CNN TV – LOU DOBBS MONEYLINE

ANNOUNCER: This is LOU DOBBS MONEYLINE for Wednesday, July 3rd. Sitting in for Lou Dobbs, Jan Hopkins.

HOPKINS: Thank you very much. Lawmakers are struggling to find a way to combat financial fraud, especially after the collapse of Enron and the scandal surrounding WorldCom. So far, Congress has failed to pass any reforms. Now one state is trying to lead the way. It’s even creating a whistleblower hot line. Casey Wian has the story from Los Angeles.

CASEY WIAN, CNN CORRESPONDENT (voice-over): The California Senate passed a law that would hold corporate executives personally liable for failing to report suspected accounting fraud at their companies. The law would also prohibit executives from making statements intended to inflate the value of their company’s stocks, and it would create the confidential whistleblower hot line for reporting corporate fraud. Supporters call the law an early warning system to prevent an Enron– or WorldCom-style collapse.

DOUG HELLER, FOUNDATION FOR TAXPAYER AND CONSUMER RIGHTS: We need to do something to restore confidence that — in investors, in the retirees who have pensions, employees with 401(k)s that their money is safe and — and that the people that are running the companies in which we’re all invested — that we need to know that they’re telling us the truth.

WIAN: Executives who stay silent would face $100,000 fines. Companies could be fined a million dollars. Several large California companies declined to comment on the proposal, but a business lobbying group warns it would turn executive suites into police states.

FRED MAIN, CALIFORNIA CHAMBER OF COMMERCE: There are already significant rules and regulations that are being enforced and that will be enforced that actually limit conduct. This doesn’t prohibit any conduct. It forces to you be, in effect, a tattletale.

WIAN: Brian Lysaght represents a Global Crossing whistleblower and says the proposed law doesn’t go far enough.

BRIAN LYSAGHT, WHISTLEBLOWER ATTORNEY: There’s nothing in this particular bill which would cause any company, no matter how corrupt, to shiver in the slightest.

WIAN: But supporters, tired of waiting for federal action, say it’s a start. The proposed law still faces a tough battle in California’s more pro-business assembly, and Governor Gray Davis has not said if he would sign it into law. Casey Wian, CNN Financial News, Los Angeles.

HOPKINS: Many private companies are, of course, also involved in protecting businesses from fraud. Increasingly, that protection goes beyond simply safeguarding financial or intellectual assets. Physical securities also becoming a top priority. Kroll has been in this kind of business for 30 years, and the company’s executive chairman, Jules Kroll, is with us. Welcome back, Jules.

JULES KROLL, EXECUTIVE CHAIRMAN, KROLL: Thank you, Jan.

HOPKINS: Now what are companies asking you for, protection of their buildings, protection of their employees, or protection against fraud, or all of the above?

KROLL: Well, there tends to be a reaction to the most recent events. So post-9/11, there was a huge upsurge in a focus on physical security, employee screening, and so on. That has continued to a great extent, but post-Enron, there has been a greater sensitivity to the integrity of financial statements and whether boards of directors and investors can rely on the accuracy of those statements.

HOPKINS: Also, there must be a concern on the part of companies protecting themselves from people inside the company that may want to do harm to the company. How do they protect themselves from that?

KROLL: Well, historically, the greatest harm to a company has come from disgruntled or disaffected employees because they’re, so to speak, inside the family. They have access to the secrets, the funds, the technology, and that’s where most harm comes from. It generally does not come from the outside.

HOPKINS: There are a lot of e-mails that have been involved in the cases that we’ve heard about so far. Is this an area that companies are really paying attention to?

KROLL: Well, we began to do electronic evidence discovery almost 12 years ago because we found was that — what was going on in a company was more typically found on their servers than it was in their file cabinets.

HOPKINS: Oh, interesting.

KROLL: So, as a result, one of the reasons that last month we acquired a company called Ontrack Data, one of the pioneers in this field, and they did the work, for example, on Katherine Davis’s (ph) computers back in the Florida elections last year, and…

HOPKINS: So they can retrieve deleted e-mails?

KROLL: Yeah. Well, what’s important for people to understand — and we’ve seen it in the Arthur Andersen case, we’ve seen in Enron, we’ve seen it in the Microsoft/Bill Gates litigation, and we’re now seeing it in other cases — delete does not mean delete, erase does not mean erase, because our scientists and technicians can pull out what has been left, either on your computer or the person you sent it to to begin with, and, last year, there were 10-billion e-mails sent between people.

HOPKINS: Wow.

KROLL: Ten billion. And those who press delete think they’re deleting. Not happening.

HOPKINS: So it’s something that everyone needs to be aware of.

KROLL: Absolutely.

HOPKINS: We’re very aware of terrorism threats in this country and around the world. Are companies concerned about their employees traveling for business overseas? And what are they doing to protect them?

KROLL: Well, we see the whole range of corporate behavior. The best-managed companies have been paying attention to this long before 9/11, but, obviously, it got accelerated and people put a lot of money and a lot of resources in it. Those companies have represented 90 percent of our activity. There are other companies that have done nothing. They take — tell people to use common sense, and, in the end, those companies are more likely to pay the price. At least their employees will pay the price. Our hope is that we will develop standards. There don’t need to be more laws. What we need are sensible standards that get carried out, where boards of directors say, “We’re going to look out for the people that work for us.”

HOPKINS: Jules Kroll, executive chairman of Kroll Company. Thanks.

KROLL: Thank you.