By Carrie Johnson
Washington Post Staff Writer
Friday, December 1, 2006
Investor groups sounded alarms yesterday after it emerged that a foundation with ties to a pair of well-heeled business donors and an executive battling civil charges had funded a controversial new report seeking to slash corporate regulation.
The Committee on Capital Markets Regulation, which argues that U.S. markets are suffering under overzealous enforcement and unwieldy rules, said it received $500,000 in financial support from the C.V. Starr Foundation. The charity has longstanding ties to Maurice R. "Hank" Greenberg, the former American International Group chief who was ousted from his post last year and is contesting civil charges filed by the New York attorney general.
Two committee members, Wilbur L. Ross Jr., a private investor, and Citadel Investment Group manager Kenneth C. Griffin, contributed "a few hundred thousand dollars" more, Ross said in an interview. The panel was formed this year with support from Treasury Secretary Henry M. Paulson Jr., a former chairman of the Wall Street firm Goldman Sachs.
The lengthy report released yesterday recommended that businesses and boards of directors get increased protection from private lawsuits. Panel members also urged Congress to curtail the power of state officials to charge financial and audit firms with crimes. Businesses should face criminal charges only as a "last resort," the study says.
Consumer advocates seized on the issue to question the study's conclusions and the motives of the panel's members, who include top executives from some of the nation's largest accounting and investment firms as well as people with close ties to the Bush administration.
The report marks the first push in a powerful lobbying drive by business interests that had been silenced after frauds at Enron and WorldCom ignited investor outrage and prompted Congress to pass stringent corporate accountability legislation four years ago.
The group's 32 recommendations include rethinking the mission of the Securities and Exchange Commission to make it less antagonistic to business to adopt a more cooperative regulatory approach favored by British authorities. SEC commissioner Roel Campos, a Democrat, warned yesterday that rolling back a system of regulation that has protected U.S. investors for decades could have profound and costly consequences if it went too far.
"We can't be guilty of throwing the baby out with the bathwater," Campos said in an interview. "It's a dangerous thing to start talking about dismantling something that has worked so well for our country for so long and has produced great benefits in our capital markets."
Leaders at the nonprofit pension fund group Council of Institutional Investors said the proposals would "undermine the effectiveness of market watchdogs and weaken critical investor protections."
Barbara Roper, director of investor protection at the Consumer Federation of America, went even further, asserting that the capital markets group had preordained its conclusions and carefully selected statistics to make its case that more companies were listing their stocks on foreign markets because of burdensome U.S. rules.
"You could take every single step on their list, and when you were done, you would have done nothing to reverse recent trends, and in the meantime you would have made it significantly more difficult to hold corporate criminals accountable for their crimes," Roper said.
R. Glenn Hubbard, the former leader of President Bush's Council of Economic Advisers who co-chaired the capital markets panel, told reporters that "this commission was entirely independent of any donor."
Hubbard said the group has had little contact with Paulson since it was formed in September. Jennifer Zuccarelli, a spokeswoman for Paulson, said the Treasury secretary was not involved in the committee's work , but "we are always open to hearing new ideas from respected leaders."
In a speech last week, Paulson called for pruning nettlesome class-action lawsuits and rethinking duplicative regulations. He also promised to hold a separate conference early next year to address market competitiveness. That meeting would take place in a roundtable format and include industry and investor advocates. The members of the capital markets committee were tilted more toward industry rather than investor advocates.
"Where are the people who represent institutional and individual investors?" said Duke University securities law professor James D. Cox. "I see this as a very pro-executive position, well intentioned but misguided."
The group's recommendations do not uniformly give comfort to business. Executives at the U.S. Chamber of Commerce and elsewhere raised questions about the report's advocacy of increased shareholder democracy, including moves to give investors the right to vote on "poison pill" takeover defenses in certain cases and perhaps a better chance to propose candidates for corporate boards, a hotly contested area.
Three weeks after Democrats regained control of both chambers of Congress, Hubbard, the group's co-chairman, took pains to say that many of its proposals could be enacted by securities regulators and the President's Working Group on Financial Markets, made up of the leaders of the SEC, Treasury Department and Commodity Futures Trading Commission.
Sen. Christopher J. Dodd (D-Conn.), soon to be chairman of the Senate Banking Committee, said in a statement that he would read the report as a "valuable contribution." But, Dodd added, "We must not damage the fundamental rights and protections that underpin the investor confidence critical to the success of our capital markets." Dodd said the country already has "the most effective system of laws and regulations ever designed and implemented."
A spokesman for the incoming House Financial Services chairman, Barney Frank (D-Mass.), said the lawmaker had yet to read the report.
Ross said he became alarmed after leaders of foreign firms in which he invests balked at issuing stock in the United States because of costs and regulatory uncertainty. "If it does nothing else than become the lightning rod for both sides of the discussion, that'd be good," he said.