|News from June 26-30,
Bush Addresses Financial Reporting
6/29. President Bush also addressed financial reporting in his weekly radio
address on Saturday, June 29. He stated that "Despite recent abuses of
the public's trust, our economy remains fundamentally sound and strong, and the
vast majority of businesspeople are living by the rules. Yet, confidence is the
cornerstone of our economic system, so a few bad actors can tarnish our entire
free enterprise system. We must have rules and laws that restore faith in the
integrity of American business. The government will fully investigate reports of
corporate fraud, and hold the guilty parties accountable for misleading
shareholders and employees. Executives who commit fraud will face financial
penalties, and, when they are guilty of criminal wrongdoing, they will face jail
Bush also said that "the SEC ordered the CEOs and CFOs of the 1,000 largest
public companies to certify that the financial information they submitted in the
last year was fair and accurate."
NIST Study Estimates Costs of Software Bugs
6/28. The National Institute of Standards and
Technology (NIST) released a report [309
pages in PDF] titled "The Economic Impacts of Inadequate Infrastructure for
Software Testing". See also, NIST release.
The report states that "The objective of this study is to investigate the
economic impact of an inadequate infrastructure for software testing in the
U.S." It concludes that "Based on the software developer and user
surveys, the national annual costs of an inadequate infrastructure for software
testing is estimated to range from $22.2 to $59.5 billion. Over half of these
costs are borne by software users in the form of error avoidance and mitigation
The report also concludes that $22.2 Billion of these costs could be eliminated
by an improved testing infrastructure that enables earlier and more effective
identification and removal of software defects.
9th Circuit Affirms in Broderbund TLC Securities Litigation
6/28. The U.S.
Court of Appeals (9thCir) issued its opinion
[PDF] in In
Re Broderbund / Learning Company Securities Litigation, a
class action securities case involving the issue of damages. The District Court
concluded that plaintiff suffered no damages, and dismissed. The Appeals Court
Background. Plaintiff was a shareholder of Broderbund Software. Broderbund was
acquired by The Learning Company (TLC) in 1998. He acquired stock in TLC at
$17.6875 per share. TLC filed registration statements with the SEC that
plaintiff alleges contained misstatements. TLC was acquired by Mattel in 1999. Plaintiff received $33.45
worth of Mattel stock for each share of TLC stock. Mattel stock subsequently
fell to under $14 per share.
District Court. Plaintiff filed a complaint in U.S. District Court (CDCal) against TLC
and Mattel alleging violation of federal securities laws in connection with
alleged misstatements by TLC. The District Court dismissed on the grounds that
plaintiff had not suffered damages within the meaning of §§ 11 and 12 of the
Securities Act of 1933, 15 U.S.C. §§ 77k and 77l. Plaintiff appealed.
Appeals Court. The Appeals Court affirmed. It reasoned that he acquired
TLC stock at $17.69 per share, and disposed of his TLC stock in a merger at
$33.45 per share. The Court concluded that the plaintiff "sues Mattel and
TLC's officers and directors because of alleged improprieties at and before the
date of his acquisition of the TLC stock. By use of rather vermiculate logic, he
now attempts to change his $15.7625 per share gain into a loss. The
perspicacious district judge was not persuaded that gain is loss. Nor are
Court Issues Order in SEC v. WorldCom
6/28. The U.S. District
Court (SDNY) entered an order in SEC v. WorldCom ordering WorldCom to preserve records relating to its
financial reporting obligations, prohibiting WorldCom from making any
extraordinary payments to any present or former director, officer, or financial
reporting personnel, and providing for the appointment by the Court of a
monitor. See, SEC
release. The Securities and Exchange
Commission (SEC) filed its original complaint on
Bush Addresses Financial Reporting
6/28. President Bush gave a speech
at a campaign event for Rep. Connie
Morella (R-MD) in Washington DC at which he also addressed corporate
governance and financial reporting. He stated that "We can have all kinds
of rules, and we will. I laid out some initiatives in March of this year that
will hold people accountable. And our Justice Department will hold people
accountable. But corporate America has got to understand there's a higher
calling than trying to fudge the numbers, trying to slip a billion here or a
billion there and may hope nobody notices -- that you have a responsibility in
this country to always be aboveboard."
SEC Orders CEOs & CFOs to Certify Accuracy of Reports
6/28. The Securities and Exchange Commission
(SEC) published a list
of 945 companies whose chief executive and chief financial officers are now
required to personally certify -- in writing, under oath, and for publication --
that their most recent reports filed with SEC are complete and accurate. See, SEC release.
The list of technology related companies on the list includes 3Com, Adobe, AMD,
Agilent, AllTel, Amazon, AOL, AT&T, Atmel, BellSouth, Cadence Design
Systems, CDW Computer Centers, CenturyTel, Charles Schwab, Charter
Communications, Ciena, Circuit City, Cisco, Comcast, Comdisco, Computer
Associates International, Computer Sciences Corp., Compuware, Comverse
Technology, Corning, Convergys, Cox Communications, Dell, DST Systems, E*Trade,
Earthlink, Eastman Kodak, Echostar, EDS, Electronic Arts, First Data, Gemstar-TV
Guide International, Gateway, General Cable, Ingram Micro, Intel, Integrated
Electrical Services, IBM, Intuit, JDS Uniphase, L-3 Communications, Level 3
Communications, Lockheed Martin, LSI Logic, Lucent, MasTec, Maxim Integrated
Products, Micron, Microsoft, Motorola, National Rural Utilities Cooperative
Finance Corporation, National Semiconductor, NCR, Nextel, Northrop Grumman,
Novellus, Nvidia, Office Depot, OfficeMax, On Semiconductor, Oracle, PeopleSoft,
PEPCO, Perot Systems, Qualcomm, Quantum, Qwest, Radio Shack, Raytheon, Sabre
Holdings, SBC, Siebel Systems, Silicon Graphics, Sprint, Staples, Storage
Technology, Sun Microsystems, SunGard Data Systems, Tech Data Corporation,
Tektronix, Telephone & Data Systems, Tellabs, Texas Instruments, TRW,
Unisys, Veritas Software, Verizon, Viacom, Viasystems Group, Vishay
Intertechnology, Visteon, Volt Information Sciences, Wallace Computer Services,
Walt Disney, Western Digital, WorldCom, Xerox, Xilinx, and XO Communications.
Xerox Restates Revenues
6/28. Xerox stated that "it expects to
file today the company's 2001 10-K, which includes a restatement for the years
1997 through 2000 as well as adjustments to previously announced 2001
results." It further stated that "Approximately $1.9 billion of
revenue that was recognized over past years has been reversed". See, Xerox
Rep. Thomas Plans to Introduce FSC Bill
6/28. Rep. Bill Thomas (R-CA),
the Chairman of the House Ways and
Means Committee, released a summary of
the American Competitiveness Act of 2002, a bill to be introduced after the July
4 recess. It would address the foreign sales corporation, and successor, tax
regime, which the World Trade Organization (WTO)
has ruled to constitute an illegal trade subsidy.
