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From: Off With Their Heads: Traitors, Crooks & Obstructionists In American
Politics, Media & Business


by **** Morris

CHAPTER SIX
THE ATTACK ON OUR ECONOMY:
HOW TWO SENATORS-CHRISTOPHER DODD AND PHIL GRAMM-PASSED LAWS THAT HELPED
ENRON DEFRAUD ITS INVESTORS WITH IMPUNITY

When those planes rammed into the World Trade Center, slicing our hearts
open, Osama bin Laden was striking at our freedoms, our power, and our
capitalist system. It's no accident that he chose the towers of Wall Street
as his principal victims.


He succeeded. Not only did he bring down the office buildings, he also
brought the American and global economy to a standstill. Since then we have
suffered-not from a Bush recession but from the bin Laden recession.


But Osama had help.


In the boardrooms of America, those who have benefited the most from our
free enterprise system had already hatched a whole host of plots and
schemes designed to defraud investors and undermine the confidence that
kept the economy growing. But these corporate directors and CEOs had
confederates in their plans: accountants and lawyers who showed them how to
do it and get away with it.


Furthermore, they couldn't have pulled it off without the help of
politicians. Two senators in particular-Christopher J. Dodd, Democrat of
Connecticut, and Phil Gramm, Republican of Texas-made billions of dollars
in larceny possible. In the 1990s, when we weren't looking, they pushed
through two laws that, in effect, immunized Wall Street from lawsuits by
investors whom it swindled. These laws protected Enron and Arthur Andersen
so they could cook the books in peace. These senators also helped to stop
the Securities and Exchange Com-mission (SEC) from curbing some of the
worst abuses on Wall Street.


Peel back the layers of the Wall Street onion, and what do you find? On the
top layer are the corporate executives who committed the frauds. Next are
the accountants who taught them how to do it. And at the rotten core are
these politicians who passed laws to protect them from the consequences of
their actions.


And these laws are still on the books!


Try as they might, the investors whose life savings are gone will be lucky
to get pennies on the dollar back. Why? Because that's how Wall Street and
Capitol Hill planned it.


OFF WITH THEIR HEADS!


By the time the dust of the Enron scandal had settled, tens of thousands of
investors had lost billions, as the company's stock plunged from $90 to $1
in a few days. Time reported that more than half of the Enron employees'
401(k) assets, "or about $1.2 billion, was invested in company stock, which
is now nearly worthless. Billions more were lost by other investors, from
individuals to large institutions that bought Enron shares for the pension
plans of unions and corporations."


If the poor ****ers who bought Enron stock, or the energy company employees
who had no choice but to purchase it, were stuck when the company tanked,
the top executives made sure they came out fine. The New York Times noted
that "as Enron stock climbed and Wall Street was still promoting it, a
group of 29 Enron executives and directors began to sell their shares.
These insiders received $1.1 billion by selling 17.3 million shares from
1999 through mid-2001."


Enron chairman Kenneth L. Lay "sold Enron stock 350 times, trading almost
daily, receiving $101.3 million. In all, Mr. Lay sold 1.8 mil-lion Enron
shares between early 1999 and July 2001, five months before Enron filed for
bankruptcy."


Ken Lay got out in time, of course. But plenty of others didn't. William S.
Lerach, a prominent securities plaintiff's attorney who issuing corrupt
Wall Street firms, has called attention to the story of Roy Rinard, a
fifty-four-year-old utility lineman employed by an Enron subsidiary. Roy
was one of the unlucky ones: His 401(k) account, invested entirely with
Enron, shrank from $472,000 to less than $4,000 after Enron declared
bankruptcy. He was helpless to stop the loss. Why? Among other reasons,
Rinard and other Enron employees were prevented by company rules from
selling their retirement plan stock. Only top management had that
privilege.


Beyond Enron, the crisis in the energy company set off a wave of
reverberations, with corporate disasters hitting Global Crossing,
World-Com, AOL, and a host of other companies that swamped investors. The
shock waves are still being felt today on Wall Street, as investor
confidence has sagged to lows not seen since the stock market crash of
1929.


What caused the crisis? How could Enron have gotten away with phony
statements of profit and loss, false reports of earnings, and deceptive
projections of its future in the closely regulated environment of publicly
traded companies policed by the Securities and Exchange Commission?


Easy: Arthur Andersen, the major accounting firm, showed them how. It
conducted what amounted to a private tutorial for Enron executives on how
to lie and cheat. Meanwhile, Arthur Andersen's name, reputation, and
imprimatur on the company do***ents guaranteed that the data they fudged
would be accepted as accurate and fair.


