes to the SEC--outside of the brokers, where the SEC has that power--they have to go through the cumbersome proceedings of going to court. Now, we have cured some of this already in the bill. When it comes to the removal from office, yesterday we took action to give the SEC the ability to act administratively and to order the removal of directors or executives from office. What we didn't do yet, and what this amendment does, is add a critical component to regulatory effectiveness, which is the ability to impose civil fines administratively. This is what the administration said in supporting the grant to the SEC of the power to remove directors from office, which we have now already done. It says that if we didn't do that--and now I am quoting the Statement of Administration Policy: It would continue to require the SEC to expand significant time and resources in order to attempt to gain similar relief in the Federal courts. That is what we are talking about now with civil fines. If we do not adopt this amendment, if we do not give the SEC these enforcement tools that other agencies have relative to directors and auditors, we will be requiring the SEC to be wasting time and wasting resources that they otherwise should be using to chase these corrupt and immoral people.

Mr. LEVIN. It sounds as if I have not been doing too much else, but I have also seen that--since we are giving testimonials to movies here. The language to which the Senator from Texas objects, about penalizing people for what they are going to do--that is language which the good Senator from Texas, as chairman and ranking member of the Banking Committee, has overseen for years. That is the same language that currently exists in the SEC law. We are not adding anything new here. This is the SEC law, section 77(h)(1): Cease and desist proceeding, authority of the Commission. If the Commission finds after notice and opportunity for a hearing that any person is violating, has violated or is about to violate any provision-- That is existing law. The Senator from Texas has overseen that for all these years. He has done a brilliant job as chairman and ranking member of the Banking Committee, and we are just simply following the language that exists already in the SEC law and applying it to folks who are not now covered.

Mr. LEVIN. This is what the Financial Accounting Standards Board said. They had proposed that stock options be expensed. That was their proposal. This is the board of accountants. The debate on accounting for stock-based compensation, unfortunately, became so divisive that it threatened the Board's future working relationship with some of its constituents. Eventually the nature of the debate threatened the future of accounting standards setting in the private sector. The Board continues to believe that financial statements would be more relevant and representationally faithful if the estimated fair value of employee stock options was included in determining an entity's net income, just as all other forms of compensation are included. To do so would be consistent with accounting for the cost of all other goods and services received as consideration for equity instruments. However, in December 1994, the Board decided that the extent of improvement in financial reporting that was envisioned when this project was added to its technical agenda and when the Exposure Draft was issued was not attainable because the deliberate, logical consideration of issues that usually leads to improvement in financial reporting was no longer present. That is the climate that was created for this Board in 1994. And when the accountants, the Board, the Financial Accounting Standards Board of this country, said they have value, these options, they are compensation, they should be accounted for in the financial statement, they were hit upon so hard that even when they said we are throwing in the towel because it could destroy us, even when they said we will allow it to be shown as a footnote, not required to be taken as an expense--even then, they said this is not the right way to proceed. We are now creating--I should ask a question, I think, given the request I made. Does the Senator not agree that ideally what we should be allowing here is an independent Financial Accounting Standards Board to determine the rules?

Mr. LEVIN. Will the Senator yield for one last question?

Mr. LEVIN. Assuming cloture is invoked, there is still, does my friend agree, the possibility at least of voting on germane amendments relating to this subject? So the amendment which is germane postcloture does not state what the Senator from Arizona and I believe, which is that unless we deal with this, we are missing a huge problem, we are not addressing a huge problem that has driven the situation that we now face in terms of deceptive financial statements. But, in any event, will the Senator from Arizona agree that at least postcloture, if an amendment is germane which says it is determined that FASB or an independent accounting board reviewed this matter, that at least there could be a vote at that time on something which carries out the spirit of what the Senator from Arizona and I have been fighting for, which is that an independent accounting board be allowed to proceed without threatening its very existence to determine what is the proper accounting for stock options?

Mr. LEVIN. For a question, I will be happy to.

Mr. LEVIN. The Senator from Texas raises an issue which, I am afraid, is also addressed in current law. It is not just cease and desist orders, it is the implementation of civil fines. We are following the same language. But what we are saying is, if the SEC has power to impose a fine on a broker, based on the standards which exist in this law, there is no reason the SEC should not have the same power to impose a fine on an auditor or on a director who violates the regulations and laws of this land. This is the same language. We haven't added anything new. What is new here is that for the first time there will be the potential, the power in the SEC, subject to an appeal to the court-- which is another protection of our civil liberties--subject to an appeal to the court, to impose a civil fine, administratively, on people who are now let off the hook. There is no reason for this gap in the law. If, in fact, there is a problem that the Senator has raised, with language, that language is in the existing law for SEC. It is in the existing law for FDIC, the Federal Deposit Insurance Corporation: If, in the opinion of the appropriate Federal banking agency, any insured depository institution, depository institution which has insured deposits, or any institution affiliated party is engaged or has engaged, or the agency has reasonable cause to believe that the depository institution or any institution affiliated party is about to engage-- The words which the Senator from Texas mocks are in existing law, in the FDIC law, in the SEC law. There may be reasons the Senator wants to maintain this gap in enforcement, but that cannot be used as the reason. That cannot be used.

Mr. LEVIN

Mr. LEVIN. I object.

Mr. LEVIN

Mr. LEVIN. Further reserving the right to object, Mr. President, I will simply add the following because there are relatively few hours between now and a vote on cloture, assuming that cloture motion is filed. I think we should fully utilize that time to consider relevant amendments. What my great fear is--which is being reinforced tonight-- is that the time is going to be filled not by relevant amendments but in other ways which would preclude the consideration of relevant amendments in the event cloture is adopted. That is a major concern I have. I don't know if other people waiting in line with amendments that are relevant amendments have the same concern, but I hope and believe they do. I hope it will be possible for relevant amendments to be considered, if not tonight, then tomorrow, and that the time be fully utilized; otherwise, it would simply preclude important relevant amendments that are waiting in line.

Mr. LEVIN. My second question under the reservation is this: This does not then change the order that has been previously listed for amendments under the earlier UC request; is that correct?

Mr. LEVIN. Reserving the right to object, Mr. President, I have two questions relative to this unanimous consent request. The first question is, Does this then mean we would move to the disposition of the Edwards amendment?

Mr. LEVIN. Mr. President, reserving the right to object.

Mr. LEVIN. Mr. President, I ask unanimous consent at this time that I be called upon to offer an amendment; that the amendment be debated tonight--it is the amendment on SEC enforcement--and that when the debate is completed tonight and when we recess until the morning, that when the morning arrives, we would then return immediately to the Edwards underlying amendment and the McConnell second-degree amendment thereto. The reason I make this unanimous consent proposal tonight is that there are a lot of relevant amendments which are waiting in line, which are important amendments, which have a lot of support, I believe, on a bipartisan basis in this body that ought to be considered prior to cloture or else; because they may not be technically germane, they would be precluded if cloture is invoked. I have a number of amendments on the list. I think we should move this train forward tonight, utilize the time this evening to move this process forward so as many of these amendments as possible can be considered before cloture. I make that unanimous consent proposal at this time.

Mr. LEVIN. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. LEVIN. Mr. President, I move to reconsider the vote.

