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The Sarbanes-Oxidation of American Financial Markets
Before the Supreme Court is a case that will have far reaching implication for the American financial system. The lawsuit concerns inaccurate statements made by the CEO of a high tech company, Tellabs, Inc., regarding sales. The AP notes the case “sits atop a pyramid of other closely watched cases involving class-action securities litigation” that will be decided later this year. The lawsuit pits the Administration and major corporations against pension funds, states and other interests. “At stake: untold billions of dollars in shareholders' suits against corporations, executives and directors for alleged fraud.”

The Chairman of the SEC, the leading investment watchdog, insists that the agency’s opposition to the lawsuit “is in the best interest of investors because it seeks to restrict what he calls ‘fraudulent lawsuits.’” The SEC explained that “Congress has recognized a potential for such actions to be abused in ways that impose substantial costs on companies that have fully complied with the applicable laws.”

Business interests contend “that laws and rules that came in response to the wave of corporate scandals nearly five years ago...are onerous and costly and hurt the competitiveness of U.S. financial markets.”

Data supports the SEC’s contention that America’s financial markets are being seriously damaged by opportunistic lawsuits. The chief of the New York Stock Exchange recently explained that only one of the world’s twenty-five largest initial public offerings in 2005 was done in the US. In 2006, the US hosted only two of the world’s twenty-five largest IPOs.

Laws and lawsuits that purport to protect investors are corroding America’s financial markets. Unless regulatory reforms are quickly enacted and abusive litigation curtailed, the vigor and innovation of world’s greatest financial system will be Sarbanes-Oxidized into rust.

See AP story

See NAM Blog

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