Investors Expect a Clear Financial Picture, but Securities Fraud Relies on Smoke Screen

When a Denver, Colorado jury convicted former Qwest CEO Joe Nacchio on 19 counts of securities fraud, prosecutor Colleen Conry did not mince words: “If you don’t tell, you can’t sell.”

It’s about time.

The American public’s eyes glaze over as the evening news reports yet another multi-billion dollar scam where a corporate CEO, wallowing in the most lavish perks, is charged with hoodwinking investors. The Rogues Gallery is impressive: Tyco tycoon L. Dennis Kozlowski, Cendant Chair Walter Forbes, WorldCom Bernard Ebbers, and, of course, Enron’s Ken Lay. (We can throw in Martha Stewart’s troubles over ImClone stock, just to demonstrate that securities fraud is an equal opportunity activity.)

The Securities and Exchange Commission (SEC), a bit creaky and out of touch as it nears 75 years old, tries to fulfill its watchdog job by investigating and filing civil suits. SEC Chair Paul Atkins has stated publicly that the federal government should supersede the states in enforcing fund regulations, and that he is at looking at uniform rules for securities enforcement.

That’s good news. But in the meantime, investors who believe a public company is pulling the wool over their eyes are finding the courts more reliable.