Mr. LEVIN

Mr. LEVIN. Madam President, this week we will hopefully act with strength and unity to help bring confidence back to the investing public. The last 18 months have shaken the foundation of the public's belief in the accuracy of the financial statements of our major U.S. corporations, beginning with the precipitous fall of Enron last year. The Public Company Accounting Reform and Investor Protection Act sponsored by Senator Sarbanes and reported last month by the Banking Committee, will make significant headway in restoring the needed confidence in our financial markets, and I strongly support it. Senator Sarbanes and the supporters of this bill on the Banking Committee have shown vision and leadership in tackling the tough issues of corporate and auditor misconduct, and the Congress needs to enact this legislation as quickly as possible. On Monday, July 8, in my role as chairman of the Permanent Subcommittee on Investigations, I released an official Subcommittee report on the role of the Board of Directors in Enron's collapse. This bipartisan report found that much of what was wrong with Enron--from its use of high risk accounting, extensive undisclosed off-the-books activity, conflict of interest transactions and excessive executive compensation--was not hidden from the company's directors but was known and permitted to happen. The report also found that Enron board members refused to admit any missteps, mistakes, or responsibility for the company's demise. The refusal of the Board to accept any share of blame for Enron's fall is emblematic of a broader failure in Corporate America to acknowledge the ongoing, widespread problems with misleading accounting, weak corporate governance, conflicts of interest, and excessive executive compensation. Corporate misconduct is not only fueling a loss in investors confidence, but also threatens to derail the recovery of the American economy. The plain truth is that the system of checks and balances in the marketplace designed to prevent, expose, and punish corporate misconduct is broken and needs to be repaired. Action is critically needed on a number of fronts to restore these checks and balances. American business success is a vital part of the American dream. That dream is that any person in this country who works hard, saves, and invests can be a financial success. If that person sets up a company, that company's success can be magnified through our capitalist system which allows other investors to buy company stock, invest in the company's future, and share in the company's financial rewards. The American stock market is part of that American dream. In recent years it has been the biggest and most successful stock market in the world, an engine of growth and prosperity. It has not only brought capital to a company so they can set up new businesses and employ more people, it has brought financial rewards to individual investors who put their money in the market. Over the years, the Government has developed checks and balances on the marketplace to put cops on the beat to try to make sure that people who are using other investors' money play by the rules. That is why we have the Securities and Exchange Commission, the Commodity Futures Trading Commission, and banking regulators. That is why we have rules requiring publicly traded companies to issue financial statements and why we have accounting standards to make those financial statements understandable and honest. That is why we require companies to submit their books to auditors and why auditors certify whether the financial statements fairly present the company's financial activity. Today we are in the middle of another ugly episode. In the aftermath of the go-go 1990s where American business grew at breakneck strength, the famed high-tech bubble inflated stock prices and the stock market got tagged with the strange new phrase ``irrational exuberance.'' Company after company, especially in the high-tech sector, announced profits that increased by huge percentages year after year. Mergers and acquisitions proliferated, and corporate fees went through the roof. Executive pay skyrocketed. The highest paid executives made as much as $700 million in a single year. By 2000, average CEO pay at the top 350 publicly traded companies topped $13 million per executive CEO, while the workplace pay gap deepened. In 1989, CEO pay was 100 times the average worker pay. By the year 2000, it was 500 times. Some pointed to this alleged prosperity during the 1990s as a justification for deregulating business, weakening regulators, and making it harder to seek corporate insiders and advisers. But now we are learning that some portion of the success and profits claimed by the companies during the 1990s--we still don't know how much--were based on corporate misconduct. Lies about income and profits, hidden debt, improper insider trading, tax evasion, conflicts of interest--the list of recent corporate malfeasance is an alphabet of woe. Adelphia Communications. This is a publicly traded company, but the company founders, the Rigas family, are accused of using the company treasury as if it were the family piggy bank. The allegation is that the family borrowed from the company over $2 billion--yes, billion--and has yet to pay it back. The company recently declared bankruptcy under Chapter 11. Dynegy. This high tech energy firm is under SEC investigation for possibly inflated earnings and hidden debt. The questions include how it valued its energy derivatives, whether it booked imaginary income from capacity swaps with other companies, and whether it manipulated the California energy market. Senior executives, including CEO Chuck Watson, have recently been forced out. Enron. This high tech company epitomizes much of the corporate misconduct hurting American business today, from deceptive financial statements to excessive executive pay. Its executives, directors, auditors and lawyers all failed to prevent the abuses, and many profited from them. Global Crossing. This is another high tech corporate failure with outrageous facts. Less than 5 years old, Global Crossing was founded in 1997 by Chairman of the Board Gary Winnick. In 1998, the company went public, touting its plans to establish a worldwide fiber optic network. Global Crossing gave Mr. Winnick millions of dollars in pay, plus millions more in stock and stock options. In the 4 years the company traded on the stock market. Mr. Winnick cashed in company stock for more than $735 million. Other company insiders sold almost $4 billion in company stock. Then questions began to arise about inflated earnings, related party transactions, insider dealing, and board of director conflicts. In January 2002, the company suddenly declared bankruptcy. The company's shareholders and creditors have lost almost everything, while corporate insiders have so far walked away with their billions intact. Halliburton. The question here is whether this construction company improperly booked income from contract cost overruns on construction jobs, before the company actually received the income. The company is under SEC investigation. IBM. This all-American company, once a model of American know-how and can-do, has recently acknowledged misreporting about $6 billion in revenue and restated its earnings by more than $2 billion. Another high tech disaster for investors and American business. ImClone. ImClone's CEO, Samuel Waksal, has been indicted for insider trading. The company produced a new drug whose effectiveness is still in question and whose developer, Dr. John Mendelsohn, was not only an ImClone board member but also the President of M.D. Andersen Cancer Center in Texas. Dr. Mendelsohn arranged for the Center to conduct tests on the drug without telling patients that the Center's President had a direct economic interest in the drug's success. Dr. Mendelsohn was also a board member at Enron. Kmart. This once successful company, headquartered in my home state of Michigan, is now bankrupt and under scrutiny by the SEC for possible accounting fraud. The pain of the employees who lost their jobs and the investors who lost their savings is ongoing, not only in Michigan but across the country. Merrill Lynch. Once a highly respected investment advisor, this company has become a poster child for financial advisors who mislead their investors, telling them to buy the stock of companies the advisers privately think are losers. Merrill Lynch recently paid $100 million and agreed to change how its financial analysts and investment bankers operate to settle a suit filed by New York Attorney General Elliot Spitzer. Qwest Communications. This is another high tech company under SEC investigation. Questions include whether it inflated revenues for 2000 and 2001 due to capacity swaps and equipment sales. Qwest's CEO Joe Nacchio, made $232 million in stock options in 3 years before the stock price dropped, leaving investors high and dry. Its Chairman Philip Anschutz made $1.9 billion. Rite Aid. Last month, three former top executives of Rite Aid Corporation, a nationwide drugstore chain, were indicted for an illegal accounting scheme that briefly--until WorldCom--qualified as the largest corporate earnings restatement in U.S. business history. The restatement involved $1.6 billion. The indictment alleges that the company used brazen accounting gimmicks to overstate its earnings during the late 1990s, and when investigators came after them, made false statements and obstructed justice. Stanley Works. This company is a leading example of U.S. corporations that have pretended to move their headquarters to Bermuda to avoid paying U.S. taxes. It joins a growing number of companies that want to go on enjoying US banks, US laws, and US workers, but do not want to pay their fair share of the costs that make this country work from the costs of public education, to police and the courts, to environmental protection laws. To me, these companies are not just minimizing their taxes, they are demeaning their citizenship. They are taking advantage of this country by enjoying its fruits without giving anything back. No company ought to be allowed to get away with this fiction and throw their tax burden on the backs of other US taxpayers. Tyco International. Last month, the CEO of Tyco, Dennis Kozlowski, was indicted in New York for failing to pay sales tax due on millions of dollars of artwork. The allegation is that Mr. Kozlowski shipped empty boxes to New Hampshire in a scam to show that $13 million worth of artwork was sent out of state and exempt from sales tax when, in fact, the artwork never left New York. This is a millionaire, many times over, who could have easily afforded the tax bill but engaged in a sham to avoid paying it. The question is whether he ran his company the same way he ran his own affairs. Tyco is one of those companies that has allegedly moved its headquarters to Bermuda. It has numerous offshore subsidiaries, including more than 150 in Barbados, the Cayman Islands and Jersey. The company's U.S. tax payments have apparently dropped dramatically. Allegations of corporate misconduct by insiders have also emerged. There was a $20 million payment made to one of the company's directors and another $35 million in compensation and loans paid to the company's former legal counsel. That's $55 million paid to two corporate insiders, allegedly without the knowledge of the Board of Directors. Added to that is an ongoing SEC investigation allegedly examining whether a Tyco subsidiary paid bribes to win a contract in Venezuela. WorldCom. WorldCom is the latest in this list of corporate embarrassments. It built a glowing earnings record through the acquisition of high tech companies like MCI and UUNet. It became a favorite investment for pension companies, mutual funds and average investors. Then we learn that the longtime CEO Bernard Ebbers borrowed over $366 million in company funds and has yet to pay it back. After he's forced out and a new CEO takes over, we learn that the company booked ordinary expenses as if they were capital investments in order to string out the expenses over several years and make the current bottom line look great. The result was $3.8 billion that had been conveniently left off the books--more than enough to wipe out the company's entire earnings for last year; more than enough for 17,000 workers to lose their jobs; more than enough to wipe out billions in investments across the country. Just one example in Michigan is the Municipal Employee's Retirement System which lost $116 million that supported workers' pensions. At the same time, we're told that Mr. Ebbers has a corporate pension that will pay him over $1 million per year for life. Xerox. This all-American company has already paid $10 million to settle an SEC complaint that, for four years, the company used fraudulent accounting to improve its financial results. As part of the settlement, Xerox agreed to restate its earnings after allegedly recording over $3 billion in phony revenues between 1997 and 2000. This list is painful in part because it includes some icons of American business, symbols of what was right about the American dream. Now they symbolize corporate misconduct damaging to the entire country. The S&P index has plunged. The Nasdaq has been down 20% and even 30%. Mutual funds, the equity of choice for average investors, have dropped in value by more than 10%. The average daily trading volume at Charles Schwab & Co.