Department of Justice Seal Department of Justice
TUESDAY, JULY 20, 2004
(202) 514-2007
TDD (202) 514-1888


President Bush’S Leadership In Restoring Confidence To The Marketplace

“[I]t is time to reaffirm the basic principles and rules that make capitalism work - truthful books and honest people, and well-enforced laws against fraud and corruption.”

- President George W. Bush, announcing the Task Force’s formation on July 9, 2002

“The President’s Corporate Fraud Task Force... can, however, do one thing, and that is what we are here today to do: to restore public confidence in our financial markets and in our criminal justice system - to make people know we will continue to work like crazy until we have brought all corporate crooks to justice.” - Deputy Attorney General James Comey, announcing charges from the Enron investigation on July 8, 2004

The Task Force’s Second-Year Anniversary. During its second year, the President’s Corporate Fraud Task Force improved on its strong first year record in combating corporate fraud and punishing corporate wrongdoers. Not only did Task Force members equal their efforts and accomplishments from the year prior, in many instances, they far surpassed them. On the criminal enforcement front, federal prosecutors began to try a number of high profile cases resulting in important convictions in the Adelphia, Craig Consumer Electronics, Dynegy, Martha Stewart, Frank Quattrone, Unify, Graham-Field Health Products, and U.S. Technologies matters. On the civil enforcement front, the SEC obtained a $2.25 billion penalty, the largest in SEC history, against WorldCom, and settled significant financial fraud, reporting, and disclosure cases with companies including Gemstar-TV Guide International, Lucent Technologies Inc., and Vivendi Universal, S.A. The SEC also brought and settled significant cases against mutual funds and their executives, financial services providers, and brokers for alleged fraudulent conduct relating to market timing and late trading in fund shares, including settlements with Alliance Capital Management L.P. and Massachusetts Financial Services Co.

President Bush created the Corporate Fraud Task Force by Executive Order No. 13271 on July 9, 2002. It is chaired by Deputy Attorney General James B. Comey and includes senior Department of Justice officials, the heads of the Departments of Treasury and Labor, and the heads of the Securities and Exchange Commission, Commodity Futures Trading Commission, Federal Energy Regulatory Commission, Federal Communications Commission, Office of Federal Housing Enterprise Oversight, and United States Postal Inspection Service.

Through fair, swift and decisive actions, the Task Force continues to remove suspicion, doubt, and uncertainty that pervaded the marketplace only two years ago. Investor confidence is returning and the public is recognizing that the vast majority of corporate leaders are honest and ethical stewards of their shareholders and employees. The Task Force’s actions are successfully working to:

Prosecuting Corporate Fraud Criminally. Justice Department prosecutors throughout the country, working hand in hand with regulatory Task Force members and investigators from the Federal Bureau of Investigation, Internal Revenue Service’s Criminal Investigation division, and U.S. Postal Inspection Service, have responded to President Bush’s call to get tough on corporate crime. Since the inception of the Task Force through May 31, 2004, prosecutors and investigators had:

Aggressively Pursuing Civil and Regulatory Enforcement Actions. During the Task Force’s second year, civil and regulatory Task Force members, often in actions parallel to criminal actions, and in coordination with criminal investigators and prosecutors, actively pursued enforcement actions to protect investors and consumers from corporate fraud.

Securities and Exchange Commission: During fiscal year 2003 (October 1, 2002-September 30, 2003), the SEC filed 199 financial fraud and reporting cases. From October 1, 2003 through June 21, 2004, the SEC filed 350 enforcement actions, 72 of which involved financial fraud or reporting. Thirty-two companies have been suspended from trading, and the SEC has sought asset freezes against individuals and companies in 36 cases. In addition, the SEC has sought to bar 110 corporate executives and directors from again serving in publicly traded companies. The SEC has used its new enforcement authority under the Sarbanes-Oxley Act, which the President signed into law on July 30, 2002, to it’s fullest extent in seeking to improve corporate responsibility and protect America’s shareholders and workers, including using the "Fair Funds" provision in many recent settlements. The SEC has collected over $432 million to be returned to victims of the Enron fraud, pursuant to this authority.

