With a Democratic majority, the next Congress may prove less sympathetic to corporate complaints about burdensome regulation than its Republican-led predecessors. Not to worry. Business leaders have formed their own “independent committee” to sidestep that hurdle.
The Committee on Capital Markets Regulation has been floating trial balloons about its plans to make U.S. stock markets more competitive. None of them bode well for investors.
Formed with an endorsement from Treasury Secretary Henry Paulson, the committee includes current and former CEOs of a host of firms, notably PricewaterhouseCoopers, the NASD, DuPont, Deloitte and Lehman Brothers.
Committee members have been quoted as saying their recommendations may include urging the Securities and Exchange Commission to “dis-imply” the private right to sue for securities fraud, leaving enforcement solely to the government.
The rationale offered is that IPOs by foreign companies are increasingly taking place in countries which don’t have pesky requirements and remedies concerning the truth or falsity of financial statements. If U.S. investment banks are going to compete for this business, it is said, they need to be able to offer a kinder, gentler regulatory environment.
Perhaps it is not surprising that Paulson, formerly the CEO of Goldman Sachs, would prefer to limit regulation of the markets in favor of his investment banking brethren. After all, they and the accounting firms have had to pay billions to compensate defrauded shareholders in recent years. Plaintiffs, frequently led by institutions, have surmounted formidable legal barriers to win these cases, proved egregious, knowing misconduct, and achieved record settlements. The florid details of these huge fraud cases are well known; many of their perpetrators are serving lengthy jail terms.
If only the understaffed, underpaid SEC and Justice Department had any hope of prosecuting all the wrongdoers. There always have been, and always will be, too many. The CEO Committee knows this, and is counting on it, not to mention the prospect of limiting enforcement by the SEC by applying political pressure.
This is no time to race to the deregulatory bottom. Indeed, recent efforts to force improvements in corporate conduct have been successful. The 2002 Sarbanes-Oxley reforms have dramatically improved the competence and performance of corporate financial officers and directors and their auditors, and fraud cases are way down.
The past year ending June 30, 2006, saw only 129 fraud cases filed, fewer than any one-year period since 1996, and the percentage of filings per issuer in the first six months of 2006 was only 0.9%.
One would think that the committee of CEOs would be pleased that their ranks may soon become respectable again. They can thank healthy regulation and remedies for that.