--a measure of average investor activity--is down 54% from the height of the bull market, according to Fortune Magazine. Investor confidence in the U.S. stock market has dramatically declined. Foreign investment is fleeing. There are many explanations for the corporate misconduct now tainting American business. One key factor is the terrible performance of too many in the accounting profession. Auditors play an essential role in the checks and balances on the corporate marketplace. Under current law, a publicly traded company is not allowed to participate in the stock market unless its financial statements have been audited and found by an independent public accounting firm to be fair and honest. Auditors are supposed to be the first line of defense against companies cheating on their books. The Supreme Court put it this way in United States v. Arthur Young, 465 U.S. 805, 1984, a case that contrasts the role of auditors with the role of lawyers. The Court noted that a lawyer is supposed to be a client's confidential advisor, but the: . . . independent certified public accountant performs a different role. By certifying the public reports that collectively depict a corporation's financial status, the independent auditor assumes a public responsibility transcending any employment relationship with the client . . . [and] owes ultimate allegiance to the corporation's creditors and stockholders, as well as to the investing public. . . . This `public watchdog' function demands that the accountant maintain total independence from the client at all times and requires complete fidelity to the public trust. But that's not what has happened recently. In Adelphia, the auditors, Deloitte Touche, allegedly missed the fact that the Rigas family borrowed company funds totaling $2 billion. At WorldCom, Andersen allegedly never knew that $3.8 billion in expenses had been incorrectly accounted for as capital investments. At Xerox, KPMG allegedly missed errors involving $6 billion in revenue and $2 billion in earnings. These are not marginal amounts; they involve billions. How did the auditors miss the accounting errors and dishonest financial reports? Or are these cases like Enron, where the auditor didn't miss the problems--they knew of them, had misgivings about the accounting, but allowed questionable transactions and financial statements to go forward anyway? And there are many more cases than the high profile scandals I just described. In the last few years, there has been a surge in corporate restatements--financial filings in which a publicly traded company admits that a prior financial statement was inaccurate and corrects the earlier information. From 1990 through 1997, publicly traded companies averaged 49 of these restatements per year. In 1999 and 2000, that number tripled--publicly traded companies filed about 150 each year. These restatements go beyond the list of companies I started with, reaching much deeper into corporate America. In addition to those already reported in the media over the last few years, I asked the Congressional Research Service to look at the most recent corporate restatements, those filed since January of this year. On June 17th, CRS issued a report listing over 100 completed and expected restatements in the first six months of 2002, and predicted that the total number of restatements in 2002 may exceed 200. A smattering of these restatements, another alphabet of corporate woe, include the following. American Physicians Service Group. This health services company restated its 2000 and 2001 earnings due to a revaluation of a private stock investment. CMS Energy Corporation. This energy company, which has operations in Michigan, has restated its 2000 and 2001 financial statements to include $4.4 billion in revenues attributable to ``wash trades'' with other companies involving energy commodities. Dollar General Corporation. This company has restated its financial results for three years, 1998 through 2000. Hanover Compression. This company has restated its earnings for seven quarters in a row, ending September 2001. Microsoft. Following an SEC investigation, the flagship American company agreed to restate its earnings for 1995 through 1998, when it used accounting devices to ``smooth'' its reported earnings. PNC Financial services. This financial services company has restated its financial results for 2001 after questionable accounting under investigation by the Federal Reserve and SEC involving the sale of over $700 million in problem loans and other non-performing assets to three companies it set up with the insurance conglomerate, American International Group. Pacific Gas & Electric. This energy company has announced that it will restate its earnings back to 1999 to account for off-the-books ``synthetic leases'' involving about $1 billion in financing for several power plants. Peregrine Systems. This company announced it would restate earnings for 2000, 2001, and 2002, and that an SEC investigation was in progress. Stillwater Mining Co. This company announced that the SEC had criticized its accounting practices and a restatement of earnings would be issued. There are many more examples. What is happening that more and more financial results have to be restated, erasing more and more questions about the reliability of the original financial reports? Why this surge in corporate restatements? Part of the answer is that too many accounting firms apparently no longer value in their watchdog role. Today, they celebrate instead the earnings they receive as tax advisers and business consultants. During the 1990s, all the major accounting firms dramatically increased the non-audit services they provided to their audit clients. By 1999, 50% of firm revenues at the big five accounting firms came from consulting, while only 34% came from auditing. A few years later, the data indicates that almost 75 percent of the fees earned by the big five accounting firms came from non-audit services. Specific company proxy statements show that many publicly traded companies now pay millions more for consulting than they do for auditing, including such companies as Raytheon, Apple Computer, Nike, International Paper, At&T, Honeywell and Coca-Cola. A January 2002 Harvard Business School publication raising questions about auditor independence cited anecdotal evidence that accounting firms were using their positions as auditors to obtain consulting work, including by ``lowballing'' audit fees if a company simultaneous agreed to a consulting contract. The work done by the Permanent Subcommittee on Investigations, which I chair, includes evidence that accounting firms are shopping around to publicly traded companies, including their audit clients, complex accounting arrangements that they say will improve a company's financial results and pending complex tax strategies that will lower its tax bills. The role of Arthur Andersen at Enron illustrate the profession's movement from auditor to moneymaker, Andersen was Enron's outside auditor from the company's inception in 1985. As Enron grew, Andersen's role at the company grew, with more and more of Andersen's time spent on financial services other than auditing. Andersen began to offer Enron business and tax consulting services which included assistance in designing special purpose entities, offshore affiliates, and complex structured finance transactions. For example, Andersen was paid about $5.7 million to help Enron design the LJM and Chewco partnerships and engage in a series of purported asset sales to these entities. Andersen was paid more than $1.3 million to help Enron set up the Raptors, a series of four complex transactions that were an improper attempt by Enron to use the value of its own stock to offset losses in its investment portfolio. Andersen also helped Enron engage in ever more exotic and complex transactions, such as prepaid forward contracts, swaps, and merchant asset sales. For two years, Andersen even acted an Enron's internal auditor while also serving an Enron's outside auditor. By 1999, Andersen was earning more for its non-audit services than for its audit services at Enron. By then, Andersen had set up its own offices at the company site to enable it to work with Enron employees on a daily basis. A number of Andersen employees switched to Enron's payroll. Enron became one of Andersen's largest clients, In 2000, Andersen was paid $1 million per week for the many services it was providing Enron. Andersen partners handling the Enron account earned millions in bonuses and partnership income. Common sense tells us that as Andersen's joint efforts with Enron management increased, it became tougher and tougher for Andersen auditors to challenge Enron transactions--after all, these transactions had been set up with Andersen's assistance at the cost of millions of dollars. How could Andersen auditors say that Andersen consultants were wrong? And in many cases the same Andersen employee served as both consultant and auditor, essentially auditing his or her own work. We now know that internal Andersen documents demonstrate serious misgivings up and down the Andersen chain of command with respect to Enron's transactions or accounting. To the contrary, one of the few Andersen senior partners to raise gentle objections to some Enron transactions was, at Enron's request, removed from the Enron account. In the end, Andersen approved questionable transactions and financial statements that made Enron's financial condition appear better than it was. Andersen once had a proud tradition that stressed its commitment to the public trust to ensure accurate financial reporting and honest accounting. But that tradition gave way in the Enron case. And it give way in other recent cases of corporate misconduct as well, from Sunbeam to Waste Management to the Baptist Foundation of America. Worse, Andersen was not alone. Media reports are filled with tales of auditors going along with questionable transactions and financial reporting. PricewaterhouseCoopers and Microstrategy. Ernst & Young and PNC Financial. Deloitte Touche and Adelphia. KPMG and Xerox. The conflicts of interest inherent in auditors performing consulting services for their audit clients have been building for years and were not lost on those concerned about accurate financial reporting by U.S. companies. In 2000, SEC Chairman Arthur Levitt waged a highly visible campaign to rein in auditor conflicts of interest and restore auditor independence. In July 2000, under his leadership, the SEC proposed regulations to stop auditors from providing certain non-audit services to their audit clients. The rules proposed four principles to determine whether, in fact and in appearance, an accountant was independent of its audit client. The proposed regulations stated that an accountant would not be considered independent if the accountant: (1) had a mutual or conflicting interest with the audit client; (2) audited the accountant's