John McCain

Mr. McCAIN

Mr. McCAIN. I thank the Senator.

Mr. McCAIN. I ask unanimous consent for Senator Gramm to respond without me losing my right to the floor.

Mr. McCAIN. I would like to respond to the Senator's question by saying that I think the Senator makes a very valid point. I think this is probably none of Congress's business as to what salaries should be bestowed on a corporate executive, with truly independent boards of directors and with a voice of the stockholders. Let me say to the Senator before he leaves, I am not talking about doing away with stock options. I am talking about how they are treated. They may have gotten around that, but it is how they are treated. As we get into the debate further, I would be glad to hear him respond to Mr. Buffett's three questions.

Mr. McCAIN. I would appreciate it if the Senator would phrase it in the form of a question, as he is very adept at doing. I will be glad to yield for his question.

Mr. McCAIN. According to a recent analysis from 1996 to 2000, Enron issued nearly $600 million in stock options, collecting tax deductions, which allowed the corporation to severely reduce their payment in taxes. According to reports that I think I have here, over $1 billion in stock options were issued to the senior executives of WorldCom. This is an important issue. I respect the views of my colleagues who disagree with my position and that of Mr. Greenspan, Mr. Stiglitz, and Mr. Buffett in various op-eds and editorials in newspapers throughout America. But why would we not vote on it? That is the question. Why would the distinguished Senator and friend from Nevada feel it incumbent upon himself to not allow a vote on stock options? I guess that question can be answered by observers. But here is the deal. I want to tell my friend from Nevada again, there will be a vote on how stock options are treated. I will repeat the amendment. I will repeat the amendment and will repeat it again several times before I finish discussing this issue. The issue, no matter how you feel, should be addressed. But through the invocation of cloture, everybody knows that the amendment and the motion to recommit will fall. I want to repeat. The amendment is fairly clear-cut, fairly simple. We deal with a lot of arcane issues in the discussion of this regulatory reform. But I repeat: Any corporation that grants a stock option to an officer or employee to purchase a publicly traded security in the United States shall record the granting of the option as an expense in that corporation's income statement for the year in which the option is granted. It is very simple. It does not say anything about the tax treatment of it. It does not say anything about a number of other rather controversial aspects. It just says it will ``record the granting of the option as an expense in that corporation's income statement. . . . '' Mr. President, it is curious to me--actually, it is not curious to me--why a vote on this amendment is blocked. It is because every lobbyist in this town for the high-tech community has said: Don't do it. Don't do it. The one thing that the folks in Silicon Valley are scared of more than anything else is that they would lose their precious stock options--all of it, of course, in the interest of the employee, only the employees, the secretaries, the workers, those people who are down there toiling in the bowels of the corporation, trying to get some incentive to stay there and have their retirement. Meanwhile, Mr. Ellison, the CEO of Oracle, last year, cashes in $706 million worth of stock options, $706 million worth of stock options in 1 year. Are we going to vote on it? Yes, we will vote on it. Maybe not now, but unless there is cloture on every single bill that comes before this body, there will be a vote on stock options. I want to assure my friend from Nevada of that. I will just remind him, there were many who wanted to block a vote on campaign finance reform for a long period of time. Well, we got our vote on campaign finance reform, and we will get a vote on stock options. We have to end the double standard for stock options. Currently corporations can hide these multimillion-dollar compensation plans from their stockholders or other investors because these plans are not counted as an expense when calculating company earnings. I want to make it perfectly clear to all, I am not in favor of doing away with stock options. Stock options have a valuable place in American corporate life. What we are addressing here is how they are treated so investors can know exactly what the profit and loss of a corporation is. I repeat: I am not in favor of eliminating stock options. What I am trying to do is exactly in accordance with Mr. Greenspan's comments from which I will quote. Federal Reserve Chairman Alan Greenspan, New York University, March 26, 2002: Some changes, however, appear overdue. In principle, stock- option grants, properly constructed, can be highly effective in aligning corporate officers' incentives with those of shareholders. Regrettably, the current accounting for options has created some perverse effects on the quality of corporate disclosures that, arguably, is further complicating the evaluation of earnings and hence diminishing the effectiveness of published income statements in supporting good corporate governance. The failure to include the value of most stock-option grants as employee compensation and, hence, to subtract them from pretax profits has increased reported earnings and presumably stock prices. This would be the case even if offsets for expired, unexercised options were made. The Financial Accounting Standards Board proposed to require expensing in the early to middle 1990s but abandoned the proposal in the face of significant political pressure. The Federal Reserve staff estimates that the substitution of unexpensed option grants for cash compensation added about 2\1/2\ percentage points to reported annual growth in earnings of our larger corporations between 1995 and 2000. Many argue that this distortion to reported earnings growth contributed to a misallocation of capital investment, especially in high tech firms. Especially in high-tech firms? Where is most of the opposition coming from to the proper accounting of stock options? From the high-tech firms. I repeat: Many argue that this distortion to reported earnings growth contributed to a misallocation of capital investment, especially in high tech firms. If market participants indeed have been misled, that, in itself, should be surprising, for there is little