By Carrie Johnson
Washington Post Staff Writer
Monday, March 12, 2007
Call it the end of the post-Enron era.
A major anti-regulatory offensive culminates this week with a one-two punch thrown by Washington and Wall Street's most moneyed institutions, as the Treasury Department convenes a star-studded meeting tomorrow and the nation's largest business lobby issues its own call to action a day later.
At the top of the agenda are ways to "secure America's competitiveness."
Translation: Burdensome rules, costly litigation and hard-nosed prosecutors are killing U.S. companies.
Five years after debacles at Enron and WorldCom ushered in the Sarbanes-Oxley law and forced companies to spend more to detect fraud, the campaign to shake off government watchdogs again is in full swing.
Industry is presenting its wish list. The key requests are to streamline corporate rules, dial back on cases against business in favor of going after individual employees, and impose new limits on investor lawsuits.
But the months-long effort is peaking at an inopportune moment for advocates of the drive to repeal corporate accountability legislation.
First, Democrats seized control of Congress, shaking up allegiances and shifting many business priorities lower -- in favor of hearings about outsize executive pay, no-bid defense contracts and allegedly predatory practices by credit card companies.
Then stock markets shuddered because of concerns that risky mortgage loans are cracking the foundation of the housing sector. Federal grand juries indicted managers who gamed compensation documents to guarantee themselves fat paydays.
And the Securities and Exchange Commission announced that it is hunting for evidence of rampant insider trading that cheats average investors.
The organized drive to scrap expensive rules began last fall with the creation of the Committee on Capital Markets Regulation, a group that won the blessing of Treasury Secretary Henry M. Paulson Jr.
The committee said Wall Street was losing ground to international rivals, and it urged prosecutors and regulators to slap business with criminal charges only as a "last resort."
Its research claimed that fewer international companies list on U.S. stock markets because of lawsuits, overly aggressive enforcers and huge financial penalties..
In the past five years, regulators have ratcheted up the consequences for engaging in fraud, topped by a $750 million settlement by WorldCom.
For his part, Paulson is mobilizing some of the nation's most high-wattage financial luminaries, including former Federal Reserve Board presidents Alan Greenspan and Paul A. Volcker and chieftains from Berkshire Hathaway, General Electric and J.P. Morgan Chase, to appear at Georgetown University tomorrow.
Two discussions are open to the public. But afternoon sessions that focus on the alleged threat of investor lawsuits, possible new legal protections for accounting firms and reining in the tough tactics of securities enforcers are for elite members only.
Among the items the U.S. chamber panelists will promote in their report Wednesday are top-to-bottom reforms at the Security and Exchange Commission, which they say is staffed with too many lawyers who create and enforce rules and too few economists who analyze costs to business.
The chamber wants Congress to instruct regulators to study the number and effectiveness of shareholder lawsuits. It also is asking lawmakers to give the SEC more authority to oversee Sarbanes-Oxley and the power to repeal its most burdensome parts such as a section that requires companies to review their financial safeguards to help prevent fraud and mistakes.
"Almost all significant laws and regulations are done in this country in times of crisis," said David Chavern, an executive at the chamber. "Maybe we should pick up our game."
But as trade groups try to seize the agenda, law enforcement authorities are firing back.
Linda Chatman Thomsen, the SEC's enforcement chief, warned executives to stop complaining and start policing their operations.
"There is substantial evidence that financial markets succeed because of strong enforcement and regulation, not in spite of it," she said in a speech last week.
The same day, on Capitol Hill, a coalition of defense lawyers, civil liberties advocates and corporate attorneys pressed lawmakers to water down a Justice Department policy on charging businesses with crimes.
Deputy Assistant Attorney General Barry M. Sabin responded that his prosecutors are mounting new probes of revenue inflation, self-dealing, insider trading and other corporate misdeeds. "Eliminating fraud is good for business," he said.
In the current environment, with both the market and the political winds blowing against them, the prospects for industry's success remain unclear.
Hal Scott, a Harvard law professor who directed the capital markets study last year, said action by Treasury and the SEC, controlled by Republican appointees of President Bush who can act with more alacrity than a Democratic Congress, is overdue.
Corporate America found cause for cheer earlier this year when regulators filed court briefs supporting limits on the ability of investors to file lawsuits, a "major philosophical shift," according to Joel Seligman, president of the University of Rochester.
But the endgame may be known fully only after the 2008 elections, political and financial analysts said .
"The focus of the general public, always ephemeral, has shifted to other issues such as the war in Iraq and affordable health care," said Joseph V. Carcello of the corporate governance center at the University of Tennessee. "And it is the mood of the general public that carries greater sway. After all, the general public has more votes than activist institutional investors."