own work; (3) functioned as an employee of the audit client; or (4) acted as an advocate for the audit client. Using these four principles, the regulations proposed a ban on audit firms performing certain non-audit services for their audit clients. The reaction of the accounting profession was to fight the proposal tooth and nail. The proposed regulations were also pummeled by the corporate community, which lost sight of how important reliable financial statements and reliable auditors are to the viability of American business and investment. In the end, the proposed Levitt regulations were gutted. Instead of eliminating auditor conflicts, a compromise emerged that simply increased disclosure of the scope of the conflicts and the extent to which auditors were auditing their own work. That was the wrong result, which I hope the Senate will remedy through enactment of the Sarbanes bill. What happened to the board? In U.S. corporations, Boards of Directors are at the top of a company's governing structure. According to the Business Roundtable, the Board's ``paramount duty'' is to safeguard the interests of a company's shareholders. Persons who serve on corporate boards are required by state law to serve as fiduciaries to the shareholders and employees of the corporation for which they serve. As the Fifth Circuit said in 1984: Three broad duties stem from the fiduciary status of corporate directors: namely, the duties of obedience, loyalty and due care. The duty of obedience requires a director to avoid committing . . . acts beyond the scope of the powers of a corporation as defined by its charter or the laws of the state of incorporation. . . . The duty of loyalty dictates that a director must not allow his personal interest to prevail over the interests of the corporation. . . . [T]he duty of care requires a director to be diligent and prudent in managing the corporation's affairs. One of the most important duties of the Board--along with corporate officers and company auditors--is to make sure that the financial statements are in fair representation of the company's financial condition. It requires more than technical compliance; it requires, as the Second Circuit Court of Appeals said in 1969, that the Board ensure that the financial statement ``as a whole fairly present[s] the financial position'' of the company. The key committee of a board in carrying out that function is the Audit Committee, and a Blue Ribbon Commission in 2000 issued a report on what Audit Committees should do to meet their obligation to the shareholders. Among the responsibilities the Audit Committee should meet are: ensuring that the auditor is independent and objective; assessing the quality, not just the acceptability, of an auditor's work; discussing with the auditor significant auditing issues; and making sure that the financial statement are ``in conformity with generally accepted accounting principles.'' As I mentioned at the beginning of this statement, the Permanent Subcommittee on Investigations, which I chair, looked in depth at the actions of the Board of Directors on the Enron Corporation in light of its sudden collapse and bankruptcy. The Subcommittee on a bipartisan basis found that the Enron Board failed to safeguard Enron shareholders and contributed to Enron's collapse. If failed, we found, because the Board allowed Enron to engage in high risk accounting, inappropriate conflict of interest transactions, extensive undisclosed off-the-books activities, and excessive executive compensation. Based on review of the hundreds of thousands of Enron-related documents by the PSI staff and dozens of interviews, the Subcommittee concluded that the Board knew about numerous questionable practices by Enron management over several years, but it chose to ignore these red flags to the detriment of Enron shareholders, employees, and business associates. In short, the Enron Board failed to meet its fiduciary responsibility to the shareholders and employees of Enron. When pressed to explain their conduct at a PSI hearing, the Board accepted no responsibility for Enron's failure. The Board members claimed they didn't know what was going on in the company--that management didn't tell them, and that the auditor, Arthur Andersen, told them everything was OK. The Subcommittee didn't accept that answer, because a review of the documents, the Board meetings, the Audit and Finance Committee meetings, and interviews with the Board members revealed that the Board Members did know what was happening at Enron and went along with it. The Board failed with respect to the Enron Corporation, and my guess is that the boards of the other corporations now under investigation for investor fraud and auditing misconduct will fare little better. Although the performance of corporate boards in American corporations must be addressed by the corporations themselves, Congress must also do everything it can to ensure that this important watchdog of corporate governance operates properly in each U.S. company. What happened to other corporate players? The auditors and the Boards of Directors are not the only ones with oversight responsibility for corporate conduct who have let down the investing public. Top-name law firms wrote legal opinions that allowed some of the worst deceptions to go forward. Financial analysts who depend upon large corporations for investment banking business and at the same time promote the stock of those corporations to their clients, operate with clear conflicts of interest. They may know inside information about the financial condition of the companies with which they do business, but keep that information from the investors to whom they are promoting the company stock. What needs to be done now? The Sarbanes bill, with additional amendments, will address the duties and failings of their corporate players. After 10 days of hearings, the Banking Committee has reported to the Senate floor a bill that significantly addresses not only the audition failures, but failures of corporate governance and conflicts with financial analysts. I understand there may be an amendment to hold the legal profession accountable as well. We have got to take action on this legislation now, this Congress. We need to restore the checks and balances on the marketplace, and we need to give our cops on the beat the tools and resources to crack down on corporate misconduct. We need to change the laws to make it possible to punish corporate and auditor misconduct swiftly and with appropriate penalties. We need to ensure that crime does not pay for corporate executives seeking to profit from corporate misconduct. We need to shake up the auditing industry and remind them that their profession calls for them to be watchdogs, not lapdogs for their clients. We need to give SEC administrative enforcement powers and more funds for investigations and civil enforcement actions. We need to increase investor protections to restore investor confidence. The Sarbanes bill takes many of the actions needed, and I want to commend the hard work of not only Senator Sarbanes who chairs the Banking Committee, but also the many other Senators on that Committee who contributed to this much needed bill. It offers strong medicine, and it is what this country needs. On corporate misconduct, the bill presents a number of new provisions to deter and punish wrongdoing. For the first time, CEOs and CFOs would be required to certify that company financial statements fairly present the company's financial condition. If a misleading financial statement later resulted in a restatement, the CEO and CFO would have to forfeit and return to the company coffer any bonus, stock or stock option compensation received in the 12 months following the misleading financial report. The bill would also make it an unlawful act for any company officer or director to attempt to mislead or coerce an auditor. It would also require auditors to discuss specific accounting issues with the company's audit committee, which will not only increase the understanding of the company's board of directors, but also prevent directors from later claiming they were not informed about the company's accounting practices. The bill would also enable the SEC to remove unfit officers or directors from office and to bar them from holding any future position at a publicly traded corporation. These are powerful new tools to help prevent and punish corporate misconduct. The Sarbanes bill takes on another great issue of importance that I've been working on for years, strengthening the independence of the Financial Accounting Standards Board or FASB, which has the task of issuing generally accepted accounting principles or GAAP. Among other important measures, the bill grants statutory recognition to FASB and sets out its obligation to act in the public interest to ensure the accuracy and effectiveness of financial reporting; states that the trustees who select FASB's members must represent investors and the public, not just the accounting industry or corporate interests; and streamlines FASB's operations by requiring it to act by majority vote instead of through a supermajority. Most important of all, the bill sets up a system that provides FASB with an independent, stable source of funding through fees assessed on publicly traded companies. Once this new system is set up, it will no longer be the case, as it has been for years, that FASB will have to go hat in hand for funds from the very companies and accounting firms that want to affect its decisionmaking. I have no doubt that this conflict of interest has contributed to some of the distortions and weaknesses in current accounting standards. I proposed a similar change in FASB's funding status in my Shareholder Bill of Rights Act, and I appreciate the Committee's including the provision for my bill making it clear that FASB's funding cannot be affected by the congressional appropriations process and the political pressures that can be exerted through it. The point of the bill is to set up an independent, stable source of funding that is insulated from political pressure and funding threats so that FASB can do its work free of such pressures and threats. Once the new funding system is in place, I urge FASB to begin to reassess U.S. accounting standards and to begin to clear up some of the problems that have allowed so many companies to engage in dishonest accounting while claiming to be in compliance with GAAP. On auditor conflicts of interest, the bill takes concrete action to stop auditors from providing non-audit services to their audit clients. For the first time, the bill specifically prohibits auditors from providing 8 types of non-audit services to their audit clients. The 8 prohibited services are bookeeping services; financial information systems design; appraisal and valuation services and fairness opinions; actuarial service; internal auditing services; management functions and human resource services; broker-dealer, investment adviser of investment banking service; and non-audit legal or expert services. The bill also enables a newly established Public Company Accounting Oversight Board to specify other prohibited services. Any other non- audit service can be provided by an auditor to its audit client only if the client's audit committee specifically authorizes the auditor to undertake the service. While I would have preferred an even stronger provision barring auditors from providing any non-audit services to an audit client, this bill makes a meaningful change in law that would help put an end to auditor conflicts of interest. Additional work is needed. For example, many of the key terms in the 8 prohibited non-audit services were left undefined after the Banking Committee, as part of the negotiations over the bill, dropped a requirement for the SEC to promulgate the July 2000 Levitt regulations which would have defined many of the terms. If enacted into law, the new Board and the SEC would need to place a priority on further defining the key terms in the 8 prohibited services. That task would be a key test of their willingness to use the bill's authority to eliminate auditor conflicts of interest and restore auditor independence. Let