mystery about the effect of stock-option grants on earnings reported to shareholders. Accounting rules require enough data on option grants be reported in footnotes to corporate financial statements to enable analysts to calculate reasonable estimates of their effect on earnings. Some have argued that Black-Scholes option pricing, the prevailing means of estimating option expense, is approximate. But so is a good deal of other earnings estimates, as I indicated earlier. Moreover, every other corporation does report an implicit estimate of option expense on its income statement. That number for most, of course, is zero. Are option grants truly without any value? I repeat Mr. Greenspan's question: Are option grants truly without any value? Critics of option expensing have also argued that expensing will make raising capital more difficult. But expensing is only a bookkeeping transaction. Nothing real is changed in the actual operations or cash-flow of the corporation. If investors are dissuaded by lower reported earnings as a result of expensing, it means only that they were less informed than they should have been. Capital employed on the basis of misinformation is likely to be capital misused. Critics of expensing also argue that the availability of options enables corporations to attract more-productive employees. That may well be true. But option expensing in no way precludes the issuance of options. To be sure, lower reported earnings as a result of expensing could temper stock price increases and thereby exacerbate the effects of share dilution. That, presumably, would inhibit option issuance. But again, that inhibition would be appropriate, because it would reflect the correction of misinformation. I am not sure this debate is between me and the high-tech community. I think the debate is somewhat different. When you look at the preponderance of opinion, not only that stock options need to be expensed but the incredible effect that it has had on the whole distortion of the market, then it is an important issue. I ask again: How can we really address the entire issue we are facing without addressing the issue of stock options? That is like playing a baseball game without third base. Mr. Joseph Stiglitz, noble laureate professor of economics at Columbia University on Tuesday, March 12, 2002: Some contend that it is difficult to obtain an accurate measure of the value of the options. But this much is clear: zero, the implicit value assigned under current arrangements, is clearly wrong. And leaving it to footnotes, to be sorted out by investors, is not an adequate response, as the Enron case has brought home so clearly. At the Council of Economic Advisers, we devised a formula that represented a far more accurate lower bound estimate of the value of the options than zero. Moreover, many firms use formulae for their own purposes, in valuing stock options (charging them against particular divisions of the firm). However, Treasury, in its opposition to the FASB concerns, was singularly uninterested in these alternatives. I leave it to others to hypothesize why that might have been the case. If we are to have a stock market in which investors are to have confidence, if we are to have a stock market which avoids the kind of massive misallocation of resources that result when information provided does not accurately report the true condition of firms, we must have accounting and regulatory frameworks that address these issues. As derivatives and other techniques of financial engineering become more common, these problems too will become more pervasive. While headlines and journalistic accounts describe some of the inequities--those who have seen their pensions disappear as corporate executives have stashed away millions for themselves--what is also at stake is the long run well being of our economy. The problems of Enron and Global Crossing are part and parcel of the current downturn. I was under the impression this legislation was all about trust and transparency--regaining the trust of the American people and investors in the stock market and, frankly, the economic system that drives America and has been so successful, and transparent. Perhaps under this legislation, by beefing up many of the penalties and regulations and many other things--many of which I have recommended and strongly supported and will have in further amendments, but how in the world do we say that we have given transparency when, in the view of most experts, this is one of the greatest hindrances to transparency in the system as it exists today? I would now like to read the opinion of Mr. Warren Buffett, in the Washington Post, April 9, 2002, Stock Options and Common Sense: In 1994 seven slim accounting experts, all intelligent and experienced, unanimously decided that stock options granted to a company's employees were a corporate expense. Six fat CPAs, with similar credentials, unanimously declared these grants were no such thing. Can it really be that girth, rather than intellect, determines one's accounting principles? Yes indeed, in this case. Obesity--of a monetary sort--almost certainly explained the split vote. The seven proponents of expense recognition were the members of the Financial Accounting Standards Board, who earned $313,000 annually. Their six adversaries were the managing partners of the (then) Big Six accounting firms, who were raking in multiples of the pay received by their public- interest brethren. In this duel the Big Six were prodded by corporate CEOs, who fought ferociously to bury the huge and growing cost of options, in order to keep their reported earnings artificially high. And in the pre-Enron world of client- influenced accounting, their auditors were only too happy to lend their support. The members of Congress decided to adjudicate the fight-- who, after all, could be better equipped to evaluate accounting standards?