|SEC Files Complaint Against
|6/26. The Securities and
Exchange Commission (SEC) filed a civil complaint in U.S. District Court (SDNY)
against WorldCom late on Wednesday, June 26.
The SEC also released the following statement
earlier on June 26: "The WorldCom disclosures confirm
that accounting improprieties of unprecedented magnitude have
been committed in the public markets. The public can be
assured that we are actively investigating these and other
events relating to the veracity of WorldCom's financial
statements and disclosures. As part of that investigation, we
are ordering the company to file, under oath, a detailed
report of the circumstances and specifics of these matters.
These events further demonstrate the need for comprehensive
market regulatory reforms that the administration, the
Congress, and the SEC have been advocating and
President Bush stated that "I am deeply concerned about
some of the accounting practices that take place in America.
Today the revelations that Worldcom has misaccounted $3.4
billion is outrageous. We will fully investigate and hold
people accountable for misleading not only shareholders, but
employees, as well. There is a need for a renewed corporate
responsibility in America. Those entrusted with shareholders'
money must -- must -- strive for the highest of high
standards. The good news is most corporate leaders in America
are good, honest, open people who care deeply about
shareholders and employees. And our economy is strong. When we
find egregious practices, such as the one revealed today,
we'll go after them. And need to." See, transcript.
Commission (FCC) Chairman Michael Powell
stated in a release that "I am deeply concerned by the
WorldCom developments, and the impact it could have on
consumers and other providers in the industry. We are closely
monitoring the situation and are doing everything possible to
ensure and protect both the stability of the
telecommunications network and the quality of service to
Powell continued: "To better assess the continuing
troubles in the telecommunications industry, I will travel to
New York on Friday to meet with a variety of telephone
industry officials, analysts and debt rating agencies to gain
a first-hand understanding of the recent developments that
continue to challenge the telecom industry. Through this
exchange, I hope to assure the financial markets that the FCC
is committed to doing whatever it can to assist in the
recovery of the sector and strengthen the public trust in this
vital segment of our economy." See, release
Committee Chairman Billy
Tauzin (R-LA) stated in a release
that "Following the latest scandal to rock Wall Street, I
have ordered the investigative staff of the House Energy and
Commerce Committee to immediately begin reviewing all of the
facts surrounding WorldCom Inc.'s massive $3.8 billion
restatement of earnings and losses. In many respects, this
case appears to be eerily similar to the accounting hocus
pocus that occurred at Enron."
"Once again, it seems as if accounting rules were
manipulated to hide debt and inflate income, violating all
accepted accounting standards and, perhaps, violating federal
law as well. This was not a simple bookkeeping mistake.
Clearly, it was an orchestrated effort to mislead investors
and regulators, and I am determined to get to the bottom of
"This latest accounting scandal only highlights the
importance of Congress working together to pass tough, new
laws, which will prevent future abuses and restore investor
confidence in the stock markets and corporate America,"
Sen. Paul Sarbanes
(D-MD), Chairman of the Senate Banking
Committee, stated in a release that "The startling
revelations about WorldCom underscore the necessity to restore
trust and confidence in our markets, where over 60% of the
American public now invests. It is imperative we move forward
with strong accounting reform and investor protection
legislation. I am pleased that Senate Majority Leader Daschle
has said he plans to move the bi-partisan Banking Committee
bill immediately when we return from our July 4 recess."
|House Passes Homeland
Security Information Sharing Act
|6/26. The House passed HR 4598,
the Homeland Security Information Sharing Act, by a vote of
422-2. See, Roll
Call No. 258. The bill provides for the sharing of
homeland security information by federal intelligence and law
enforcement agencies with state and local entities. Rep. Bill Delahunt
(D-MA) and Rep.
Dennis Kucinich (D-OH) voted no.
|Venture Capitalists Host
|6/26. Representatives of the National
Venture Capital Association (NVCA) spoke at a luncheon on
Capitol Hill regarding the venture capital industry and public
policy. NVCA members argued to an audience that included
Congressional staff that the venture capital industry promotes
innovation, creates jobs, and increases per capita income.