Last fall, when a number of disturbing scandals involving mutual funds came to light, the SEC responded. During fiscal year 2003 through the present, the SEC filed 41 mutual fund-related enforcement actions and obtained orders for close to one billion dollars in penalties and disgorgements related to mutual funds, all of which will be returned to investors. Moreover, the SEC has proposed some 15 new mutual fund reforms, all in response to these mutual fund scandals.

Commodity Futures Trading Commission: From July 1, 2003 to June 30, 2004, the CFTC instituted 68 enforcement actions - a 17% increase over the prior year - against 193 defendants. It obtained permanent injunctions against 58 defendants and restraining orders to freeze assets and preserve books and records against 77 defendants. It also obtained cease and desist orders against 51 respondents in administrative proceedings. The CFTC secured nearly $315 million in civil monetary penalties, an increase of nearly 137% from the prior year, and over $67 million in restitution and disgorgement. It obtained trading prohibitions against 18 individuals during this time.

Much of the CFTC’s enforcement activity over the last year centered around the energy markets. The CFTC focused on the widespread practice by energy companies - most of them public entities - of falsely reporting the prices and quantities of natural gas or electricity transactions to reporting services, often to influence the prices reported by these services and to consequently benefit energy derivative positions held by these companies.

Federal Energy Regulatory Commission: FERC’s numerous investigations into the manipulation of energy markets, including anomalous bidding practices, physical withholding of capacity, gaming practices, and violations of standards of conduct resulted in settlements valued at in excess of $500 million. Energy companies entering into settlements with FERC included Reliant Energy Services, Duke Energy and Trading, Williams Power Company, Dynegy, Inc., Portland General Electric, El Paso Electric, Avista Corporation, Cleco Corp., Nicor Gas, National Fuel Gas Company, and Center Point Gas Transmission Company. FERC still has underway several proceedings in which it is pursuing refunds of up to $3 billion for sales in California, as well as additional disgorgement of profits from sellers who are found to have violated FERC tariffs.

Employee Security Benefits Security Administration (Department of Labor): EBSA continues to aggressively protect employee benefit plans from the effects of corporate fraud. Since the inception of corporate fraud as an investigative priority, EBSA has identified 44 civil investigations as having potential corporate fraud issues including investigations into Global Crossing, WorldCom, and ULLICO. In May 2004, EBSA announced the filing of settlements (which must be approved by the court) to restore at least $66.5 million to the Enron savings and employee stock ownership plans and to restrict the ability of named corporate officers, directors, and administrative committee members from future service as ERISA fiduciaries. In July 2004, EBSA entered into settlement agreements with five former officers and directors of Global Crossing significantly restricting their ability to serve as fiduciaries of ERISA plans for a period of five years without the Department's approval. EBSA also secured $25 million for the plan from Gary Winnick, the former chairman of Global Crossing's Board of Directors and was instrumental in facilitating the recovery of an additional $54 million for the plan through the private class action settlement, bringing the total recovery for workers and retirees to $79 million. In September 2003, EBSA obtained a consent decree against former Rite Aid CFO and plan trustee, Franklyn M. Bergonzi. The court’s order permanently barred Bergonzi from representing any employee benefit plan in any capacity.

Office of Federal Housing Enterprise Oversight (Department of Housing and Urban Development): OFHEO brought civil actions against Freddie Mac executives for, among other things, their failure to maintain adequate internal controls and negotiated with Freddie Mac a record civil money penalty for a safety and soundness violation - $125 million - as well as entering into a consent order that required the Board and senior management to address corporate governance and culture at Freddie Mac. OFHEO continues its oversight of Freddie Mac while currently conducting a review of accounting and controls at Fannie Mae.

Restoring Investor Confidence. The Task Force’s swift, fair and decisive actions are helping to restore confidence to the marketplace. CEOs and other executives who fudged the numbers and deceived their investors and workers are being held accountable. The actions of the Task Force are helping to demonstrate something equally important to the American people: the vast majority of corporate leaders are honest and ethical who work hard to earn the trust of their shareholders and employees.