It wasn't the first time that the Andersen firm had been caught lying about
a client's earnings. The Chicago Tribune describes how the accounting firm
paid out $110 million in 2001 to settle shareholder lawsuits in connection
with the Florida Sunbeam Corporation. The lawsuit stemmed from accounting
gimmicks that "pumped up" Sun-beam's earnings in 1997 by $70 million.


But the real question is how could Arthur Andersen help Enron misrepresent
its data and hope to get away with it?


The Politicians Sell Out to Arthur Andersen

As so often happens, the answer goes back to politics-specifically, to a
deal cut between the Democrats, led by Connecticut's Chris Dodd, former
chairman of the Democratic National Committee, and the Republicans, led by
Phil Gramm of Texas, in the 1990s. A deal with all the hallmarks of
political double talk, it was fueled by massive campaign contributions from
the accounting industry. It is a tale of a powerful industry's deliberate
manipulation of the legislative process to pass laws that hurt the consumer
rather than help him-that protect those who defraud the investor rather
than punish them.


The story began on April 19, 1994, when the U.S. Supreme Court, in a
particularly pernicious 5-4 decision, ruled that investors could no longer
sue accountants who had vouched for phony claims of profits made by corrupt
corporate executives. The familiar right-wing coalition of Justices William
H. Rehnquist, Anthony M. Kennedy, Antonin Scalia, Clarence Thomas, and
Sandra Day O'Connor said that the statutes regulating securities
transactions did not permit those who had been defrauded to go after
accountants or others whose actions were "aiding and abetting" the fraud.


Now, investors could sue the company that issued the statements (which was
usually broke)-but not the accountants who had approved them.


The dissenters, led by Justice John Paul Stevens (and including Harry
Blackmun, David H. Souter, and Ruth Bader Ginsburg), pointed out, "In
hundreds of judicial and administrative proceedings in every circuit in the
federal system, the courts and the SEC have concluded that aiders and
abettors are subject to liability" under federal law. They bemoaned the
majority's reversal of this practice, saying that the ability to sue aiders
and abettors "deters secondary actors ...from contributing to fraudulent
activities and ensures that defrauded plaintiffs are made whole."


The Supreme Court ruling in 1994 set the stage for a brutal legislative
battle in 1995. Faced with such a wholesale reversal of long-treasured
investor protections, Congress felt bound to act to restore some of the
rights the Court had stripped away. But soon the vultures honed in on the
proposed remedial legislation, to make sure that the worst abuses-and
abusers-would still enjoy the protections the Court decision gave them.


But the political landscape changed dramatically in the midterm elections of
1994. Clinton and the Democrats, who had controlled both the House and the
Senate in the 1993-1994 session, now lost both chambers to Republican
majorities. The GOP legislators were emboldened by their radical
conservative agenda, enshrined in a "Contract with America" issued by
future House Speaker Newt Gingrich to rally his troops for the decisive
election of 1994.


The contract called for "common sense legal reform" to prohibit aider and
abettor liability. It also wanted to limit the damages of those who were
liable. "Under current law," it read, "a defendant can be held responsible
for the entire award [stemming from a lawsuit] even if he is not completely
responsible for all the harm done." The Republicans pledged to change
things by assigning to each actor liability for only the portion of the
damage he caused.


This theory sounds good-but the truth is that, in most securities frauds,
the scam could never have been pulled off unless all the actors were on
board. A crooked company needs a crooked accountant, and a willing lawyer,
to make the fraud stick. If either one is honest and blows the whistle, the
fraud doesn't happen.


So how much of the liability in a fraud case should by shared by a dishonest
accountant who lets a dishonest corporate executive issue a false statement
of profits, earnings, losses, and expectations for the future? If the
executive refused to issue the numbers, they wouldn't go out; if the
accountant refused to ratify them, they would have no credibility. So each
is a necessary actor: You can't have a fraud unless they both play ball So
they both should be fully liable. (Especially in cases where a corporation
is long since bankrupt, unable to pay back the investors, while the
accountant might otherwise walk away unscathed).


But the Republicans who took over the Congress in 1994 didn't see it that
way. Led by Phil Gramm, they were determined to weaken investor
protections, perhaps in the misguided belief that it would encourage
enterprise and entrepreneurship in the national economy.


Meanwhile, though, another, more sinister actor-Chris Dodd of
Connecticut-was planning to use the GOP impetus to further his own agenda.


Even before the 1994 Supreme Court decision, Connecticut had been rocked by
a huge scandal that was a precursor to the Enron affair. The New York Times
reported that in the early 1990s, six thousand Connecticut investors had
been lured to invest in a firm called Colonial Realty by inflated reports
of earnings. The investors lost tens of mil-lions, and the scandal reached
so far into the highest ranks of Connecticut's officialdom that, when the
investors sued, the judicial bench had trouble finding a judge who hadn't
lost money to try the case.


