It's Back to 'Business as Usual' a Year After Meltdown

Most of the proposed new regulations to curb Wall Street excesses after the 2008 fiscal meltdown will die in congressional committees, the Securities and Exchange Commission's former chief accountant predicted at a seminar in Philadelphia Sept. 24.

Lynn Turner said exactly one year after the banking titans fell, the federal government's regulatory reform and enforcement campaigns are still mired in politics, turf wars and lobbying, "so it's back to business as usual."

The seminar, titled "Corporate Governance: Regulatory Update and Discussion of Current Key Issues," updated in-house and outside counsel, officers, directors, and their advisers on proposed legislation and regulatory reforms.

It was presented by global consulting firm LECG and co-sponsored by law firm Ballard Spahr Andrews & Ingersoll and Andrews Publications, a Thomson Reuters business.

Turner, now a senior adviser and managing director with LECG - and an adviser to legislators framing new regulations - headed a panel of noted experts on changes in financial reporting requirements, corporate governance standards and the regulatory environment. The panel was moderated by LECG managing director Brad Baturka.

"Ironically, the federal regulatory agencies already had all the laws they needed" to stop the subprime mortgage fiasco, "but they just didn't do their job and should get the boot," Turner said.

However, the Obama administration has appointed so many of "the usual Washington Beltway insiders that it doesn't look like things are going to change," he predicted.

He said that as a result of the continuing failure of federal regulators to enforce the rules, Washington has heavily mortgaged the country's fiscal future to rescue the financial industry and restart the economy.

He warned that the cost of that recovery effort, coupled with a shrinking gross national product and a snowballing national debt, means "the country and everyone under 45 will face a future financial catastrophe."

A litter of proposed new laws and regulations was spawned by outrage over reckless investment practices, excessive compensation and high-handed corporate governance, but only a few of the proposals will get to the floor of Congress, Turner predicted.

He forecasted that so-called "say on pay," propelled by public outrage over billions in bonuses for officers of failing banks, will probably go into effect, giving shareholders the right to vote on executive compensation decisions.

Congress may also vote on legislation to authorize the SEC to require companies to give shareholders access to corporate proxy materials, which would allow them to propose issues and director candidates directly to other stockholders on an equal footing with management, Turner said.

"However, business will probably defeat it in the Senate," he added.

He said there is sufficient support for a move to combine the Office of the Comptroller of the Currency and the Office of Thrift Supervision into a single, more effective agency to regulate the big financial institutions.

But most of the high-profile proposed regulations will die in their infancy or be so watered down that they will be ineffective, Turner predicted.

He cited for example the proposed legislation that would give investors a right to sue credit rating agencies that disingenuously put their triple-A stamp of approval on shaky subprime-mortgage-backed securities, allowing pension and mutual funds to make disastrously heavy investments in them.

But the private right of action is likely to be removed from the bill, Turner noted, despite the fact that the SEC also has little power to regulate the credit rating agencies.

"The SEC had no authority to regulate CRAs until recently, and even now it can only cite the CRA for failing to follow its own operating guidelines," Turner said.

Moreover, legislation that would create clear liability standards for corporate advisers that bless sleight-of-hand accounting and shady deals is also in trouble because of heavy opposition from the business community, Turner said.

"Right now, the driver of the getaway car gets away free," he said.

Turner also predicted that proposed regulations to rein in complex trading on exotic derivative securities will have few teeth if they get to the floor of Congress.

The same fate is likely to befall a proposal to create a Consumer Financial Protection Agency, Turner speculated.

Enforcement efforts under the new administration have been equally disappointing, he said, noting that new SEC chief Mary Schapiro's efforts to hold Wall Street wrongdoers accountable have produced few results.

Turner cited a New York federal judge's repeated rejection of a proposed $33 million settlement of SEC charges that Bank of America officials lied to their shareholders about up to $5.6 billion in bonuses for Merrill Lynch officers who wrecked their company, requiring a $50 billion bailout merger.

Turner said the SEC's decision not to sue the responsible BofA officers and to instead make the shareholders pay is a deal that "would smell bad to anyone outside Wall Street and the Beltway" and is evidence that it's "back to business as usual" both in Washington and New York.

Panel members Henry E. Hockeimer Jr., a partner with corporate defense specialist Ballard Spahr, and Brian Sisko, the general counsel of Safeguard Scientifics, noted that small and mid-sized business often struggle to cope with "one size fits all" regulations designed to rein in a few giant corporate wrongdoers.

"If you do the right thing and openly talk to your shareholders, most of this regulation is just more paperwork," Sisko said.

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