In this International Herald Tribune article, Michael Oxley — the “Oxley” of the Sarbanes-Oxley corporate governance statute — confirms the vacuous nature of the politicians who passed that destructive law and encouraged the destruction of Arthur Andersen and various Enron executives:
Presiding over a recent dinner in Paris for more than 200 accountants, Oxley — the former Republican congressman from Ohio and co-author of the Sarbanes-Oxley corporate governance law — was asked during the question period whether he realized he had helped create one of the most crushing financial burdens ever imposed on business.
Was Oxley aware, his questioners asked, that the law that he and Senator Paul Sarbanes, a Maryland Democrat, rushed onto the books five years ago after the collapse of Enron and WorldCom had contributed to a sharp decline in listings on U.S. stock exchanges? And, knowing what he knows now about the cost and effects of the law, would Oxley — who retired in January after 25 years in Congress — have done it any differently?
“Absolutely,” Oxley answered. “Frankly, I would have written it differently, and he would have written it differently,” he added, referring to Sarbanes. “But it was not normal times.” [. . .]
“Everybody felt like Rome was burning,” Oxley, 62, recalled during an interview after the dinner in Paris. “People felt like they were getting cheated. It was unlike anything I had ever seen in Congress in 25 years in terms of the heat from the body politic. And all the members were feeling it.”
Until that moment, a bill to tighten corporate controls had been languishing in the Congress for years, held back by lobbying by big business. But suddenly, the impetus was there, and the firestorm led Oxley, then head of the House committee that oversees America’s financial services industry, to quickly push forward a solution based on that measure to calm the hysteria of voters.[ . . .]
in the summer of 2002, with pressure also mounting from the administration of President George W. Bush, there was no question that the bill needed to be pushed through, however imperfect.
“The president called Paul and I down to the White House almost immediately after the Senate passed its bill, 97 to 0” on July 15, Oxley recalled.
“I remember it was in the Cabinet Room and you could see the pressure he was under because the Democrats were pressing his relationship with ‘Kenny boy'” — a reference to Kenneth Lay, the chief executive of Enron, who had sought help from the administration to avoid a bankruptcy filing in the weeks before the giant energy trading company collapsed.
“The president basically said, ‘Get this wrapped up,'” Oxley said. The House and Senate quickly agreed on a new draft, and Bush signed the bill into law on July 30. [. . .]
A month later, Arthur Andersen, the accounting firm that had been convicted of obstructing the government’s investigation into the collapse of Enron, declared bankruptcy after 89 years in business, crushed by Enron-related liabilities.
The Andersen prosecution was “a White House decision,” Oxley said. “They had to really look tough and so they decided at the highest levels they were just going to give the death penalty to Arthur Andersen.”
“I think at the end of the day virtually anyone would agree it was a terrible decision, because you eliminated a major accounting firm,” he added, “and you just sent a chill through the accounting industry.”
Read the entire article. Yet another example of the legislative overreaction to a perceived problem being far worse than the problem itself.
Note from Tom — the following comment is from Mary Morrison, a former employee of Arthur Andersen who has done extensive research on the federal government’s decision to prosecute Andersen out of business. Mary has an interesting perspective:
Mr. Oxley failed to mention that the White House decided to kill Andersen despite the fact that the Administration knew Andersen had never been the auditor of any of the entities where the Enron frauds were committed. When the hysteria against Andersen was incited by politicians, those politicians knew that Enron CFO Andrew Fastow engineered the frauds within Enronís off-balance sheet partnerships (SPEs) and the frauds were abetted by various prominent international banks, none of which were Andersen clients.
How do we know this? Because the campaign to kill Andersen began months after the SEC, the Powers Commission, the Department of Justice and numerous congressional committees all conducted investigations focused on Enronís SPEs. Is it possible that not one individual in all these investigations was sufficiently competent to read the name on the audit opinions of the various SPEs, a task requiring only basic reading skills? The only other possibility is that all these individuals condemned Andersen knowing that Andersen couldnít possibly have known about the frauds.
Here are the salient facts:
1) Enron made huge political contributions to both Republicans and Democrats at both the state and federal levels.
2) The SEC, under the chairmanship of Arthur Leavitt, exempted Enron from long-standing investor protection laws which, had they been in force, would have prevented the frauds within Enronís SPEs.
3) The Congressional Record shows that the SEC granted Enronís exemption at the urging of the House Energy & Commerce Committee, under the leadership of Rep. Billy Tauzin (R-LA), Rep. John Dingell (D-MI) and Rep. James Greenwood (R-PA). It was Arthur Leavitt and the House Energy & Commerce Committee which led the attack on Andersen.
4) Enron Bankruptcy Examiners found that various banks aided and abetted the frauds by providing documentation ñ all fraudulent ñ asserting that the banks were ìinvestingî in Enronís SPEs when in reality they were loaning money to the SPEs. The banks recorded these same transactions on their own books as loans. If anybody ñ internal auditors, outside auditors or bank examiners — had looked at any of these bank transactions, the fact that the documentation signed by the banks contradicted the banksí own accounting would have uncovered the fraud. In contrast, at the Enron SPEs, the documentation matched the way the transactions were recorded, both being fraudulent, and therefore there was no way for the auditors of the SPEs (KPMG) or Andersen to know of the fraud.
The banks involved were Citigroup, JPMorgan Chase, Bank of America, CreditSuisse First Boston, Royal Bank of Canada, Toronto Dominion, Canadian Imperial Bank of Commerce, Royal Bank of Scotland, Barclays, BT/Deutsche and Merrill Lynch. None of the banks have been prosecuted.
As Mr. Oxley notes, the White House decided to kill Andersen because President Bush was getting bad press because of his friendship with Enron Chairman Ken Lay. But politicians had a far worse problem. After raking in millions from Enron in campaign contributions, political influence resulted in Enron had been granted an SEC exemption which enabled the fraud. Politicians needed to distract attention from the fact that they had sold out investors.
Therefore, politicians destroyed Andersen to cover up political corruption. The Sarbanes-Oxley bill was not merely ill-advised legislation; it was the political response to a deliberate misstatement of the facts.
What can we learn from this tragedy?
1) When politicians start posturing about integrity or competence, anybody with a grain of sense ought to smell a rat.
2) The cost of political corruption is not merely the billions of taxpayer dollars wasted on useless programs to buy reelection. The cost of political corruption is that politicians can and will do anything ñ including deliberately destroying thousands of innocent people ñ in order to perpetuate themselves in office.