The optimistic predictions of Colonial Realty were endorsed by Arthur
Andersen and by the law firm of Tarlow, Levy, Harding & Droney. Ultimately,
Andersen was forced to pay some $90 million to settle the Colonial case.
And Droney's firm had to come up with $10 million.


The "Droney" at the end of the firm name was John Droney, formerly
Connecticut State Democratic chairman. Dodd nominated Droney's brother,
Christopher, as U.S. attorney for Connecticut and later to the federal
bench as U.S. district court judge.


When Dodd learned of the Supreme Court decision banning aiding and abetting
lawsuits, he apparently thought of his friend John Droney, who was facing
just such a suit for his handling of Colonial Realty.


Dodd then sponsored a bill to make sure that accountants, lawyers, and other
professionals couldn't be sued for aiding and abetting the fraud.
Amazingly, Dodd even sought to make the provision retroactive in what
looked like a blatant attempt to shield those implicated in the Colonial
Realty case.


The Hartford Courant noted that the "original draft" of Dodd's bill "put
cases currently pending under his proposed law-such as the Colonial case."
Eventually the retroactive provision of Dodd's bill was dropped, removing
the protection to Colonial Realty. But he was still able to insulate his
accountant and lawyer pals from the consequences of any future frauds.


Once the consumer groups learned what Dodd was up to, they protested
vigorously, denouncing his proposed bill. Ralph Nader called Dodd's
legislation "The Financial Swindler's Protection Act of 1995."


Dodd's efforts to protect his lawyer and accountant friends went much
further. An article in the Legal Intelligencer reported that Dodd's bill
"would set a minimum threshold of losses below which investors could not
sue accountants and limit lawsuits to 'primary violators,' meaning that
accountants could be sued only if they were directly implicated in
wrongdoing."


Dodd was also eager to ensure that anyone who lost a lawsuit against his
accountant and lawyer friends might face having to pay for their legal
fees. Michael Calabrese, executive director of Public Citizen's Congress
Watch, said that Dodd had "created a bill that's out of control and now has
tremendous protections for the financial services industry."


Dodd's bill also limited the liability of accountants, lawyers, and other
professionals to a portion of the losses caused by their fraud.


Perhaps the most scandalous feature of the Dodd bill was that it created a
"safe harbor provision," which allows public companies to be shielded from
litigation when their projections and predictions of future earnings and
profitability turn out to be bogus. All they have to do is to put in what
one financial adviser called "adequate cautionary language"- a
disclaimer-and all is cured. "Lie all you want," the legislation seemed to
provide, "just put in some boilerplate language and you'll be okay."


Dodd's bill also handcuffed lawyers trying to help investors to get their
money back. The Consumer Federation of America pointed out that the bill
"requires that a victim's complaint, filed at the beginning of the case,
'state with particularity all facts giving rise to a strong inference that
the defendant acted with the required state of mind.' " Columbia law
professor John Coffee calls this provision "a Catch-22: You can't get
discovery unless you have strong evidence of fraud, and you can't get
strong evidence of fraud without discovery."


Before the Dodd bill, investors could sue companies for civil violations of
the Racketeer Influenced and Corrupt Organizations Act (RICO). Civil RICO
has teeth. It allows for an award of triple damages and attorneys' fees.
And what better describe the shenanigans that went on between Enron and
Arthur Andersen than that it was a "corrupt organization?" Because civil
RICO was effective, Dodd made sure that it was removed from the diminishing
quiver of weapons with which an investor could protect himself. Under the
bill, investors could no longer sue under the RICO statue to recover their
losses.


investment bankers, and financial accounting firms, i.e., the normal
defendants in securities cases. Higher pleading standards, automatic
discovery stays, a safe harbor that arguably permits corporate executives
to lie about future results . . . damage limitations, elimination of joint
and several liability for reckless conduct, and, for good measure, a
mandatory sanction review procedure that . . . threatens plaintiff's
counsel with up to 100% liability for defendants' fees."


The way forward for the Dodd bill was greased by massive campaign
contributions to candidates for Congress-including Chris Dodd himself, who
got $54,843 from Arthur Anderson alone, more than any other Democratic
senator, and $37,750 from computer companies that prudently supported the
legislation, which would protect them in case their projections went awry.


No wonder the New York Times called Dodd "perhaps the accounting industry's
closest friend in Congress."


Overall, during the 1995-1996 campaign cycle when the Dodd bill was pending,
the accounting industry and the big accounting firms gave $7,782,990 to
congressional candidates.


