So the article doesn't disappear.....here it is...And apologies from a jail cell won't assuage anybody. Thought this comment was particularly appropriate....
Apologies just won't cut it now
May 1, 2002
"Oops. I didn't know the gun was loaded." For a corpse, that is hardly a reassuring apology.
Wall Street, the accounting industry and publicly held companies are hoping that apologies for their blatant conflicts of interest will quiet public wrath and curb civil lawsuits and criminal investigations.
But even the most enthusiastic free-market advocates must now admit that the civil and criminal probes must go forward, in the interest of restoring credibility to the markets. In all too many cases, self-regulation and self-restraint failed. Too many purportedly free markets clearly were rigged.
As repugnant as it may be, and as unfair as interrogations may get, law enforcement officials and civil attorneys should not be stonewalled by legal maneuvering.
In recent decades, the economics of free markets won an intellectual victory over the economics of government intervention. It was great. But we blew it with our excesses. Now we must cede some battles, lest we lose the war in the most important courts of all: public opinion and the markets themselves.
Last week, David Komansky, chief executive of Wall Street's Merrill Lynch, apologized to Merrill's clients, shareholders and employees for the "distressing and disappointing" internal e-mails that are being investigated by New York State's attorney general.
I doubt if investors who bought InfoSpace stock on Merrill's recommendation are appeased. The firm had a buy on InfoSpace; during the time, a key Merrill analyst called it a "piece of junk." That was merely one example.
New York Attorney General Eliot Spitzer says the e-mails are evidence that Merrill hoodwinked its own clients in stock recommendations to generate fat investment banking fees.
Komansky knows his firm is not going to get off with an apology. He is negotiating with the attorney general right now. The U.S. Securities and Exchange Commission has launched an investigation of analyst conflicts, as have the Justice Department's Criminal Division and state securities regulators. Correctly, Spitzer is going after other major Wall Street firms.
I never thought I would say this, but it is encouraging that government and quasi-government agencies are now probing the stark and depressing conflicts on Wall Street, in accounting and within corporations.
Yesterday, the SEC proposed that companies lay out critical accounting estimates in annual reports. The Federal Reserve said a new level of skepticism is necessary in examining banks.
The Justice Department is building a criminal case against Enron's accounting firm, Arthur Andersen. The SEC, revealing a record $10 million settlement, said Xerox inflated sales by $3 billion over four years to meet Wall Street's profits targets. The agency reportedly continues to investigate top executives who engineered the ruse and dumped their inflated shares.
In recent years, many companies have restated earnings that had been artificially pumped up through accounting flimflam. The top officials who profited while concocting the financial engineering should be forced to disgorge ill-gotten gains. Accounting firms that helped facilitate the ruses should forfeit their auditing and consulting fees.
The SEC and National Association of Securities Dealers continue to investigate the blatant manipulation during the initial public offering craze of the late 1990s. If it can be proved that underwriters "laddered" IPO prices by permitting other firms to get red-hot issues at pre-determined, stepped-up prices, then criminal indictments are appropriate.
Tightly written laws, leading to criminal indictments when they are violated, may be more effective than regulation in deterring investment and corporate fraud.
And apologies from a jail cell won't assuage anybody.
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Don Bauder: (619) 293-1523; don.bauder@uniontrib.com |