Rep. Thomas issued a release which states that the "current
Extraterritorial Income (ETI) regime was designed to level the playing field
between U.S. companies and their foreign competitors. Both ETI and its
predecessor, the Foreign Sales Corporation (FSC), have been repeatedly ruled to
be ``export subsidies´´ that violate our treaty obligations."
The release continues that "If we repeal ETI, U.S. businesses will be
placed at an even greater competitive disadvantage relative to their foreign
competitors. If we don't repeal ETI, U.S. companies may be hit with
billions of dollars of retaliatory trade sanctions. An arbitration panel will
set the level of authorized trade sanctions in July."
EU representatives have stated that retaliatory sanctions would target U.S.
Rep. Thomas' release states that the American Competitiveness Act would amend
the Internal Revenue Code by "Simplifying the complex foreign tax credit
rules designed to prevent double taxation, Increasing expensing for small
businesses, Reforming complex interest allocation rules, and Removing punitive
rules which reduce companies ability to defer taxes on active income earned
The bill would also seek to limit corporate inversions, the relocation of
companies' nation of incorporation from the U.S. to countries with more
favorable tax laws.
Pascal Lamy Holds Online Chat Regarding Trade
6/28. EU Commissioner for Trade Pascal Lamy held an
online chat regarding trade issues. See, rough transcript [41
pages in PDF].
He was asked "Is the Doha Round dead, after the EU-US steel conflict, the
New Farm Bill and the TPA with poison pill?" Lamy stated that "steel,
the farm bill are clearly irritants, but they will not in themselves prevent the
round to go ahead; TPA is a bigger problem, but we are confident that the TPA
will in the end come out without poison pills".
He also stated that "The new American administration under G. W. Bush has
advertised a 'more active' trade policy for the US both in multilateral arenas
and in bilateral negociations (FTAA or other free trade agreement). Fine with
that. But, at this stage, we have seen more protection than openess. Optimists
here say that this is the price to pay for the administration to get negociating
authority from the Congress."
He was also asked "What steps is the EU taking to secure a liberalisation
of trade in legal services"? He responded that "the EU will
participate actively in the on-going services negotiations in the WTO with a
view to secure inter alia improved market access for lawyers in foreign markets,
provided they have proper qualifications."
He was asked again, "How can the EU expect other countries to
liberalise their trade restrictions when its own Member States won't even comply
with Community Directives aimed at achieving the same purpose (e.g. Lawyers'
Establishment Directive)?" To this, he responded, "as far as far
Community internal measures are concerned, the Commission has the power to
pursue Member States to the Cour of Justice and does so when necessary. We do
not hesitate to remind Member States of their duties and we have no difficulties
in asking third countries to take commitments in areas covered by an EC
directive, if we deem it in the EU interest."
He was also asked if he meets with the U.S. Congress. He stated that "Each
time I am in Washington (approx. 4 times a year) I spend half of my time on the
hill and the other half with the administration, various constituencies and
communication. I have regular contacts down there or on the phone with a number
of trade stars: chairman of ways and means in the house, of finance in the
Senate. Our delegation in Washington and our people here interact permanently
GAO Reports on Telecommunications at DOD
6/28. The General Accounting Office (GAO)
released a report [101
pages in PDF] titled "Information Technology: DOD Needs to Improve Process
for Ensuring Interoperability of Telecommunications Switches".
The report concluded that the Department of Defense (DOD) "does not have a
well defined process, including clear requirements, for certifying and
authorizing telecommunications (telecom) switches. DOD's process is not fully
documented, current, or complete. Additionally, the process lacks an effective
enforcement mechanism. As a result, DOD is increasing the risk that its
certification and authorization process will be applied inconsistently and that
the department's telecommunications will experience future interoperability
problems. DOD attributed these weaknesses to the fact that the process is
relatively new and still evolving."
FTC Updates Report on the Marketing of Violent Electronic
Games to Children
6/28. The Federal Trade Commission (FTC)
released another followup report [62 pages
in PDF] to its September 2000 report titled "Marketing Violent
Entertainment to Children: A Review of Self-Regulation and Industry Practices in
the Motion Picture, Music Recording and Electronic Game Industries". See
also, FTC release.
With respect to electronic games, this latest report finds "widespread
compliance with industry standards limiting ads for M-rated games where children
under 17 constitute a certain percentage of the audience -- 35 percent for
television and 45 percent for print. At the same time, the Commission found
several examples of advertisements on popular teen television programs, and
continued placement of advertising in youth-oriented game enthusiast magazines.
As the Commission noted in its December 2001 Report, the industry’s
anti-targeting standards diminish -- but do not eliminate -- placements in media
with large teen audiences."
The report continues that "The electronic game industry continues to
provide rating information prominently in most forms of advertising, which
likely reflects its enforcement program. Although some areas still could be
improved (e.g., including content descriptors in television advertising), there
is much in the game industry’s rating disclosure requirements that merits
duplication by others."
FTC Commissioner Orson Swindle issued a concurring statement.
He wrote that "the First Amendment appropriately limits what the government
can do. Despite our scrutiny, the music industry continues to target young
people explicitly in its advertising and, for the most part, refuses to provide
content-based information that could help consumers. The motion picture and
electronic game industries have acted far more responsibly in improving their
self-regulatory programs, yet continue to allow advertising of R-rated movies
and M-rated games in venues that attract large numbers of teens."
Rep. Billy Tauzin (R-LA) stated in a
release that "The movie and video game industries should be commended for
their continued commitment to responsible marketing of violent material. Since
the inception of the FTC's reports, these industries have made vast improvements
to their marketing practices. However, I continue to be deeply disappointed by
the recording industry's lack of response to the shortcomings noted in these FTC
reports." Rep. Tauzin is Chairman of the House Commerce Committee, which
oversees the FTC.
Supreme Court Recesses Until October
6/28. The Supreme Court completed the work of its current term with the release
of opinions and its order list on Friday, June 28. It will be in recess until
Monday, October 7, 2002.
People and Appointments
6/28. The White House press office announced the list of appointments for White
House Fellows for 2002-03. The list includes Cesar Conde, of Coral
Gables, Florida. The White House release
states that he "Led the strategic development of the first full service
Internet portal geared exclusively towards the U.S. Hispanic market."