But still, the bill didn't have an easy time of it. As consumer groups lined
up against it, President Clinton came under enormous pressure to veto it.
Within the administration, a fierce debate raged on whether to sign or kill
the legislation.


The Phony Clinton Veto

As the president's pollster, I advised a veto, noting that public opinion
strongly disagreed with the legislation. In a survey conducted in November
1995, voters overwhelmingly rejected the provisions of the bill.


Then I ran into Bruce Lindsey, the president's oldest friend and closest
personal adviser. The venue for the encounter was an odd one: the men's
room on the second floor of the West Wing. Lindsey asked me about the
securities bill, and I said, "I advised him to veto it. The bill is
terrible, and it'll make a great issue for us against the Republicans."


"A lot of Democrats favor it, too," Lindsey noted.


"Sure, but when has that stopped us?" I asked.


"Well." His tone turned serious. "We're getting a lot of pressure from our
friends in California to sign it."


"You mean the Silicon Valley types?" I asked.


Lindsey nodded. The technology hub in northern California was a key source
of support for the president and a big contributor to his campaign.


"The issue will do us more good than the money," I parried.


Lindsey shrugged, as if to say, "We'll see."


This conversation with Bruce Lindsey stands out in my mind because it was
the only time, in my two years of work with Clinton in the White House,
that I ever heard anyone mention a policy issue in terms of its effect on
possible campaign contributions. Despite the pressure to raise money to
fund our ambitious schedule of television ads, I never heard a single
suggestion that we might change or alter any policy to get more money into
our campaign-until the men's room conversation with Lindsey.


When I spoke to the president about the bill in early December of 1995, he
explained his dilemma to me: "Not only is the Silicon Valley on me about
the bill, but so is Dodd. He wants me to sign it," he said.


"You can't be pushed around by those guys," I responded. "The issue is too
good for us. It will allow us to run against the Republicans as the folks
who want to rip off old ladies and other investors."


"But what about Dodd?" the president persisted. As chairman of the
Democratic National Committee, the Connecticut senator was a key member of
the Clinton team and responsible for much of the fund-raising. To go
against him on a matter of this importance could result in serious bad
blood.


And Clinton didn't need bad blood with Dodd, certainly not then. In November
and December 1995, the securities bill was an after-thought. Center stage
was fully occupied by Clinton's resistance to the budget cuts the
Republican Congress was pushing. Led by Speaker Newt Gingrich, the GOP had
closed down the federal government after the president vetoed their package
of harsh budget cuts.


Holding up Clinton's side of the argument was a $10 million pro-gram of
television ads emphasizing why the president needed to stand firm "for
America's values" and block cuts in "Medicare, Medicaid, education, and the
environment." Without the media advertising, Clin-ton would never have been
able to get his message out. Dodd-and the financial interests for which he
was speaking-controlled a lot of the money we needed.


Clinton proposed a solution. "Let's do it like we did on the highway bill in
Arkansas," he suggested.


He was referring to his political maneuvering, as Arkansas governor, when a
bill was introduced by the highway construction lobby in 1983 to raise
taxes on heavy trucks to fund highway construction and repair. Clinton was
torn between the highway contractors, who were key financial supporters of
any in***bent governor, and his own worry about raising taxes.


Clinton had had good reason to worry about road taxes. As a freshman
governor in 1980, he had been defeated for reelection largely because he
raised car license fees to fund road construction. He worried that if he
signed a bill for the truck tax hike, he could be in trouble all over
again.


Clinton solved the problem by trying to please both sides. First he
satisfied the highway lobby by endorsing the bill. Then he doubled back and
told the truckers he opposed it. The state highway director was less than
pleased and called Clinton a "double-crosser." While Clinton ended up
signing a watered-down bill, he had skirted a tough issue that could have
hurt him politically.


"What if I veto the bill and it's overridden? Would the override hurt me
politically?" Clinton asked. He'd yet to have a veto overridden by
Congress.


"No," I conceded, "as long as you're forthright in opposing the bill and
veto it, an override won't hurt you. The public doesn't care if you get
overridden. They just want to see you fighting the good fight against the
Republicans."


"Even if Democrats join in the override?" he prodded. What he meant was:
Would people see through my veto if the Democrats vote to override me-would
they realize the veto was just window dressing?


"No," I answered, "even if Democratic senators vote for the bill, that's
their political problem. It won't interfere with your standing against it."


The die was cast. On December 20, 1995, Clinton vetoed the bill, saying, "I
am not willing to sign legislation that will have the effect of closing the
courthouse door on investors who have legitimate claims. Those who are the
victims of fraud should have recourse in our courts. Unfortunately ...this
bill could well prevent that."


