By Glen DeValerio
The recent conviction of WorldCom’s Bernard Ebbers certainly constituted a victory in the war against corporate crime. At first glance, the guilty verdicts also seem to reflect some momentum in efforts to bring wrongdoers to justice.
Not so. Despite misdeeds that have wrung hundreds of billions of dollars out of the stock market, despite myriad guilty pleas and a mounting number of convictions, Corporate America is crying foul, brazenly stepping forward to complain that the pendulum has swung too far. And the tactic is working.
Though it is almost impossible to believe, the same folks who brought us the cataclysmic meltdowns of once-storied corporations are now whining that the resulting regulations are too stringent. Amazingly, in this era of unprecedented corporate fraud, the business lobby claims it needs relief.
Sounds a bit like the playground bully who cries when the other kids finally put him in his place.
The U.S. Chamber of Commerce and its allies have launched a carefully choreographed, multi-pronged attack on regulators, prosecutors, public pension funds, trial lawyers and the Sarbanes-Oxley Act created by Congress to curb fraud.
On June 2, 2005 President Bush nominated California Republican Representative Christopher Cox to replace resigning SEC Chairman William Donaldson. This will cause an unwelcome sea change at the agency, removing a strong regulator in favor of a champion of de-regulation and vocal opponent of private rights of action against corporate wrong-doers.
Apparently, it doesn’t matter that corporate financial restatements (often a harbinger of fraud) reached an all-time high of 414 last year. Nor, evidently, does it matter that fraud cases continue to dominate business page headlines (think AIG and Fannie Mae, for example).
More than three years after the Enron scandal broke, there’s little indication that Wall Street has cleaned up its act. As the 2004 restatement figures demonstrate, companies continue to toy with their financials, at investor expense.
The Chamber is quick to blame corporate misdeeds on a few bad apples, conveniently neglecting the overarching culture that has allowed fraud to fester. The business lobby is manipulating the facts and ignoring reality, promulgating the idea that corporations are the ones that are suffering. Try explaining that to investors still reeling from their stock market losses since 2001.
Business interest groups are now hard at work in their well-funded campaign to soften federal securities laws (see our sidebar on page 6). The pro-business folks have also pressured the Securities and Exchange Commission to reject the proposed shareholder access rule that would give investors more say in who runs the companies they own.
Also in the crosshairs of the business coalition: state attorneys general and federal prosecutors who try the wrongdoers; and plaintiffs’ attorneys who recover billions for injured investors through securities class actions. The Chamber’s Institute for Legal Reform complains that corporations spent $3 billion in 2003 to settle securities fraud cases and another $3 billion on legal costs – an increase of about 40 percent from several years earlier.
Yet it only stands to reason that corporations would spend more to clean up their own mess. The frauds at Enron, WorldCom, Bristol-Myers Squibb, HealthSouth, Sunbeam and countless others have pushed the corporate legal tab up, not enterprising lawyers. Businesses are paying more in legal fees because the frauds are bigger – and more commonplace.
According to the consulting group NERA, larger settlements can be explained in part by higher investor losses. The average investor losses jumped to $2.5 billion in 2003 from $140 million in the typical suit settled in 1996.
For years we in the plaintiffs’ bar were attacked because we weren’t recovering enough money for swindled investors. Now we’re attacked because we’re recovering substantially more.
The U.S. Chamber should stop blaming the messenger and start focusing on the obvious truth: corporate America has been engaged in an unprecedented number of serious securities frauds that have significantly harmed our economy, our retirements and our investments.
The pendulum has not swung too far. It has merely returned to the center after an era of corruption enabled by the absence of regulation. How soon we forget.
*In August 2017, our firm name changed to Berman Tabacco. Case references and content published before that date may refer to the firm under our prior name, Berman DeValerio.