In June 2009, I went to DC to meet with Senator Corker, the SEC, the Senate Banking Committee, the FDIC, the Congressional Oversight Panel and the Public Company Accounting And Oversight Board. I provided a report on corporate disclosure transgressions (request access to this report via research@newconstructs.com) that detailed over twenty problem areas in the corporate financial system. The report references specific cases, with excerpts from the original 10Ks, of companies violating or stretching disclosure rules. None of the issues I highlighted were caught by the SEC.

My pitch was simple:

  • Regulators do not make markets more transparent – proper disclosure does.
  • The problem with transparency is not the lack of data but the overwhelming load of it created daily.
  • The public sector is several steps behind the financial wizards that Wall Street and Corporate America employ to manipulate accounting data.
  • Regulators need better expertise and tools for gathering and analyzing data. New Constructs has been delivering that expertise and the tools to apply it since 2003.

Click here for a copy of the presentation used in all my meetings.

My presentation focused how to improve the integrity of the capital markets most efficiently. As detailed in my letters (#1 and #2) to Senator Corker, my purpose was to provide our political decision-makers with a powerful tool to combat stock market manipulation and material disclosure transgressions.

I pointed out that not only were companies able to manipulate the accounting system, but also that violation of disclosure rules was rampant and undetected. For example, as detailed in our Corporate Financial Disclosure Transgressions, over the last 5 years we found 10 companies whose income statements do not add up correctly and 20 companies in the last 11 years whose balance sheets do not balance. I’d say that is proof that when the cat is away the mice will play.

Having worked on Wall Street for several years, I know how the “sausage is made”. I explained to everyone I met in Washington that New Constructs can immediately provide the public with additional information on the true profitability and valuation of companies that would empower investors to make more informed decisions. Just suggesting they provide an alternative to the home-spun Wall Street research.

I do not believe that most investors make bad investment decisions because they are stupid. They make them because they are misled about the true profitability and valuation of companies.

Guess what the reaction was:

  1. Great ideas, great stuff. You should hire a lobbyist.
  2. The reaction of the lobbyist who could best meet my needs: sorry, we cannot represent you b/c we are conflicted. You could not possibly pay us enough to cover the loss of the financial sector clients who would not like what you are doing.

Take away:

Wall Street’s money machine buys influence and drowns out the dissenting voices.