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U.S. Securities and Exchange Commission

Speech by SEC Staff:
Remarks at the University of Michigan Law School


Stephen M. Cutler

Director, Division of Enforcement
U.S. Securities and Exchange Commission

University of Michigan Law School, Ann Arbor, MI
November 1, 2002

The SEC, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the author and do not necessarily reflect the views of the Commission or the staff of the Commission.

Thank you for the kind introduction. I'm honored to be here at the University of Michigan. It's rare that I get to address the academic community. At my typical speaking engagement, I speak with an audience of practitioner specialists, whether securities lawyers, accountants, compliance officers, in-house lawyers, or the like. Today, I'd like to go beyond the realm of practice points and share with you my views — and they are only my views, and not those of the Commission or other members of its staff — on how we've gotten to where we are: how CEOs, once crowned kings and queens worthy of our adulation, have become vilified as dishonest, greedy, and shameless; how research analysts, once the "rock stars" of our financial services community, are now its outcasts; how accountants, once symbols of exacting precision and honesty, now are lampooned for their creativity with numbers. Although it's a tall order, I'd like to address the factors that I believe have contributed to the rash of corporate misconduct that has plagued our capital markets and created a crisis of confidence among investors.

But first some background. The SEC is sometimes referred to as Wall Street's "top cop." While this characterization may be accurate, it vastly oversimplifies the system of public and private enforcement that operates to protect our markets. The SEC is charged with the civil enforcement of laws and rules which are intended both to protect investors and promote the efficient formation of capital. But the Commission is just one piece of a larger mosaic. There's the Department of Justice, which has jurisdiction to bring criminal prosecutions of the federal securities laws; the self-regulatory organizations, such as the NASD and NYSE, which regulate the financial services community; state prosecutors and a variety of state agencies, which oversee compliance with comparable state securities laws; and finally, an active plaintiffs' securities bar.

Even this array of watchdogs, however, might be hard pressed to stand at every street corner of our markets. There are more than 14,000 public companies, 7,900 broker-dealers, and 34,000 investment company portfolios. That's why, through a network of statutes, regulations, and judicially imposed theories of liability, lawmakers and others have conspired to press another group of players into the service of protecting our markets. These players are sometimes referred to as "gatekeepers" — gatekeepers who control the access of companies to our capital markets, and through them the hearts, minds, and pockets of investors.1 They include, among others, auditors, attorneys, analysts, and boards of directors.

So with all of these levels of protection and oversight, why do we find ourselves in a period of seemingly unprecedented corporate fraud? Why is it that — with a system and enforcement of laws universally regarded as having fostered the deepest, most liquid, and most trusted markets in the world — some of America's largest and most well-known companies have been rocked by accounting scandals? How is it that such an extraordinary number of companies have recalled their financial statements like they might a defective product?2

At the SEC, we've just completed our fiscal year. When our fiscal year ends, we engage in the exercise of reducing our activities of the preceding 12 months to a series of statistics. So, while I was fully confident as I lived through it that the past year was a remarkable one in the world of securities enforcement, we now have the numbers to prove it. We filed a record number of enforcement actions — 598, which is more than 100 cases above the previous fiscal year. And just to focus on our financial fraud program: In 1999, the SEC brought 79 cases involving allegations of improper accounting, inadequate or misleading disclosures, or outright financial fraud by public companies, their officers, or employees. Last year, we brought more than double that number — 163 cases. But none of the numbers can convey the remarkable nature of our cases last year as vividly as a simple iteration of the names of some of the companies involved: Xerox, WorldCom, Rite Aid, Adelphia, Tyco, Enron, Waste Management, Dynegy, Edison Schools, Homestore, Microsoft, PNC Bank, Amazon.com.

In my view, the events that precipitated the filing of such cases are due to the confluence of three forces: one that exerted unusual pressure to deliver results, a second that made the financial risks to gatekeepers of fulfilling their duty seem particularly high, and a third that made the legal risks associated with abdicating their gatekeeper role appear tolerable. As a result, a wave of fraudulent investment "opportunities" and false or misleading information was allowed to pass through the gate to waiting investors.

