| New Regs, Old Problems |
10 February 2003
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Forget Teeth, SEC's New Rules Lack Gums
In the wake of the Enron disaster, Congress passed the Sarbanes-Oxley Act that demanded the SEC set up regulations to protect the markets from themselves within six months. The SEC has promulgated the rules, running to thousands of pages, but not only do the new rules lack teeth, they have no gums. The lobbying was intense, but in the end, capitalism has chosen to run the same risks that got it into its current mess.
For example, auditors are barred from only some non-audit work. Misleading "pro forma" accounts remain legal, but they are discouraged. Companies are encouraged to state whether senior managers have a formal code of ethics and whether the audit committee has an independent financial expert.
In addition, the SEC decided to wait another 60 days before coming out with plans to deal with ratings agencies (Standard & Poors, Fitch and Moody's) and whistle-blowing corporate lawyers. It appears either unwilling, unable or uninterested in doing anything meaningful and needs time to find the appearance of a solution.
Wall Street hates regulation, but there are times when rules help the marketplace -- one of the first things the ex-communist states had to do was create property laws. After Enron, rules on keeping the books are needed, and companies can't all be trusted to do it themselves. If they could, Enron would still be in business.