--and then watched as corporate CEOs and their auditors stormed the Capitol. These forces simply blew away the opposition. By an 88-9 vote, U.S. senators made a number of their largest campaign contributors ecstatic by declaring option grants to be expense-free. Darwin could have foreseen this result: It was survival of the fattest. The argument, it should be emphasized, was not about the use of options. Companies could then, as now, compensate employees in any manner they wished. They could use cash, cars, trips to Hawaii or options as rewards--whatever they felt would be most effective in motivating employees. But those other forms of compensation had to be recorded as an expense, whereas options--which were, and still are, awarded in wildly disproportionate amounts to the top dogs-- simply weren't counted. The CEOs wanting to keep it that way put forth several arguments. One was that options are hard to value. This is nonsense: I've bought and sold options for 40 years and know their pricing to be highly sophisticated. It's far more problematic to calculate the useful life of machinery, a difficulty that makes the annual depreciation charge merely a guess. No one, however, argues that this imprecision does away with a company's need to record depreciation expense. Likewise, pension expense in corporate America is calculated under widely varying assumptions, and CPAs regularly allow whatever assumption management picks. Believe me, CEOs know what their option grants are worth. That's why they fight for them. It's also argued that options should not lead to a corporate expense being recorded because they do not involve a cash outlay by the company. But neither do grants of restricted stock cause cash to be disbursed--and yet the value of such grants is routinely expensed. Furthermore, there is a hidden, but very real, cash cost to a company when it issues options. If my company, Berkshire, were to give me a 10-year option on 1,000 shares of A stock at today's market price, it would be compensating me with an asset that has a cash value of at least $20 million--an amount the company could receive today if it sold a similar option in the marketplace. Giving an employee something that alternatively could be sold for hard cash has the same consequences for a company as giving him cash. Incidentally, the day an employee receives an option, he can engage in various market maneuvers that will deliver him immediate cash, even if the market price of his company's stock is below the option's exercise price. Finally, those against expensing of options advance what I would call the ``useful fairy-tale'' argument. They say that because the country needs young, innovative companies, many of which are large issuers of options, it would harm the national interest to call option compensation as expense and thereby penalize the ``earnings'' of these budding enterprises. Why, then, require cash compensation to be recorded as an expense given that it, too, penalizes earnings of young, promising companies? Indeed, why not have these companies issue options in place of cash for utility and rent payments--and then pretend that these expenses, as well, don't exist? Berkshire will be happy to received options in lieu of cash for many of the goods and services that we sell corporate America. At Berkshire we frequently buy companies that awarded options to their employees--and then we do away with the option program. When such a company is negotiating a sale to us, its management rightly expects us to proffer a new performance-based cash program to substitute for the option compensation being lost. These managers--and we--have no trouble calculating the cost to the company of the vanishing program. And in making the substitution, of course, we take on a substantial expense, even though the company that was acquired had never recorded a cost for its option program. Companies tell their shareholders that options do more to attract, retain and motivate employees than does cash. I believe that's often true. These companies should keep issuing options. But they also should account for this expense just like any other. A number of senators, led by Carl Levin and John McCain, are now revising the subject of properly accounting for options. They believe that American businesses, large or small, can stand honest reporting, and that after Enron- Andersen, no less will do. I think it is normally unwise for Congress to meddle with accounting standards. In this case, though, Congress fathered an improper standard--and I cheer its return to the crime scene. This time Congress should listen to the slim accountants. The logic behind their thinking is simple. One, if options aren't a form of compensation, what are they? Two, if compensation isn't an expense, what is it? Three, and if expenses shouldn't go into the calculation of earnings, where in the world should they go? Mr. President, I have to admit to you that I stood fifth from the bottom of my class at the Naval Academy. I don't pretend to understand a lot of the nuances and hidden workings of the stock market or many of the issues we are facing today because there were some very imaginative CEOs and corporate officers who have deprived investors of their money and hundreds of thousands of people of their jobs. But even I can understand Mr. Buffett's questions: If options aren't a form of compensation, what are they? If compensation isn't an expense, what is it? And if expenses should not go into the calculation of earnings, where in the world should they go? Mr. President, that is why this amendment is simple: Any corporation that grants a stock option to an officer or employee to purchase a publicly traded security in the United States shall record the granting of the option as an expense in that corporation's income statement for the year in which the option is granted. That is not a complicated issue, and there will be discussion from time to time about what the tax implications are and all those things. I would be glad to have smarter people than I figure it out. I want to read a letter to the editor of the New York Times by Steven Barr, senior contributing editor of CFO Magazine, April 5, 2002. Reference: ``Leave Options Alone'' by John Doerr and Frederick W. Smith: What if, in the mid-1990s, accounting-rule makers had not caved in to lobbyists and instead had forced companies to recognize options as a compensation expense on financial statements? There would still have been a technology boom, a bear market, and a period of recession. Such cycles are immutable. But there may have been less of the accounting gamesmanship that is now the object of government investigation and investor ire. Options should count as an expense to the corporation, and the ability to exercise them should be based on stock performance that exceeds an index of peers. Mr. President, one of the more egregious activities we have seen with some of these really unsavory people has been that while their company stock was declining, they exercised their stock options and sold them, making hundreds of millions of dollars. As I said earlier, in the case of Enron--I heard WorldCom was $1.8 billion, or Enron, I am not sure which--at the same time in the case of