Response to the Paulson Committee's Report

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MEDIA ADVISORY, November 30, 2006

Contact:

Jeff McCord
McCord & Associates
Tel in Northern Virginia:  540-364-4769 Cell:  540-272-6181

BUSH ADMIN. ADVISORY COMMITTEE RECOMMENDS CURTAILING PRIVATE SECURITIES FRAUD LAWSUITS, A FEDERAL OVERRIDE OF STATE ATTORNEYS GENERALS' PROSECUTORIAL POWER AND NEW SHIELDS FOR CORPORATE DIRECTORS AND AUDITORS AGAINST ACCOUNTABILITY FOR REPORTING FRAUD

Former SEC Commissioner Harvey Goldschmid Says Committee Would Replace "Accountability and Deterrence With a World in Which Almost Anything Goes";
Former SEC Chairman Arthur Levitt Recently Warned of "Powerful Interests" Pushing for Regulatory Rollbacks "As Though Scandals of 1990s Were Something to Celebrate"

Former SEC Officials and Securities Law Experts Available to Comment on Recommendations of the "Paulson Committee"

This morning a privately funded, self-described "independent" advisory committee formed by U.S. Treasury Secretary Henry Paulson urged Congress and the Securities and Exchange Commission (SEC) to make changes in the Sarbanes Oxley Act and decades of federal case law to curtail private securities fraud lawsuits and shield corporate directors and auditors from legal accountability in federal and state courts to shareholders and the public when they misrepresent the financial condition of publicly traded corporations.

The recommendations of the Committee on Capital Markets Regulation, chaired by R. Glenn Hubbard, former chairman of President Bush's Council of Economic Advisors, would require a combination of legislation and SEC rule changes to implement.

Although the number of private securities fraud lawsuits have fallen in the decade following the procedural reforms and a tightening of standards of proof put in place by the Private Securities Litigation Reform Act of 1995, the Committee recommends further limitations on private fraud actions, which have, since passage of the Securities Acts in the 1930s, been an important law enforcement tool and deterrence to fraud.

In response to a reporter's inquiry at a news conference held this morning by the self-described "independent" Committee, a spokesman said the Committee's operations are being financed by an "anonymous" private donor and the Starr Foundation, which was founded and is chaired by Maurice "Hank" Greenberg, who was ousted as chairman of AIG insurance following charges brought by the Attorney General of the State of New York alleging his participation in gross financial irregularities at AIG and who is a defendant in class action litigation relating to that conduct.  A Paulson Committee spokesman also characterized lawsuits brought shareholders as "family disputes," ignoring the significant consequences of financial fraud to investors and of the vital securities law enforcement and deterrence role played by private lawsuits.

Arthur Levitt, Jr., former SEC Chairman and a former chairman of the American Stock Exchange, recently urged regulators and Congress to "resist those in the courts, in the SEC and in the halls of Capital Hill who want to lead us [backward]."  Referring to the spectacular frauds perpetrated by Enron, WorldCom and other corporations, Mr. Levitt warned against a "return to how things were, as though the abuses of the 1990s were something to celebrate and the strong market of today happened by accident."    In comments delivered May 5 at an Institute of Law and Economic Policy symposium co-sponsored by Columbia Law School, Mr. Levitt also warned that "powerful interests . . . unwilling to work with regulators and investors to improve disclosure, protect investors, and strengthen our markets" are pushing for a rollback of Sarbanes Oxley reforms and other investor protections.

Echoing Mr. Levitt's concerns, at the same symposium in May, Columbia Law Professor Harvey J. Goldschmid, a former SEC Commissioner and SEC general counsel, said the scandals of the 1990s and early 2000s were a "systemic failure": 

 " The checks and balances that we thought would be provided by independent directors, independent accountants, securities analysts, commercial and investment bankers, lawyers and compliance personnel too often failed. . . . [E]ven good rules are only of limited value unless they are enforced by public and private legal actions. Today, given the business backlash that is occurring and serious threats to SEC enforcement created by sharp limits imposed on SEC resources . . . right now private actions are more than, in traditional SEC words ‘a necessary supplement to the Commission's efforts';  private actions are absolutely essential if our securities relation system is to work."

Addressing the specific recommendations of the Committee on Capital Markets Regulation (known as the Paulson Committee) released today, Professor Goldschmid told the NEW YORK TIMES:

"The [recommendations] would dramatically diminish the effectiveness of the SEC, of criminal enforcement, of state attorneys general enforcement and of private damage actions.  The recent drive for accountability and deterrence would be replaced by a world in which almost anything goes."   (See NEW YORK TIMES:  "Panel to Urge Rewriting Rules to Aid Companies," 11/30/06.)

McCord & Associates represents the National Association of Shareholder and Consumer Attorneys (NASCAT), a Washington, DC based group of about 100 law firms specializing in the practice of laws governing investments and corporate practices.  For copies of the Levitt and Goldschmid speeches referenced above, please contact Jeff McCord (540-364-4769).  For comments on the specific Paulson Committee recommendations, journalists may wish to contact the following independent experts on securities law and corporate governance:

Harvey Goldschmid
Former SEC Commissioner and General Counsel
Professor of Law, Columbia Law School
212-854-2654

Lynn Turner
Former SEC Chief Accountant and
Director for the Center of Quality Financial Reporting at Colorado State University
303-410-9996

James D. Cox
Professor of Law, Duke University School of Law
919-613-7056

Randall Thomas
Professor of Law and Business and Director of Law and Business Program
Vanderbilt University Law School
615-343-3814

Jill Fisch
Director, Fordham Center for Corporate, Securities & Financial Law
Fordham University School of Law
212-636-6865

Joel Seligman
President
University of Rochester
585-275-8356