Widespread fraud justifies a little investor paranoia

The Leckey File

Your Money

June 12, 2005|By Andrew Leckey

There can be something constructive about paranoia. It keeps you on your toes, helps you avoid being blindsided.

Investors have a well-earned right to be paranoid.

There has been that messy fraud surrounding Enron, WorldCom, HealthSouth, Qwest, Adelphia and so many other companies. Hanky-panky was going on that trusting employees and shareholders never knew about.

Prosecutors have also made large settlements with brokerage companies, mutual funds and insurance companies regarding charges that clients were not investing on a level playing field.

Restating past accounting has become as commonplace for companies as a change in a weather report. Too bad stock prices had gyrated based on those erroneous filings, affecting the investments of millions of people.

No Deep Throat is required to whisper in a dark parking lot that financial institutions try much harder to please their largest clients than average folks. Investors hope for the best but fear the worst.

The appointment of Rep. Christopher Cox, a California Republican, as chairman of the Securities and Exchange Commission is opening wide the floodgates of paranoia.

Outgoing SEC Chairman William H. Donaldson was overseer of a busy period of tougher penalties, accounting requirements and enforcement. Some regulations might be overwhelming to small businesses and should be adjusted, but overall, the past couple of years have been healthy for investors.

The pendulum often swings from "pro-business" to "don't-trust-business" and back again in Washington. Pro-business Cox, if confirmed, could turn out to be more moderate than many expect, even though he has hardly seemed the champion of individual investors in the past.

And the U.S. Supreme Court's recent unanimous overturning of the 2002 verdict against the Andersen accounting firm might make it more difficult for the government to bring charges of obstruction of justice.

The average investor should remain a little paranoid no matter what the regulatory or legal climate in Washington or New York. Every aspect of your financial dealings should be carefully scrutinized, and the providing institution should be asked tough questions. If you're not satisfied in the final analysis, take your business elsewhere.

We can hope that the recent era of tougher regulation is not gone for good. It has been a heady period for everyone, including journalists. Investment companies should never be stereotyped as universally corrupt, for they certainly are not. However, self-regulation of industries has often proved toothless. Serious regulation and personal diligence is required.

Be as demanding of investment and banking companies as they are of you. A little paranoia never hurts when it involves your money.

Andrew Leckey is a Tribune Media Services columnist.

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