PLAN TO KEEP WALL ST. IN THE MONEY
The New York Post
A blue-ribbon Capitol Hill panel yesterday rolled out a plan to keep Wall Street the world’s financial center by rolling back rules that hurt small companies and sent others to list their stocks on foreign shores.
Wall Street — which creates one of every five dollars earned in the city — has been fighting for its life the past three years as other major cities, especially London, made it easier and cheaper for companies to trade on their countries’ exchanges.
The panel, made up of 22 top economic and political figures, yesterday said nearly half of New York’s most vital businesses — essentially spreading investment money around the world — has slipped away to others here and abroad since 2000.
The Committee on Capital Markets Regulation, proposed its reforms in a 32-point package that includes doing away with costly, multiple layers of audits required in the Sarbanes-Oxley Act of 2002.
Run by former Goldman Sachs President John Thornton and ex-Bush administration official and current Columbia University Business School dean Glenn Hubbard, the panel wants to replace the very structure of the nation’s 74-year-old regulatory system of policing Wall Street with a flexible one modeled after London’s watchdog unit, which uses broad principles to keep the markets clean.
The panel’s report said that in the late 1990s, roughly 48 percent of new stock offerings were done on U.S. exchanges, a number that has shriveled to 8 percent in 2006. The big deals also were gravitating to other markets, as nine of the 10 biggest IPOs were done in Europe or Asia.
Hal Scott, the director of the group’s report, told The Post that average Sarbanes-Oxley compliance fees of $4.3 million “are absolutely killing the U.S. in terms of maintaining listings dominance.”
Scott, a Harvard Law School professor whose seat is endowed by Nomura Securities, said Section 404 of Sarbanes Oxley, which makes companies sign off on a wide range of financial controls, doesn’t exist anywhere else in the world. “If we correct it, we have been told to expect an almost immediate turnaround in listings,” he said.
In September, New York Mayor Mike Bloomberg and its senior Senator Chuck Schumer hired consultants to compile a report addressing the flow of market action out of the city.
Some criticism of yesterday’s report came from the venture capital business, which funds young companies.
“This is a step in the right direction, but it does not go nearly far enough to address the deep roots of the problem,” said Bob Grady, a partner at Carlyle Venture Partners. “There were way too many ‘established company’ guys on this committee, and not enough people who think about job creation.”
Grady, who is also chairman of the National Venture Capital Association, said that the cost for small companies to comply with Section 404 is the same as for large companies.
“It is insane that a start-up with a handful of employees has to pay the exact same amount to comply with the law as Wal-Mart,” he said. “We won’t see a sustained expansion of U.S. listing activity until this is addressed.”
The panel’s work also calls for protecting audit firms from lawsuits, and preventing criminal charges being filed against companies themselves, except for shops that are corrupt from top to bottom.
During the scandal-scarred years of 2000 and 2001, the government’s wide-ranging investigations into the fraud at Enron resulted in Arthur Andersen, a major accounting firm, being shut down.
To prevent stock manipulation that harms investors, the panel wants enforcement actions to be private and low key, focusing on maintaining a company’s financial standing instead of publicly hanging a CEO or CFO, which can wreck a stock price overnight.
One victim of such public disclosures, Hank Greenberg, who was ousted as chairman of AIG Insurance over alleged accounting misdeeds, used his Starr Foundation to fund the panel’s lengthy research, according to the Foundation for Taxpayer and Consumer Rights.
The panel’s milestone report says that heavy-handed regulations, which lawmakers imposed hastily to fight runaway corporate corruption like that of Enron, have instead handcuffed corporate America’s global clout.
Hong Kong and London stock markets have already raced ahead of Wall Street in the past year in raising money through initial public offerings, basically because they don’t have duplicating sets of overkill regulations that smother innovation and drain profits to cover excessive red tape costs.
Adding woe, the report said, is the flood of shareholder lawsuits that siphon billions from corporate treasuries, a handicap that doesn’t exist overseas, where shareholder suits aren’t recognized.