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They’re back, and without a hint of shame. To “free” our markets from overregulation, undoing the Sarbanes-Oxley Act’s reforms tops Wall Street’s wish list this year. Just a few short years ago-in response to the worst era of corporate fraud in history-Congress enacted Sarbanes-Oxley to clean up our stock markets. The reforms were actually relatively modest. The statute of limitations for securities fraud was extended from one year to two. Criminal penalties were beefed up. Top corporate executives were required to personally certify financial reports. Now, just when faith is being restored, the Street wants to be deregulated. As Senator Christopher Dodd, D-Conn., said recently, “Investors around the globe invest in our markets because they know that win, lose or draw, they will be treated fairly . . . .[W]e must not damage the . . . rights and protections that underpin investor confidence critical to the success of our capital markets.” Memories of Enron are fresh, and voter anger palpable. So this effort should be DOA in the new Congress, right? Maybe not. Democrats, not wanting to appear “anti-business,” may be eager to accommodate Wall Street. And in Washington, while the names have changed, political money still speaks volumes. Consider 1995-the last time we cut back on investor protections. Business interests persuaded Congress to enact the Private Securities Litigation Reform Act; it survived a Clinton veto. The new law contained some beneficial changes, but primarily imposed obstacles that, under some court interpretations, made it nearly impossible to sue. Dozens of cases were dismissed before they could even get started. Wall Street was free at last. What followed was the largest upsurge in financial fraud in U.S. history. WorldCom, Enron, Global Crossing, HealthSouth, Qwest and other major frauds erupted. Investors-especially institutions-lost more than $7 trillion. The retirement income of millions of Americans was lost. Sarbanes-Oxley was a necessary response to that excess. But both its sponsors are now out of Congress; once again, Wall Street feels empowered. Claiming that the law hinders U.S. capital formation, the Street seeks “reform,” relying upon an “Interim Report” of the “Committee on Capital Regulation.” Replete with charts and graphs, couched in the language of scholarship and heavily footnoted, the report makes 32 recommendations. Among them, it urges Congress to make the Securities and Exchange Commission (SEC) more business-friendly and to protect executives from litigation. Because the outside Enron and WorldCom directors settled securities cases “by paying substantial sums out of their own pockets,” it seeks to exempt future directors from personal liability-else they be deterred from serving at all. Acknowledging the fall of Arthur Andersen, Enron’s accountants, the report states that there is a “consensus” that the “demise” of another of the “Big Four” accounting firms would have drastic “adverse consequences”: “Congress should explore” capping their liability. (Apparently, a crooked auditor is better than no auditor at all.) Other recommendations include eliminating prosecution of corporations for fraud and “allowing” defrauded shareholders to “choose” binding arbitration over litigation. Recent report is flawed The Council of Institutional Investors blasted these “reforms,” saying they would “undermine the effectiveness of market watchdogs and weaken critical investor protections.” Claims that they were needed to respond to foreign competition were rejected: “The amount of money raised by foreign companies in U.S. [initial public offerings] has grown since Sarbanes-Oxley was enacted . . . . Rigorous U.S. investor protections are a boon, not a bust, for our capital markets.” In sum, while touted as nonpartisan and carrying the blessing of Treasury Secretary Henry Paulson, the report is simply biased-perhaps reflecting Wall Street funding sources such as AIG’s defrocked chief executive officer, Hank Greenberg, and billionaire Wilbur Roth (of the infamous Sago mines). As the Economist noted recently, “this might seem an odd time for such [Wall Street] anxiety . . . .American firms . . . are making record profits with bonuses a third higher than last year.” Goldman Sachs’ partners alone split up $1.6 billion. The Dow Jones Industrial Average is at an all-time high. Meanwhile, corporate compensation continues to soar, with recent “platinum parachutes” for each of two failed CEOs exceeding $200 million. Fraud continues too. Stock-options backdating schemes now engulf nearly 1,400 U.S. companies, most recently Apple Inc. Hardly overregulated, the financial upper class is doing quite well, thank you. The lesson from Enron was simple. Most of the institutions charged with protecting the American public and its shareholders failed us. Sarbanes-Oxley helped bring markets back to health and restore the faith of both U.S. and foreign investors. Yet greed is still with us. “Reform” is one bonus Wall Street should be denied. Relax the rules, and discover the next Enron waiting in the wings. Bill Lerach is managing partner, and Al Meyerhoff is of counsel, at Lerach Coughlin Stoia Geller Rudman & Robbins of San Diego. They are co-counsel for the class in the Enron shareholder fraud litigation.

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