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Intelligence Czar Can Waive SEC Rules [
Negroponte Given Power to Waive SEC Rules
By Dawn Kopecki
Wednesday 24 May 2006
President Bush has granted his intelligence czar the authority to exempt publicly traded companies from reporting requirements - in the name of national security. Kai Ryssdal talks with BusinessWeek reporter Dawn Kopecki.
Kai Ryssdal: Don't know if you caught this in the papers this morning, but the Federal Communications Commission isn't going to investigate the NSA. FCC Chairman Kevin Martin said his agency can't look into the government's domestic surveillance program because ... it's classified. The guy in charge of most of the classified stuff in this country is John Negroponte. He's the National Director of Intelligence. And President Bush just gave him something else to do, too. Dawn Kopecki's a correspondent for BusinessWeek. Dawn, what is that's happened?
Dawn Kopecki: The President just delegated authority to John Negroponte that allows him to exempt any publicly traded corporation that is working on national defense issues or national security issues from the reporting and accounting requirements under the 1934 Securities and Exchange Act. It's basically the rules and regulations that require companies to keep accurate records, acurate books, accurate accounting ... and then disclose those projects and that information to investors.
Ryssdal: This authority, this power that the President has to do this is not necessarily new. It's the use that you've uncovered.
Kopecki: Well, we're not actually sure whether or not it's been used before. Every president since Jimmy Carter has had this authority. It was given to the president in 1977 in the Foreign Corruption Act. We don't know whether or not it's been used by the President, but what we do know, or what the White House told us, is that they don't believe any president has ever delegated that authority to anyone outside of the Oval Office.
Ryssdal: When the President signs memoranda like this, in most cases it has to be published in the Federal Register. I'm going to guess, though, that the subject heading in the Federal Register of how this was listed didn't say "President lets John Negroponte decide what companies have to report their books. How did you find this story?
Kopecki: I've covered a lot of different issues over the years in Washington, and one of them is securities laws. One of my securities sources knew that I was now covering defense issues and he called me up and said, "Hey, did you see this?" I knew that it was probably a little bit bigger than what the White House and other blogs and what-not had eluded to.
Ryssdal: The memo that the President signed was dated May 5. Talk to me about the timing of this for a second.
Kopecki: Well, May 5 is the day that Porter Goss stepped down from the CIA. It's also six days before USA Today published its story that three major telephone companies had turned over massive amounts of customer calling records to the federal government, that the NSA was using to data-mine and look for patterns and, basically, spy on.
Ryssdal: Now, if you play this out, conceivably what this rule now means is that AT&T and Bell South and Verizon, who have these government contracts - it's been reported in the papers - have these government contracts to sell customer data to the government, they may never have to report that income or how the finances of that program worked.
Kopecki: It's true. That could be one possibility. The White House, when I asked them point-blank whether or not any company, including those telephone companies, had been given this waiver, they said no comment. Negroponte's office hasn't called me back since I sent them my questions two days ago. We really don't know, and I believe, and what securities attorneys have told us, is we may never know because it doesn't require anyone to disclose it to anyone outside the Senate and House intelligence committees.
Ryssdal: Dawn Kopecki's a Washington correspondent for BusinessWeek magazine. Dawn, thanks so much for your time.
Intelligence Czar Can Waive SEC Rules
By Dawn Kopecki
Tuesday 23 May 2006
Now, the White House's top spymaster can cite national security to exempt businesses from reporting requirements.
President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006, that was opaque to the untrained eye.
Unbeknownst to almost all of Washington and the financial world, Bush and every other President since Jimmy Carter have had the authority to exempt companies working on certain top-secret defense projects from portions of the 1934 Securities Exchange Act. Administration officials told BusinessWeek that they believe this is the first time a President has ever delegated the authority to someone outside the Oval Office. It couldn't be immediately determined whether any company has received a waiver under this provision.
The timing of Bush's move is intriguing. On the same day the President signed the memo, Porter Goss resigned as director of the Central Intelligence Agency amid criticism of ineffectiveness and poor morale at the agency. Only six days later, on May 11, USA Today reported that the National Security Agency had obtained millions of calling records of ordinary citizens provided by three major U.S. phone companies. Negroponte oversees both the CIA and NSA in his role as the administration's top intelligence official.
White House spokeswoman Dana M. Perino said the timing of the May 5 Presidential memo had no significance. "There was nothing specific that prompted this memo," Perino said.
In addition to refusing to explain why Bush decided to delegate this authority to Negroponte, the White House declined to say whether Bush or any other President has ever exercised the authority and allowed a company to avoid standard securities disclosure and accounting requirements. The White House wouldn't comment on whether Negroponte has granted such a waiver, and BusinessWeek so far hasn't identified any companies affected by the provision. Negroponte's office did not respond to requests for comment.
Securities-law experts said they were unfamiliar with the May 5 memo and the underlying Presidential authority at issue. John C. Coffee, a securities-law professor at Columbia University, speculated that defense contractors might want to use such an exemption to mask secret assignments for the Pentagon or CIA. "What you might hide is investments: You've spent umpteen million dollars that comes out of your working capital to build a plant in Iraq," which the government wants to keep secret. "That's the kind of scenario that would be plausible," Coffee said.
William McLucas, the Securities & Exchange Commission's former enforcement chief, suggested that the ability to conceal financial information in the name of national security could lead some companies "to play fast and loose with their numbers." McLucas, a partner at the law firm Wilmer Cutler Pickering Hale & Dorr in Washington, added: "It could be that you have a bunch of books and records out there that no one knows about."
The memo Bush signed on May 5, which was published seven days later in the Federal Register, had the unrevealing title "Assignment of Function Relating to Granting of Authority for Issuance of Certain Directives: Memorandum for the Director of National Intelligence." In the document, Bush addressed Negroponte, saying: "I hereby assign to you the function of the President under section 13(b)(3)(A) of the Securities Exchange Act of 1934, as amended."
A trip to the statute books showed that the amended version of the 1934 act states that "with respect to matters concerning the national security of the United States," the President or the head of an Executive Branch agency may exempt companies from certain critical legal obligations. These obligations include keeping accurate "books, records, and accounts" and maintaining "a system of internal accounting controls sufficient" to ensure the propriety of financial transactions and the preparation of financial statements in compliance with "generally accepted accounting principles."