me give you an example. The bill currently prohibits auditors from providing their audit clients with ``investment banking services'' but does not define this term. Based upon the work of the Permanent Subcommittee on Investigations into the Enron scandal, I believe it is crucial for that term to include prohibiting auditors from working with their audit clients to design special purpose entities and structured finance arrangements, as investment bankers do, and then audit the structures they helped to create. In the case of Enron, Andersen was paid about $7 million to help Enron design the LJM, Chewco and Raptor structures, which Andersen then audited and approved. That never should happen. Auditors should not be auditing their own work. To make sure that this conduct is stopped, the SEC and Board would have to prohibit it either by further defining the term ``investment banking services'' or by specifying another prohibited service. The public companies' audit committees could also accomplish this goal by prohibiting the company's auditor from designing these structures and then auditing its own work. In addition to defining the key terms in the 8 prohibited services, additional work is needed to clarify how auditors and companies are supposed to treat the issue of ``tax services.'' The bill states explicitly that an auditor may provide ``tax services'' to an audit client if the specific tax services are cleared beforehand by the company's audit committee. There are several problems with this approach. First, like investment banking services, one danger is that an auditor will end up auditing its own work, which means that a critical check and balance on possible company misconduct will be circumvented. No auditor should assist a company in designing a tax strategy to lower the company's tax bill and then also serve as the auditor approving the accounting for that tax strategy. Two different parties must be involved--one to design the strategy and one to audit it for improper accounting and possible illegal tax evasion. A second problem involves the fees paid for various types of tax services. In the July 2000 regulations proposed by the SEC under former Chairman Levitt, concerns were raised about allowing an auditor to provide an audit client with written opinions related to a tax shelter or other tax strategy to lower the client's tax bill. Providing these opinions, especially for complex or questionable tax strategies, can lead to lucrative fees for an accounting firm and, in so doing, raise the same conflict of interest concerns that have so damaged auditor independence. These and other non-audit service issues needed to be examined by the Board and the SEC, not only to develop definitions for key terms, but also to determine whether additional non-auditing services should be added to the list of 8 prohibited services now specified in the Senate bill. Audit committees must also confront these issues and take the steps necessary to prohibit the company's auditor from engaging in non- auditing services that raise conflict of interest concerns or lead to an auditor's auditing its own work for the company. On auditor misconduct and oversight of accounting firms, the Sarbanes bill offers fundamental change that is sorely needed. The new Public Company Accounting Oversight Board that the bill would establish is designed to be free of domination by either accounting or corporate interests and would enjoy an independent and stable source of funding. This Board would have several duties including issuing auditing, auditor independence, and auditor ethical standards; inspecting and reporting on the internal controls and operations of registered public accounting firms; and conducting disciplinary proceedings regarding accountants suspected of wrongdoing. With respect to investigating possible auditor misconduct, the Board will have the authority to subpoena documents, take sworn testimony, and impose meaningful sanctions on individual accountants and accounting firms found to have engaged in wrongdoing. The sanctions include revoking the registration that a firm needs to audit public companies, barring a person from participating in a public company audit, imposing a civil fine on an individual or firm, and issuing a censure. The Board must also disclose its disciplinary proceedings to the public so that we will know what misconduct was involved and what sanction was imposed. This provision represents significant improvement over existing disciplinary proceedings which are dominated by the accounting industry, secretive, time-consuming, and ineffective. It also has at least two weaknesses. First, although the bill requires the Board to issue a public report on any disciplinary proceeding that results in a sanction on an auditor, the bill is silent on public disclosure of disciplinary proceedings that do not result in a sanction. The bill apparently leaves it to the discretion of the Board on whether to disclose these disciplinary proceedings, but a better approach might have been to direct the Board to disclose such proceedings when doing so would be in the public interest. A second, more serious weakness is that the provision imposes an automatic, unlimited stay on any auditor sanction imposed by the Board if the sanction is appealed to the SEC. Until the SEC lifts the stay, the Board is prohibited from disclosing to the public the name of the auditor, the sanction imposed, or the reasons for the disciplinary action. These provisions are out of line with broker-dealer disciplinary proceedings and only serve to prolong criticisms of auditor disciplinary practices as overly secretive and slow moving. On the issue of auditing, auditor independence, and auditor ethical standards, I fully support making the Board the final arbiter of these standards. The standard-setting process has for too long been under the direct control of the accounting industry, and one of the most important changes the bill makes is to put an end to this arrangement. Of course, the accounting industry is not and should not be excluded from the Board's standard-setting process; the bill requires the Board to engage in an ongoing dialog with the accounting, corporate and investor communities to take advantage of their expertise. The bill explicitly requires the Board to ``cooperate'' with any designated professional group of accountants or any advisory board convened by the Board to assist its deliberations. The bill also states that the Board must ``respond in a timely fashion'' to any request for a change in the standards if the request is made by a designated professional group or advisory committee. It is important to note, however, that the bill does not grant any preferential status to these groups compared to other participants in the standard-setting process, and participants such as the SEC, state accounting boards, other federal and state agencies and standard-setting bodies, and investors are entitled to receive equal consideration from the Board in its standard-setting deliberations. On the issue of accounting oversight, the Sarbanes bill again offers vast improvement over the status quo. The newly created Board offers oversight authority that will be more independent, more systematic and more public than the existing system. And, again, one comment. With respect to the inspection reports that the Board is supposed to disclose to the public regarding a registered public accounting firm's operations, the bill states that the Board must develop a procedure to allow the registered public accounting firm that is the subject of the inspection an opportunity to comment on the draft report before it is finalized. I support this process. However, it is also my understanding after consulting with the Committee, that the bill is not intended to require the Board to submit the actual text of its draft report to the subject firm prior to making it public, but rather to inform and discuss the key points with the firm and provide the firm with a meaningful opportunity to comment on the Board's analysis, commit to specific steps to cure any defects in the firm's quality control systems, and commit to other reforms. Finally, on the issue of increased resources, the Sarbanes bill takes long needed steps to beef up the SEC's enforcement staff through authority to hire new accountants, lawyers, investigators and support personnel. It also increases the SEC's budgetary authority. Once this is enacted into law, it will be up to the Bush Administration and the Appropriations Committees to give the SEC what it needs to respond to the current wave of corporate scandals and help restore investor confidence. There are many other provisions in the bill that I could comment on, but I will stop here. The bottom line is that the Sarbanes bill is a strong bill. It provides new tools and resources to go after corporate misconduct. It offers fundamental change in the way we oversee the accounting industry and punish auditor wrongdoing. It tackles auditor conflicts of interest by setting up, for the first time, prohibitions on the non-auditing services that an auditor can provide to an audit client. It provides new ways to hold corporate insiders accountable, so the next time a public company erupts in scandal, the senior officers and directors can't claim that they were out of the loop and not responsible. As strong as it is, the Sarbanes bill would benefit from a number of strengthening measures. This includes the amendment by Senator Leahy to strengthen criminal penalties for corporate misconduct and to protect corporate whistleblowers, which I am cosponsoring, and an amendment by Senator Edwards to require legal counsel to play a more active role in deterring corporate misconduct. I intend to offer several amendments myself. Administrative penalties: Senators Bill Nelson, Tom Harkin, and I will offer an amendment to give new authority to the SEC to impose administrative penalties for corporate wrongdoing. The amendments would allow the SEC to impose civil monetary penalties on persons who violate the securities laws such as companies, officers, directors, auditors, and lawyers and to bar unfit officers and directors of publicly traded corporations without having to go to court to do so. The amendment would also allow the SEC to subpoena financial records as part of an official SEC investigation without notifying the subject of the records request. This amendment would also increase the maximum civil fines the SEC can impose on securities laws violators under current law and the new authority provided by this amendments. Today's fines of $6,500 to $600,000 per violation would increase to $100,000 to $10 million. Auditor certification. A second amendment I intend to offer would require that auditors of publicly traded corporation provide a written opinion on whether a client company's financial statements fairly present the financial condition of the company. The Sarbanes bill has a similar provision with respect to CEOs and CFOs. Many think this is already required of auditors of publicly traded companies, but there is no provision in current law that imposes such a requirement; there is only guidance pursuant to SEC regulation. Auditors communication with board of directors: My third amendment would require that an auditor of a publicly traded corporation discuss with the Audit Committee on the Board of Directors the ``quality, acceptability, clarity, and aggressiveness'' of the company's financial statements and accounting principles. This amendment will eliminate any excuse that the Board of Directors of a company didn't know what the company was doing. There were many investors and commentators in the 1990's who expressed their awe of the astronomical growth in the stock market by saying it was too good to be true. Well, they were right. It was too good to be true, and now we know that. This bill, particularly with some strengthening amendments will bring credibility and accuracy back to the financial statements of our publicly traded corporations. It will bring reality into the marketplace and make the deceptive practices of the 1990's the true exception rather than the rule. I suggest the absence of a quorum.

