The insider trading arrest of Samuel Waksal, former chief executive officer of ImClone Systems Inc, is part of a stepped-up effort by prosecutors to show the US public that corporate corruption will not be tolerated, experts say.
Prosecutors and regulators, reacting to the outrage over Enron Corp's collapse, want to reassure investors that insider trading, accounting fraud, and tainted financial research will be punished, securities industry observers say.
PHOTO: AP
Tyco International Ltd's former CEO Dennis Kozlowski faces tax evasion charges; Arthur Andersen LLP awaits an obstruction of justice verdict, and Enron officials may be indicted. The US Securities and Exchange Commission is investigating Tyco, Global Crossing Ltd, Adelphia Communications Corp, and dozens of other large companies. Congress is also holding hearings.
"There's been a new vigilance in prosecuting corporate executives," said Howard Schilit, president of the Center for Financial Research and Analysis Inc, an accounting watchdog group. "The mood is that investors are furious, and the perception is that the little guys are getting screwed."
Prosecutors hope that sending executives to jail might deter other corporate lawbreakers and enhance the public's eroding confidence in financial reporting, experts say.
"Prosecutors realize that the public wants these people to be punished," said Alan Bromberg, a securities law professor at Southern Methodist University. "They also realize that the SEC's remedies of injunctions, fines, and taking away profits are less effective than sending somebody to jail."
Experts say that the stock market decline in the past year has exposed executives who inflated profits through dubious accounting practices. Increased prosecutions will help restore faith in the integrity of the capital markets, said Christopher Bebel, a former federal prosecutor and SEC attorney.
"The government is making a conscious effort to step up efforts to prosecute white-collar crime because it needs to restore confidence in the capital markets," Bebel said. "The public is wary because it looks like the financial markets and management of publicly held companies are devoid of integrity."
SEC Chairman Harvey Pitt and the Bush administration have been under pressure from Congress and investors to enhance the accuracy of financial reporting. In its latest effort to improve corporate disclosures, the SEC proposed requiring top corporate executives to certify the accuracy of company financial reports.
White House spokesperson Claire Buchan would not comment on the Waksal arrest, but President George W. Bush wants some action.
"Generally, the president has called for stepped-up enforcement of existing laws pertaining to corporate wrongdoing," Buchan said.
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