Pressure on the Gate


The last decade was, famously, the age of irrational exuberance. During the 1990s, individual investors entered the equities markets as never before, with the number of individual stockholders increasing by 50% between 1989 and 1999.3 Many of us shifted funds from savings accounts to brokerage accounts; 26% of current equity owners first invested in the equities market between 1990 and 1995.4 While the conservative among us stuck to mutual funds, others experimented with self-directed, discount, or online brokerage accounts. The phenomenon of day trading caught the fancy of a vocal and colorful minority, as the idea of getting rich quick took root in our imagination. This seismic shift in our investment activities was exceeded only by the change in our expectations. We expected stock prices to rise, period. And if the particular companies in which we invested did not meet this expectation, we knew we could — and so we frequently did — invest our money elsewhere. As a group, we became unrealistic, perhaps greedy, and worst of all, credulous.

Corporate Officers

Concurrent with — and partially, in response to — this dramatic change in investors' behavior and expectations, companies and their senior management became increasingly focused on achieving short-term gains. We all know stories of companies that did not meet the Street's quarterly earnings forecasts — by only a penny or two — that were punished severely in the markets. Officers who did not deliver results saw their tenures shortened. One survey found that from 1995 to 2001, turnover among the CEO's of major corporations increased by 53%, with the average tenure declining significantly.5 All of this led top executives away from long-term strategic planning and caused them to focus on short-term performance indicators, whether based on earnings, revenue, or creative pro forma measures.

Add to this an ever-increasing reliance on stock options and other stock price-dependent compensation for executives and the short-term focus grew even sharper.6 According to one study in the early 1990s, CEOs of Fortune 500 companies received about 75% of their annual compensation in bonuses, stock options, restricted stock, and other types of incentive-based pay.up>7 At the time, many of us thought this a good thing — after all, it aligned management's interests with those of shareholders. But more recently, I think we've come to realize that it put enormous pressure on executives to achieve results in any way they could, including financial engineering and chicanery.8

As one might expect, the priorities of CEOs inevitably filtered down within management, resulting in pressure on the keepers-of-the-books — the CFOs. CFO Magazine recently found that during the past 5 years, 17% of those it surveyed had felt pressure from their companies' CEO to misrepresent financial results. In response to that pressure, 9% of responding CFOs conceded to having engaged in aggressive accounting practices, and 6% to having used practices that they believed violated Generally Accepting Accounting Principles. These percentages were even higher during the peak of the bubble. In a similar 1998 survey, 55% of responding CFOs indicated they'd had to "fight off other executives' requests that [they] misrepresent results."9

And so, perhaps unknowingly, investors collaborated with the management of the companies they owned to shorten the relevant performance horizon, and to institutionalize the demand for smooth earnings, increasing stock prices, and uninterrupted growth.

Standing in the way of this tidal wave of pressure — or so we thought — were public auditors, corporate attorneys, boards of directors, and research analysts. And behind them stood the big sticks of civil and criminal law enforcement and private class action litigation. Auditors and attorneys, it seemed, were well situated to hold the line with company officers attempting to push the accounting or regulatory envelope. Without a clean opinion from an auditor, a company could not raise capital in the securities markets. Attorneys were in a position to urge strongly that accurate and complete disclosures be made, and to go to the Board of Directors — their client — if individual officers balked. The Board was supposed to bring integrity and intelligent oversight to the process. Yet too often, auditors and attorneys gave way to the pressure, and boards were disinterested and disengaged. And analysts, who with their expertise and access were perfectly situated to warn the public that certain companies' performance was, perhaps, too good to be true, instead stood by and cheered. We have to ask why these gatekeepers gave in.