Bob Grady, of Carlyle
Venture Partners, stated that the NVCA has four broad
policy objectives: education reform, more research and
development spending by government, promotion of free trade,
and incentive based competition.
He also opposed the proposals that "say that we should
expense stock options". He elaborated that stock options
are shares, not costs, that they are hard to value, and that
they are volatile. He also said that treating stock options as
costs would make financial statements less reliable. Finally,
he argued that treating stock options as costs would punish
the best performing companies most, and hurt "job
|Rep. Eshoo Argues Against
Requiring Expensing of Stock Options
|6/26. Rep. Anna Eshoo
(D-CA) spoke at a National
Venture Capital Association (NVCA) luncheon on Capitol
Hill. She praised the venture capital industry, and argued
that the Congress, in its efforts cure corporate corruption,
should not require that stock options be expensed.
She stated that "venture capital ... today is one of the
most important ingredients in our national economy, and our
national successes". However, she continued that
"Today, American businesses ... are under siege. I was at
a hearing this morning on FASB. Everyone is looking to pick
the magic piece of fruit off the tree that will be the golden
apple, so to speak, that will somehow cure the excesses in our
She also spoke about stock options. She said that "In the
rush, and in the heat of the debate about Enron, and now
subsequent corporations, today, we see WorldCom on the
headlines of all of our nation's newspapers. This issue today
is in great jeopardy. I spoke up this morning in the FASB
hearing and said, as much as we need to reform, we cannot
throw the baby out with the bath water. There is a direct
nexus between venture capitalists, venture capital, and stock
"The issue of stock options is now being thrown into, and
being used as one of the toxic substances that poisoned the
corporate well, and therefor, we need to throw this out,"
She added that "I think that the most important part of
this story is that it is the average person that is being
rewarded. It is the American way ... to take a risk, and be
rewarded for taking that risk. We cannot allow this issue to
be lost." However, she cautioned that "We are losing
See, for example, S 1940
and HR 4075,
the "Ending the Double Standard for Stock Options
Act", which would require companies to treat stock
options for employees as an expense on financial statements if
they take a tax deduction for stock option compensation.
|House Subcommittee Holds
Hearing on FASB
|6/26. The House
Commerce Committee's Subcommittee on Commerce, Trade, and
Consumer Protection held a hearing on draft legislation titled
the Financial Accounting Standards Board Act. Edmund Jenkins,
Chairman of the Financial
Accounting Standards Board (FASB) argued for FASB
Jenkins said in his prepared
statement that "Members of Congress, however, must
avoid the urge to legislate technical accounting standards and
must reject the facile arguments and emotional appeals
sometimes made by constituents claiming that FASB proposals
will destroy Western civilization." See also, FASB release.
Bala Dharan of Rice University said in his prepared
testimony that "the SEC and Congress have
demonstrated, albeit only rarely, their willingness to
pressure the FASB to reconsider its decisions for what might
well be political reasons rather than conceptual reasons. The
most glaring example of such an intervention was with respect
to FASB's project on stock options accounting, when the US
Senate passed a non-binding resolution in opposition to the
FASB's position that the cost of stock options should be shown
by corporations as an expense".
See also, opening
statement of Rep.
John Dingell (D-MI), and prepared statements of John
Coffee (Columbia University Law School) and Baruch
|Akamai and Speedera Trade
|6/25. Akamai filed a
complaint in California Superior Court in San Francisco
against Speedera Networks
alleging theft of trade secrets. See, Akamai
release. Speedera, in turn, filed a complaint in U.S. District Court (NDCal)
against Akamai alleging unfair competition, false advertising,
trade libel and intentional interference with prospective
business advantage. See, Speedera
|Cal App Holds eBay Has
Section 230 Immunity
|6/26. The California
Court of Appeal (4/1) issued its opinion
[PDF] in Gentry
v. eBay, affirming the trial court's dismissal
of various state law claims against Internet auction site eBay.
