Financial Crisis Inquiry Commission, Pt. 1

There's a lot of good stuff coming out of the Financial Crisis Inquiry Commission (FCIC) hearings. In fact, it's starting to take on sort of a Watergate-y feel about it, or as George Costanza put it, it's like an onion, the more layers you peel back, the more it stinks. There is too much to cover in one post, so please indulge me. I hope you find it as interesting as I do.

On Thursday Denise Voight Crawford appeared before the Commission. Crawford is the Commisioner of the Texas Securities Board and President of the North American Securities Administrators Association. From The Seminal at Firedoglake:

"Commissioner Crawford is a state regulator who for 28 years has dealt with securities frauds/crimes at the state level. She came out firing, taking dead aim at the federal government's regulatory laxity (mostly the Securities and Exchange Commission) over the last 10-15 years. Her testimony is full of anecdotes of how Congresses, Administrations, the SEC and federal judges have systematically limited state fraud investigations, preempted state oversight and kneecapped enforcement efforts.

But as Crawford explains, that wasn't because the feds wanted to pursue a vigorous federal enforcement regime and avoid conflicting state efforts; rather they meant to hand deregulatory protection to the financial industry."

One particular area of Commissioner Crawford's testimony was about the ability (or lack of ability) of private citizens to sue for securities fraud.

"...over the last 15 years, Congressional actions and Supreme Court decisions have restricted the ability of private plaintiffs to seek redress in court for securities fraud. These restrictions have not only reduced the compensation available to those who have been the victims of securities fraud, they have also weakened a powerful deterrent against misconduct in our financial markets.

The Court has narrowed the class of wrongdoers who can be held liable in court, and at the same time, it has expanded the pleading burdens that plaintiffs must satisfy to survive immediate dismissal of their claims."

Crawford cited one of those "Congressional actions" something called the Private Securities and Litigation Reform Act of 1995. One of the commenters at FDL posted a link to this Frontline article about the history of the PSLRA:

"In the fall of 1994, the so-called "Gingrich Revolution" led to the takeover of the House of Representatives by pro-business Republicans. Tort-reform legislation to curb shareholder lawsuits against companies and accountants was at the top of the agenda.

...Although President Clinton vetoed the bill, called the Private Securities and Litigation Reform Act of 1995, asserting that it would close the courthouse door on investors with legitimate claims, the Senate -- led by Sen. Christopher Dodd (D-Conn.), chairman of the Democratic National Committee -- overturned the president's veto in December 1995. Sen. Dodd received almost a quarter of a million dollars in political donations from the accounting industry in the 1995-96 election cycle, although he was not up for re-election."

More to come.