6/28. Kevin English, Ch/CEO/P of Covisint
announced his resignation. Harold Kutner will replace him as Ch/CEO. Bruce
Swift will become P/COO. Covisint is an automotive industry B2B. See, Covisint
6/28. Brad Sonnenberg was named SVP and General Counsel of Covad. He had been Deputy General Counsel. He
replaces Dhruv Khanna. See, Covad
6/28. The Federal Communications Commission
(FCC) announced that it signed an Interim Arrangement with Industry Canada
pertaining to spectrum sharing for the development of Multipoint Distribution
Systems near the U.S. Canada border. The arrangement covers operations in the
2150-2162 MHz and 2500-2690 MHz bands. See, FCC
6/28. The Department of Justice's (DOJ) Antitrust
Division filed its appeal
brief with the U.S. Court of Appeals
(2ndCir) in USA
v. Visa, an antitrust case involving the governance practices of
Visa and MasterCard.
6/28. Tren Griffin, Pierre De Vries, and Marc Berejka of Microsoft, along with
Microsoft attorney Scott
Harris, met with Federal Communications
Commission (FCC) Commissioner Michael Copps, Paul Margie
(Legal Advisor to Copps), and Matt Brill (Legal Advisor to Commissioner Kathleen Abernathy)
regarding the future of broadband wireless technology and networking. Microsoft
noted in a disclosure
letter [PDF] that Microsoft suggested the "the growth of the Internet
has been characterized by the ability of consumers to reach an unprecedented
array of content, services, and applications through an ever increasing
diversity of consumer owned devices. Microsoft suggested that the Commission
should remain mindful of the importance of assuring that consumers continue to
enjoy that ability in the broadband future."
6/28. The Supreme Court issued an order in the NextWave
case. It states that "The motion of the Acting Solicitor
General for divided argument is granted. The motion of Creditors of NextWave
Personal Communications, Inc., for leave to participate in oral argument as
amici curiae and for divided argument is granted." See, Order
List [PDF] at page 4.
6/28. The U.S.
Court of Appeals (DCCir) issued its opinion
de Oro Television v. FCC, a petition for review of two Federal Communications Commission (FCC) orders
pertaining to local television market designations pursuant to the cable
television mandatory carriage rules. The Appeals Court denied the petition.
Senate Passes E-Government Act
6/27. The Senate passed S 803, the
E-Government Act of 2002, sponsored by Sen.
Joe Lieberman (D-CT). The bill seeks to promote electronic Government
services and processes. It would establish an Office of Electronic Government
within the Office of Management and Budget. This version of the bill does not
include earlier language creating the position of Chief Information Officer.
Congressional Committees to Hold Hearings on WorldCom
6/27. House Financial Services
Committee Chairman Michael Oxley
(R-OH) stated in a release
that "Problems with accounting in telecommunications are, unfortunately,
damaging a key growth sector of the economy that is already facing other, steep
challenges." Rep. Oxley scheduled a hearing before his Committee for
Monday, July 8. He also issued subpoenas [PDF]
to John Sidgmore, Scott Sullivan, Bernard Ebbers, and Jack Grubman. See, HFSC
Rep. Billy Tauzin (R-LA), the
Chairman of the House Commerce
Committee, wrote a letter to John Sidgmore, CEO of WorldCom, stating that
his Committee "has undertaken a comprehensive review of allegations of
accounting improprieties within certain telecommunication companies." He
requested that WorldCom provide his Committee certain enumerated records by July
His letter includes requests for the recent internal audit the precipitated
WorldCom's June 25 disclosure, records relating to communications with the SEC,
minutes of the meeting of the Audit Committee and Board of Directors, and
records pertaining to accounting policies for treatment of operating costs /
expenses and capital investment / expenses.
The letter is also signed by Rep.
James Greenwood (R-PA), Chairman Subcommittee on Oversight and
Microsoft Signs MOU with Chinese Government
6/27. Microsoft announced that it signed
a Memorandum of Understanding (MOU) with the State Development & Planning
Commission (SDPC) of the People's Republic of China. Microsoft stated in a
vaguely worded release
that the MOU pertains to "software industry cooperation".
Microsoft stated that it "will invest RMB 6.2 billion (USD 750 million) in
China in the next three years in the areas of education and training, academic
and research cooperation, hardware manufacturing outsourcing, continued support
in software outsourcing and strategic investments and cooperative developments
in local software companies."
Microsoft also said that the "SDPC will recommend the companies Microsoft
shall work with. In addition to that, SDPC will also select entity to cooperate
with MS on key national informatization projects."
Sen. Feingold Introduces Radio Ownership Regulation Bill
6/27. Sen. Russ Feingold (D-WI)
introduced the Competition in
Radio and Concert Industries Act [22 pages in PDF]. See also, Feingold's
summary of the bill.
The bill is a response to the phasing out of the Federal
Communications Commission's (FCC) ownership rules affecting the broadcast
radio industry. The bill states in its findings that "This deregulation of
ownership rules has materially altered the radio broadcast industry and resulted
in a concentration of ownership of radio stations and a corresponding reduction
The also recites that "Segments of the radio, concert, and concert
promotion industries have also become vertically integrated. In some cases,
radio station owners, and concert promoters have common ownership, as well as
exclusive agreements to manage concert venues. As a result, these radio station
owners have the incentive and ability to favor the musical artists and groups
The bill would amend 47
U.S.C. § 312(a), which currently lists seven reasons that FCC may revoke a
broadcaster's radio license. The bill would add an eighth basis: "for
willful and repeated engagement in unfair methods of competition, unfair or
deceptive acts or practices, or tying the use of entities owned by the licensee
or permittee for the purpose of hindering significantly, or preventing, the
broadcast of programming or content, including any sound recording by a musical
artist, if such programming or content is produced or promoted by a person
independent of the licensee or permittee or the creator thereof is independent
of the licensee or permittee".
The bill would also add a ninth basis: "for conviction or final
adjudication under an antitrust law or unfair trade practice law of a violation
of such law regarding concert venues or concert promotion". Moreover,
"unfair trade practice law" is defined to include, not only the FTC
Act, but also any similar state law.
The bill would also require the FCC to promulgate new regulations to implement
these provisions the bill.
The bill would also require the FCC to conduct proceedings scrutinizing any
license transaction that would result in further consolidation. Moreover, the
bill would require the FCC to promulgate rules "to prohibit the transfer or
assignment to operate, or the use of, a local marketing agreement with respect
to a commercial radio station if the transfer or assignment, or such agreement,
will permit the applicant, or the brokers of such agreement, to own, operate, or
have an attributable interest in commercial radio stations that have in
aggregate ... (1) more than 35 percent of the audience share of the local market
of such radio stations; or (2) more than 35 percent of the radio advertising
revenue in the local market of such radio stations."
