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Ohio’s Mike Oxley talks Warren Rudman, Enron and investor confidence at UNH Law

  • Former Ohio Republican congressman Michael Oxley, listening to testimony during a review of the Sarbanes-Oxley banking law on Capitol Hill in 2006, spoke at the UNH Law School about fiscal responsibility and the private sector on Friday, October 4, 2013. (AP Photo/Lawrence Jackson)

    Former Ohio Republican congressman Michael Oxley, listening to testimony during a review of the Sarbanes-Oxley banking law on Capitol Hill in 2006, spoke at the UNH Law School about fiscal responsibility and the private sector on Friday, October 4, 2013. (AP Photo/Lawrence Jackson)

  • Former Ohio Republican congressman Michael Oxley, listening to testimony during a review of the Sarbanes-Oxley banking law on Capitol Hill in 2006, spoke at the UNH Law School about fiscal responsibility and the private sector on Friday, October 4, 2013. (AP Photo/Lawrence Jackson)

    Former Ohio Republican congressman Michael Oxley, listening to testimony during a review of the Sarbanes-Oxley banking law on Capitol Hill in 2006, spoke at the UNH Law School about fiscal responsibility and the private sector on Friday, October 4, 2013. (AP Photo/Lawrence Jackson)

  • Former Ohio Republican congressman Michael Oxley, listening to testimony during a review of the Sarbanes-Oxley banking law on Capitol Hill in 2006, spoke at the UNH Law School about fiscal responsibility and the private sector on Friday, October 4, 2013. (AP Photo/Lawrence Jackson)
  • Former Ohio Republican congressman Michael Oxley, listening to testimony during a review of the Sarbanes-Oxley banking law on Capitol Hill in 2006, spoke at the UNH Law School about fiscal responsibility and the private sector on Friday, October 4, 2013. (AP Photo/Lawrence Jackson)

When Enron Corp. collapsed in late 2001, the danger wasn’t limited to the energy company’s employees and shareholders. The ethics scandal and corporate bankruptcy also struck at the confidence of individual investors, and that posed a danger to the economy as a whole.

That’s according to Mike Oxley, an Ohio Republican who served in the U.S. House for nearly 26 years. In the wake of the Enron scandal, he helped enact broad new regulations on public companies and accounting firms known as the Sarbanes–Oxley Act of 2002, named for him and then-Sen. Paul Sarbanes, a Maryland Democrat.

On Friday, Oxley spoke at the University of New Hampshire School of Law on “The Ties That Bind: Fiscal Responsibility and Private Sector Economic Crises.” The lecture was hosted by the law school’s Warren B. Rudman Center for Justice, Leadership and Public Policy and UNH’s Peter T. Paul College of Business and Economics.

In his speech, Oxley touched on the Enron scandal and the late Rudman, a two-term U.S. senator from New Hampshire who famously fought to tame the federal budget deficit in the 1980s with the automatic budget cuts known as the Gramm-Rudman-Hollings Act.

Below are excerpts from his remarks.

Visiting New Hampshire

My first trip to New Hampshire . . . I was an FBI agent out of law school, when I graduated from Ohio State, and my first office was in Boston and one of my first assignments, in the summer of 1970, was to locate and arrest a top-10 fugitive who was allegedly hanging out at Hampton Beach. . . .

I was only 24 years old at the time, and so the two younger guys were assigned “beach patrol.” I had to wear a bathing suit, and I was packing a .38 at the same time. Let your imagination run wild.

As it turned out, the bureau did locate this gentleman in a boarding house and arrested him, so our good work on the beach only got us a sunburn.

Warren Rudman
and deficit spending

As far as Warren was concerned, “fiscal responsibility” was almost his middle name. Gramm-Rudman, that was when I first came to Congress. You heard about Gramm-Rudman, and it was all about budget issues, it was all about trying to be fiscally responsible.

To tell you how far we’ve come, and not in a positive way, I remember when back in 1982, my second year in the Congress, we were debating the budget. And (Republican U.S. Rep.) Bob Walker from Pennsylvania was kind of an overstater of all things budget, and he was always on the floor and waving his arms around, predicting Armageddon. And I remember particularly Bob Walker saying that we’re going to face $100 billion in deficits every year as far as the eye can see.

One-hundred billion dollars. Really. Now we’re $17 trillion in debt and going higher.

I got elected to the (Ohio) legislature back in the early 1970s, and that’s where I learned the m-word. And then I got to Congress, and I learned the b-word. And then I retired, and I’m a private citizen and a continuing taxpayer, and I had to learn the t-word. So we’ve gone from million to billion to trillion basically in my career, or at least my career lifetime.

Enron and Sarbanes-Oxley

At the beginning of 2001, Enron was the seventh-largest company in the United States. . . . You would be probably sued for malpractice if you were a broker or a financial adviser for not advising your client to own Enron.

Later that spring, Enron inexplicably filed a restatement of earnings. Later that summer, (Chief Executive Officer) Jeff Skilling stepped down, and later that summer, they filed another restatement. And by December, they filed bankruptcy – the seventh-largest company in America.

The media was full of stories. They couldn’t get enough of Houston and what had happened. They interviewed employees, or former employees, people who had lost their jobs and their life savings in one fell swoop. Shocked. It affected their customers, it affected their suppliers, it affected a wide web of companies and employees, and it had an enormous effect on the body politic. It had an enormous effect on the market.

Why? Because . . . from, say, 1980 onward, in those 25 years, we in the United States had developed the largest investor class in the history of the world.

When I went to Congress in 1981 . . . two-thirds of our savings were in bank deposits and only a third were in equities. Twenty-five years later it was just the reverse, two-thirds of our savings were in equities, one-third in bank deposits. When I went to Congress in 1981, only a third of American households owned stock. In 2001, it was 54 percent. . . . Everybody was an investor, or at least it seemed that way.

So that’s why the shocking news that came out of Houston was so manifest, because virtually all of us had some skin in that game, and we knew intuitively that something wasn’t right. Something had gone horribly wrong with a system that everybody had pretty well felt comfortable with. . . .

(The Enron board appointed a special investigation committee chaired by William Powers Jr., now president of the University of Texas at Austin.) He said in every case at Enron during that crisis, the gatekeepers at Enron had failed in their responsibility: the auditors, the analysts, the attorneys, the board, the credit-rating agencies. They rattled off virtually every potential entity that could have slowed down if not stopped this activity that was going on, this illegal activity. . . .

And so that’s what we used as the basis for the law which gave me a new first name when we passed it.

Why it matters

It was the fact that we had lost investor confidence that was the most important thing to take out of this, because at the heart of capitalism is the individual investor. You can have all the bright ideas you want, all this stuff you want to invent, all these companies you want to build. But if you don’t have somebody to invest and believe in you, you’re nowhere.

The individual investor’s been the core of our system from the get-go. In many ways, it differentiates us from virtually every other country in the world. But that faith in the market by investors is very fragile. . . . So the goal of SOX (Sarbanes-Oxley) was to restore investor confidence, through more transparency and accountability.

(Ben Leubsdorf can be reached at 369-3307 or
bleubsdorf@cmonitor.com or on Twitter @BenLeubsdorf.)

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