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Bush Cites Security, Waives SEC Reporting Rules
President Bush has given intelligence czar John Negroponte the authority to exempt businesses from reporting requirements in the interest of national security.
A memo signed by the president on May 5, which drew little initial reaction in Washington, allows Negroponte to excuse publicly traded companies from their usual accounting and securities-disclosure obligations.
In the memo, which was published seven days later in the Federal Register, 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." 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, including keeping accurate "books, records, and accounts" and maintaining "a system of internal accounting controls.”
Story Continues Below John C. Coffee, a securities-law professor at Columbia University, told BusinessWeek that defense contractors might want to use the exemption to hide 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.”
But William McLucas, the Securities & Exchange Commission's former enforcement chief, said the ability to conceal financial information in the name of national security could lead some companies "to play fast and loose with their numbers." According to BusinessWeek, it couldn't be immediately determined whether any company has received a waiver under this provision.
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