The Big Boys of Financial Crime

It is clear, in the midst of a seven year corporate financial crime wave, that the business moguls and their academic apologists, who make up the Committee on Capital Markets Regulation (CCMG) have no sense of irony. It is not enough that the CCMG’s new report is recommending less law enforcement and accountability after years of Republican regimes addicted to de-regulation. The Big Boys want to make lower standards overseas an argument for starting a race to the bottom, in order for the U.S. financial markets to remain “competitive.”

Here are some of CCMG’s thirty-two recommendations, expected to be the goal of a big lobbying effort on the Securities and Exchange Commission (SEC) and the Congress next year:

1. Limit how and when state enforcement agencies can pursue cases of financial fraud on investors. This is designed to take care of any future Eliot Spitzers, who take their oath of office seriously instead of ceremoniously. Quite properly, the Governor-elect, present New York Attorney General Spitzer reacted, saying: “To eviscerate the power of the one set of regulators who did anything is absurd.”

2. Governments should sue the corporations themselves only as a last resort and instead concentrate on the culpable officials in the company. That will give rise to all kinds of escape hatches and internal scapegoating by clever corporate attorneys. They do demand that companies pay the legal expenses of the accused, however.

3. Make it more difficult to convict defendants by requiring proof of actual knowledge of the specific fraud, which makes it easier for executives to get off the hook for criminal negligence. The “I didn’t know” defense is to replace “you should have known.”

4. Weaken the post-Enron Sarbanes-Oxley law, including not applying the key section 404 on internal accounting controls to foreign companies if they have to “meet comparable standards” in their home country. What are “comparable standards?” This is a recipe for delay and loopholes. The record of “equivalency negotiations” under NAFTA and the World Trade Organization is enough to give rigorous pause to this slippery move.

5. Stricter cost-benefit analysis to any new SEC rules than is now in place. This it the time-dishonored technique of producing endless delays in issuing any rules ­ a device that has devastated updating or declaring new health and safety standards in the consumer, worker and environmental areas. A corporate law firm’s gold mine.

6. CCMG wants shareholder approval for any “poison pill” defenses against takeovers that the company officers and Boards institute. Apparently, this change would make companies more vulnerable to the lucrative business of mergers and acquisitions. But some investor advocates may like this enhancement of shareholder power, along with another proposal requiring a majority vote of shares to elect a company director.

In a broader context, CCMG opposes giving shareholders the power to vote on these gargantuan executive compensation packages that often amount to looting company assets and relooting them when the executive is asked to leave by the Board ­ the so-called “golden parachute.”

7. Either cap liability for auditors or give them outright immunity. After major accounting firms profited by looking the other way in big corporate scandals like Enron, WorldCom and the like, it takes a special brand of commercial hubris to stake out this position.

Once auditors are immune, the CCMG wants to let outside Directors escape liability for “corporate malfeasance,” if they rely “in good faith” on the auditors. It isn’t clear what non-good faith reliance would be like.

“If you take every single step on their list,” declared Barbara Roper, director of investor protection at the Consumer Federation of America, “you would have made it significantly more difficult to hold corporate criminals accountable for their crimes.”

These corporate criminals have looted or drained trillions of dollars from workers, their pensions and millions of investors since 2000. Not 5 cents on the dollar have been recovered for their victims. Many of these recoveries have come through private litigation ­ investor class actions mostly ­ which the Big Boys want to restrict even more than their restrictive victory — through the Securities Act of 1995. The more crimes, the more they drive for privileges and immunities from the rule of law.

It is not likely that many of these measures will get through the SEC or the new Congress, apart from some leniency for small companies under Sarbanes-Oxley. But they will deter efforts to strengthen the corporate criminal laws and regulations on both the corporations and, in the words of one prosecutor, “their lying, cheating and stealing” executives and accomplices.

For more information, visit corporatecrimereporter.com.



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Ralph Nader is a consumer advocate, lawyer and author of Only the Super-Rich Can Save Us! 

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