October 29, 2006

Another case of the fox guarding the hen house

Hoo boy. This whole article just has me furious. I will try and pull out snippets, but I really recommend that you go read the whole thing. In a nutshell? Well, remember all those new rules that were put in place after Enron? Plans are afoot to turn back the clock.

Businesses Seek Protection on Legal Front

Frustrated with laws and regulations that have made companies and accounting firms more open to lawsuits from investors and the government, corporate America — with the encouragement of the Bush administration — is preparing to fight back.

Now that corruption cases like Enron and WorldCom are falling out of the news, two influential industry groups with close ties to administration officials are hoping to swing the regulatory pendulum in the opposite direction. The groups are drafting proposals to provide broad new protections to corporations and accounting firms from criminal cases brought by federal and state prosecutors as well as a stronger shield against civil lawsuits from investors.

Although the details are still being worked out, the groups’ proposals aim to limit the liability of accounting firms for the work they do on behalf of clients, to force prosecutors to target individual wrongdoers rather than entire companies, and to scale back shareholder lawsuits.

The groups hope to reduce what they see as some burdens imposed by the Sarbanes-Oxley Act, landmark post-Enron legislation adopted in 2002. The law, which placed significant new auditing and governance requirements on companies, gave broad discretion for interpretation to the Securities and Exchange Commission. The groups are also interested in rolling back rules and policies that have been on the books for decades.

To alleviate concerns that the new Congress may not adopt the proposals — regardless of which party holds power in the legislative branch next year — many are being tailored so that they could be adopted through rulemaking by the S.E.C. and enforcement policy changes at the Justice Department.

[...]

The proposals will begin to be laid out in public shortly after Election Day, members of the groups said in recent interviews. One of the committees was formed by the United States Chamber of Commerce and until recently was headed by Robert K. Steel.

Mr. Steel was sworn in last Friday as the new Treasury undersecretary for domestic finance, and he is the senior official in the department who will be formulating the Treasury’s views on the issues being studied by the two groups.

The second committee ... has colloquially become known around Washington as the Paulson Committee because the relatively new Treasury secretary issued an encouraging statement when it was formed last month.

[...]

But another official and committee members noted that Mr. Paulson had recently pressed the groups in private discussions to complete their work so it could be rolled out quickly after the November elections.

While we are still discussing the election, they'll be doing the ol' "smash and grab."
Moreover, committee members say that they expect many of their recommendations will be used as part of an overall administration effort to limit what they see as overzealous state prosecutions by such figures as the New York State attorney general Elliot Spitzer and abusive class action lawsuits by investors. The groups will also attempt to lower what they see as the excessive costs associated with the Sarbanes-Oxley Act.

Their critics, however, see the effort as part of a plan to cater to the most well-heeled constituents of the administration and insulate politically connected companies from prosecution at the expense of investors.
Not content with screwing mere consumers, these companies now turn their contempt on their own investors.
In an interview last week with Bloomberg News, Mr. Paulson repeated his criticism of the Sarbanes-Oxley law. While it had done some good, he said, it had contributed to “an atmosphere that has made it more burdensome for companies to operate.”

Mr. Paulson also repeated a line from his first speech, given at Columbia Business School last August, where he said, “Often the pendulum swings too far and we need to go through a period of readjustment.”

Some experts see Mr. Paulson’s complaint as a step backward.

“This is an escalation of the culture war against regulation,” said James D. Cox, a securities and corporate law professor at Duke Law School. He said many of the proposals, if adopted, “would be a dark day for investors.”

Professor Cox, who has studied 600 class action lawsuits over the last decade, said it was difficult to find “abusive or malicious” cases, particularly in light of new laws and court decisions that had made it more difficult to file such suits.
Any of this sound familiar? What a lot of people don't understand is that tort law, in which courts CAN award huge settlements, isn't designed to kill business, but to keep businesses from killing people. These settlements are warnings to other corporations to straighten up and fly right. And these settlements serve to protect US. What corporations really want is the freedom to do whatever they want and any penalties they receive will be minimal and part of the cost of doing business. It will be part of their business plan.
Another contentious issue concerns a proposal to eliminate the use of a broadly written and long-established anti-fraud rule, known as Rule 10b-5, that allows shareholders to sue companies for fraud. The change could be accomplished by a vote of the S.E.C.
John C. Coffee, a professor of securities law at Columbia Law School and an adviser to the Paulson Committee, said that he had recommended that the S.E.C. adopt the exception to Rule 10b-5 so that only the commission could bring such lawsuits against corporations.

But other securities law experts warned that such a move would extinguish a fundamental check on corporate malfeasance.

“It would be a shocking turning back to say only the commission can bring fraud cases,” said Harvey J. Goldschmid, a former S.E.C. commissioner and law professor at Columbia University. “Private enforcement is a necessary supplement to the work that the S.E.C. does. It is also a safety valve against the potential capture of the agency by industry.”
All of this, of course, is just par for the course. Under this administration and the Republicans in Washington, government is no longer of the people, by the people and for the people. Corporate America runs Washington. Let's stop'em on November 7th.

For a more in-depth look at the "Fox Guarding the Hen House" style of government, I highly recommend Molly Ivins' Bushwhacked: Life in George W. Bush's America

1 comment:

DesertBeacon said...

Right on target. The U.S. Chamber of Commerce, which didn't like the accounting reform package in the first place, has been pulling out all the stops with its usual "too burdensome regulations" whine. By the lights of the CofC Andersen was a "victim." The real victims are the retirement investors, Enron etc. employees, and those who invested thinking that what they saw in the financial sheets was the truth. This roll back, along with Social Security privatization, will be among the priorities of the lame-duck portion of Bush's presidency.