Just send scoundrels to jail
By Lawrence J. McQuillan
USA Today
7/10/2002
usatoday.com
With each new corporate accounting confession, the response from politicians has been predictable: Blame the other political party for creating a ''climate of abuse'' and advance regulations to ''fix the problem.''
Democrats want to create a new government agency, the Public Company Accounting Oversight Board, to regulate auditors of publicly traded companies. President Bush and the Republicans want to strengthen the Securities and Exchange Commission by hiring 100 new enforcement officers and expanding its budget by $120 million. Creating more layers of bureaucracy and pages of regulations, however, will only give corporate scoundrels more places to hide and more opportunities to change the rules in their favor. What's needed is prosecution, and lots of it, not more regulation.
The government has three functions in the marketplace: enforce contracts, secure private property rights and prevent fraud. Recent accounting scandals have essentially been schemes by corporate officers, directors and their auditors to transfer wealth from one group of investors to another -- especially themselves -- by fraudulently misrepresenting the financial condition of their firms in order to deceive investors. Quite simply, this is criminal fraud and it's the government's responsibility to jail those responsible. Thousands of companies are participating in this culture of deceit because crooked businessmen have little to fear.
Before Enron there was Sunbeam, Waste Management, Bankers Trust, Citigroup and others. Each case involved financial crimes. Fines were paid, shareholders took their hit, the government took its cut, but not one executive spent one day in the hoosegow.
In 2000, federal prosecutors charged 8,766 people with white-collar crimes, but only 226 involved securities or commodities fraud. From 1992 to 2001, SEC attorneys referred 609 cases to the Justice Department for possible criminal charges. Only 87 execs went to jail. The government has failed to protect investors and workers from corporate fraud, corruption and obstruction of justice by not putting the country-club boys behind bars to serve real jail time.
Markets did their job in response to accounting improprieties by quickly re-valuing America's 17,000 publicly traded companies. Now the government must do its job by punishing those who cooked the books.
A sound financial system requires clear accounting principles and strict enforcement by the Justice Department of existing fraud and corruption laws. Doubling jail time for corporate fraud, as President Bush proposed Tuesday, without enforcement, will have little effect. Americans deserve a government that treats Wall Street crime as seriously as Main Street theft. American investors deserve financial statements that reflect fact, not fantasy. Politicians should stop building bureaucratic fiefdoms and start jailing corporate criminals.
Lawrence J. McQuillan is director of the Center for Entrepreneurship at the California-based Pacific Research Institute.
Tougher enforcement, not more rules, will send proper message. |