Enron, the employees, in testimony before the Commerce Committee, said they were urged to hang on to the stock, hang on to the Enron stock. Meanwhile, the executives were selling the stock. I do not know of anything quite as egregious as that. As I mentioned, according to a recent analysis from 1996 to 2000, Enron issued nearly $600 million in stock options, collecting tax deductions which allowed the corporation to severely reduce their payment in taxes. I repeat, no other type of compensation gets treated as an expense for tax purposes without also being treated as an expense on the company books. This double standard is exactly the kind of inequitable corporate benefit that makes the American people irate and must be eliminated. If companies do not want to fully disclose on their books how much they are compensating their employees, then they should not be able to claim a tax benefit for it. The Washington Post, Thursday, April 18, 2000: Alan Greenspan, perhaps the nation's most revered economist, thinks employee stock options should be counted, like salaries, as a company expense. Warren Buffett, perhaps the nation's foremost investor, has long argued the same line. The Financial Accounting Standards Board, the expert group that writes accounting rules, reached the same conclusion eight years ago. The London-based International Accounting Standards Board recently recommended the same approach. In short, a rather unshort list of experts endorses the common-sense idea that, whether you get paid in cash or company cars or options, the expense should be recorded. Yet today's Senate Finance Committee hearing on the issue is likely to be filled with dissenting voices. There could hardly be a better gauge of money's power in politics. The Washington Post said: There could hardly be a better gauge of money's power in politics. Why does this matter? Because the current rules--which allow companies to grant executives and other employees millions of dollars in stock options without recording a dime of expenses--make a mockery of corporate accounts. Companies that grant stock options lavishly can be reporting large profits when the truth is they are taking a large loss. In 2000, for example, Yahoo reported a profit of $71 million, but the real number after adjusting for the cost of employee stock options was a loss of $1.3 billion. Cisco reported $4.6 billion in profit; the real number was a $2.7 billion loss. Mr. President, those numbers are staggering. Let me repeat: Yahoo reported a profit of $71 million, but the real number after adjusting for the cost of employee stock options was a loss of $1.3 billion. Cisco reported $4.6 billion in profits; the real number was a $2.7 billion loss. By reporting make- believe profits, companies may have conned investors into bidding up their stock prices. This is one cause of the Internet bubble, whose bursting helped precipitate last year's economic slowdown. It is not surprising, therefore, that the expert consensus favors treating options as a corporate expense, which would mean that reported earnings might actually reflect reality. But the dissenters are intimidated by neither experts nor logic. They claim that the value of options is uncertain, so they have no idea what number to put into the accounts. But the price of an option can actually be calculated quite precisely, and managers have no difficulty doing the math for purposes of tax reporting. The dissenters also claim options are crucial to the health of young companies. But nobody wants to ban this form of compensation; the goal is merely to have it counted as an expense. Finally, dissenters say that options need not be so counted because granting them involves no cash outlay. But giving employees something that has cash value amounts to giving them cash. The dissenters include weighty figures in both parties. Sen. Joe Lieberman (D-Connecticut) is the chief opponent of options sanity in the Senate, and last week President Bush himself declared that Mr. Greenspan is wrong on this issue. What might be behind this? Many of the corporate executives who give generously to politicians are themselves the beneficiaries of options--often to the tune of millions of dollars. High-tech companies, an important source of campaign cash, are fighting options reform with all they've got. But if these lobbyists are allowed to win the argument, they will undermine a key principle of the financial system. Accounting rules are meant to ensure investors get good information. Without good information, they cannot know which companies will best use capital, and the whole economy suffers in the long run. Mr. President, again, transparency and trust. Transparency and trust. Without transparency, we are not going to have trust. A Washington Post, April 21, 2002, editorial; byline David S. Broder. Mr. Broder writes: Thanks to the Enron scandal, the public is getting to know about a scheme that corporate executives have used for years, but that most of us were not smart enough to understand. I include myself in that group that Mr. Broder describes. You can call it the have-your-cake-and-eat-it-too ploy. It involves stock options, the rights to buy company stock some time in the future at the (presumably bargain) price at which it is selling currently. Stock options awarded to senior management by their (usually hand-picked) boards of directors mushroomed from $50 billion in 1997 to $162 billion just three years later. As Business Week pointed out in its April 15 issue, boards have been ``lavishing options on executives'' so profligately ``that they now account for a staggering 15 percent of all shares outstanding.'' This is obviously a good deal for the executives. One of them, Oracle Corporation's Lawrence Ellison, exercised options worth $706 million in one week. A nice mouthful of cake, by any standard. But here's how his company--and all others like it--can have its cake, too. The value of the stock options granted Ellison is a cost to Oracle for tax purposes, but it doesn't come off the bottom line when Oracle is reporting its earnings for the year. This would seem to defy common sense--and it does. Almost a decade ago, as the options craze was getting under way, the Federal Accounting Standards Board--the watchdog group--said that when options are granted, they should be treated as an expense in company reports as well as in tax returns. The corporate CEOs and the accounting firms they hire went nuts, and the next thing you knew, the Senate in 1994 was passing a resolution . . . telling the watchdog: forget it.