The Gatekeepers' Response

The Transformation of Public Accounting

Accountants' critical role as gatekeepers is widely recognized.10 Although the offering process today is cluttered with consultants and advisors, the only one who is absolutely necessary — as a legal matter — to a company's effort to offer securities to the public is an auditor. With this franchise, however, came the heavy responsibility of acting as the investor's eyes and ears. Yet, too often during the last half-dozen years, public auditors have abandoned that critical mission. Rather than lending their expertise to making sure that a company's financial statements were a true and accurate depiction of its financial situation, auditors became tools for achieving better — or, more accurately, the appearance of better — financial results. Instead of jealously guarding the gateway to the markets, as they were intended to do, they threw open the gates to companies whose financial statements reflected more aspiration than fact.

The willingness of some auditors to relax the traditional skepticism required by their role may be traced in part to changes that have occurred in the accounting industry. Accounting firms have grown, merged, and consolidated. The former Big 8 are now the Big 4. Accounting firms also have expanded into global multidisciplinary operations, competing with consulting firms and law firms in providing a wide variety of non-audit services.

Thus, auditors were focused on and rewarded for skills other than auditing. The average percentage of Big 5 firm U.S. revenues attributable to accounting and auditing services fell from 55% in 1988 to 31% in 1998.11 And while as auditors these firms were supposed to be looking over management's shoulder, as consultants, they were working for and with management. At the same time, the pressure exerted on auditors by management increased significantly.

To address these concerns, the Commission adopted auditor independence rules two years ago,12and Congress went even further this summer to delineate consulting and additional non-audit services an audit firm may not provide to its audit client.13 And as you all know, the statute also authorizes the newly created Public Company Accounting Oversight Board to oversee the audit of public companies, conduct inspections of public accounting firms, and investigate and impose disciplinary or remedial sanctions, among other things.14


Like auditors, corporate attorneys are well positioned to act as gatekeepers by policing the quality of their public-company clients' disclosures.15 While they do not wield the formal veto power that an auditor may exercise over an issuer's financial statements, many attorneys are intimately involved in preparing offering documents and non-financial portions of required periodic reports. Yet, as of late, many inadequate or even fraudulent disclosure documents have reached the public, almost certainly after having been scrutinized by experienced corporate counsel. Again, we must ask "why?"

In answering that question, I'd start with some of the marked changes that have occurred in the legal world, some of which parallel changes in the accounting world. To be blunt, the practice of law is no longer the collegial and intellectual pursuit it once may have been. The law has increasingly become like any other economic venture — consumed with the bottom line. The publication of compensation surveys, such as the one by American Lawyer, feeds this phenomenon by reducing each major law firm, in cities across the country, to one essential figure — profits per partner. And we lawyers, competitive by nature, fall into the trap of allowing our professional value and success to be defined by this measure.16

As law firms have become more like businesses, competition for customers — or clients — has grown keen. Accordingly, only those lawyers with the capacity to successfully woo clients are awarded a permanent and influential position in most firms. Law firms no longer place a premium on attracting — and retaining through promotion — those attorneys who demonstrate the sharpest mind, the greatest technical expertise, or the most robust vision of the ethical duties and obligations of attorneys.

Now consider the consequences of layering upon this already-complex customer-proprietor relationship the phenomenon of "equity billing," in which law firms are compensated for their services by receiving stock in their clients. In 1999, one well-known Silicon Valley firm was compensated in this manner by 33 of the 53 companies that it helped take public.17 According to another analysis, of the more than 500 IPOs registered with the Commission in 1999, "one-third of the law firms acting as issuer's counsel held stock in the issuer at the time of the offering."18 Such compensation arrangements surely must align the economic interests of a law firm even more closely with its client, involving outside lawyers more deeply in the business decisions of its clients and making it that much harder for lawyers to say "no."19

Perhaps in an effort to reassert the primacy of the corporate attorney's ethical obligations, Congress included in the Sarbanes-Oxley Act a provision requiring the Commission to set minimum standards of professional conduct for attorneys practicing before it representing issuers.20 Included among these rules, which will be proposed soon, will be one requiring attorneys to report evidence of material securities law violations to the General Counsel or CEO of the issuer, or ultimately to a committee of the board.