The NAB opposes with bill, while the RIAA supports it. National Association of Broadcasters (NAB) CEO
Edward Fritts stated in a release
that "The 1996 Telecommunications Act has strengthened the ability of radio
to better serve listeners, and we strongly dispute claims that radio has grown
more homogenous in recent years. Separate studies show that radio format
diversity is far greater now than six years ago, and Spanish stations in the
U.S. now number more than 600, up from fewer than 400 in 1996. Moreover, through
the collective efforts of stations from Boston to Boise, local radio stations
generated $7 billion in public service last year. That alone should be reason
enough for Congress to let flourish a communications medium that is free, local
In contrast, Hillary Rosen, Ch/CEO of the Recording
Industry Association of America (RIAA), stated in a release that "We applaud
Senator Feingold for introducing this important legislation. It takes the
necessary first step toward ensuring diversity of programming on radio stations
by preventing abuse of independent promotion through unprecedented increased
radio ownership consolidation. This radio promotion system needs reforming and
this bill provides the road map to getting there."
Rep. Tauzin Writes FCC Re Ownership Rules
6/27. Rep. Billy Tauzin (R-LA) wrote
to Federal Communications Commission (FCC)
Chairman Michael Powell
in connection with the FCC's rulemaking proceeding regarding on the newspaper
broadcast cross ownership rules.
He wrote that the "explosion of media sources since 1975, when the rule was
first implemented, should eliminate lingering concerns regarding a lack of
diversity of views in the marketplace and the need for greater media competition
-- the principal justifications for the newspaper/ broadcast cross ownership
rule in the first place. Indeed, the vast majority of commenters in this
proceeding advocate repeal of this antiquated and unnecessary rule, noting in
large part the dramatic changes in the media marketplace."
Rep. Tauzin continued that "I am disappointed with the Commission's
decision to defer what should be an immediate repeal of this outdated rule.
However, I am heartened that final resolution of all of the outstanding
broadcast ownership issues -- in the form of an ``omnibus´´ proceeding -- is
on the horizon."
President's DHS Bill Creates Cyber Security FOIA Exemption
6/27. Numerous House and Senate Committees held hearings this week on the
President's proposal to create a new Department of Homeland Security (DHS).
House Majority Leader Richard Armey (R-TX)
introduced legislation in the House that contains the President's proposal. See,
the Homeland Security Act of 2002. See also, White House section by section analysis
of the bill, and Bush's message
One provision that has not received much scrutiny at these public hearings is
Section 204. It creates a Freedom of Information Act (FOIA) exemption for cyber
security information provided to the federal government. It provides that
"Information provided voluntarily by non-Federal entities or individuals
that relates to infrastructure vulnerabilities or other vulnerabilities to
terrorism and is or has been in the possession of the Department shall not be
subject to section 552
of title 5, United States Code."
Sen. Patrick Leahy (D-VT) raised the
matter at a Senate Judiciary
Committee hearing on Wednesday morning, June 26. In his opening
statement he objected to "creating an ill considered and overly broad
new exemption to the Freedom of Information Act. Encouraging government
complicity with private firms to indefinitely keep secrets about information on
critical infrastructure vulnerabilities may reduce the incentive to find
solutions and fix the problems. In the end, more secrecy may undermine rather
than foster security."
Rep. Bobby Scott (D-VA) asked Tom Ridge, Director
of the Office of Homeland Security, about this exemption at a House Judiciary Committee hearing on
Wednesday afternoon. However, he merely asked Ridge to provide a written
response to a number of questions, including one regarding this exemption.
The ACLU circulated a statement
opposing the exemption. The ACLU requests, in the alternative, that the
exemption be narrowed in several respects. For example, the ACLU argues that it
should be limited in time to only "months". The ACLU also argues that
parties submitting documents to the federal government should be required to
elect only one FOIA exemption to apply to that document, even though several
There are also several other pending bills that would provide a cyber security
FOIA exemption. For example, Sen. Robert
Bennett (R-UT) is the sponsor of S 1456,
the Critical Infrastructure Information Security Act of 2001. It would provide a
FOIA exemption for certain cyber security information provided to certain
federal agencies, including the NIPC, FCC,
Justice Department, Defense Department, and Commerce Department. The bill would
also provide an antitrust exemption for certain collaboration on cyber security
Groups Raise Privacy Implications of Driver's License Bill
6/27. A collection of groups wrote a letter to Rep. Don Young (R-AK) and Rep. James Oberstar (D-MN), the
Chairman and ranking Democrat on the House Transportation Committee, opposing HR 4633,
the Driver's License Modernization Act of 2002. The letter states that the bill
"establishes a nationwide identification system (national ID) through the
bureaucratic back door of state drivers' licenses."
The bill would require all states within five years to have a drivers license
system that includes computer chips embedded in licenses. The bill would require
these chips to store "all text data written on the license" and
"biometric data matching the holder of the license".
The bill would also require the following: "A State shall participate in a
program to link State motor vehicle databases in order to provide electronic
access by a State to information contained in the motor vehicle databases of all
other States." The bill would also require that these databases include all
of the "data fields printed on drivers' licenses and identification cards
issued by the State" and driving records.
The bill would also make the following acts a federal crime, punishable by up to
20 years in prison: "falsely makes, forges, counterfeits, mutilates, or
alters any driver's license ...", "tampers with, alters, or destroys a
computer chip embedded in a driver's license or identification card or data
contained on the computer chip", and "except by lawful authority,
accesses data contained on a computer chip embedded in a driver's license or
The letter opposing the bill further states that "An identity card is only
as good as the information that establishes identity in the first place.
Terrorists and criminals will continue to be able to obtain -- by legal and
illegal means -- the documents needed to get a government ID, such as birth
certificates and social security numbers. H.R. 4633 builds a hi-tech card system
on a faulty foundation of potentially false ``breeder´´ documents."
People and Appointments
6/27. The Senate Judiciary Committee
approved the nomination of Lavenski Smith to be a Judge on the U.S. Court of Appeals (8thCir).
6/27. Retired General Wayne Downing resigned his position as Deputy
Assistant to the President, National Director and Deputy National Security
Advisor for Combating Terrorism. He had held the position since October of 2001.
President Bush replaced him with retired General John Gordon. Gordon is
currently Under Secretary for Nuclear Security and Administrator of the National
Nuclear Security Administration (NNSA). He was previously Deputy Director of
Central Intelligence at the Central Intelligence Agency (CIA). Before that, he
was Associate Director of Central Intelligence for Military Support at the CIA.
Before that, he worked on the National Security Council. See White
Yu, Intel SVP and Strategic Programs Director, retired. See, release.
6/27. Marilyn Nelson resigned as a director of Qwest Communications. See, release.
6/27. The Office of the U.S. Trade Representative
(USTR) announced a reorganization. See, USTR release.
