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— Some Wall Streeters want to put a leash on the law -- except the law of the jungle. On December 12, the Justice Department announced it would ease up on its tactics for fighting corporate crime. The following day, the Securities and Exchange Commission began relaxing regulatory rules for small companies. Two weeks earlier, a committee formed by business and investment moguls had recommended that antifraud regulation, lawsuits, and criminal sanctions be reined in so that Wall Street can supposedly be more competitive internationally.

"The Securities and Exchange Commission has been captured by Wall Street. If you then take away the states' ability to regulate the securities industry, and the plaintiff lawyers can't do anything, then we've got a jungle again," says attorney Gary Aguirre, former San Diegan who has been making national headlines since last spring, when he began complaining that the SEC fired him after he pressed to take the testimony of a politically well-connected Wall Street honcho.

On December 5, Aguirre, brother of City Attorney Mike Aguirre, told the Senate Judiciary Committee how the Securities and Exchange Commission allegedly protected the Wall Street nabob from an insider-trading probe. During the committee's hearing that day, SEC officials denounced Aguirre's character and judgment -- the inevitable attack on any whistleblower by wounded bureaucrats. Three days later, predictably, a Wall Street Journal editorial denounced Aguirre.

"All of that was a gross distortion of the facts or completely untrue," says Aguirre of the attacks. Happily for him, the key Republican and Democratic senators on the Judiciary Committee have generally agreed with his complaint during the committee's lengthy investigation. "At a minimum, it is very, very troubling what the SEC has done here," said Senator Arlen Specter (R-PA), chairman of the committee, at the December 5 hearing.

Less than a week before that hearing, the antiregulation study came out of a group called the Committee on Capital Markets Regulation, formed with the unofficial blessing of Treasury Secretary Henry M. Paulson Jr. Until recently, he was chief of Wall Street's Goldman Sachs. Among many things, the report recommended that state securities regulation be restrained; the ability of defrauded investors to recover their losses be slashed even further; criminal fraud investigators be reined in; accountants and boardmembers be given even more protection against lawsuits; and Sarbanes-Oxley, the 2002 law that made it harder for companies to defraud the public, be watered down.

The timing of such recommendations would seem abominably inept. Enron and WorldCom malefactors are headed to the slammer. The options-backdating investigations (now involving more than 130 companies) are widening; studies suggest that some executives backdated options grants to low-price days not simply to maximize their profits but to cheat on their taxes too.

In the mid-1990s, after a Republican landslide, Congress restricted fraud suits against companies. But it was the Democrats who won big in this year's congressional balloting. Ah, but the recommendations of the Committee on Capital Markets Regulation are sneaky. Many could be put into effect without going through Congress. "If they can effectively accomplish these changes through regulatory actions, what's the difference?" asks Aguirre. "Congress could enact regulation to overcome these rules but then face a Bush veto."

Halfhearted regulation helps Wall Street but hurts the small investor. Federal regulation is wishy-washy and controlled by Wall Street. State regulation is weak, with some exceptions such as California and New York. Self-regulation has not worked well. No regulation would be nirvana for the Wall Street Journal but would be a disaster. Why? I will relate a story from my past: my father was a stock and bond broker on Chicago's LaSalle Street for more than 40 years. He was an archconservative who believed government should keep its nose out of everything -- except his own industry. He explained to me several times that in the investment business, the overwhelming measure of success is money, and the main variable is greed. The business attracts sticky-fingered sons of bitches who often rise to the top of big firms. Much as he hated to say it, there had to be regulation. After more than 40 years practicing financial journalism, I agree.

Aguirre's ordeal demonstrates how the federal securities agency bends to Wall Street's Big Boys. In San Diego, the SEC has pursued former executives of fraud-riddled Peregrine Systems but thus far has let the board -- which massively dumped stock when it knew of wrongdoing -- off the hook. As New York attorney general, governor-elect Eliot Spitzer did what the Securities and Exchange Commission refused to do. Since the 1960s, California has had securities laws that have been tougher than the nation's. That's why the Committee on Capital Markets Regulation wants to see restraints on states. But it's good that the financial industry "has to comply with the toughest state," says San Diego attorney Mark Mazzarella. Companies incorporate in fraud-friendly states like Delaware and Nevada to get impunity. "Maybe Delaware likes the income from wide-open rules, but the state of California is serious about frauds on the public," he says.

It would be a mistake to weaken possible sanctions against accountants and boardmembers, as well as lawyers, says Mazzarella. "They should be incentivized to tell the company what it needs to know, not what it wants to hear," he says.

It would be a disaster to put barriers in front of criminal fraud investigators. "For someone very wealthy, fear of criminal prosecution is the only thing that you can lord over them to make them behave. A rich person can pay to have people do all his duties, but he can't pay to have somebody go to jail for him." Although many believe tougher criminal sanctions would be the best deterrent to corporate fraud, on December 12 the Justice Department issued a memorandum making it harder for prosecutors to obtain privileged information from companies. I believe the department was caving in to the Committee on Capital Markets Regulation.

One reason the Securities and Exchange Commission is so weak is what's called "the rotating door." As Aguirre explains, "Lawyers go to work for the SEC for 4 or 5, maybe 10 or 15 years, and do nothing to upset Wall Street. Then they move on to a $1-million- or $2-million-a-year job" with a big Wall Street law firm, protecting the same kinds of rascals they were earlier pretending to chase.

Fraud suits filed by plaintiff lawyers are important to thwart mischief, says Aguirre. They are "a militia, a reserve force. Even if the SEC were not dysfunctional, trying to do its mission, even with the right leadership, it would still need plaintiff lawyers as part of the process to contain market abuse."

In trying to make its case for relaxed regulation, the Committee on Capital Markets Regulation complained that last year, 46 percent of securities trading was done in the United States. But we have been sending jobs abroad as we worship the so-called global economy. We are no longer the dominant power we were immediately after World War II. In fact, U.S. economic output is only about 25 percent of world output. So what's the complaint?

"Profits of investment bankers have never been higher," points out San Diego lawyer James Krause. Ditto for compensation. For example, Treasury Secretary Paulson raked in $38.8 million last year at Goldman Sachs. His counterpart at Merrill Lynch took in $35.5 million and the chief executive at Lehman Brothers, $34.5 million.

Strong regulation, by bolstering investor confidence, helps markets rather than hamstrings them, Krause says. "Increased transparency and confidence in the market, helped by such things as Sarbanes-Oxley, are promoting U.S. capital market growth," not hindering it, he says.

But Paulson and his buddies have been making only $35 million a year. They feel they deserve more.

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