Mr. McCAIN. Mr. President, I thank my friend from Nevada for his candor. I think it is pretty obvious. Everybody ought to understand what is happening as we go through these arcane procedures. The whole purpose of this--the whole purpose of what we just went through--is to not have a vote on anything that has to do with stock options. Let's be very clear what that is all about. Whatever side you are on on the issue, the fix is in, as we say all too often in the sport of boxing. The fix is in and we will now have cloture invoked and there will not be a vote on stock options. While my friend from Nevada is still here, I can tell him, I understand the rules of the Senate. I have been through other difficult issues on which I have been blocked from getting votes. I tell my friend from Nevada, and all of my colleagues, we will have a vote on stock options. We will have--sooner or later--a vote on stock options. And I only regret that we cannot do it now, get it over with, and get everybody on record. I also would make one additional comment. I hope I do not harm the feelings of any of my colleagues. This is an important issue. This is a very important issue, no matter where you stand on the issue of stock options and how they should be accounted. It is a very important issue. Why is it that this body would not take up the issue and have an up- or-down vote on how stock options are treated? I would ask the manager of the bill, why would we not at least allow a vote up or down? I will read editorials. In fact, it may be sometime before I give up the floor because I have a lot to say about this issue. I will read from Mr. Greenspan's speech, a fairly widely respected individual, who says--well, I will read his speech in just a minute. He is in favor of treating stock options as an expense. So is Mr. Stiglitz and Mr. Buffett, and so many others, who are aware of this issue and its impact and the way it has been terribly abused by the same people we are trying to go after, the same people we are after.