Auction purchasers alleged that eBay was liable for
misrepresentations and other actions of auction sellers. The
Appeals Court held that eBay has interactive computer service
immunity under Section 230 of the Telecom Act of 1996.
operates an auction web site. Lars Gentry and other
individuals purchased through eBay auctions sports memorabilia
with phony autographs that the sellers had represented to be
real. The sellers also provided Gentry and other purchasers
with false certificates of authenticity for the items.
Trial Court. Lars Gentry and others filed a complaint
in California Superior Court in San Diego against the
individual sellers. They also named eBay as a defendant,
alleging violation of California's Autographed Sports
Memorabilia statute, Civ. Code, § 1739.7, by failing to
furnish a certificate of authenticity to persons who purchased
autographed sports related collectibles, and violation of the
Unfair Competition Law, Bus. and Prof. Code, § 17200 et seq.,
by failing to supply certificates, and for the acts of others
in distributing false certificates and making false
representations in the eBay web site.
The District Court dismissed the complaint. It ruled that eBay
is not a dealer within the meaning of Section 1739, and that
it has immunity under Section 230 of the Telecom Act of 1996, 47
U.S.C. § 230, for statements made by third parties in its
Statutes. § 1739.7(b) provides that "Whenever a
dealer, in selling or offering to sell to a consumer a
collectible in or from this state, provides a description of
that collectible as being autographed, the dealer shall
furnish a certificate of authenticity to the consumer at the
time of sale. The certificate of authenticity shall be in
writing, shall be signed by the dealer or his or her
authorized agent, and shall specify the date of sale."
§ 1739.7(a)(4) provides that " 'Dealer' means a person
who is in the business of selling or offering for sale
collectibles in or from this state, exclusively or
nonexclusively, or a person who by his or her occupation holds
himself or herself out as having knowledge or skill peculiar
to collectibles, or to whom that knowledge or skill may be
attributed by his or her employment of an agent or other
intermediary that by his or her occupation holds himself or
herself out as having that knowledge or skill. 'Dealer'
includes an auctioneer who sells collectibles at a public
auction, and also includes persons who are consignors or
representatives or agents of auctioneers. 'Dealer' includes a
person engaged in a mail order, telephone order, or cable
television business for the sale of collectibles."
§ 230(c)(1) provides that "No provider or user of an
interactive computer service shall be treated as the publisher
or speaker of any information provided by another information
content provider." § 230(d)(3) provides that
"Nothing in this section shall be construed to prevent
any State from enforcing any State law that is consistent with
this section. No cause of action may be brought and no
liability may be imposed under any State or local law that is
inconsistent with this section."
Court of Appeal. The Court of Appeal affirmed. First,
the Court held that eBay is not a dealer of the sports
memorabilia within the meaning of the California Autographed
Sports Memorabilia statute. It is not "in the business of
selling or offering for sale collectibles" as required by
The Court further held the Section 230 provides eBay with
immunity from suit. The Court wrote that "Subsection
(c)(1) of section 230 thus immunizes providers of interactive
computer services (service providers) and their users from
causes of action asserted by persons alleging harm
caused by content provided by a third party. This form of
immunity requires (1) the defendant be a provider or user of
an interactive computer service; (2) the cause of action treat
the defendant as a publisher or speaker of information; and
(3) the information at issue be provided by another
information content provider."
|News Analysis: Ninth
Circuit Hands Bush a Campaign Issue
|6/26. The U.S.
Court of Appeals (9thCir) issued three opinions in the
last two days that are noteworthy. None are technology
related. However, they could have an impact on the fight over
confirmation of Appeals Court judges. Confirmation of
President Bush's picks would, in turn, impact a wide range of
In Newdow v. U.S. Congress, the Court issued an opinion
[PDF] holding that it is unconstitutional for school children
to recite the Pledge of Allegiance. In Suzuki v.
Consumers Union the Court issued an opinion
[PDF] reversing a District Court dismissal of a suit alleging
product disparagement by Consumer
Reports; the District Court had dismissed the case
pursuant to New
York Times v. Sullivan. In Hasson v. Medical Board
of California the Court issued an order
[PDF] denying an en banc rehearing in an ADA case; what is
notable is that the 9th Circuit arguably ignored a controlling
Supreme Court decision.
