Magazine article The New Yorker

BUSINESS AS USUAL COMMENT Series: 1/5

Magazine article The New Yorker

BUSINESS AS USUAL COMMENT Series: 1/5

Article excerpt

A year ago this week, President Bush signed into law the Sarbanes-Oxley Act, which requires corporate C.E.O.s to certify the accuracy of their companies' financial statements, prohibits retaliation against whistle-blowers, and raises the maximum penalty for securities fraud to twenty-five years in jail. Bush, a former director of Harken Energy, never seemed comfortable in the role of corporate scourge, but his hand had been forced by multibillion-dollar scandals at Enron, WorldCom, Global Crossing, and many other big companies. "Every corporate official who has chosen to commit a crime can expect to face the consequences," he declared, adopting the rhetoric of a latter-day Teddy Roosevelt. "No more easy money for corporate criminals--just hard time."

Last Wednesday, one disgraced corporate chief duly entered the Schuylkill Federal Correctional Institution, in Minersville, Pennsylvania, but it wasn't Kenneth Lay, of Enron, or Bernie Ebbers, of WorldCom. It was Samuel Waksal--a founder of ImClone Systems, a tiny pharmaceuticals company--who was starting a seven-year prison term. In October, Waksal pleaded guilty to charges that he had engaged in insider dealing after learning that the Food and Drug Administration was about to reject an application for Erbitux, ImClone's cancer drug. In connection with the case, Martha Stewart, Waksal's friend and fellow-stockholder, will stand trial on obstruction-of-justice charges in January. Insider dealing is a serious lapse, but it isn't even in the same league as creating hundreds of millions of dollars in fake profits (Enron), disguising day-to-day expenditures as capital investments (WorldCom), or booking nonexistent revenues to keep the stock price up (Global Crossing, Lucent, and others too numerous to mention). The failure to hold the C.E.O.s accountable for these acts has done nothing to dampen suspicions that Waksal and Stewart are convenient scapegoats.

Understandable as those suspicions may be, the Bush Administration has in fact taken steps to deter future wrongdoers. The interagency Corporate Fraud Task Force, which was set up last summer, has helped to bring charges against Dennis Kozlowski, the former chairman and chief executive of Tyco International; John Rigas, the chairman of Adelphia Communications; Andrew Fastow, Enron's former chief financial officer; and Scott Sullivan, Fastow's opposite number at WorldCom.

In addition, the White House has nearly doubled the budget of the Securities and Exchange Commission, and it supported the establishment of a Public Company Accounting Oversight Board, to make sure that auditing firms do their job properly. The Wall Street veteran William Donaldson, who became chairman of the S.E.C. in February, is trying to oblige senior executives to pay civil fines out of their own pockets, and to make it less difficult for shareholders to propose board members. The head of the accounting board, William J. McDonough, is a former president of the Federal Reserve Bank of New York, and he is not likely to be an easy mark for unscrupulous bookkeepers.

The reforms show that the American political system, bloated and disfigured by corporate contributions though it is, can still react to public outrage. But now that the public has cooled off and the stock market has heated up, the Bush Administration is showing signs of reverting to its customary practices of pandering to big business and stymieing the institutions that police it. …

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