Reed Introduces Legislation to Hold Corporate Executives Accountable for Fraudulent Actions
WASHINGTON, DC – In an effort to prevent fraudulent and negligent behavior at large financial institutions and hold senior executives accountable, U.S. Senator Jack Reed today introduced the Corporate Management Accountability Act, which asks publicly traded companies to disclose policies on whether senior executives or shareholders bear the costs of paying the company’s fines and penalties.
Reed is introducing the legislation in the wake of several notable instances of negligent behavior by financial institutions - including Wells Fargo’s exploitation of its customers by opening unauthorized accounts and Equifax’s endangering millions of consumers by compromising critical personal information - that continue to undermine public confidence in the financial marketplace.
“Senior executives, many of whom are eager to take credit for a company’s good news, must also take more responsibility for the bad news, especially if it is true that the buck stops with them,” said Senator Reed, a senior member of the Senate Banking Committee. “For example, the Financial Crisis Inquiry Commission concluded ‘the financial crisis reached cataclysmic proportions with the collapse of Lehman Brothers,’ and yet, according to the Congressional Research Service, not a single senior executive officer at Lehman Brothers at the federal level was charged, went to jail, or personally paid a federal fine or penalty for the damage caused at Lehman Brothers that rippled through our economy in 2008. Companies must do a better job of aligning executive incentives so that they are motivated to put their shareholders, and not themselves, first.”
According to Professor Peter J. Henning, who writes for the White Collar Watch column for the New York Times: “A problem in holding individuals accountable for misconduct in an organization is the disconnect between the actual decisions and those charged with overseeing the company, so that executives and corporate boards usually plead ignorance about an issue until it is too late.”
The Corporate Management Accountability Act is one attempt at helping to solve this problem by asking publicly traded companies to disclose whether they expect senior executives or shareholders to pay the cost of corporate fines or penalties.
In the wake of the Wells Fargo scandal, Senator Reed questioned former Wells Fargo CEO John Stumpf during a Banking Committee hearing and pushed for answers as to why the bank opened up millions of fake bank accounts for customers. In August, after it was revealed that as many as 570,000 Wells Fargo customers may have been charged premiums for unwanted auto insurance they did not need, he joined his fellow committee members (Ranking Member) Sherrod Brown, Elizabeth Warren, and others in leading the call for a public hearing to review consumer rights violations by Wells Fargo.
In September, after Equifax revealed that unauthorized parties had obtained sensitive information such as Social Security numbers, addresses, and driver’s license numbers for as many as 143 million people, Senator Reed led a bipartisan group of 37 senators asking the Securities & Exchange Commission (SEC), the Department of Justice (DOJ), and the Federal Trade Commission (FTC) to investigate the sale of nearly $2 million in Equifax securities held by high-level Equifax executives shortly after the company learned of the massive cybersecurity breach. According to the New York Times, Equifax “increased its estimate on the number of Americans whose personal information was potentially exposed to 145.5 million, some 2.5 million more than it had previously disclosed.”