Mr. LEVIN

Mr. LEVIN. Madam President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. LEVIN

Mr. LEVIN. Mr. President, I am supporting the Yucca Mountain Resolution today because we need to take the next step in resolving the problem of nuclear waste in this country. It makes more sense to store the Nation's high-level nuclear waste in a single place than it does to leave it at 131 sites spread all around the country, many close to significant population centers and all located on bodies of water, including the Great Lakes and major river systems. I do not feel that it is environmentally responsible to allow spent nuclear fuel to sit indefinitely in temporary facilities on the shores of the Great Lakes. We set up a procedure 20 years ago to deal with this problem, and we should use it. I have heard from citizens all over Michigan on both sides of this issue. The Michigan Municipal League, the Michigan House of Representatives, and over 75 counties and communities have contacted me to express their support for the effort to establish a permanent repository at Yucca Mountain. This resolution will permit the Department of Energy to submit an application to the Nuclear Regulatory Commission so that the Commission can determine whether established regulatory requirements for the protection of public health, safety and the environment have been satisfied. The Nuclear Waste Policy Act, which was passed 20 years ago, did not leave it up to Congress to decide whether or not Yucca Mountain is a suitable location for our nuclear waste. Rather, it left this decision up to the Nuclear Regulatory Commission. If this resolution is approved, a license application will be submitted by the Department of Energy for Yucca Mountain and over the next several years, the Nuclear Regulatory Commission will go through all of the scientific and environmental data and look at the design of the repository to make sure that it can meet environmental and safety standards. This will be done by scientists and technical experts. I share the concerns of many people regarding the storage and shipment of nuclear waste. Terrorism and transportation issues need to be thoroughly addressed in the licensing process. Transportation plans will be developed in a staged process over time and all plans will go public with opportunities for input from the States and local communities. The actual transportation routes are a long way from being determined. Further, the Department of Energy assures us that there are no plans to use barges to transport waste, and I will oppose any effort to do so. Since 1983, the people of Michigan have committed more than $400 million to the Nuclear Waste Fund for environmental protection that they have not received. The Palisades nuclear power plant near South Haven has a total of 432 spent fuel assemblies stored in 18 dry casks located on site. An additional 649 spent fuel assemblies remain in the spent fuel pool and will ultimately be transferred to dry casks. The Big Rock Point nuclear plant near Charlevoix retains all of its spent fuel in a pool inside the containment building. The plant is permanently shut down and is in the process of being decommissioned. Beginning early next year, the plant's 441 spent fuel bundles will be loaded into 7 dry casks and stored on site. These casks are designed to be an interim measure. They are not a permanent solution. Each nuclear plant site in the U.S. has become a de facto spent fuel storage facility. It would be more efficient and more secure to move all of the spent fuel to one central facility where it can be safely stored indefinitely. Further, in the case of Big Rock Point located near Charlevoix, the plant and equipment will be completely removed from the property within the next few years. All that will remain will be the spent fuel, sitting on a large concrete pad about one-half mile from the lake. Re-use of the property cannot be accommodated until the spent fuel is removed. Finally, a permanent repository is also important to support the cleanup of contamination and waste generated by the cold war production of nuclear weapons and materials for these weapons. Currently the Department of Energy is treating high level waste materials, stabilizing them and getting then into other safe configurations so that the waste can ultimately be shipped to a permanent repository. Moving the treated and stabilized waste is particularly key to the cleanup of sites such as the Savannah River Site in South Carolina and the Hanford Site in Richland, WA. If this resolution does not become law, the only alternative for getting waste out of these many temporary storage sites into a permanent site will be terminated, which would move us in the wrong direction. Leaving the nuclear waste at temporary sites and leaving this decision to future generations is not the responsible thing to do and is not a solution to this problem. In supporting this resolution, I am supporting an open and rigorous process for answering the concerns raised by so many. Only through this process will we be able to protect the health of the people and the environment.