But even as Clinton was vetoing the bill, Dodd understood that he would
incur no presidential wrath if he overrode the veto. So the Connecticut
senator worked overtime to repass the bill, lining up the two-thirds
majority he would need to make it law. Dodd, a loyal party man, would never
have dared to override a Clinton veto if he hadn't been fully confident
that the president wouldn't mind.


Reading the mixed signals from the White House and feeling pressure from
their campaign contributors, the Democrats fell in line and voted to
override their president's veto. Twenty Democrats joined the Republicans in
the Senate override, and eighty-nine Democratic congressmen voted to
override in the House, joining an almost solid GOP vote for the bill.


Even smart consumer advocates seemed fooled by the Clinton two-step. They
attacked Dodd, but they let Clinton alone. Charles Lewis, of the Center for
Public Integrity, said, "Chris Dodd-here he is, chairman of the Democratic
Party, but he's also the leading advocate in the U.S. Senate on behalf of
the accounting industry, and . . . he helps overturn the veto of his own
president, who installed him as Democratic chair-man. Dodd might as well
have been on the accounting industry's pay-roll. He couldn't have helped
them any more than he did as a U.S. senator."


Lewis didn't get it. In effect, Dodd was on their payroll-through campaign
contributions.


For his part, Clinton never let on that the whole charade had been
prearranged and choreographed. He got credit for standing up for the
consumer by vetoing the securities bill, while one of his chief
fund-raisers, Senator Dodd, could continue to rake in money for Clinton
from Wall Street, the accounting industry, and the Silicon Valley as a
payoff for passing it anyway.


Indeed, after Enron collapsed and hapless investors found they couldn't go
after Arthur Andersen, Clinton sanctimoniously blamed the Republicans,
saying he had vetoed the bill, which, he said, "cut off investors from
being able to sue if they were getting the shaft." He said that he was
"sure some of the people in Congress that stopped a lot of the reforms I
tried to put through are probably rethinking that now."


That's chutzpah.


Andersen and Enron Get to Work Defrauding Investors

Once the securities bill had passed, Arthur Andersen could get to work
helping Enron defraud investors without having to worry about law-suits.


Here's how they did it:


"At the heart of Enron's demise," Time reports, "was the creation of
partnerships with shell companies, many with names like Chewco and JEDI,
inspired by Star Wars characters. These shell companies, run by Enron
executives who profited richly from them, allowed Enron to keep hundreds of
millions of dollars in debt off its books. But once stock ****ysts and
financial journalists heard about these arrangements, investors began to
lose confidence in the company's finances. The results: a run on the stock,
lowered credit ratings and insolvency."


Why did Enron and Arthur Andersen decide not to own up to the debts these
shell companies were racking up? They were protecting Chief Financial
Officer Andrew S. Fastow, whom the Times described as "the driving force"
behind the phony accounting procedures. "Evidence introduced at the
criminal trial of Arthur Andersen indicates . . . that [an] improper
accounting decision-which set in motion Enron's destruction-served mainly
to benefit the financial interests of a single corporate insider....While
the decision brought few if any benefits to Enron itself, these accountants
said, it did help to protect the financial health of an outside partnership
managed by the company's chief financial officer then, Andrew S. Fastow."


Despite this evidence of malfeasance, investors cannot sue Arthur Andersen
for their losses with any hope of significant recovery-because of the
protections Chris Dodd got passed in the Securities Litigation Reform Act
of 1995.


Blocking Separation of Auditing and Consulting

But the Securities Act changes weren't the only service Dodd and his
colleagues rendered to the accounting industry. As the 1990s unfolded, one
of the most honest men in Washington-SEC commissioner Arthur Levitt
Jr.-began to worry about the integrity of the audits of the major
accounting firms. Concerned that these firms had a conflict of interest in
auditing companies (like Enron) with which they also did consulting
business, Levitt sought to bar accounting firms from consulting for
companies they audit.


The principle seemed fair enough. An auditor must be free to speak out
against false numbers and to demand corrections in the published financial
statements of public companies-but if these same auditors are getting huge
consulting fees from their clients, they might be reluctant indeed to kill
the golden goose.


As it happens, that is just what went on between Enron and Arthur Andersen.
As Enron's auditor, Andersen was expected to be objective and impartial.
But the firm was heavily dependent on consulting fees from Enron. (In 2001,
for example, Andersen was paid $27 million by Enron for consulting services
and $25 million for its audits.) Hiring such a firm for this kind of double
duty is a bit like hiring your IRS agent as your personal accountant: He'd
inevitably be torn between his desire to collect taxes from you, and his
wish to continue to get your fees for his accounting services.