Mr. McCAIN. Mr. President, before the Senator from Nevada leaves the floor, I wonder if he would respond to a question. Do we intend to vote on these pending amendments and the motion to recommit?

Mr. McCAIN. Thank you.

Mr. McCAIN. I object. I would like to hear what the amendment says.

Mr. McCAIN. Will the Senator yield? That is a better description than the movie was.

Mr. McCAIN. Mr. President, I yield the floor.

Mr. McCAIN. Mr. President, I move to recommit the bill to the Committee on Banking, Housing, and Urban Affairs with instructions to report the bill back forthwith, with the following amendment that I send to the desk.

Mr. McCAIN

Mr. McCAIN. Mr. President, for the benefit of the managers, I do not intend to consume all 15 minutes. I rise in strong support of the underlying Leahy amendment, and I hope we can dispose of that amendment within a reasonable length of time and move on to other changes that need to be made to this very important legislation. Our publicly owned companies are an essential component to the economic health of our country. As we have seen over the past few months, the continued lapses of our corporate leaders, whether they are ethical, criminal or just plain ignorant, have a significant, sometimes crippling, effect on the welfare of our nation. We must make some fundamental changes in the current system of corporate oversight to protect Americans from avarice, greed, ignorance and criminal behavior. Now is the time for Congress to restore investor confidence and take the necessary action to protect the interests of the public shareholders and place those interests above the personal interests of those entrusted with managing and advising those companies. The deterioration of the checks and balances that safeguard the public against corporate abuses must be reversed. We have to address the shortcomings in Federal law and send the message that prosecutors now have the tools to incarcerate persons who defraud investors or alter or destroy evidence in certain Federal investigations. This amendment is a step in the right direction. It creates two new criminal states that would clarify current criminal laws relating to the destruction or fabrication of evidence and the preservation of financial and audit records. The Enron debacle clearly indicated that there were gaping holes in the current framework. There will be a 10 year criminal penalty for the destruction or creation of evidence with the intent to obstruct a federal investigation. There will be a new 5 year criminal penalty for the willful failure to preserve, for a minimum of five years, audit papers of companies that issue securities. The amendment also provides for the review and enhancement of criminal penalties in cases involving obstruction of justice and serious fraud cases. All of these actions are necessary to deter future criminal action. Until somebody responsible goes to jail for a significant amount of time, I am not sure that these people are going to get the message. Defrauding the shareholder has to carry a meaningful penalty. Corporate decision-makers can make millions, tens of millions, even hundreds of millions of dollars by cheating investors. A relatively small fine or short prison term is not a deterrent; it's a slap on the wrist. The threat of real time in jail is a deterrent that will make people pay attention. This amendment also creates a new securities fraud offense. The provision makes it easier, in a limited class of cases, to prove securities fraud. Currently prosecutors are forced to resort to a patchwork of technical offenses and regulations that criminalize particular violations of securities law, or to treat the cases as generic mail or wire fraud that results in a five-year maximum penalty. This new provision would criminalize any scheme or artifice to defraud persons in connection with securities of publicly traded companies or to obtain their money or property. This new ten-year felony is comparable to existing bank and health care fraud statutes. To those who would say that it's hard to define a scheme or artifice to defraud, I would say that full and honest disclosure of material dealings and accounting treatments is the best way for the officers who run America's corporations to protect themselves and those who invest in their companies. There are plenty of felony laws on the books that provide long prison terms for crimes that cause less damage than the losses to shareholders in Enron or WorldCom. It is important to emphasize that when criminal charges are pursued, it is not necessarily the firm that should be charged but the individuals at the helm of the corporate ship who should be prosecuted. If they are the ones making the decisions out of self-interest, they are the ones that should be held accountable. I also believe that we must protect the ``corporate whistleblower'' from being punished for having the moral courage to break the corporate code of silence. This amendment does that. This amendment also extends the current statute of limitations for matters concerning securities fraud, deceit or manipulation. The current statute of limitations for securities fraud cases is short given the complexity of many of these matters, and defrauded investors may be wrongly stopped short in their attempts to recoup their losses under current law. The existing statute of limitations for most securities fraud cases is one year after he fraud was discovered but no more than three years from the date of the fraud regardless of when it was discovered. Because this statute of limitations is so short, the worst offenders may avoid accountability and be rewarded if they can successfully cover up their misconduct for merely three years. The more complex the case, the easier it will be for these wrongdoers to get away with fraud. According to at least one state Attorney General, the current short statute of limitations has forced some states to forgo claims against Enron based on alleged securities fraud in 1997 and 1998. This situation essentially encourages offenders to attempt to cover up their misdeeds however they can, including by using questionable accounting procedures and financial shell games. Furthermore, in some cases, the facts of a case simply do not come to light until years after the fraud. If a person does not and cannot know they have been defrauded, it is unfair to bar them from the courthouse. We need to recognize the sophistication and complexity of modern-day schemes designed to defraud investors. The Leahy amendment does this. Finally, this provision amends the federal bankruptcy code to prevent the corporate wrongdoer, the CEO or CFO, from sheltering their assets under the umbrella of bankruptcy and protecting them from judgments and settlements arising from federal and state securities law violations. Too many of these highly paid corporate officers are using bankruptcy laws to protect their assets while maintaining their high-rise penthouses and ski chalets. It is time to force accountability and punish the person, not the institution, who is not willing to abide by the moral and legal codes that accompany leadership and public trust. I hope we will have an early and overwhelming vote in favor of the Leahy amendment. I yield the floor.