In Newdow, the Court issued a ruling that,
regardless of the merits of its legal analysis, runs counter
to the strongly held beliefs of most voters. In Suzuki
the Court disregarded a case held sacred by the news media.
And, in Hasson, the Court arguably violated two
fundamental tenets of the American judicial system -- that the
Supreme Court is the highest court, and that precedents must
These cases, but especially the Newdow case, may
have political significance because President Bush is in a
long running battle with Senate Democrats over appointments to
the Appeals Courts. The President nominates, and the Senate
confirms. However, as a practical matter, the Senate Judiciary
Committee plays a gate keeping function. And, its
Chairman, Sen. Pat Leahy
(D-VT), has been delaying consideration of many of the
President's nominees. The Democrats hold majorities in the
Senate, and on the Committee, by a one vote margin.
Sen. Leahy is not up for re-election this November, but one
third of the Senate is. If there were a net swing of one seat
in the Senate, control of the Senate, including committee
chairmanships would change. The chairmanship of the Judiciary
Committee would return to Sen.
Orrin Hatch (R-UT), who would not hold up Bush's nominees.
President Bush has given some political speeches in which he
has mentioned the battle over Appeals Court appointments.
However, to date, Bush has lacked a concrete issue that
resonates with a large segment of voters that he can use to
generate voter interest in judicial selection.
Now he has one. And, his allies have already raised it. Sen. Trent Lott (R-MS), the
Senate Minority Leader, stated that "This absurd ruling
highlights the urgency for the Senate to act on President
Bush's nominees for current judicial vacancies. I urge Senate
Democrats to stop stalling and let us vote on the men and
women who will restore common sense to the federal
judiciary." See, release.
Sen. Hatch stated that "this court's outrageous decision
demonstrates the importance of nominating and confirming
qualified and learned judges who understand the role of the
law and will not legislate from the bench. President Bush has
done his job and has nominated fine judges. I once again, call
upon the Senate to expedite the confirmation process, which
has been stalled by the Democrat Majority. For instance, the
Democrat controlled Senate has confirmed only 9 of 31 Circuit
Court judges nominated by President Bush. This deliberate
slowdown has caused 31 vacancies on the Circuit Courts, of
which the Administrative Office of the U.S. Courts has
declared 17 judicial emergencies. Furthermore, many fine
nominees have been waiting for many months for even a hearing,
let alone a vote for final confirmation." See, release.
Hence, Bush, and Senate Republican candidates can campaign on
a new issue. In a stump speech, it might sound something like
this: "restore a Republican majority in the Senate, so
that Bush's common sense judges can get confirmed, so that
there won't be any more San Francisco anti Pledge of
The issue could be useful in Senate campaigns. However, it
could also put pressure on Democrats to stop blocking Bush's
judicial nominees. Some Democrats might want to deprive Bush
and the Republicans of this campaign issue. Merely having the
issue now puts pressure on Democrats to capitulate on Appeals
Bush's Press Secretary, Ari Fleischer, spoke on the subject at
the economic summit in Canada. He stated that "The
President was informed at the G-8 Summit about the San
Francisco court decision pertaining to the flag. The
President's reaction was that this ruling is ridiculous. The
Supreme Court, itself, begins each of its sessions with the
phrase, ``God save the United States and this honorable court.´´
The Declaration of Independence refers to God or to the
Creator four different times. Congress begins each session of
the Congress each day with a prayer. And of course, our
currency says, ``In God We Trust.´´ ... this decision will
not sit well with the American people. Certainly, it does not
sit well with the President of the United States." See, transcript.
Sen. Leahy, like many Democrats, did promptly state that
"I disagree with the decision". However, his
solution is not new judges, but better decisions from the
current judges. He continued that "It seems likely that
this split decision by a three judge panel will be
reconsidered by the full 9th Circuit, and I hope it will
be." Of course, any decision en banc would most likely be
issued after the November elections, which would be of little
assistance to Sen. Leahy or others seeking to block Bush's
Perhaps, the Ninth Circuit disregarded Alexander Bickel's
admonition regarding judicial review. He wrote that judicial
review is legitimate when it "can be so exercised as to
be acceptable in a society that generally shares Judge Hand's
satisfaction ``in a sense of common venture´´; ... and whose
discharge by the courts will not lower the quality of the
other departments' performance by denuding them of the dignity
and burden of their own responsibility." The
Least Dangerous Branch, at 24.
|People and Appointments
|6/26. President Bush announced the following judicial
nominations: Richard Griffin (to be a Judge of the U.S. Court
of Appeals for the Sixth Circuit), Daniel Hovland (U.S.