6/27. The House Judiciary Committee
postponed its hearing titled "Revisions to the Attorney General's
Investigative Guidelines". Attorney General John Ashcroft had been
scheduled to testify.
SEC Files Complaint Against WorldCom
6/26. The Securities and Exchange Commission
(SEC) filed a civil complaint in U.S. District Court (SDNY) against
WorldCom late on Wednesday, June 26.
The SEC also released the following statement earlier on June
26: "The WorldCom disclosures confirm that accounting improprieties of
unprecedented magnitude have been committed in the public markets. The public
can be assured that we are actively investigating these and other events
relating to the veracity of WorldCom's financial statements and disclosures. As
part of that investigation, we are ordering the company to file, under oath, a
detailed report of the circumstances and specifics of these matters. These
events further demonstrate the need for comprehensive market regulatory reforms
that the administration, the Congress, and the SEC have been advocating and
President Bush stated that "I am deeply concerned about some of the
accounting practices that take place in America. Today the revelations that
Worldcom has misaccounted $3.4 billion is outrageous. We will fully investigate
and hold people accountable for misleading not only shareholders, but employees,
as well. There is a need for a renewed corporate responsibility in America.
Those entrusted with shareholders' money must -- must -- strive for the highest
of high standards. The good news is most corporate leaders in America are good,
honest, open people who care deeply about shareholders and employees. And our
economy is strong. When we find egregious practices, such as the one revealed
today, we'll go after them. And need to." See, transcript.
Federal Communications Commission (FCC)
Chairman Michael Powell
stated in a release that "I am deeply concerned by the WorldCom
developments, and the impact it could have on consumers and other providers in
the industry. We are closely monitoring the situation and are doing everything
possible to ensure and protect both the stability of the telecommunications
network and the quality of service to consumers."
Powell continued: "To better assess the continuing troubles in the
telecommunications industry, I will travel to New York on Friday to meet with a
variety of telephone industry officials, analysts and debt rating agencies to
gain a first-hand understanding of the recent developments that continue to
challenge the telecom industry. Through this exchange, I hope to assure the
financial markets that the FCC is committed to doing whatever it can to assist
in the recovery of the sector and strengthen the public trust in this vital
segment of our economy." See, release
House Commerce Committee Chairman Billy Tauzin (R-LA) stated in a release
that "Following the latest scandal to rock Wall Street, I have ordered the
investigative staff of the House Energy and Commerce Committee to immediately
begin reviewing all of the facts surrounding WorldCom Inc.'s massive $3.8
billion restatement of earnings and losses. In many respects, this case appears
to be eerily similar to the accounting hocus pocus that occurred at Enron."
"Once again, it seems as if accounting rules were manipulated to hide debt
and inflate income, violating all accepted accounting standards and, perhaps,
violating federal law as well. This was not a simple bookkeeping mistake.
Clearly, it was an orchestrated effort to mislead investors and regulators, and
I am determined to get to the bottom of it."
"This latest accounting scandal only highlights the importance of Congress
working together to pass tough, new laws, which will prevent future abuses and
restore investor confidence in the stock markets and corporate America,"
Sen. Paul Sarbanes (D-MD), Chairman of
the Senate Banking Committee,
stated in a release that "The startling revelations about WorldCom
underscore the necessity to restore trust and confidence in our markets, where
over 60% of the American public now invests. It is imperative we move forward
with strong accounting reform and investor protection legislation. I am pleased
that Senate Majority Leader Daschle has said he plans to move the bi-partisan
Banking Committee bill immediately when we return from our July 4 recess."
Cal App Holds eBay Has Section 230 Immunity
6/26. The California
Court of Appeal (4/1) issued its opinion
[PDF] in Gentry
v. eBay, affirming the trial court's dismissal of various state
law claims against Internet auction site eBay. Auction purchasers alleged that
eBay was liable for misrepresentations and other actions of auction sellers. The
Appeals Court held that eBay has interactive computer service immunity under
Section 230 of the Telecom Act of 1996.
Background. eBay operates an auction
web site. Lars Gentry and other individuals purchased through eBay auctions
sports memorabilia with phony autographs that the sellers had represented to be
real. The sellers also provided Gentry and other purchasers with false
certificates of authenticity for the items.
Trial Court. Lars Gentry and others filed a complaint in California
Superior Court in San Diego against the individual sellers. They also named eBay
as a defendant, alleging violation of California's Autographed Sports
Memorabilia statute, Civ. Code, § 1739.7, by failing to furnish a certificate
of authenticity to persons who purchased autographed sports related
collectibles, and violation of the Unfair Competition Law, Bus. and Prof. Code,
§ 17200 et seq., by failing to supply certificates, and for the acts of others
in distributing false certificates and making false representations in the eBay
The District Court dismissed the complaint. It ruled that eBay is not a dealer
within the meaning of Section 1739, and that it has immunity under Section 230
of the Telecom Act of 1996, 47 U.S.C. § 230,
for statements made by third parties in its web site.
Statutes. § 1739.7(b) provides that "Whenever a dealer, in selling
or offering to sell to a consumer a collectible in or from this state, provides
a description of that collectible as being autographed, the dealer shall furnish
a certificate of authenticity to the consumer at the time of sale. The
certificate of authenticity shall be in writing, shall be signed by the dealer
or his or her authorized agent, and shall specify the date of sale."
§ 1739.7(a)(4) provides that " 'Dealer' means a person who is in the
business of selling or offering for sale collectibles in or from this state,
exclusively or nonexclusively, or a person who by his or her occupation holds
himself or herself out as having knowledge or skill peculiar to collectibles, or
to whom that knowledge or skill may be attributed by his or her employment of an
agent or other intermediary that by his or her occupation holds himself or
herself out as having that knowledge or skill. 'Dealer' includes an auctioneer
who sells collectibles at a public auction, and also includes persons who are
consignors or representatives or agents of auctioneers. 'Dealer' includes a
person engaged in a mail order, telephone order, or cable television business
for the sale of collectibles."
§ 230(c)(1) provides that "No provider or user of an interactive computer
service shall be treated as the publisher or speaker of any information provided
by another information content provider." § 230(d)(3) provides that
"Nothing in this section shall be construed to prevent any State from
enforcing any State law that is consistent with this section. No cause of action
may be brought and no liability may be imposed under any State or local law that
is inconsistent with this section."
Court of Appeal. The Court of Appeal affirmed. First, the Court held that
eBay is not a dealer of the sports memorabilia within the meaning of the
California Autographed Sports Memorabilia statute. It is not "in the
business of selling or offering for sale collectibles" as required by the
The Court further held the Section 230 provides eBay with immunity from suit.