Levitt-whom the Washington Times describes as "one of the most aggressive
SEC chairman on behalf of investors ever"-wanted accounting firms to stop
consulting for companies they audit. He "was convinced audits were being
compromised because the firms were protecting their consulting business."


Worried, according to the Associated Press, that "accounting firms are
jeopardizing their independence by becoming more financially dependent on
the lucrative consulting work they do for companies they audit," the SEC
chairman campaigned to separate the two in the closing months of the
Clinton administration. The Washington Post describes how he worked
"feverishly . . . crisscrossing the country from Dallas to New York for
meetings while juggling a blizzard of calls and visits to members of
Congress." His proposal "sparked a firestorm of protests" from accountants,
led by the American Institute of Certified Public Accountants.


USA Today reported that thirty-eight congressmen and four**** senators, most
of them members of the oversight committees with jurisdiction over the SEC,
called Levitt to urge him to back off. Chief among them were Representative
Billy Tauzin (R-La.), Senator Chuck Schumer (D-N.Y.), and Senator Phil
Gramm (R-Tex.).


Tauzin, chairman of the House Energy and Commerce Committee, had received
$143,424 in campaign contributions from the accounting industry in the
preceding five years. He wrote to Levitt that he saw "no evidence" of a
problem justifying the SEC action.


Schumer had taken $329,600 from the accounting industry over the last five
years. He wrote to the SEC opposing the rule change, a letter SEC officials
said "was almost certainly composed with the assistance of the accounting
lobby." After the Enron scandal broke, Schumer donated $68,800 he had
gotten from Enron and Arthur Andersen to a fund for former Enron employees.
He says that he defended the accounting industry not because of the
campaign contributions but to protect thousands of jobs in New York City.


But nobody was as compromised in his actions, or as influential, as Texas
Republican senator Phil Gramm, then chairman of the Senate Banking
Committee. The Washington Times reported that Gramm wrote the SEC
questioning whether there was any evidence that accounting firms were
"cooking the books" or "looking the other way." He also said that the
proposed SEC rule change would "force dramatic changes in the structure and
business practices of accounting firms" and require corporations "to pay
increased costs for some types of accounting services."


Gramm, who may have quit the Senate in 2002 to avoid having to defend his
Enron record on the campaign trail, is a special case in com-promising
relationships. Gramm's wife, Wendy, sat on the Enron Board of Directors and
on its Audit Committee, for which she was paid $22,000 annually plus $1,250
for each meeting she attended. (Frontline reported how she was "named to
the company's board, just five weeks after stepping down [as Chairman of
the Commodities Futures Trading Commission] which around the same time
exempted Enron ...from federal regulation on some of their commodities
trading ...a big financial boon to Enron.")


Wendy and Phil got out in time. She sold all her 10,256 shares of Enron
stock for $276,912 on November 3, 1998-for $27 per share, considerably
above the $1 it would plunge to two years later.


Chris Dodd joined the fray of those pressuring Levitt. The Associated Press
reported that he "helped broker a deal between the Securities and Exchange
Commission and the Big Five accounting firms, which ended the SEC's push to
restrict auditors from selling consulting ser-vices to their clients." The
deal was, in reality, a surrender by Arthur Levitt.


Now accounting firms were freed to audit the same clients they consulted
for-the conflict of interest that led directly to the Enron/Arthur Anderson
scandal. For accountants to turn in their corporate clients for cooking the
books would entail biting the hand that fed them.


But the special interests still had more dirty work for their hired hands on
Capitol Hill to do.


1998: The **** of Investors Continues

The 1995 securities law barred the doors of the federal courthouse to those
who sued accounting firms to get back their life savings. Before long,
investors began to respond by suing in state courts.


So, in 1998, Congress passed a law barring the state court route, too.


Attorney James E. Day, an associate at the law firm Kirkpatrick & Lockhart,
noted that the 1995 act "by placing procedural and substantive obstacles to
prosecuting securities class action litigation in federal court, led to an
increased number of such suits being filed in state courts under state
law." The special interests couldn't stand that, so, "spurred by
evidence... of this 'noticeable shift in class action litigation from
federal to state courts' Congress passed SLUSA [the Securities Litigation
Uniform Standards Act] to promote the federal courts as the uniform forum
and federal law, namely [the 1995] Reform Act, as the uniform standard
governing most securities class action litigation."


In other words, having stacked the deck against plaintiffs in the securities
litigation, Congress proceeded to ensure that state courts could offer no
relief.


