CEOs Are Diving for Legal Cover

NEW YORK -- A new rule forcing corporate leaders to vouch personally for the accuracy of their companies' financial statements has set off a legal scramble, as worried executives search for ways to protect themselves from potential civil or criminal liability.

The Securities and Exchange Commission rule requires chief executives and chief financial officers of large companies to sign sworn statements by mid-August declaring that recent financial reports are accurate and complete.

Though companies always have been required to provide accurate data, the personal declarations could ratchet up executives' legal liability if errors--honest or otherwise--turn up later.

That has prompted CEOs to take such steps as rechecking accounting procedures, boosting personal liability insurance and forcing subordinates to sign similar statements under oath, experts say.

"Some people are saying, 'Oh my Lord, what does this mean? What should I do?' " said David Becker, a former SEC lawyer now at Cleary Gottlieb Steen & Hamilton in New York. Some executives feel as if they're "in the cross-hairs," he said.

The new rule could further roil the stock market in the next few weeks. Federal Reserve Chairman Alan Greenspan and others have predicted that some CEOs, as they review their books, will be forced to restate past financial results.

Executives' increased legal vulnerability also could have broader implications longer term, some experts say.

At an extreme, it could discourage qualified people from becoming CEOs or CFOs.