The Court wrote that "Subsection (c)(1) of section 230 thus immunizes
providers of interactive computer services (service providers) and their users
from causes of action asserted by persons alleging harm caused by content
provided by a third party. This form of immunity requires (1) the defendant be a
provider or user of an interactive computer service; (2) the cause of action
treat the defendant as a publisher or speaker of information; and (3) the
information at issue be provided by another information content provider."
News Analysis: Ninth Circuit Hands Bush a Campaign Issue
6/26. The U.S. Court of Appeals
(9thCir) issued three opinions in the last two days that are noteworthy.
None are technology related. However, they could have an impact on the fight
over confirmation of many Appeals Court judges. Confirmation of President Bush's
picks would, in turn, impact a wide range of legal issues.
In Newdow v. U.S. Congress, the Court issued an opinion
[PDF] holding that it is unconstitutional for school children to recite the
Pledge of Allegiance. In Suzuki v. Consumers Union the Court
issued an opinion
[PDF] reversing a District Court dismissal of suit alleging product
disparagement by Consumer
Reports; the District Court had dismissed the case pursuant to New
York Times v. Sullivan. In Hasson v. Medical Board of California
the Court issued an order
[PDF] denying an en banc rehearing in an ADA case; what is notable is that the
9th Circuit arguably ignored a controlling Supreme Court decision.
In Newdow, the Court issued a ruling that, regardless of the
merits of its legal analysis, runs counter to the strongly held beliefs of most
voters. In Suzuki the Court disregarded a case held sacred by the
news media. And, in Hasson, the Court arguably violated two
fundamental tenets of the American judicial system -- that the Supreme Court is
the highest court, and that precedents must be followed.
These cases, but especially the Newdow case, may have political
significance because President Bush is in a long running battle with Senate
Democrats over appointments to the Appeals Courts, including the Ninth Circuit.
The President nominates, and the Senate confirms. However, as a practical
matter, the Senate Judiciary
Committee plays a gate keeping function. And, its Chairman, Sen. Pat Leahy (D-VT), has been delaying
consideration of many of the President's nominees. The Democrats hold majorities
in the Senate, and on the Committee, by a one vote margin.
Sen. Leahy is not up for re-election this November, but one third of the Senate
is. If there were a net swing of one seat in the Senate, control of the Senate,
including committee chairmanships would change. The chairmanship of the
Judiciary Committee would return to Sen.
Orrin Hatch (R-UT), who would not hold up Bush's Appeals Court nominees.
President Bush has given some political speeches in which he has mentioned the
battle over Appeals Court appointments. However, to date, Bush has lacked a
concrete issue that resonates with a large segment of voters that he can use to
generate voter interest in judicial selection.
Now he has one. And, his allies have already raised it. Sen. Trent Lott (R-MS), the Senate Minority
Leader, stated that "This absurd ruling highlights the urgency for the
Senate to act on President Bush's nominees for current judicial vacancies. I
urge Senate Democrats to stop stalling and let us vote on the men and women who
will restore common sense to the federal judiciary." See, release.
Sen. Hatch stated that "this court's outrageous decision demonstrates the
importance of nominating and confirming qualified and learned judges who
understand the role of the law and will not legislate from the bench. President
Bush has done his job and has nominated fine judges. I once again, call upon the
Senate to expedite the confirmation process, which has been stalled by the
Democrat Majority. For instance, the Democrat controlled Senate has confirmed
only 9 of 31 Circuit Court judges nominated by President Bush. This deliberate
slowdown has caused 31 vacancies on the Circuit Courts, of which the
Administrative Office of the U.S. Courts has declared 17 judicial emergencies.
Furthermore, many fine nominees have been waiting for many months for even a
hearing, let alone a vote for final confirmation." See, release.
Hence, Bush, and Senate Republican candidates can campaign on a new issue. In a
stump speech, it might sound something like this: "restore a Republican
majority in the Senate, so that Bush's common sense judges can get confirmed, so
that there won't be any more San Francisco anti Pledge of Allegiance
The issue could be useful in Senate campaigns. However, it could also put
pressure on Democrats to stop blocking Bush's judicial nominees. Some Democrats
might want to deprive Bush and the Republicans of this campaign issue. Merely
having the issue now puts pressure on Democrats to capitulate on Appeals Court
Bush's Press Secretary, Ari Fleischer, spoke on the subject at the economic
summit in Canada. He stated that "The President was informed at the G-8
Summit about the San Francisco court decision pertaining to the flag. The
President's reaction was that this ruling is ridiculous. The Supreme Court,
itself, begins each of its sessions with the phrase, ``God save the United
States and this honorable court.´´ The Declaration of Independence refers to
God or to the Creator four different times. Congress begins each session of the
Congress each day with a prayer. And of course, our currency says, ``In God We
Trust.´´ ... this decision will not sit well with the American people.
Certainly, it does not sit well with the President of the United States."
Sen. Leahy, like many Democrats, did promptly state that "I disagree with
the decision". However, his solution is not new judges, but better
decisions from the current judges. He continued that "It seems likely that
this split decision by a three judge panel will be reconsidered by the full 9th
Circuit, and I hope it will be." Of course, any decision en banc would most
likely be issued after the November elections, which would be of little
assistance to Sen. Leahy or others seeking to block Bush's nominees.
Perhaps, the Ninth Circuit disregarded Alexander Bickel's admonition regarding
judicial review. He wrote that judicial review is legitimate if it "can be
so exercised as to be acceptable in a society that generally shares Judge Hand's
satisfaction ``in a sense of common venture´´; ... and whose discharge by the
courts will not lower the quality of the other departments' performance by
denuding them of the dignity and burden of their own responsibility." The
Least Dangerous Branch, at 24.
Microsoft Meets with FCC Commissioners
6/26. Microsoft SVP and Chief Technology
Mundie, and others, met with Federal
Communications Commission (FCC) Commissioners Kathleen Abernathy and Kevin Martin, and key staff,
to discuss the FCC's proceeding regarding the classification of cable modem
service as an information service. Microsoft's attorney stated in a disclosure letter
[PDF] that Microsoft argued that the FCC "should not require cable
operators to offer access to multiple ISPs but should remain mindful of the
importance of assuring consumers continue to enjoy that ability in the broadband
SEC Files Complaint Against WorldCom
6/26. The Securities and Exchange Commission
(SEC) filed a civil complaint in
District Court (SDNY) against WorldCom
alleging violation of Section 10(b) of the Exchange Act and Rule 10b-5
thereunder, and Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13, and
12b-20 thereunder, in connection with WorldCom's disclosure that it engaged in
improper accounting practices.