The Conference Committee reporting out the bill in Congress, in effect, said
the same thing. "The solution to [the problem of the increase in state
court securities class actions] is to make Federal court the exclusive
venue for most securities fraud class action litigation involving
nationally traded securities." After the 1998 act passed, Day explained,
any investor who complained about "an untrue statement or omission of a
material fact in connection with the purchase or sale of a covered
security" couldn't go into state court, but had to litigate in federal
court-where he could not hold accountants liable for the frauds they
permitted.


The new bill was passed on July 23, 1998, ********ly at the behest of the
Silicon Valley companies. The Tech Law Journal was frank in relating how
the bill was "designed to decrease the number of harassment suits brought
in state courts that threaten the ability of companies-particularly
high-tech Silicon Valley companies-to raise capital and disseminate
information."


Congressman Rick White (R-Wash.) said that "our thriving high technology
companies need protection from frivolous lawsuits that prey on their
volatile stock prices. This bill will help those companies focus their
energies on the marketplace instead of the courtroom, and keep them
providing the innovative products and services we have come to expect."


The bill limited pretrial discovery, forced plaintiffs to contend with the
"safe harbor" defense for phony projections passed in the 1995 act, and
permitted the high-tech companies to survive the collapse they faced in
1999-2002-all without being exposed to lawsuits in state courts. Clinton
signed the bill, signaling how phony his veto of 1995 had been: Now here he
was, signing a bill to stop investors from cir***-venting the same rules he
had previously vetoed.


Part of the reason Clinton didn't veto the bill but felt he had to sign it,
of course, was his growing political weakness. In the interim, the Monica
Lewinsky case and the impeachment that ensued had weakened his
always-limited ability to defy the special interests and the call of his
party's senators to give them what they wanted.


Representative Bart Stupak (D-Mich.) correctly observed, "If we pass this
bill, Congress will place all investors into a largely untested, untried
new federal system that will make it very difficult for investors to prove
fraud." How right he was.


So now-after the 1994 Supreme Court decision in the Denver case, the
congressional passage of the 1995 Securities Litigation "Reform" law, the
stymieing of Arthur Levitt's efforts to ban consulting and auditing by the
same accounting firm, and the 1998 Securities law-the investor was
delivered, bound and gagged, over to the fraud mavens at Enron, Arthur
Andersen, Global Crossing, and a host of other companies.


The stage was set for the massive failures and frauds of the early 2000s.


The Phony Reforms of 2002

Once the bombs had exploded, Enron had failed, WorldCom had gone up in
smoke, Arthur Andersen had closed its doors, and confidence in Wall Street
had sunk to the Elton John level-too low for zero-Congress and the Bush
administration acted. Just in time for the midterm elections of 2002,
Congress passed and Bush signed the Corporate Reform Act of 2002.


The bill included needed changes in rules for accountants, including the ban
on auditors consulting for companies they audited, for which Arthur Levitt
had fought. It included a number of important reforms, which certainly made
sense:


o Accountants would be regulated by a new board under the SEC.
o Auditors would have to rotate every few years.
o Companies could not make loans to their directors or executive officers.
o CEOs would have to sign financial reports saying that they fairly present
the financial condition of their companies, with criminal penalties if they
lie.
o Directors or executive officers of a company would have to observe the
same blackout periods on sale of their stock that employees have to observe
in the pension plans.
o All off-balance sheet transactions would have to be disclosed.


But nothing in the legislation rolled back the efforts of the 1990s to
hamstring investors seeking to get their money back. In the aftermath of
the Enron collapse, Senate Democrats tepidly explored whether to reverse
the horrendous bills passed in the previous decade, but nothing came of it.
Congress wasn't willing to take away the special protections it had given
those who defrauded investors-not when they also gave so generously to
their campaigns.


The spin artists at the White House had deflected the corporate scandals,
turning them into a law-and-order, cops-and-robbers spectacle, featuring
corporate executives being led away in handcuffs.


As Newsweek put it: "Around the jail it's called a 'perp walk,' . . .cops
parading a newly arrested 'perpetrator' in handcuffs or other heavy-metal
wear past the waiting cameras. It's a mean-streets tactic viewed with
disdain by the lordly federal prosecutors of the U.S. Attorney's Office in
the Southern District of New York, especially in white-collar cases, where
the perps wear suits and have connections."


But Bush needed a perp walk. With the scandal about corporate abuses
threatening to tarnish his image and that of his party, a high-profile
arrest would do his ratings good So the administration focused on the case
of John Rigas and his family's Adelphia Communications company.


When Rigas, accused of looting his company, was led away in handcuffs, under
the gaze of cameras assembled for the purpose by the White House, Bush had
his symbolic show of toughness. "Wait'll you see what's next," joked White
House adviser Karl Rove. "Orange jumpsuits!"


