In the 12 months since Congress boosted oversight of U.S. corporations in response to a wave of business fraud, the government's securities regulator says progress is being made in winning back tarnished investor confidence.
William Donaldson, the head of the Securities and Exchange Commission (SEC), says investigations continue concerning the collapse of the energy trading company Enron and the telecommunications giant WorldCom. While declining to say whether the heads of those companies will be prosecuted, Mr. Donaldson said the full force of the law is being applied to corporate wrongdoing.
Mr. Donaldson, who was a respected Wall Street investment banker, says the wave of corporate fraud had its origin in the boom times of the mid 1990s, when the internet revolution gave rise to what was called the new economy. Speaking at the National Press Club, Mr. Donaldson said the manic rise in dot com stock prices led financial officers to sometimes twist accounting rules and make fraudulent claims of increased earnings.
The collapse of the high-tech bubble three years ago, he said, exposed corporate wrongdoing. "As happened after the crash in 1929, the falling market that began in 2000 led to other revelations. Starting with the Enron story in October 2001, it became apparent that the boom years had been accompanied by a serious erosion in business principles," he said.
The collapse of Houston-based Enron was one of the biggest bankruptcies in U.S. history, costing thousands of jobs and billions of dollars of stock market valuation.
Mr. Donaldson suggested that investors will return to the stock market once they are convinced that corporate financial data is reliable. The new regulations [the Sarbanes-Oxley law] require chief executive officers to personally certify their companies' financial reports.
The SEC chief says the brokerage business has been hurt by revelations that financial analysts sometimes overstated the prospects of companies that had business relationships with their firms.