Senate Approves Schumer-Feinstein Amendment Banning Corporations
from Loaning Money to Their Executives or Corporate Directors
July 12, 2002

Washington, DC - The U.S. Senate today approved an amendment by Senators Charles Schumer (D-N.Y.) and Dianne Feinstein (D-Calif.) to the Financial Accounting Reform bill which would prohibit corporations from loaning money to their executives or corporate directors.

The amendment was approved by a voice vote. The following is a statement by Senator Feinstein:

"Among the abuses committed by senior executives and directors at companies such as WorldCom, Enron, and Global Crossing is the practice of issuing large, favorable loans to those executives and directors. Those loans can create conflicts of interest that limit the ability of outside directors, in particular, to voice their criticism of the institution.

Many years ago, I served on the board of directors of a bank, and noted that at the time, several of the directors had hundreds of thousands of dollars worth of outstanding loans at that bank. At the time, this occurred to me to be wrong, and I could not understand why these directors did not take out loans at another bank, thereby avoiding any potential conflicts of interest.

The only conclusion I could draw was that the loans to these directors were either easier to procure or made on more favorable terms than loans from another bank would be. I see no justification for providing loans to corporate directors or executive officers. The goal of the reforms that we are currently debating should be to create an environment in which outside directors and major corporate officers act in as pure and honest a manner as possible.

Outside directors should avoid any appearance of conflict, such as the conflict that occurs when the corporation that they serve extends them a personal loan. And the same is true for senior executives.

For example, Bernard Ebbers, the former CEO of WorldCom, took out $430 million in loans from his company between September 2000 and the end of 2001.

When the SEC began investigating WorldCom earlier this year, $343 million in loans were still outstanding, most of which may never be recovered by WorldCom's investors. Those loans to Ebbers are far from unique in corporate America today.

One of the most egregious examples of this type of abuse recent months is the disclosure of $3.1 billion in loans extended to family members and affiliated business interests of the Rigas family by Adelphia Communications, a publicly traded company controlled by the Rigas family.

These loans were never disclosed to shareholders, and were apparently used to shore up a wide variety of business deals involving Rigas family members, including a golf course and an infusion of cash into the Buffalo Sabres hockey team.

On July 9^th, President Bush went to Wall Street and called for, among other things, 'an end to all company loans to corporate officers.' I believe that the President was right, and have co-sponsored this amendment to make sure that happens."