The complaint states that WorldCom "disguised its true operating
performance by using undisclosed and improper accounting that materially
overstated its income before income taxes and minority interests by
approximately $3.055 billion in 2001 and $797 million during the first quarter
The complaint explains WorldCom's actions. "Starting at least in 2001,
WorldCom engaged in an improper accounting scheme intended to manipulate its
earnings to keep them in line with Wall Street's expectations, and to support
WorldCom's stock price. One of WorldCom's major operating expenses was its
so-called ``line costs.´´ In general, ``line costs´´ represent fees WorldCom
paid to third party telecommunication network providers for the right to access
the third parties' networks. Under GAAP, these fees must be expensed and may not
be capitalized. Nevertheless, beginning at least as early as the first quarter
of 2001, WorldCom's senior management improperly directed the transfer of line
costs to WorldCom's capital accounts in amounts sufficient to keep WorldCom's
earnings in line with the analysts' consensus on WorldCom's earnings. Thus, in
this manner, WorldCom materially understated its expenses, and materially
overstated its earnings, thereby defrauding investors."
The SEC seeks civil penalties, an injunction against further violations of
federal securities law, an order prohibiting WorldCom from destroying records,
appointment of a corporate monitor, and an order prohibiting WorldCom from
making severance payments, bonus payments, or indemnification payments.
SEC Chairman Addresses WorldCom
6/26. Securities and Exchange Commission (SEC)
Chairman Harvey Pitt
gave a speech in New
York City in which he addressed the WorldCom lawsuit.
He stated that "WorldCom's announced $4 billion restatement puts a sharper
point on all the concerns we have been expressing -- that our system has had
serious dysfunctional aspects for quite some time. It leads me to offer you a
simple message this evening, from the movie ``Network,´´ a message in which I
encourage you all to join: ``I'm mad as hell, and I'm not going to take it any
more.´´ What happened at WorldCom -- and we do not yet know all that happened
at WorldCom -- is an outrage. What we also know we're looking at isn't a
mistake, it's a fraud."
He also stated that the SEC plans to "require our 1000 largest companies to
file a formal certification with us on the accuracy and completeness of their
last annual reports" by August 15.
House Passes Resolution to Send TPA Bill to Conference
6/26. The House passed HRes 450 by
a vote of 216-215. See, Roll
Call No. 264. Trade promotion authority, which is also known as
"TPA" and "fast track", would permit the President to
negotiate trade agreements that the Congress could accept or reject, but not
amend. TPA would strengthen the bargaining position of the President, and the U.S. Trade Representative (USTR), in trade
negotiations with other nations. This resolution sets the structure and mandate
for the House's negotiating team as the TPA bill goes to conference.
The House passed its version of the bill, HR 3005,
the Bipartisan Trade Promotion Authority Act of 2001, on December 6, by a vote
of 215-214. The Senate passed its version last month. For a bill to be signed by
the President, the House and Senate must be reconcile their differences in a
House Passes Homeland Security Information Sharing Act
6/26. The House passed HR 4598,
the Homeland Security Information Sharing Act, by a vote of 422-2. See, Roll
Call No. 258. The bill provides for the sharing of homeland security
information by federal intelligence and law enforcement agencies with state and
local entities. Rep. Bill Delahunt
(D-MA) and Rep. Dennis Kucinich
(D-OH) voted no.
FTC Reports on Internet Gambling and Children
6/26. Federal Trade Commission (FTC) issued a
[PDF] titled "Online Gambling and Kids: A Bad Bet". It states that
"The most common types of gambling for kids are reported to be card games
and sports betting. But increasingly, parents of teens are concerned that their
kids may be gambling on the Internet, where many game operators are operating
from servers outside the U.S. -- beyond the jurisdiction of state or federal
regulations about the hours of operation, the age of the participants, or the
type of game offered."
The FTC continues that "it's easy for kids to access online gambling sites,
especially if they have access to credit or debit cards. Indeed, some of the
most popular nongambling websites carry ads for gambling sites, and many online
gameplaying sites link to gambling sites."
Rep. Bob Goodlatte (R-VA) praised
the FTC. He stated that "The spread of gambling brings with it the
onslaught of a host of social ills including bankruptcy, addiction, family break
down and even suicide. Web users including children, who make up the largest
percentage of Internet users, are constantly confronted with unsolicited banner
ads, linking to Internet gambling sites. These sites operate without all of the
necessary safeguards that are in place for the legalized gaming industry, which
ensure that children are protected from gambling."
Rep. Goodlatte is the sponsor of HR 3215,
the Combating Illegal Gambling Reform and Modernization Act, a bill directed
towards shutting down illegal off shore gambling web sites. The bill passed the House Judiciary Committee on June 18.
Cyber Security Provisions of President's DHS Bill Criticized
6/26. Legislators and technology industry representatives criticized
various cyber security related provisions of the President's proposal to create
a new Department of Homeland Security (DHS). Rep. Sherwood Boehlert (R-NY) stated
that it does not give research and development a high enough profile. Industry
representatives opposed plans to move the NIST's Computer Security Division to
House Majority Leader Richard Armey (R-TX)
introduced HR 5005,
the Homeland Security Act of 2002, on Monday, June 24. It contains the
President's proposal. See also, White House section by section analysis,
and Bush's message
The House Science Committee held a
hearing on Thursday, June 27 on the research and development aspects of the
President's proposed bill. Committee Chairman Boehlert said in his opening statement
that "The need for such a Department is as plain as the front page of
today's Washington Post, with its talk of an Al Qaeda plot against our nation's
computer systems. And the need for that Department to have a strong research and
development (R&D) component is equally plain."
However, Rep. Boehlert said that "the nation lacks the tools it needs to
foil a cyberattack". Moreover, "the bill the Administration has sent
us simply does not give R&D a high enough profile to enable the Department
of Homeland Security to accomplish its goals. The bill does not even explicitly
mention R&D in some critical areas, such as cybersecurity".
See also, prepared statements of John Tritak,
Director of the Critical Infrastructure Assurance
Office, and John
Marburger, Science Advisor to the President, and Director of the White House
Office of Science and Technology Policy.
The President's proposal has also come under criticism for its planned
relocation of the National Institute of Standards
and Technology's (NIST) Computer
Security Division to the new DHS.
The Computer & Communications Industry
Association (CCIA) held a two day conference this week that addressed a wide
range of technology related issues. On June 15, Benjamin Wu spoke. He is Deputy
Under Secretary of Commerce for Technology at the Commerce Department (which
includes the NIST).
CCIA members used this occasion to express opposition to moving the NIST's
Computer Security Division. One participant said that "the concern being
raised is ... the possibility exists that if it moves over to Homeland Security
that it would be more subjected to a law enforcement agency mentality. And with
the history that some of our folks have gone through of Clipper Chip, or
there is a certain suspicion."