District Court, North Dakota), Thomas Phillips (U.S. District
Court, Eastern District of Tennessee), and Linda Reade (U.S.
District Court, Northern District of Iowa). See, White
|House Sends TPA Bill to
|6/26. The House passed HRes
450 by a vote of 216-215. See, Roll
Call No. 264. Trade promotion authority, which is also
known as "TPA" and "fast track", would
permit the President to negotiate trade agreements that the
Congress could accept or reject, but not amend. TPA would
strengthen the bargaining position of the President, and the U.S. Trade Representative (USTR),
in trade negotiations with other nations. This resolution sets
the structure and mandate for the House's negotiating team as
the TPA bill goes to conference.
The House passed its version of the bill, HR 3005,
the Bipartisan Trade Promotion Authority Act of 2001, on
December 6, by a vote of 215-214. The Senate passed its
version last month. For a bill to be signed by the President,
the House and Senate must be reconcile their differences in a
|Thursday, June 27
|The House will meet at 10:00 AM for legislative business.
The Supreme Court will return from recess.
9:00 AM - 4:30 PM. The Agriculture Department's Rural Utilities
Service (RUS) will hold a meeting to receive public input
on "the challenges of deploying broadband services to
rural America, the successes, the role of competition in
providing access to rural areas". See, notice
in Federal Register. Location: Room 0348, South Building, U.S.
Department of Agriculture, 1400 Independence Ave., SW.
10:00 AM. The House
Judiciary Committee will hold a hearing titled Revisions
to the Attorney General's Investigative Guidelines.
Attorney General John Ashcroft
will testify. Webcast. Press contact: Jeff Lungren or Terry
Shawn at 202 225-2492. Location: Room 2141, Rayburn Building.
10:00 AM. The House
Science Committee will hold a hearing on the research and
development aspects of the President's proposed bill to create
a Department of Homeland Security. John Marburger (Science
Advisor to the President and Director, White House Office of
Science and Technology Policy) is scheduled to testify. See, notice.
Webcast. Location: Room 2318, Rayburn Building.
10:00 AM. The Senate
Judiciary Committee will hold an executive business
meeting. The agenda includes consideration of S
2395, an untitled bill to prevent and punish
counterfeiting and copyright piracy, and the nominations of Lavenski
Smith (to be a Judge of the U.S. Court of Appeals for the
8th Circuit) and John Rogers (to be a Judge of the U.S.
Court of Appeals for the 6th Circuit). See, notice.
Press contact: Mimi Devlin at 202 224-9437. Location: Room
226, Dirksen Building.
10:00 AM. The Senate
Finance Committee will hold a hearing on the nomination of
Charlotte Lane to be a member of the USITC.
Location: Room 215, Dirksen Building.
12:00 NOON - 1:30 PM. The FTC's Bureau of
Competition will hold a public workshop on merger
investigation best practices. This is the sixth workshop
of a seven part, five city, series. See, FTC release.
Location: FTC, Room 332, 600 Pennsylvania Ave., NW.
12:00 NOON. The Cato Institute
will host a panel discussion titled Antitrust Flies High:
Is the Orbitz Investigation Good News for Consumers? The
scheduled speakers are Gary Doernhoefer (Orbitz), James DeLong
Institute), Andrew Steinberg (formerly with
Travelocity.com), Thomas Lenard (Progress
and Freedom Foundation), and Robert Atkinson (Progressive Policy Institute).
Lunch will follow. Webcast. See, notice.
Location: Cato, 1000 Massachusetts Ave., NW.
1:00 PM. The Senate
Governmental Affairs Committee will continue its hearing
to examine the relationship between a Department of
Homeland Security and the intelligence community.
