In a little-noticed decision made just before
the holidays, Judge Melinda F. Harmon gave the
country a Christmas present that we really needed
but couldn't seem to go out and get for ourselves.
The 307-page opinion reinterpreted securities law
so that financial firms that help companies make
fraudulent transactions -- of the kind that brought
down Enron -- can themselves be held liable for
fraud.
It remains to be seen whether this decision
from the Federal District Court in Houston will
accomplish something that our Congress and the
executive branch have failed to do in the year since
Enron's house of cards collapsed. But the decision is
striking in that it shows how we are becoming
increasingly reliant on the courts to make essential
changes, sometimes in the face of staggering
political corruption, that our society needs in order
to get on with its day-to-day business.
More than a year after Enron's implosion,
the three most basic reforms that were put forth
when the fraud was exposed have not been adopted.
They are: first, a system to assign auditors to
companies so that the auditors' independence can be
assured; second, requiring firms to list stock options
(given to executives as part of their compensation)
as a business expense at the time they are granted;
and third, a limit on the percentage of employees'
individual retirement benefits that can take the form
of company stock.
When the wave of corporate accounting and
governance scandals first broke, these reforms were
widely seen as a reasonable first step toward
restoring investors' trust and protecting employees.
Yet Congress did not address these issues in its
"corporate accountability" bill, which was largely
an empty public relations gesture. The SEC
obstructed even the weak provisions in this act, with
its Chairman Harvey Pitt eventually being forced to
resign after appointing a person tied to an
accounting scandal to head the newly created
accounting oversight board.
Judge Harmon's decision is particularly
noteworthy because it is trying to save big business
itself from the fraudulent excesses of one sector.
This is a basic regulatory function that would not
ordinarily have to become the responsibility of the
judiciary. But our Congress and the executive
branch have become so corrupted by our system of
legalized bribery -- political campaign contributions
-- that they cannot even enact positive reforms that
are desired by most of the business class.
The courts have thus become the last branch
of our government where there remains enough
integrity to confront powerful special interests, at
least in certain circumstances. In the two months
since our last national election, the corruption of the
rest of our government has been breathtakingly
highlighted by paybacks to corporate and wealthy
interests. Financial contributions to the coffers of
campaign 2002 have bought rights for logging
companies to further damage national forests,
electric utilities to increase their pollution, and pharmaceutical companies to ensure that any Medicare prescription drug benefit -- if they can't block it altogether -- will keep U.S. drug prices the highest in the world.
In recent years, the courts have sometimes
been a venue for change through class action
lawsuits such as those that forced Big Tobacco to
stop marketing their cigarettes to children, and held
them liable for some of their damage to public
health. Hence the corporate-funded campaign for
"tort reform," which seeks to curtail the ability of
citizens to seek legal redress for the victims of
unsafe products and dangerous corporate practices.
People for whom greed is a guiding ethos ironically
blame "greedy trial lawyers" for raising the cost of everything from medical care to car insurance through litigation. But this litigation is often the only means to protect society from medical malpractice or corporate malfeasance.
The corruption of most of our government
by moneyed interests carries great social and
economic costs. Millions of people have lost the
bulk of their retirement savings due to corporate
fraud over the last few years. And as the economy
heads toward a likely recession, the Bush
Administration offers yet another tax cut for the
country's wealthiest households, rather than trying
to counteract the economic downturn.
As much as the courts may occasionally
intervene to regulate commerce or protect the rights
of citizens, they cannot substitute for the
functioning democracy that this country sorely
needs.
Mark Weisbrot is Co-Director of the Center for
Economic and Policy Research, in Washington D.C.
###