Mr. McCAIN

Mr. McCAIN. Mr. President, will the Senator yield for a unanimous consent to be placed in the queue to speak?

Mr. McCAIN. I ask unanimous consent that at the appropriate time, which I believe is following Senator McConnell, I be allowed 15 minutes to speak in support of the Leahy amendment.

Mr. McCAIN

Mr. McCAIN. Mr. President, I rise in support of the amendment by my friend, Senator Cleland of Georgia. The reality is there are some 80,000 reservists who are now being extended on active duty--some of those reservists voluntarily, some involuntarily--because of the dramatically increased commitments of manpower as a result of the war on terror precipitated by the events on September 11. Some of our most valued members of the military are our reservists. They have filled incredibly important and vital missions in defense of this country not only since September 11 but in every previous conflict in which we have been engaged in the last century. Right now, many of these men and women who are being involuntarily extended believe they have performed the function of a reservist, and that is to be called up in time of an emergency. Their lives have been disrupted; they are having to tell their families they do not know when they will be able to return to their homes, their families, and their jobs. Remember, these reservists, the overwhelming majority of them, have jobs and homes in their communities in which they live. Many of them are very far away from home on ships at sea and overseas in many places. The reality is, as patriotic as these men and women are, they are not going to remain in the reserves if they are forced to remain involuntarily for an extended period of time. The Pentagon has been very reluctant to increase the end strength of the military, which means that men and women who would be in active- duty forces would then take up these duties presently being performed by reservists. The reason is pretty obvious. What it does is it increases costs rather dramatically. When you look at the personnel costs associated with enlarging the size of the military, they have a very significant budgetary impact. The Cleland amendment tries to increase end strength because we know we are in a protracted war, we are in a war that will not end soon, and it will require an increased number of personnel in the military. Senator Cleland's amendment is rather simple. It increases the allowed end strength--in other words, to the layperson, this is the allowed number of men and women in the military. It gives significant flexibility to the Secretary of Defense and the administration. But we need to send a signal to all of the military that we are willing to increase the size and strength of the military to whatever degree is necessary to successfully prosecute the war on terror. Part of that, obviously, reservists being extended involuntarily, is that we do not have enough men and women in the military. We are willing to provide the weapons systems, the increased procurement--some of it far less necessary than the increased number of personnel in the active- duty armed services. Senator Cleland, who keeps in very close touch with the men and women in the military, including those very large numbers who are based in the State of Georgia, and I have come to the conclusion that we need very badly to increase end strength, maintain the viability of the reserves, but also to successfully prosecute the war on terror. I thank Senator Cleland for his amendment. It is a worthy amendment. It provides a great deal of flexibility to the Defense Department. We need to send a signal, especially to the reservists who are being extended involuntarily for an indefinite period of time, that we intend to increase the size of our military so they will not have to. Here is a reality: They are not going to keep these men and women in the reserves if they believe they are going to be involuntarily extended. Senator Cleland has information about how many times reservists have been called up, particularly in recent conflicts, including that in the Persian Gulf. At least those conflicts were of relatively short duration. But these men and women who held jobs in their own communities and were members of the Reserves did serve their country at considerable sacrifice. I thank Senator Cleland for his amendment. I strongly support it, and I hope my colleagues will support it as well. I yield the floor.