Boards of Directors

While attorneys arguably have become too intimately involved in the business decisions of their public company clients, many Boards of Directors have maintained an unhealthy distance from the same. Boards — and particularly outside directors — were conceived of as the shareholders' representative, yet too often, they are dominated by associates and friends of senior management. Moreover, board membership too frequently has been viewed by outsiders as an honor or a perk instead of a substantive job. Many outside directors have lacked expertise in the relevant industry, and in accounting and financial reporting issues. Thus, Boards were too rarely equipped to uncover and derail the determined efforts of management to cook a company's books.


So what about research analysts? Where were they? A significant source of pressure on analysts may have its origins in a regulatory shift almost 30 years ago. It was then, in the mid-1970s, first by regulation,21and then by legislation,22that the securities industry was no longer required to charge fixed-rate commissions for securities transactions. Before this time, full service brokerage firms had typically "bundled the costs of investment research and brokerage together into a single, regulated commission."23 The advent of competition in this arena, however, caused commission rates to fall.24 With commission income no longer sufficient to subsidize the costs of research,25it became necessary for research to align itself with another profit center within the firm. Thus, over time, research analysts became more and more integrated into the functions of corporate finance departments. It became common to use research analysts in the marketing processes associated with underwritings, for example.26

Naturally, as research analysts began to contribute to the investment banking bottom line, their compensation increasingly was funded by that side of the firm as well.27 Within investment houses, the expectation became that analysts would help generate corporate finance business, whether by covering companies that were investment banking clients or by dazzling prospective banking clients with their expertise.

And so, instead of acting as a final screening mechanism, warning investors of inadequately vetted offerings or misleading performance indicators, analysts all too frequently abdicated their role as gatekeepers. The New York Attorney General's action against Merrill Lynch disclosed internal communications — e-mails — that suggested research analysts had maintained positive coverage of investment banking clients, even where such an outlook conflicted with the analyst's true assessment of the company. There could hardly be better evidence of the fundamental reinvention of the research analyst as cheerleader. That action ended with a $100 million settlement.

More recently, the Commission, the New York State Attorney General's Office, the New York Stock Exchange, the NASD and the North American Securities Administrators Association announced a joint effort to investigate analyst research practices throughout Wall Street. We are now working diligently toward a speedy and coordinated resolution of these matters.

Risks to Gatekeepers

The Legal Landscape

It is fairly clear that the benefits to auditors, attorneys, and analysts of relaxing their grip on the gate was significant. But what about the costs? Why didn't the potential costs to auditors of passing on inaccurate financials, for example, impel them to fulfill their gatekeeper role? Why did they apparently believe they stood a good chance of getting away with it, so to speak? One answer lies in the changes in the legal landscape during the last decade, which substantially limited the exposure of secondary actors to private securities fraud liability.

The first step down this path came with the Supreme Court's 1994 decision in Central Bank of Denver,28which eliminated aiding and abetting liability in private lawsuits under Section 10(b) of the Exchange Act. Since professionals like attorneys and auditors frequently are viewed as having only an indirect or secondary role in the fraud, Central Bank significantly limited their legal exposure in most settings. In 1995, with the passage of the Private Securities Litigation Reform Act of 1995 (PSLRA), Congress provided further comfort to gatekeepers by confirming that an aiding and abetting theory could be pursued only by the SEC (not by private plaintiffs). It also placed additional restrictions on securities class actions.

Specifically, the PSLRA imposed a heightened standard for pleading scienter, including requiring a complaint to specify each statement alleged to be misleading, the reasons why it is misleading, and to "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." In addition, it seems to have influenced at least one circuit to heighten not only the standard for pleading scienter, but also the substantive standard for proving scienter. The Ninth Circuit, in In re Silicon Graphics,29arguably nudged the scienter requirement from simple recklessness to something called "deliberate" recklessness.30

Although perhaps less well-known, the PSLRA's elimination of joint and several liability may have had a more dramatic effect on private securities litigation than even the altered pleading standard.31 Under the PSLRA, absent a knowing violation of the securities laws, each defendant's liability is limited to a share proportionate to his responsibility for the violation. Without joint and several liability, the financial exposure of secondary actors, like gatekeepers, is capped in most circumstances. Commentators already are connecting this development to a ratcheting down of the deterrent effect of the securities laws.32

The burdens of the PSLRA prompted an immediate reaction from securities class action plaintiffs' attorneys — they sought out friendlier fora in state courts.33 Not to be outflanked, however, Congress responded by adopting the Securities Litigation Uniform Standards Act of 1998 (SLUSA), which had the effect of preempting most securities fraud class actions filed in state court.34 Thus, the PSLRA's restrictions continue to shape most securities class action litigation today.

