Still "Ain't No Glory in Pain"1: How the Telecommunications Act of 1996 and Other 1990s Deregulation Facilitated the Market Crash of 2002

Article excerpt

I. INTRODUCTION

The stock market collapse of 2001-02 devastated the U.S. capital markets and wreaked havoc on the lives of millions of American investors.3 Over the past several years, a steady drumbeat of scholars have laid blame for large portions of the market crash at the feet of Congress and its shortsighted deregulatory legislation of the mid-1990s.4 Specifically, these critics have exposed the "Republican Revolution" Congress (the 104th Congress)5 and its passage of several congressional enactments, including the Private securities Litigation Reform Act of 1995 ("PSLRA"),6 the securities Litigation Uniform Standards Act of 1998 ("SLUSA"),7 the Telecommunications Act of 1996,8 and the Commodities Futures Modernization Act ("CFMA")9 amongst others, as responsible in part for the crushing collapse of 2002.10

While the media and politicians have increasingly and almost singularly blamed dishonest corporate insiders for the market crash of 2002," mounting evidence has shown that far more than simple "bad apple" executive corporate fraud was at play during the historic collapse.12 Studies have shown that the PSLRA, SLUSA and other deregulatory initiatives in the mid-1990s enabled an environment that almost invited the fraud that spun out of control in the corporate fiascos of Enron, WorldCom, Tyco, Adelphia, ImClone and Global Crossing.13 Unquestionably, corporate executives like Bernard Ebbers,14 Kenneth Lay,15 Scott Sullivan,16 the Rigas family,17 Dennis Kozlowski,18 Martha Stewart,19 Jeffrey Skilling,20 Richard Scrushy,21 Sam Waksal22 and a host of other bad corporate actors deserve significant blame for ushering in the market collapse of 2002; but now, evidence has shown that these executives existed in a deregulated corporate environment that very nearly green-lighted their ribald behavior.23

While many of the corporate executives noted above have been sued, indicted, prosecuted and even found guilty in some instances,24 Congress continues to escape significant and meaningful blame for its role in enabling the market fiasco of 2001-02.25 In light of the guilty verdicts handed down in the Kenneth Lay and Jeffrey Stalling Enron prosecution,26 some commentators are even suggesting that this chapter in U.S. history, marking the capital market collapse of 2002, should now be closed.27 In so arguing, such commentators continue to perpetuate the myth that this dark scandal-ridden hour in U.S. history is attributable still to only a few overreaching corporate executives.28 This argument continues to perplex in light of mounting evidence to the contrary.29

Strong evidence exists that the deregulatory hysteria that gripped the Revolution Congress-and its shortsighted enactments-is in part responsible for the corporate malfeasance that rocked Wall Street in 2001 and 2002.30 This ripe-for-fraud corporate environment existed because a flurry of deregulatory activity by Congress in the mid-1990s set out to eliminate the regulatory environment that existed nationally since the New Deal and the Great Depression.31 Congress passed the PSLRA in 1995, the Telecommunications Act in 1996, the SLUSA in 1998, and the CFMA in 2000. Each of these legislative enactments played a sizeable role in creating an environment that fulminated in "Enronitis"32 and the market crash of 2002.33

Specifically, recent legal scholarship has harshly criticized the PSLRA as a primary progenitor of the 2002 market crash.34 The PSLRA essentially made it significantly more difficult for victims of investor fraud to sue corporations and the corporate executives that foist such fraud on the unsuspecting investing public.35 In an effort to curtail perceived lawsuit abuse and investor strike suits, Congress debated and enacted the PSLRA over a President Bill Clinton veto in 1995.36 Whether the PSLRA met its intended goal of curtailing lawsuit abuse has been the subject of much academic debate.37 That the PSLRA made it exceedingly more difficult for defrauded investors to bring securities fraud class action claims is now clear. …