Newsweek explained: "The Rigas arrests were only one part of an all-out
White House effort to, as they say in the spin-doctoring business, 'get out
ahead of the story.' "


In the legislative debate, congressmen and senators vied with one another to
impose ever-tougher theoretical penalties on corporate executives who
misrepresented their company's finances. The final law imposed a maximum
ten-year sentence for a "knowing" violation and a twenty-year term for a
"willful" one.


But all of this, of course, was nothing more than show and window dressing.
Nothing was done to enable those who had been defrauded to see a dime of
their money or to restore the only real threat that could discipline the
business community-the overhanging risk of litigation by disgruntled
stockholders.


As long as the enemies were the bureaucrats or the regulators, corporate
executives understood that campaign contributions to their bosses could
nullify their efforts. Helpless when their elected public officials jerked
their leash, these enforcers could be kept under control. It was the
investor, unrestrained by political ambition and empowered by access to
lawyers eager to make a big fee, of whom they needed to be afraid. So the
crippling legislation of 1995 and 1998 remained on the books, unchanged.


What We Need to Reform the Process

The Consumer Federation of America has issued a sensible plan to correct the
abuses that caused the corporate scandals of 2001-2002. It's so sensible
that it will never pass-unless the American people focus on it and get
behind the legislation.


Among the measures it calls for:


Get Rid of the Safe Harbor
The safe harbor protections are like the papal indulgences that caused the
Reformation. "Sin all you want-just put in a disclaimer," they say. We need
to stop letting accountants and corporate executives hide behind fine-print
disclaimer language when they make phony predictions about their companies.
Go back to the old standard, before it was watered down by the 1995 law;
predictions must be made in "good faith" with a "reasonable basis"-no
caveats, no excuses.


Hold Aiders and Abettors Fully Responsible
Anyone who enables fraud should be responsible for its consequences. Under
the "Reform" laws of 1995 and 1998, accountants can shut their eyes to
fraud, even show executives how to commit fraud, and then say, "Who, me?"
when the fraud is uncovered.


Re-impose Joint and Several Liability on Accountants
And, once the fraud is discovered, make the accountants, auditors, and
other professionals fully liable for the fraud they cause-not just for a
small part of it.


Make It Possible for Investors to Win in Court
Undo the rules of the 1995 law, which require that a victim of fraud know
all the details before he or she can begin the suit. Give them the power to
investigate, through discovery, while they are suing.


Permit Investors to Sue Under Civil RICO
If these Wall Street conspiracies between corrupt corporate executives and
equally corrupt accounting firms aren't "corrupt organizations" within the
meaning of the RICO act, what are they? We need to restore the ability of
investors to sue under civil RICO when they've been fleeced by these
experts.


Let Investors Sue in State Courts
Republicans love states' rights . . . until they get inconvenient (as they
did in counting the votes in the 2000 election). Repeal the Securities
Litigation Uniform Standards Act of 1998, to let investors sue in state
courts where the deck may not be so stacked against them.


Wall Street hasn't been the same since the corporate fraud scandal.
Investors are voting with their feet to stay away from the markets, until
they can persuade themselves, and their families, that the system works.
Like gamblers who have been fleeced by loaded roulette wheels, they're
staying away from the tables until they decide the game isn't fixed.


Believers in the free-market system, investors are prepared to take a
licking from time to time-as long as their losses are based on truthful
accounts of a company's finances and on reasonable projections about its
future. When a firm like Arthur Andersen permits a firm like Enron to lie,
who can count on anything a corporate executive or his auditor says? Until
and unless the Congress and the White House realize that it's this
fundamental sense of unfairness that's holding investors away from the
markets, they won't see the return of the bull market anytime soon.


All the measures the government has passed to "reform" Wall Street have left
out one thing: redress for those who have been screwed. Where can they go
to get their money back? To class-action lawsuits? That'll net them pennies
on the dollar. To arbitration before Wall Street-appointed judges?
Securities lawyer Robert Weiss puts it best: That route is "rigged for the
Wall Street houses." Jury trials? Almost every investor had to sign away
the right to sue when he signed up with a brokerage company.


We must act quickly to grant special relief to those who have lost their
savings to make them whole.


Without this guarantee, investors are on strike. And they should stay out
until real reform is adopted.

elsiemoocow

He said he was going to 10 years earlier. It was not a shock to anyone who
knew what he said and did to the building some years earlier.


The market had to tumble sooner or later. NASDAQ at 6000?!?!? DOW at
12,000?!??! It's like the day traders and other investers had never even
heard of P/E ratios.

<snip the rest - ADD kicked in>