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Financial Reform, Washington Style - Gary Weiss

Stocks in this article: JPM MS BAC GS BP C

When you "reform" the tort laws by making it easier to get away with committing torts, it's the functional equivalent of "modernizing" laws by returning to the straw-hat era. Just look what happened in 1999, when Congress turned the clock back seven decades, repealing Glass-Steagall via the Financial Services Modernization Act, a.k.a. Gramm-Leach-Bliley.

It was in that very same spirit of reform, modernization and all-around good government that Congress, in its deliberations on the legislation, decided to reform, modernize and significantly improve Sarbanes-Oxley. It hasn't gotten very much attention, what with the stock market hiccupping and BP (BP - Get Report) being bad and the despoilment of the Gulf of Mexico on everybody's minds, but you'll be interested to know that a significant defect in the Sarbanes-Oxley Act of 2002 is being addressed as part of the financial reform package. The defect is that it might actually stop fraud.

Both the House and the Senate agreed that companies with under $75 million market capitalization should be exempt from Section 404(b), which requires independent auditors to attest to the adequacy of their internal financial controls. The companies most prone to cooking the books are no longer covered, so a weak, rarely enforced joke of a law is now a meaningless, rarely enforced joke of a law. Now, that's what I call reform!

So if you burrow down into the financial news deep enough to read about the tattered remnants of financial reform, be sure to keep your definitions in mind and you won't be disappointed.

P.S. Charlie Buckley actually did get kicked out by those reformers back in 1964. Since then, Bronx politics has been clean as a whistle.

Gary Weiss has covered Wall Street wrongdoing for nearly two decades. His coverage of stock fraud at BusinessWeek won many awards, and included a cover story, ?The Mob on Wall Street,? that exposed mob infiltration of brokerages. He uncovered the Salomon Brothers bond trading scandal, and wrote extensively on the dangers posed by hedge funds, Internet fraud and out-of-control leverage. He was a contributing editor at Cond?ast Porfolio, writing about the people most intimately involved in the financial crisis, from Timothy Geithner to Bernard Madoff. His book Born to Steal (Warner Books: 2003), described the Mafia's takeover of brokerage houses in the 1990s. Wall Street Versus America (Portfolio: 2006) was a hard-hitting account of investor rip-offs. He blogs at garyweiss.blogspot.com.
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