Kerry and the Enron era scandals
...February, 2002, when former Enron CEO Ken Lay appeared before members of the U.S. Senate, Kerry was even more harsh: "Americans everywhere are shocked that you have no answer to explain how Enron executives escaped this sinking ship with their fortunes intact while thousands of everyday working Americans were left holding the bag, robbed of their retirement savings."
But Kerry shouldn't be shocked at all. Backin 1995, he backed a controversial measure that severely limited the ability of investors to sue companies engaged in fraudulent accounting practices--a legal change widely believed to have
contributed to the accounting scandals of the last few years. The law, which consumer groups opposed vociferously precisely because they feared it would lead to white-collar crime, was part of Newt Gingrich's Contract With America.
Yet Kerry voted for it anyway, not once but twice--the second time overriding a veto by President Clinton. The law in question is the Private Securities Litigation Reform Act of 1995.
At the time it came up for debate, the bill's supporters said it would curb frivolous lawsuits against companies whose stock prices had fallen but who had engaged in no wrongdoing.
....
During the initial debate over the bill on the Senate floor, Kerry, a member of the committee with jurisdiction over banking, acknowledged the legislation's shortcomings. "My preference also would have been to include stronger investor recovery provisions," he said, noting that he had supported failed Democratic amendments that would have softened the bill's impact. But unlike 26 of his Democratic colleagues and a handful of Republicans (Arlen Specter and John McCain among them) for whom such problems were cause enough to ppose the bill, Kerry embraced it anyway. "On balance," he said, "this legislation should lead to the creation of a more favorable climate for investors and businesses."
After Clinton vetoed the bill, Kerry voted to override the president--a motion that passed the Senate by one vote. It was the first time a Clinton veto failed, leaving the White House to say merely that Clinton "hopes that the
unintended consequences of the legislation actually do not occur."
As we all now know, the consequences did occur. The Enron case is just the most famous example of a company cooking its books while accountants looked the other way, costing investors hundreds of millions of dollars (not to mention
throwing thousands of employees out of work). And while it would be grossly unfair to blame it all on the Securities Reform Litigation Act, many experts think the law played a critical role in the scandals--partly by insulating auditors and other would-be watchdogs from the threat of lawsuits. It
"substantially reduced the liability of accountants and other corporate gatekeepers," says Columbia University law professor John Coffee, an expert on securities regulation who advised the Clinton White House on this issue in 1995. "It's reasonable to infer that ... [to] the extent that auditors no longer felt the pressure of litigation, it became easier to acquiesce at the margins to a fraud that they might not otherwise allow to happen."
James Cox, a securities expert at Duke Law School, is even more blunt when asked whether the 1995 law contributed to the Enron scandals: "You betcha," he says.
.....
..the more pertinent question for the presidential campaign is why Kerry voted for the bill in the first place. He certainly wasn't the only Democrat to do so; Ted Kennedy supported it, too, as did some other high-profile liberals. And even to the extent that Kerry might have been doing a favor for the banking or high-tech industry, he had a plausible--if parochial--reason for doing so: Both are large employers in the Boston area.
Still, it's hard not to notice the apparent connections to Kerry's campaign money. Although Kerry often brags that he takes no money from political action committees, according to the Center for Responsive Politics he has long been among the top recipients of contributions by executives and employees of the financial services industry, whose Washington lobbying groups pushed hard for this legislation. (Kennedy and other liberals who supported the bill also benefit from substantial financial industry donations.)
By Jonathan Cohn in TNR |