Benjamin Wu offered some slight support for the President's plan to move the
Computer Security Division. He stated that "the President has proposed that
a number of functions around the federal government be unified into the
Department of Homeland Security. The primary mission of those functions is to
protect our homeland security. A proposal that clearly we need to do". He
added that "At the last minute, the NIST Computer Security Division was
tossed into the mix. And, because it is in the President's proposal, we support
the President's proposal."
However, he continued: "Now, having said that, clearly, also -- give you a
readout on the situation as I understood it, because there has been, as you
mentioned, a longstanding tension between the computer, or the IT industry, in
relation to the -- really, two entities that perform computer security work ...
the NSA and NIST. And there has always been a healthy, I think it would be fair
to say, healthy disregard for NSA, even though they are technically capable. NSA
always tilts towards their mission of national security."
He also stated that "the work that industry has done with NIST has been
very productive -- has developed, as you say, the AES standard, and moved away from the
Clipper Chip, and has been one that is well honed, and one that has proven to be
effective in championing some of the industry's concerns. And the proposal that
would move that Computer Security Division to the Department of Homeland
Security, in our preliminary discussions with Congress, because, what the
President proposed was a proposed piece of legislation, that has to work it way
through the legislative process. So, both the House and the Senate, and then
eventually conference, will need to come to agree to all of the final points of
"What the Congress has indicated in preliminary discussions is some concern
they felt of some feedback from industry that the Computer Security Division, if
it is placed into the Department of Homeland Security, its functions, and its
personnel, would then tilt towards homeland security, in much the same way that
industry has concerns with NSA. And as a result, there won't be any real
champion for the IT industry. And that sentiment is out there within
"And, if you truly believe that, then it would be incumbent upon you to
contact your Members of Congress as this bill goes through the legislative
process. So, I understand those concerns. And, I think that Congress will
probably be -- want to reach out to the industry. And if you have to share those
concerns, I am sure they would be interested in hearing them. But, now also, I
could say that that is a very small function of the entire DHS proposal,"
The President's proposal would also transfer several other existing cyber
security related units to the DHS. These would include all operations of the Federal Bureau of Investigation's (FBI) National Infrastructure Protection Center
(NIPC), except for NIPC's Computer Investigations and Operations Section, the Department of Defense's (DOD) National
Communications System, the Department of Commerce's
(DOC) Critical Infrastructure Assurance Office,
the Department of Energy's (DOE) National Infrastructure
Simulation and Analysis Center, and the General
Service Administration's (GSA) Federal
Computer Incident Response Center (CIRC).
Venture Capitalists Host Hill Luncheon
6/26. Representatives of the National Venture
Capital Association (NVCA) spoke at a luncheon on Capitol Hill regarding the
venture capital industry and public policy. NVCA members argued to an audience
that included Congressional staff that the venture capital industry promotes
innovation, creates jobs, and increases per capita income.
Bob Grady, of Carlyle Venture Partners,
stated that the NVCA has four broad policy objectives: education reform, more
research and development spending by government, promotion of free trade, and
incentive based competition.
He also opposed the proposals that "say that we should expense stock
options". He elaborated that stock options are shares, not costs, that they
are hard to value, and that they are volatile. He also said that treating stock
options as costs would make financial statements less reliable. Finally, he
argued that treating stock options as costs would punish the best performing
companies most, and hurt "job creators".
Rep. Eshoo Argues Against Requiring Expensing of Stock Options
6/26. Rep. Anna Eshoo (D-CA) spoke at
a National Venture Capital Association (NVCA)
luncheon on Capitol Hill. She praised the venture capital industry, and argued
that the Congress, in its efforts cure corporate corruption, should not require
that stock options be expensed.
She stated that "venture capital ... today is one of the most important
ingredients in our national economy, and our national successes". However,
she continued that "Today, American businesses ... are under siege. I was
at a hearing this morning on FASB. Everyone is looking to pick the magic piece
of fruit off the tree that will be the golden apple, so to speak, that will
somehow cure the excesses in our system".
She also spoke about stock options. She said that "In the rush, and in the
heat of the debate about Enron, and now subsequent corporations, today, we see
WorldCom on the headlines of all of our nation's newspapers. This issue today is
in great jeopardy. I spoke up this morning in the FASB hearing and said, as much
as we need to reform, we cannot throw the baby out with the bath water. There is
a direct nexus between venture capitalists, venture capital, and stock
"The issue of stock options is now being thrown into, and being used as one
of the toxic substances that poisoned the corporate well, and therefor, we need
to throw this out," said Eshoo.
She added that "I think that the most important part of this story is that
it is the average person that is being rewarded. It is the American way ... to
take a risk, and be rewarded for taking that risk. We cannot allow this issue to
be lost." However, she cautioned that "We are losing so far."
See, for example, S 1940 and
the "Ending the Double Standard for Stock Options Act", which would
require companies to treat stock options for employees as an expense on
financial statements if they take a tax deduction for stock option compensation.
House Subcommittee Holds Hearing on FASB
6/26. The House Commerce Committee's
Subcommittee on Commerce, Trade, and Consumer Protection held a hearing on draft
legislation titled the Financial Accounting Standards Board Act. Edmund Jenkins,
Chairman of the Financial Accounting Standards
Board (FASB) argued for FASB independence.
Jenkins said in his prepared
statement that "Members of Congress, however, must avoid the urge to
legislate technical accounting standards and must reject the facile arguments
and emotional appeals sometimes made by constituents claiming that FASB
proposals will destroy Western civilization." See also, FASB release.
Bala Dharan of Rice University said in his prepared
testimony that "the SEC and Congress have demonstrated, albeit only
rarely, their willingness to pressure the FASB to reconsider its decisions for
what might well be political reasons rather than conceptual reasons. The most
glaring example of such an intervention was with respect to FASB's project on
stock options accounting, when the US Senate passed a non-binding resolution in
opposition to the FASB's position that the cost of stock options should be shown
by corporations as an expense".
See also, opening
statement of Rep. John Dingell
(D-MI), and prepared statements of John
Coffee (Columbia University Law School) and Baruch
People and Appointments
6/26. President Bush announced the following judicial nominations: Richard
Griffin (to be a Judge of the U.S. Court of Appeals for the Sixth Circuit),
Daniel Hovland (U.S. District Court, North Dakota), Thomas Phillips (U.S.
District Court, Eastern District of Tennessee), and Linda Reade (U.S. District
Court, Northern District of Iowa). See, White
6/26. The American Electronic Association
(AeA) announced that it is selling a report titled "Cyberstates 2002: A
State by State Overview of the High Technology Industry". See, AeA release.
6/26. The Senate passed S 1754,
the Patent and Trademark Office Authorization Act of 2002, and HR 2047,
the Patent and Trademark Office Authorization Act of 2002.
Go to News from June 21-25, 2002.