New laws apply standards to state-registered firms

Central Penn Business Journal, Dec 03, 2004 by Dagan, David

Public companies under the eye of the Pennsylvania Securities Commission would face higher penalties for violating securities laws under bills passed unanimously by the Legislature and signed by Gov. Ed Rendell Nov. 23.

The bills freeze some payments to executives during investigations and increase fines - and possibly prison time for executives who break securities laws.

Most of the legislation applies to certain Pennsylvania public companies that are not under the supervision of the federal Securities and Exchange Commission. These companies register with the PSC to make share offerings that are limited to state residents. The PSC supervises those offerings, but Michael J. Byrne, the PSCs chief counsel, said he did not know how many offerings the PSC oversees annually and referred the question to an official who could not be reached.

William R. Lazor is an accountant who served on a committee that suggested the changes. "It's like the speed trap in small towns. You already know what the speed limit is. It just makes you more aware, so you follow the law," said Lazor, a partner at the accounting firm Kronick, Kalada, Berdy & Company in Luzerne County.

Lazor said the bills step up enforcement and reinforce that state corporations must give shareholders accurate information.

State Rep. Steven R. Nickol, R-York and Adams, said the general effect of the bills is to raise Pennsylvania's internal standards to align them with federal laws established by the Sarbanes-Oxley Act of 2002 that was passed in response to accounting scandals at major corporations such as Enron Corp. and Adelphia Communications Corp.

"Most of what we did was to try and make corresponding changes in state laws, just so nobody would fall in between the cracks, so to speak," Nickol said.

Bruce Brown, chief executive officer of accounting firm Brown, Schultz, Sheridan & Fritz in East Pennsboro Township, said the legislation avoids doing what many Pennsylvania accountants fear: applying Sarbanes-Oxley standards to the work they do for privately held companies.

"Until they start to take the effects of Sarbanes-Oxley and start imposing them on the work that you do for private companies, it's really not that onerous," Brown said.

The state legislation, a bundle of separate bills, was passed unanimously in the House of Representatives in 2003 and in the Senate in November. But, some provisions approved by the House did not make it through the Senate.

A bill that would have allowed for the recovery of "short swings" profits-gains that corporate officers make through the purchase and sale of stocks within a six-month period - was gutted in the Senate Banking and Insurance Committee. Four other bills remained mired in the Senate Judiciary Committee, including one that would make it pejury for officers to make misleading statements about a corporation's financial conditions. The committee did not have time to consider the bills, General Counsel Greg Warner said.

Rendell has not signed HB 623, which expands the definition of fraudulent and deceptive business practices and was only finalized Nov. 22.

The bills were proposed by an advisory committee formed in 2002 in the wake of corporate scandals. PSC recommended many of the bills to the committee.

Lazor served on the advisory committee as president of the Pennsylvania Institute of Certified Public Accountants.

He wanted to give the State Board of Accountancy-which regulates the profession - more funding and staff, but the committee decided such legislation was outside its mandate.

Senate Appropriations Committee Chairman Robert Thompson, RChester and Montgomery, introduced a bill that would bulk up the board in the last legislative session, but it did not move out of committee.