Mr. LEVIN

Mr. LEVIN. Mr. President, I wish to bring to the Senate's attention a recent decision of the U.S. Court of Appeals for the Seventh Circuit, written by Judge Richard Posner, in the case of In Re High Fructose Corn Syrup Antitrust Litigation, found at 2002 U.S. App. LEXIS 11940. Judge Posner's unanimous opinion, joined by Circuit Judges William Bauer and Michael Kanne, articulates in clear, cogent, and unequivocal language the standard for the Federal courts in the Seventh Circuit to follow in deciding whether circumstantial evidence of price-fixing or tacit collusion should be presented to a jury in antitrust cases. This is a much needed improvement in the state of the law, and I hope that it will soon be followed in other circuits as well. Last month, the Permanent Subcommittee on Investigations, which I chair, completed a 10-month investigation into the reasons why gasoline prices fluctuate so dramatically and why retail gasoline prices seem to go up and down together at so many gas stations. The majority staff issued a comprehensive 400-page report explaining our findings, and we then held 2 days of hearings on the report. I will not summarize the entire report here, but I would urge anyone interested in how gasoline prices are set to visit the subcommittee's Web site, where the report can be downloaded. I would like to highlight, however, several of the issues the subcommittee examined that are directly relevant to the Seventh Circuit's decision. First, the subcommittee found that in several of our domestic gasoline markets where there is little competition a few oil companies have sufficient market power to raise the price of gasoline through their decisions on how much gasoline to produce. The subcommittee examined retail prices in several geographic markets. The subcommittee found at various times in these markets the prices of the major brands of gasoline followed a ``ribbon-like'' pattern. The prices of these brands moved up and down together, usually by about the same amount each day, and they maintained a constant difference in price with respect to each other. The documents reviewed by the subcommittee indicate that the marketing practices of the various gasoline wholesalers and retailers in the market contribute to this pricing pattern. First, the major brands usually seek to maintain a constant price difference with respect to one or more other brands that are considered the major competition or the price leader in that market. Second, the market strategy of the major brands generally is to maintain market share, and avoid costly price wars which do not result in greater market shares, but often lead to lower margins for all of the firms competing in the market. Thus, most of the major brands establish their retail price simply by following the price movements of one or more other brands. They do not attempt to undercut their rivals; rather they seek to maintain their relative competitive position with respect to their rivals. Another strategy supporting the ribbon-like retail price pattern is the influence the refiners maintain over the retail price. Major brand refiners usually set the wholesale price paid by their dealers on the basis of surveys of the retail prices of competitors; the refiner then subtracts an amount considered to be an adequate margin for the retailer, and charges the retailer for the remainder. In this manner, the dealers receive a fixed margin for their gasoline, and the benefits and costs of retail price changes accrue to the refiner rather than the dealer. In reality, therefore, a few refiners rather than many individual dealers set the retail price of gasoline for the major brands. The resulting retail pricing pattern--the ribbon-like pattern--is exactly the same pattern one would expect to see in a market where there is some type of collusion between the firms in the market. In a collusive marketplace, each firm has an agreed-upon market share, and the relative prices of the different brands are fixed. By itself, parallel pricing does not indicate collusion. Parallel pricing can develop in a competitive market, as each firm strives independently to obtain some advantage from a movement in price, only to be matched by its competitors who seek to deny that firm any such advantage. Hence, to establish that firms in a market are colluding with one another, it is necessary to demonstrate more than just the existence of parallel or interdependent pricing. A plaintiff, or the government, as the case may be, must establish either an explicit agreement on pricing, or present sufficient circumstantial evidence indicating a tacit agreement on pricing. It is rare to find in the modern age, with many corporations well- schooled in the antitrust laws, and legions of lawyers eager to educate those who are not, to find an express agreement to fix prices or restrict supply. Moreover, in markets most susceptible to price-fixing those with few firms, a high degree of concentration, homogeneous products, and high barriers to entry, such as the gasoline market-- express collusion is totally unnecessary to carry out the purposes of any such conspiracy. In highly concentrated markets, the few firms can observe each other's behavior, determine how they react to various strategies, and react accordingly. After a while, the firms in these markets can develop patterns of behavior that are as non competitive as if an actual agreement had been reached. The problem, therefore, is how to determine whether certain market activity is the natural result of the structure of the market and purely independent decisionmaking, or is the result of some tacit agreement or understanding or agreed-upon practices that restrict competition. Again, rarely will there be a ``smoking gun'' document pointing out the existence of tacit collusion. The best way--and in reality the only way to determine whether in fact such collusion exists is to look at all of the evidence regarding the marketplace and the behavior of the firms in the market. For example, are the companies acting independently? To what extent and how do they communicate with each other? To what extent do they have agreements between themselves on terms of sale, supply, storage, or transportation? To what extent do they share information? To what extent do they pursue innovation independently? At the subcommittee's hearings we heard testimony from several attorneys general, knowledgeable in the antitrust laws, including Attorney General Jennifer Granholm from my home State of Michigan, that the standards used by the courts in recent years have become unduly stringent for plaintiffs seeking to present evidence of tacit collusion to a jury in an antitrust case. Many courts have been requiring plaintiffs in price-fixing cases to present evidence that it was more likely than not that the conduct complained of was the result of collusion before the evidence would be presented to the jury. In effect, this standard relegates to the judge on a motion for summary judgment the determination of the basic factual issues that are normally the province of a jury. Furthermore, it essentially requires the plaintiff to present evidence amounting to a ``smoking gun'' demonstrating collusion in order to survive a motion for summary judgment by the defendants. This standard thus prevents many cases that should be presented to a jury from ever getting to the jury. Judge Posner's opinion in the High Fructose Corn Syrup case clarifies the law of the Seventh Circuit that economic evidence and other evidence indicating firms in a market have an agreement--either tacit or explicit--not to compete should be presented to a jury. The opinion clearly states that in a price-fixing case the question of ``whether, when the evidence was considered as a whole, it was more likely that the defendants had conspired to fix prices than that they had not conspired to fix prices'' should be presented to a jury, and that the antitrust laws do not establish a higher threshhold for surviving motions for summary judgment than other types of cases. The plaintiff need not present one single item that demonstrates an agreement; rather the plaintiff need only demonstrate that the evidence as a whole more likely than not shows an agreement. Several weeks ago, following the subcommittee's hearing, I wrote a letter to the Federal Trade Commission informing them of the subcommittee's findings, and urging the FTC to take a number of actions to improve the competitiveness of the gasoline refining and marketing industry. One of the points I stressed to the FTC was that ``In concentrated markets juries should be permitted to consider circumstantial evidence in determining whether or not the firms in the market are acting in collusion. In highly concentrated markets, outright conspiracies and collusion between the market participants are totally unnecessary to develop concerted action. When there are few firms in a market, these firms can easily track and follow each other's behavior. In reality, the only way to demonstrate collusion in a concentrated market is through circumstantial evidence.'' The Seventh Circuit has now established this principle as law. I commend the Seventh Circuit for this clarification and hope that other circuits will follow. I ask unanimous consent that my letter to the FTC be printed in the Record.

Mr. LEVIN

Mr. LEVIN. Mr. President, before the majority leader leaves the Chamber, let me say he is always giving credit to others for the accomplishments of this body--which have been many--and what he, in his traditional modesty, of course, does not make any reference to is his own leadership and the role of that leadership in these accomplishments. But there is not a Member of this body on either side of the aisle who does not recognize the extraordinary leadership of Senator Daschle. And that list is a tribute to his leadership. It obviously involves a lot of other people, as he pointed out. Nonetheless, it is his leadership that has led the way to a successful and long list of achievements so far in this Congress.

