The Circle of Greed: The Cloak of Invisibility
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Mark Faulk's Blog
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5/25/2006 10:00 AM |
"Assignment of Function Relating to Granting of Authority for Issuance of Certain Directives: Memorandum for the Director of National Intelligence."
While just today, Enron executives Ken Lay and Jeffery Skilling have been convicted of conspiracy, fraud, insider trading and making false statements in deceiving their shareholders and employees, and while advocates for stock market reform continue to call for more transparency in our financial system, the federal government continued to opt instead for invisibility, granting intelligence czar John Negroponte the authority to “exempt companies from certain critical legal obligations. These obligations include keeping accurate ‘books, records, and accounts’ and maintaining ‘a system of internal accounting controls sufficient’ to ensure the propriety of financial transactions and the preparation of financial statements in compliance with ‘generally accepted accounting principles.’"
President Bush, and in fact, every president since Carter, has had the authority to allow publicly-traded companies to be exempt from the Securities Exchange Act of 1934, purportedly to hide information about top-secret defense contracts. How many times has the exemption been used? Who knows? The administration isn’t telling, and since the companies who are exempt don’t have to “keep accurate books, records, and accounts,” there is no way to know whether any…or whether all…defense contractors, or even companies who are loosely-related to defense spending, are playing by the rules. It is effectively a corporate cloak of invisibility.
And with these ambiguous words: "Assignment of Function Relating to Granting of Authority for Issuance of Certain Directives: Memorandum for the Director of National Intelligence," President Bush passed on the absolute authority to exempt whatever companies he deemed worthy of being above the law to Negroponte.
Want to know whether Halliburton’s financial records are accurate, or even if they’re required to keep records at all? Sorry, the administration won’t tell you that. Wonder if Boeing or Lockheed, or any of a thousand other publicly-traded companies, is telling you the truth about their financial condition? Nope, that’s top secret (refer to section 13[b][3][A] of the Securities Exchange Act of 1934, thank you very much).
There might be one company who’s exempt from telling the truth to their shareholders about their financial well being…or there might be thousands. And every one is a potential Enron waiting to happen.
In a BusinessWeek Online article today, former SEC enforcement chief William McLucas, suggested that “the ability to conceal financial information in the name of national security could lead some companies ‘to play fast and loose with their numbers.’ McLucas, a partner at the law firm Wilmer Cutler Pickering Hale & Dorr in Washington, added: ‘It could be that you have a bunch of books and records out there that no one knows about.’”
This bears repeating: for every company that the federal government has exempted from following the same laws that every other publicly-traded company has to adhere to, there is another potential Enron waiting to happen. Except this time, we might never know about it, we might never see justice served to those who are robbing their shareholders. Because this time, those companies, whoever they might be, don’t have to follow the rules. Don’t want another Enron to happen? Simple, just allow companies to quit following the rules altogether. Problem solved.
In the meantime, the state of Utah, after growing tired of waiting on a federal government that favors invisibility over transparency in almost every aspect of our financial system, overwhelmingly passed their own law dealing with another type of stock market fraud, stock counterfeiting, also known as “naked short selling.” HB3004 passed both the State Senate and the House with little debate, giving state securities regulators, publicly-traded companies, and individual investors legal recourse against brokers, clearing firms, hedge funds, and anyone else who fails to deliver stock purchased by shareholders. It is a practice that has flourished unabated for years, costing companies, communities, taxpayers, and individual shareholders trillions of dollars, due largely to…you guessed it…a lack of transparency in the stock market system. It’s just another version of the federal cloak of invisibility.
The Utah bill is a landmark piece of legislation, one that hopefully will be enacted in one form or another in every state in the country, since the federal government has done absolutely nothing to stop rampant fraud in the stock market. In fact, our leaders in Washington have shown time and again that when it comes to protecting the small investor against fraud on both sides of the market, that they would rather change the rules to hide the crime then arrest the criminals who are robbing America blind.
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