Law Enforcement

This analysis would not be complete without an examination of our own role in recent events. Law enforcement, too, contributed to gatekeepers' perception that the risks of being sanctioned for facilitating corporate fraud were relatively low. First, in my view, the SEC was significantly underfunded during this period. From fiscal year 1992 through fiscal year 2001, while the markets were exploding, the enforcement program staff (that's all staff — professionals and support), nationwide, grew by only 11% (from 918 to 1014).

Second, the Commission traditionally has not sought or obtained significant monetary penalties in financial fraud cases, even when settling cases with corporate officers who participated in egregious frauds. This practice stands in stark and arguably illogical contrast to the Commission's longstanding practice in the context of insider trading settlements, where we generally have insisted on a penalty equal to at least the amount of ill-gotten gains associated with the illegal trades. This formula has routinely resulted in defendants paying several hundred thousand or even million-dollar plus penalties for insider trading.35

The Commission's more modest expectations in the context of financial fraud settlements may have been shaped, in part, by the courts' unwillingness to impose significant penalties in comparable litigated matters.36 Perhaps influenced by a statutory penalty range of $5,000 to $100,000 per violation,37courts have generally imposed total penalties in that range. However, the statute's specific reference to a penalty amount per violation clearly provides courts the latitude to view a lengthy course of illegal conduct as comprising multiple violations of the law.

The approach of the Commission and the courts in financial fraud cases also may be a product of the historical development of the Commission's penalty authority. Congress's very first grant of penalty authority in this area didn't come until 1990.38 And it is only recently that the Commission has begun to impose significant penalties in the financial fraud area. Consistent with this trend, the Commission recently obtained its largest penalty ever in a financial fraud settlement with an individual in the amount of $500,000.39 This settlement reflects a step — but only a first step — toward ratcheting up financial fraud penalties and reversing the Commission's historical practice.

Third, perhaps also inhibiting the Commission's effectiveness at deterring financial fraud, particularly by gatekeepers, is its historical reluctance to sue accounting firms and attorneys. Through the exercise of its prosecutorial discretion, the Commission generally has reserved suing both groups for only the most egregious cases. In the case of accounting firms, the rationale generally has been that it is unreasonable to expect a firm to control the actions of thousands of employees conducting audits nationwide. Instead, in the typical case involving wrongdoing by a single accountant, the Commission has pursued only the individual. This practice stands in contrast to the Commission's approach to similar fact patterns at regulated entities, like broker-dealers. For instance, when the Commission charges an individual broker for a securities violation, it is not uncommon to also charge the firm with which the broker is associated. This reluctance to charge accounting firms, as well as attorneys, may have had the unintended consequence of holding both groups to a lower standard rather than to the high standard their special roles demand.

Fourth, criminal prosecutions were not easy to come by. The criminal authorities traditionally did not make prosecution of securities fraud a high priority. Commonly known among federal prosecutors as complex and document-intensive, securities cases were perceived as delivering little bang for the limited-resource buck.

