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CounterPunch
January
2, 2003
Making Accountants Liable for
Corporate Fraud
by MARK WEISBROT
In a little-noticed decision made just before
the holidays, Judge Melinda F. Harmon gave the country a Christmas
present that we really needed but couldn't seem to go out and
get for ourselves. The 307-page opinion reinterpreted securities
law so that financial firms that help companies make fraudulent
transactions -- of the kind that brought down Enron -- can themselves
be held liable for fraud.
It remains to be seen whether this decision
from the Federal District Court in Houston will accomplish something
that our Congress and the executive branch have failed to do
in the year since Enron's house of cards collapsed. But the decision
is striking in that it shows how we are becoming increasingly
reliant on the courts to make essential changes, sometimes in
the face of staggering political corruption, that our society
needs in order to get on with its day-to-day business.
More than a year after Enron's implosion,
the three most basic reforms that were put forth when the fraud
was exposed have not been adopted. They are: first, a system
to assign auditors to companies so  that
the auditors' independence can be assured; second, requiring
firms to list stock options (given to executives as part of their
compensation) as a business expense at the time they are granted;
and third, a limit on the percentage of employees' individual
retirement benefits that can take the form of company stock.
When the wave of corporate accounting
and governance scandals first broke, these reforms were widely
seen as a reasonable first step toward restoring investors' trust
and protecting employees. Yet Congress did not address these
issues in its "corporate accountability" bill, which
was largely an empty public relations gesture. The SEC obstructed
even the weak provisions in this act, with its Chairman Harvey
Pitt eventually being forced to resign after appointing a person
tied to an accounting scandal to head the newly created accounting
oversight board.
Judge Harmon's decision is particularly
noteworthy because it is trying to save big business itself from
the fraudulent excesses of one sector. This is a basic regulatory
function that would not ordinarily have to become the responsibility
of the judiciary. But our Congress and the executive branch have
become so corrupted by our system of legalized bribery -- political
campaign contributions -- that they cannot even enact positive
reforms that are desired by most of the business class.
The courts have thus become the last
branch of our government where there remains enough integrity
to confront powerful special interests, at least in certain circumstances.
In the two months since our last national election, the corruption
of the rest of our government has been breathtakingly highlighted
by paybacks to corporate and wealthy interests. Financial contributions
to the coffers of campaign 2002 have bought rights for logging
companies to further damage national forests, electric utilities
to increase their pollution, and pharmaceutical companies to
ensure that any Medicare prescription drug benefit -- if they
can't block it altogether -- will keep U.S. drug prices the highest
in the world.
In recent years, the courts have sometimes
been a venue for change through class action lawsuits such as
those that forced Big Tobacco to stop marketing their cigarettes
to children, and held them liable for some of their damage to
public health. Hence the corporate-funded campaign for "tort
reform," which seeks to curtail the ability of citizens
to seek legal redress for the victims of unsafe products and
dangerous corporate practices. People for whom greed is a guiding
ethos ironically blame "greedy trial lawyers" for raising
the cost of everything from medical care to car insurance through
litigation. But this litigation is often the only means to protect
society from medical malpractice or corporate malfeasance.
The corruption of most of our government
by moneyed interests carries great social and economic costs.
Millions of people have lost the bulk of their retirement savings
due to corporate fraud over the last few years. And as the economy
heads toward a likely recession, the Bush Administration offers
yet another tax cut for the country's wealthiest households,
rather than trying to counteract the economic downturn.
As much as the courts may occasionally
intervene to regulate commerce or protect the rights of citizens,
they cannot substitute for the functioning democracy that this
country sorely needs.
Mark Weisbrot
is Co-Director of the Center
for Economic and Policy Research, in Washington D.C.
and the co-author of Social
Security: the Phony Crisis.
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