Location: Room 342, Dirksen Building.
2:00 PM. The Senate
Judiciary Committee will hold a hearing on several pending
judicial nominations, including Dennis Shedd (to be a
Judge of the U.S. Court of Appeals for the 4th Circuit). See, notice.
Press contact: Mimi Devlin at 202 224-9437. Location: Room
226, Dirksen Building.
2:00 PM. The House
Judiciary Committee's Subcommittee on Courts, the Internet
and Intellectual Property will hold a hearing titled Unpublished
Judicial Opinions. Webcast. Press contact: Jeff Lungren or
Terry Shawn at 202 225-2492. Location: Room 2141, Rayburn
|Friday, June 28
|The House will meet at 9:00 AM for legislative business.
8:30 - 11:00 AM. The Alliance
for Public Technology (APT) and the High Tech Broadband
Coalition (HTBC) will host a breakfast briefing titled From
Debate to Deployment: Changing the Broadband Reality. The
participants include FCC Commissioner Kathleen
Abernathy, who is scheduled to speak at 9:05 AM. Other
participants include Debbie Goldman (Communications Workers of
America), Allen Hammond (University
of Santa Clara School of Law), Edie Herman (Communications Daily),
Edward Neaf (Cambridge
Strategic Management Group), Paul Schroeder (APT), and
Gary Shapiro (Consumer
Electronics Association and HTBC). See, agenda. Press contact:
Matt Bennett at 202 263-2972 or firstname.lastname@example.org. Location:
Lowe's L'Enfant Plaza Hotel, 480 L'Enfant Plaza.
9:30 AM. The Senate
Governmental Affairs Committee will hold a hearing to
examine how the proposed Department of Homeland Security
should address weapons of mass destruction, and relevant
science and technology, research and development, and public
health issues. Location: Room 342, Dirksen Building.
10:00 AM. The House
Judiciary Committee's Subcommittee on Commercial and
Administrative Law will hold an oversight hearing titled Administrative
Law, Adjudicatory Issues, and Privacy Ramifications of
Creating a Department of Homeland Security. Audio webcast.
Press contact: Jeff Lungren or Terry Shawn at 202 225-2492.
Location: Room 2141, Rayburn Building.
Deadline to submit comments to the FTC
in response to its Notice of Proposed Rulemaking (NPRM) to
amend its Telemarketing Sales Rule (TSR). The new rule
would impose user fees on telemarketers, and their seller or
telemarketer clients, for their access to the national do
not call registry, if one is implemented. See, notice
in Federal Register.
|Monday, July 1
|Neither the House nor the Senate will meet Monday July 1
through Friday July 5, due to the Independence Day work
9:30 AM - 12:00 NOON. The Department of State's (DOS)
International Telecommunication Advisory Committee (ITAC) will
hold a meeting to address preparations for the CITEL Assembly.
For more information, and security requirements, see notice
in the Federal Register.
Copyright Office fee
increases to into effect. Basic registration fees remain
unchanged. However, renewal registrations, group
registrations, supplementary registrations, and fees for
services, all go up.
Extended deadline to submit reply comments to the FCC in response
to its Notice of Proposed Rulemaking (NPRM) titled "In
the Matter of Appropriate Framework for Broadband Access to
the Internet over Wireline Facilities". This is CC Docket
No. 02-33. See, May 29 notice
[PDF] extending deadline from June 3 to July 1. See also, Order
[PDF] extending deadline from May 14 to June 3, and original
notice in Federal Register.
Deadline to submit nominations to the NIST
for appointment to the Advanced
Technology Program Advisory Committee. See, notice
in Federal Register.
Deadline to submit nominations to the NIST
for appointment to the Visiting Committee
on Advanced Technology. See, notice
in Federal Register.
|Tuesday, July 2
|President's Homeland Security Advisory Council (PHSAC) will
meet. The meeting is closed to the public. However, written
comments may be submitted Fred Butterfield at fred.butterfield
@gsa.gov. See, notice
in the Federal Register. See also, order
establishing the PHSAC. Location: undisclosed.
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