Today, of course, it's a whole new ballgame. The Commission's efforts, followed by revelations of corporate fraud at more than a few Fortune 500 companies, have placed prosecution of securities fraud among the top priorities of the Department of Justice. Now, rather than cajoling criminal authorities into taking securities cases, we're fending off competing phone calls from prosecutors vying to take the lead on any given case. In addition, in July, the President created the Corporate Fraud Task Force, headed by the Deputy Attorney General and including representatives of U.S. Attorneys Offices, the FBI, the SEC, and other federal agencies, to oversee the investigation and prosecution of financial fraud, and to provide enhanced inter-agency coordination of regulatory and criminal investigations. Indeed, according to the White House, since the creation of the Corporate Fraud Task Force, the Department of Justice has filed charges involving corporate fraud against more than 150 defendants, 45 of whom have been convicted or intend to plead guilty.40


All of the factors I've discussed helped to create an environment in which the seeds of corporate fraud could flourish. First, a consistently rising market drew an unprecedented number of individuals into the investment arena, creating in them powerful but unrealistic expectations, which public companies hastened to meet. At the same time, private gatekeepers, particularly auditors, attorneys, and analysts, found their ability to stand up to public company officers increasingly compromised by their own profit motive. And finally, several legal developments of the `90s, including scarce resources and competing priorities at the SEC and criminal agencies, combined to limit the risks to gatekeepers associated with their laxity. The consequences of this volatile mix have filled the newspapers and clogged the airwaves over the last year, reminding each of us — officer, director, investor, auditor, attorney and regulator — that we have an important role in maintaining the health and integrity of our capital markets.

Thank you. I'd be happy to take questions.


1 See Poonam Puri, "Taking Stock of Taking Stock," 87 Cornell L. Rev. 99, 145-46 (Nov. 2001) ("`Gatekeeping liability' is defined as a regime that imposes a duty on a private third party to monitor for misconduct and to withhold support once misconduct is detected. The wrongdoer cannot behave without the gatekeeper's involvement.") (citation omitted).

2 A Study of Restatement Matters For the Five years Ended December 31, 2001, at 2, Huron Consulting Group.

3 Investment Company Institute and the Securities Industry Association, Equity Ownership in America, 2002, Fig. 1.

4 Investment Company Institute and the Securities Industry Association, Equity Ownership in America, 2002, Fig. 7.

5 Chuck Lucier, Eric Spiegel, Rob Schuyt, "Why CEOs Fall: The Causes and Consequences of Turnover At the Top," Strategy + Business, 3rd Q. 2002 (discussing Booz Allen Hamilton survey of departing CEOs).

6 Susan J. Stabile, "Viewing Corporate Executive Compensation Through a Partnership Lens: A Tool to Focus Reform," 35 Wake Forest L.Rev. 153 (Spring 2000), at n.213, citing Jack L. Lederer & Carl R. Weinberg, "Harnessing Corporate Horsepower: The New Principles of CEO Compensation," Chief Executive, Sept. 1, 1995, at 32.

7 Stabile, supra note 6, at n.213, citing, Derek Bok, The Cost of Talent 108 (1993).

8 John A. Byrne, "Let's Really Clean Up Those Numbers — Now," Business Week at 35 (July 15, 2002) ("Yet most observers now agree that in the 1990s the corporate ethos reached a new and dangerous phase: Many executives began to believe that capitalism rewarded the companies that hit their earnings targets, no matter how they did it.").

9 Lawrence Richter Quinn, "Accounting Sleuths," 00 Strategic Finance 55 (Oct. 1, 2000).

10 Revision of the Commission's Auditor Independence Requirements, Release No. 33-7919, Nov. 21, 2000 ("The federal securities laws require, or permit us to require, that financial information filed with us be certified or audited by "independent" public accountants. To a significant extent, this makes independent auditors the "gatekeepers" to the public securities markets.") (citations omitted).

11 Proposed Rule: Revision of the Commission's Auditor Independence Requirements, Release No. 33-7870, at Table 2, June 30, 2000.

12 Id.

13 Sarbanes-Oxley Act, section 201.

14 Sarbanes-Oxley Act, sections 101, 104, and 105.

15 Puri, supra note 1, at 144 ("The purpose of securities regulation is to protect investors and ensure the efficient functioning of capital markets. In this context, the securities lawyer specifically is perceived to play a special `gatekeeping' role in the enforcement of securities laws.") (citations omitted)

16 Puri, supra note 1, at n.20 (Nov. 2001) ("To some extent, prestige rankings of law firms correlate with profits per equity partner.").