Mr. McCAIN. About $379 billion, which, in the view of most objective observers, would probably not have the priority of the men and women in the military. I know of no higher priority. That is the reason why the Senator from Georgia and I made a tough decision here, saying: Look, we will leave it up to the conference to find the money. I could give the Senator a list of projects that are authorized in this bill, which I think, according to most objective observers, many of which could be described as porkbarrel projects, which have a far lower priority than that of the men and women in the military. We are facing an urgent problem. We are facing a serious problem. We think it deserves the attention of the Senate and, following passage, of the conference. It is not unusual to put in a provision on the floor that is not funded. That is why we do have conferences. Certain tradeoffs are made. There will be tradeoffs made between the conferees from the Senate and the House. I understand the difficulty that is entailed, but I also understand better the difficulty that right now the men and women in the military are having in carrying out their functions, their duties, and their missions. I hope the Senator will understand that we believe this issue is transcendent to a $500 million out of a $379 billion piece of legislation. I thank my friend from Virginia. I understand it places a very tough burden on both the Senator from Virginia and the Senator from Michigan, who will be in charge of carrying this bill through the conference. I thank my colleague.

Mr. McCAIN. I wish to respond to the Senator from Virginia. We have other items in this bill--which is authorizing how many billions of dollars?

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

Mr. McCAIN

Mr. McCAIN. They won't volunteer.

Mr. McCAIN. They are an active duty unit now when they move.

Mr. McCAIN. Sure.

Mr. McCAIN. Mr. President, the Pentagon says: The Pacific Northwest will continue to have a ``very robust rescue capability.'' There are 109 rescue-capable helicopters in the Pacific Northwest and units on alert in Salem and Astoria. Assets include CH-47s on alert for high- altitude rescue, recovered mishap HH-60. Long-range, over-water missions are covered by the California Air National Guard. In summary: The Pacific Northwest will continue to have a very robust search and rescue force even after the assets from the 939th wing are moved to active duty units. I have to tell the Senator from Oregon, the 939th is moving to active duty units in Arizona. It will not be practicing on civilians. There are two major bases in Arizona: Luke Air Force Base and Davis Monthan Air Force Base. They will be there ready to conduct search and rescue missions in case those many training flights that take place from both those bases suffer a mishap. That is what they will be doing. They will also be patrolling our border from time to time because, as Jon said, people have died crossing the desert. But their primary mission will be to support the flight operations out of two major Air Force bases.

Mr. McCAIN. I yield the floor, Mr. President.

Mr. McCAIN

Mr. McCAIN. Mr. President, I urge my colleagues to pass S. 803, the E-Government Act of 2002. I believe that this bill will play an important role in making the Federal Government more responsive to our citizens. The Internet would seem to be an ideal way for our constituents, especially those farthest from Washington, to get information and contact the government. However, many of our constituents complain that it is hard to access information from the government because the various agencies are not all prepared to deal with the advancements of the ``digital age.'' Meanwhile, some agencies are using the Internet in groundbreaking ways to improve their processes. In addition, the public has found that ``e-government'' programs have made interactions with the Federal Government more friendly and time-efficient. Today, it is easier for American citizens to find out about a government program, look up a regulation, apply for a grant, or download educational materials by using the Internet than by contacting a distant Federal agency. This legislation has a number of provisions to promote innovative thinking in the field of ``e-government,'' while also assisting Federal departments and agencies in crossing into the 21st Century. The legislation establishes an Office of Electronic Government, headed by a Senate-confirmed administrator, within the Office of Management and Budget. This new administrator will sponsor a dialogue between government agencies, the public, and private and non-profit entities to spur creative new ideas for ``e-government.'' In addition the administrator will direct ``e-government'' initiatives, and oversee an interagency ``e-government'' fund to invest in cross-cutting projects with government-wide application. The bill also promotes the use of the Internet and other technologies to provide more information and better services to Americans through Internet strategies, such as the Federal ``FirstGov'' portal. Finally, the bill includes a number of provisions that should make it easier for the public to access information about Federal scientific research, the Federal courts, and other areas of interest. I would like especially to commend my friends, Senators Lieberman and Thompson, the chairman and ranking member of the Government Affairs Committee, for their hard work on this legislation. This legislation addresses a complex issue that effects many agencies throughout government and its development required persistence and careful thought. The result of their efforts will improve Federal Government operations, and make the Government more responsive to the citizens we represent.