I grew up watching Bill Laimbeer, the tough blue-collar center from the Detroit Pistons. He was always the opponent, playing opposite some of my favorite teams of that era.

NBA.com describes him and his well-known drop to the hardwood like this: The Laimbeer "flop" became the stuff of legend. A grimacing Laimbeer would often go careening to the floor in reaction to the slightest tap from an opponent.

Pulling just such a move from this four-time all-star center’s playbook, the Securities and Exchange Commission, the referee of choice for the investment community has blown the whistle on numerous regulations, when, as in the many instances that Mr. Laimbeer fooled the on-court refs, there was no foul.

The foul, the act of impeding the movement of a player in basketball, depends on the quick eyes of the referee. Never have the fans played a roll in the call yet the outcome of some of those decisions remain burned into many a fan’s memory. 

Christopher Cox, the chairman of the S.E.C. announced on Wednesday that his regulatory group was calling “foul” on such important regulations such as Sarbanes-Oxley, the right for foreign companies to come to our shores in order to list their offerings and play by our rules, hedge fund minimums and company disclosures. Shareholders suddenly became the opponent crying “flop”. 

The portion of Sarbanes-Oxley in question, Section 404, made it mandatory for all companies to have their financial statements audited for accuracy. Called a knee-jerk reaction to the historical downfall of companies like Enron and Worldcom, Section 404 was adopted at great cost – at least initially. The price of those auditory regulations was the subject of the flop.

Many larger companies have now integrated the law into their regular practice and actually have found the cost has dropped significantly as auditors worked the legislation into the software tools they use.

Small businesses, the very companies that have the most to reveal in their statements to their shareholders, will now be exempt. These companies are the high-risk investments in the mid- and small-cap space. By flopping, they simply added another layer of risk without adding any additional reward to investors who purchase their shares. The money saved from this change of rules will not find its way into the shareholder’s pockets.

Criticism of the rules came from the top down. Under the guise of competitiveness and transparency, you can now expect many of these smaller firms to use the S.E.C.’s ruling to increase the perception of shareholder value without the accounting proof to back it up. 

Allowing small companies to tailor their accounting to suit their own circumstances opens the door for other businesses to follow. It is a sad day when the S.E.C. allows itself to simply react abstemiously. 

The second flop came from overseas companies looking to list and run. Regulations, according the foreign markets biggest advocate, Henry Paulson, our Secretary Treasurer, had stymied the IPO market and gave many foreign companies reason to pause before they entered into our regulated investment havens.

The hallmark of American markets was the regulations in place to protect investors. The hallmark of globalization is the deconstructing of such barriers to allow the free flow of commerce and the power of capitalism to make the rules. If we truly wanted globalization, we should force foreign markets to rise to our regulations. That would clarify the rules of commerce that we so xenophobically lay claim to having created.

Mr. Cox also sought to slap the collective wrists of hedge funds by raising the minimum investment from $1 million to $2.5 million. While this is will have little if any trickle down effect on the average investor, the efforts of the S.E.C. to expose the Wall Street Laimbeers for what they really are will now be a mote point. These cowboy investors now have the range to themselves.

The final flop came to the prospectus. Considering the rise of internet ready information as a good enough reason, the S.E.C. will now allow investors to get their shareholder information via the web. Only if investors request a paper printout will they receive one. Only if investors are well organized will this information have the same value as the hard copy.

Bill Laimbeer would have loved the way the S.E.C. blows the whistle. The opposing team, the shareholders, should not. 

© 2006 Paul Petillo
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Paul Petillo
Blue Collar Dollar.com
Portland, OR USA
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