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Wednesday, May 09, 2007

A Figment of Paulson's Imagination

It’s strange that Hank Paulson and the Committee on Capital Markets would want to scale back investor protections and regulations, when the hands of the judicial branch are already tied from acting upon the securities industry’s transgressions. Take for example this op-ed by Harold Myerson in Tuesday’s Washington Post,
showing how Merrill Lynch, Barclays and Credit Suisse First Boston were granted near immunity for enabling Enron to cook the books by a Federal Appeals court, despite the judges’ opinions that the banks’ actions were less then honorable.

The decision’s highlight is what Judge James Dennis wrote in the concurring opinion: "The majority immunizes a broad array of undeniably fraudulent conduct from civil liability…effectively giving secondary actor’s license to scheme with impunity, as long as they keep quiet." In other words, you can rob the bank so long as the driver takes the fall.

The ruling revolves specifically around Rule 10b-5 which prohibits companies from making misrepresenting statements leading to the purchase or sale of securities. This rule is crucial to many class action securities suits as well as arbitration claims, so any tinkering can have far reaching implications.

The Committee on Capital Markets has remained ambiguous on its true intentions regarding 10b-5, they just want to "resolve existing uncertainties in Rule 10b-5 liability" Paulson Committee adviser, and Wall Street advocate Prof. John Coffee however has been a little more forthcoming. Back in October, Coffee mentioned to the New York Times (October 29, 2006) that, "he had recommended that the S.E.C. adopt the exception to Rule 10b-5 so that only the commission could bring such lawsuits against corporations." With arbitration and class actions out of the way, the already swamped SEC will be the last investor protection. Who benefits when that happens? Certainly not individual investors.

The real question is, where is the over burdensome legal proceedings that is the object of Committee on Capital Markets whining? With the judicial branch arguing that laws currently let crooks off the hook, it seems to be a figment of Paulson & Co.’s imagination.


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