Mr. LEVIN

Mr. LEVIN. Mr. President, children are being killed in our cities in record numbers. This year, in Los Angeles, 25 have been killed. The rates are the same in Houston, New York, Chicago, and in every other city where illegal drugs are plentiful and good jobs are scarce, where access to a better life is hard but access to a gun is easy. Parents put their children to sleep in bathtubs where they might be safer from driveby shootings. Children find guns in homes and on playgrounds, with tragic results. Drug dealers go gunning for each other and don't care who gets killed in the crossfire. So far this year, 22 children have been wounded by gunfire in my hometown of Detroit, in the metropolitan area. Ten children have been shot and killed. Statistics alone cannot convey the extent of this ongoing tragedy. But here, briefly, are some of the sorrowful and grim stories of these children, their families, and their pain. On February 25, Ajanee Pollard, 7 years old, was shot and killed, allegedly by a man who was upset that he had just purchased--with two counterfeit $20 bills--a defective radio from a friend of Ajanee's uncle. Ajanee, her uncle, her mother, and three siblings were getting ready to go shopping when one of the three men charged with the murder allegedly fired shots from an M1 rifle into the car Ajanee's mother was driving. Ajanee was a second grade student at Thomas Houghten Elementary School in northwest Detroit. Ajanee had been named Student of the Month, was a midfielder in the local youth soccer league, and enjoyed going to Bible school at Genesis Evaneglical Lutheran Church. Ajanee's 6-year-old brother Jason had to have his pancreas and part of his intestines removed from the wounds he suffered as a result of the shooting. Both of Ajanee's sisters suffered gunshot wounds to the legs, and her mother was treated for injuries as well. On March 23, Destinee Thomas, 3 years old, was shot and killed in her home while watching Mickey Mouse cartoons. A man armed with an AK-47 riddled the house with bullets. Two men have been arrested and charged with the murder. According to police and press reports, they had been involved in a ``turf battle'' with two drug dealers from a rival street gang. On March 28, Alesia Robinson, 16 years old and a junior at Kettering High School, sat on the front porch of her home on Detroit's east side while her boyfriend played with a gun. According to police, Alesia--who wanted to become a pediatrician--asked her boyfriend to put the gun away. Instead, he pointed it at her face and pulled the trigger. On April 3, Christopher James, 11 years old, was killed by a single gunshot wound to the head. His 12-year-old half-brother has been charged in juvenile court with manslaughter. According to family members, the two were playing with a .22 caliber revolver they had found on a playground and that the shooting was an accident. On April 10, Brianna Caddell, 8 years old, was shot and killed while she was sleeping in her bed. Brianna, her mother Pamela Martin, and her grandmother Dorothy Caddell were fixtures at Truth Evangelical Lutheran Church. Antoine Foote also involved in drug turf wars, was charged with her murder. According to police, he sprayed more than two dozen rounds at the house with an AK-47. Brianna was a third grader at the John C. Marshall Elementary School. One of Brianna's classmates, Oshinique Mapp, wants to become a policewoman or doctor or teacher so she can ``change the bad people.'' Another classmate, Jeremiah Russell, wants to go to college so he can get away from the drug dealers in his neighborhood. On April 19, Irisha Keener, 3 years old, was shot in the head by her mother, as the two lay in bed. Her mother then committed suicide. On April 30, Cherrel Thomas, 15 years old, was shot and killed while riding in the back seat of a Chrysler Concorde. Cherrel, by the way, was a freshman at McKenzie High School where she played trombone and baritone tuba in the school marching band and jazz ensemble. Terrill Johnson and Jesse Freeman were charged with that murder. On May 26, Tiffany Taylor, 15 years old, was fatally shot in the head while riding in a car in Mt. Clemens with friends coming home from a roller skating party at the Great Skate Rink in Roseville. Tiffany was a freshman at Roseville Junior High School, where she was on the honor roll and led afterschool programs. Police believe that someone in an abandoned house frequently used by drug dealers and addicts fired five rounds from a handgun at Tiffany as she rode by--for no apparent reason. On June 2, DeAntoine Trammell, 10 years old, was shot and killed in his grandmother's apartment on Detroit's east side. According to eyewitnesses, the person who killed him came to the house drunk and distraught, threatened to commit suicide, then fired two shots into the kitchen wall instead. The bullets pierced the wall and went into an adjacent bedroom. Moments later, Shawn Trammell, DeAntoine's 14-year- old brother, carried his bloody body into the kitchen. The boys' mother collapsed in shock. Shawn shouted out, ``Come on, Mama, come on. He's breathing!'' They rushed DeAntoine to a clinic but were turned away because it is not a trauma center. DeAntoine died a day later at St. John Hospital. DeAntoine was a fifth-grader at Bow Elementary School. His basketball team was scheduled to receive a trophy the day after he died. He loved sports, video games, cartoons, and pizza, and often helped out in the school cafeteria. The week before DeAntoine was killed, he had been paired with Keefe Brooks, 48, a Bloomfield Hills lawyer, as part of the V.I.P Mentors program. According to the Detroit Free Press, Brooks wanted to show DeAntoine the possibilities life held for him. ``I had hoped to expose him to successful people in the city, to help him build positive images and role models,'' Brooks said. ``I cannot bear the thought of my match having been taken from our world before I even got to know him. I cannot bear the thought of more children being slaughtered in our city.'' Gun violence is still an epidemic in our cities. A teenager today is more likely to die of a gunshot wound than of all natural causes of disease. Yet we seem incapable of requiring background checks at gun shows even though the President said he would support doing so when he campaigned in 2000. We seem incapable of requiring gun manufacturers to include trigger locks with their products even though we can regulate just about every other product under the sun. We need to pass these common-sense measures to help stanch the flow of guns and blood in our cities. But the Attorney General files briefs that undermine the enforcement of existing hand gun control laws instead. As a Nation, we hope and pray that 14-year-old Elizabeth Smart will be returned to her home in Salt Lake City safe and sound. But as a Nation, we overlook the death of Ajanee, and Destinee, and Alesia, and Christopher, and Brianna, and Irisha, and Cherrel, and Tiffany, and DeAntoine. We haven't seen home videos of them on the evening news, but we should. Their families and friends and communities feel the anguish alone. Is it resignation? Worse yet, is it indifference? I hope neither. Some in Detroit have responded to the epidemic. The Detroit Police Department and the Wayne County Prosecutor have launched Project Safe Neighborhoods so that criminals who use guns will be prosecuted in federal courts. They have launched Project Destinee, which is an attempt to dismantle the two rival drug gangs whose members have been implicated in that child's murder. The city has Child Death Review Teams to learn everything possible about the murders. People are joining SOSAD, Save Our Sons And Daughters, an organization Clementine Barfield started after her son Derick was killed in 1986, and the Detroit chapter of the Million Mom March, which Shikha Hamilton runs. Other groups involved include the Neighborhood Service Organization, Youth Initiatives Project, and Pioneers for Peace. On Saturday, May 11, a massive community forum on violence was held at Second Ebenezer Baptist Church. On May 16, a group of 350 religious leaders met at the Northwest Activity Center to kick off their Positive Youth Development Initiative, a collaborative effort among government, religious, and community leaders to help at-risk children. On June 11, Detroit Mayor Kwame Kilpatrick announced a six-point program to curb the violence. The funerals for the slain children have become impromptu community forums and rallies where people's determination and hope have commingled with their grief and outrage. The Poet Langston Hughes asked: What happens to a dream deferred? Does it dry up Like a raisin in the sun? Or fester like a sore-- And then run? Does it stink like rotten meat? Or crust and sugar over-- like a syrupy sweet? Maybe it just sags like a heavy load. Or does it explode? We have learned, sadly, that dreams deferred do explode--in gunfire. And we have seen, sadly, what happens when people don't even have the capacity or the chance to dream. I yield the floor and suggest the absence of a quorum.

Mr. LEVIN

Mr. LEVIN. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. LEVIN. That is right. I am talking about what the conference report does. The Senator's amendment leaves that discretion there. But because of the tradition, we fund that authorized level, which the Senator from Virginia has pointed out, and we may decide to look to a different approach which would be to direct the Secretary of Defense to meet that level out of his own funds. It is a different approach, but it is an important amendment.

Mr. LEVIN. Mr. President, I understand Senator Hutchinson has some remarks he would like to give in offering an amendment, and then after 10 minutes he will withdraw that amendment. I want to make sure he is in agreement with this before I ask unanimous consent. I ask unanimous consent that Senator Hutchinson be recognized for 10 minutes to offer an amendment, and then at the end of that 10 minutes to withdraw the amendment.

Mr. LEVIN. I think our conference could actually direct the Secretary of Defense to do it out of their own funds. I think that is an option.