17 Puri, supra note 1, at 101.

18 Puri, supra note 1, at 101 (citation omitted).

19 Puri, supra note 1, at 109 ("In a typical equity arrangement, a law firm will play an essential role in advising the client on business matters, promoting certain transactions over others, making the company as attractive as possible to potential investors, and introducing the client to venture capitalists.") (citation omitted).

20 Sarbanes-Oxley Act, section 307.

21 Exchange Act Release No. 11,203, 6 S.E.C. Docket (CCH) 147 (Jan. 23, 1975), available at 1975 WL 18377.

22 15 U.S.C. 78f(e).

23 D. Bruce Johnson, "Property Rights to Investment Research: The Agency Costs of Soft Dollar Brokerage," 11 Yale J. on Reg. 75, 81 & 92 (Winter, 1994).

24 Johnson, supra note 21, at 82-83.

25 See Testimony of Charles L. Hill before the House Committee on Financial Services, July 31, 2002 ("With commission rates driven to almost nil . . . brokers have had to look elsewhere to find a way to compensate the analysts, which inevitably led to the investment banking side of the house.")

26 Roni Michaely and Kent L. Womack, "Conflict of Interest and the Credibility of Underwriting Analyst Recommendations," The Review of Financial Studies (Special 1999), vol. 12, No. 4, 653, 655.

27 Michaely and Womack, supra note 24, at 654 ("It is common for a significant portion of the research analyst's compensation to be determined by the analyst's `helpfulness' to the corporate finance professionals and their financing efforts.").

28 Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164 (1994).

29 183 F.3d 970 (9th Cir. 1999).

30 Bruce Cannon Gibney, "The End of the Unbearable Lightness of Pleading Scienter After Silicon Graphics," 48 UCLA L.Rev. 973, 986 (April 2001).

31 George Donaldson, "Impact of the Private Securities Litigation Reform Act," 1320 PLI/Corp. 155, 178 (July 2002).

32 Donaldson, supra note 29, at 185 ("First, by increasing plaintiffs' burden and reducing defendants' exposure, the PSLRA has substantially diluted the deterrent effect of the federal securities laws to the detriment of investors and possibly the capital markets as well.").

33 See Richard H. Walker, David M. Levine & Adam C. Pritchard, "The New Securities Class Action: Federal Obstacles, State Detours," 39 Ariz. L. Rev. 641, 643 (Summer 1997) ("[P]laintiffs lawyers appear to have found at least one detour around the obstacles erected by the Reform Act in federal court: state court."); Todd S. Foster, Denise N. Martin, Vinita M. Juneja, Frederick C. Dunbar, "Trends in Securities Litigation and the Impact of PSLRA," National Economic Research Associates, Inc. (June 1999) ("While exhibiting a large spike just after PSLRA was passed, suggesting an attempt by plaintiffs' attorneys to bypass the federal court provisions, state court filings have since returned to their pre-Reform levels.").

34 David M. Levine and Adam C. Pritchard, "The Securities Litigation Uniform Standards Act of 1998: The Sun Sets on California's Blue Sky Laws," 54 Bus. Law. 1, 2-3 (Nov. 1998).

35 See, e.g., Securities and Exchange Commission v. Ivan F. Boesky, Litigation Release No. 11288 (Nov. 14, 1986) ($50 million), Securities and Exchange Commission v. Frederick Liu, Litigation Release No. 15397 (June 26, 1997) ($2 million), Securities and Exchange Commission v. Liberato A. Iannone and Creg W. Dance, Litigation Release No. 16515 (April 12, 2000) ($1.4 million).

36 See, e.g., Securities and Exchange Commission v. Paul J. Montle, et al., Litigation Release No. 17066, July 13, 2001.

37 Exchange Act Section 21(d)(3)(B).

38 Securities Enforcement Remedies and Penny Stock Reform Act.

39 Securities and Exchange Commission v. Albert Dunlap et al. Litigation Release No. 17710, September 4, 2002.

40 Remarks by the President at Corporate Fraud Conference, Washington Hilton Hotel, Washington, D.C., Sept. 26, 2002.



Modified: 10/31/2002