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Delivered-To: rah@shipwright.com
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Date: Sun, 28 May 2006 00:15:42 -0400
To: Philodox Clips List
From: "R.A. Hettinga"
Subject: [Clips] Intelligence Czar Can Waive SEC Rules
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http://msnbc.msn.com/id/12952860/print/1/displaymode/1098/
- BusinessWeek Online - MSNBC.com
Intelligence Czar Can Waive SEC Rules
Now, the White House's top spymaster can cite national security to exempt
businesses from reporting requirements
By Dawn Kopecki
Business Week
Updated: 8:00 p.m. ET May 24, 2006
President George W. Bush has bestowed on his intelligence czar, John
Negroponte, broad authority, in the name of national security, to excuse
publicly traded companies from their usual accounting and
securities-disclosure obligations. Notice of the development came in a
brief entry in the Federal Register, dated May 5, 2006, that was opaque to
the untrained eye.
Unbeknownst to almost all of Washington and the financial world, Bush and
every other President since Jimmy Carter have had the authority to exempt
companies working on certain top-secret defense projects from portions of
the 1934 Securities Exchange Act. Administration officials told
BusinessWeek that they believe this is the first time a President has ever
delegated the authority to someone outside the Oval Office. It couldn't be
immediately determined whether any company has received a waiver under this
provision.
The timing of Bush's move is intriguing. On the same day the President
signed the memo, Porter Goss resigned as director of the Central
Intelligence Agency amid criticism of ineffectiveness and poor morale at
the agency. Only six days later, on May 11, USA Today reported that the
National Security Agency had obtained millions of calling records of
ordinary citizens provided by three major U.S. phone companies. Negroponte
oversees both the CIA and NSA in his role as the administration's top
intelligence official.
FEW ANSWERS. White House spokeswoman Dana M. Perino said the timing of the
May 5 Presidential memo had no significance. "There was nothing specific
that prompted this memo," Perino said.
In addition to refusing to explain why Bush decided to delegate this
authority to Negroponte, the White House declined to say whether Bush or
any other President has ever exercised the authority and allowed a company
to avoid standard securities disclosure and accounting requirements. The
White House wouldn't comment on whether Negroponte has granted such a
waiver, and BusinessWeek so far hasn't identified any companies affected by
the provision. Negroponte's office did not respond to requests for comment.
Securities-law experts said they were unfamiliar with the May 5 memo and
the underlying Presidential authority at issue. John C. Coffee, a
securities-law professor at Columbia University, speculated that defense
contractors might want to use such an exemption to mask secret assignments
for the Pentagon or CIA. "What you might hide is investments: You've spent
umpteen million dollars that comes out of your working capital to build a
plant in Iraq," which the government wants to keep secret. "That's the kind
of scenario that would be plausible," Coffee said.
AUTHORITY GRANTED. William McLucas, the Securities & Exchange Commission's
former enforcement chief, suggested that the ability to conceal financial
information in the name of national security could lead some companies "to
play fast and loose with their numbers." McLucas, a partner at the law firm
Wilmer Cutler Pickering Hale & Dorr in Washington, added: "It could be that
you have a bunch of books and records out there that no one knows about."
The memo Bush signed on May 5, which was published seven days later in the
Federal Register, had the unrevealing title "Assignment of Function
Relating to Granting of Authority for Issuance of Certain Directives:
Memorandum for the Director of National Intelligence." In the document,
Bush addressed Negroponte, saying: "I hereby assign to you the function of
the President under section 13[b][3][A] of the Securities Exchange Act of
1934, as amended."
A trip to the statute books showed that the amended version of the 1934 act
states that "with respect to matters concerning the national security of
the United States," the President or the head of an Executive Branch agency
may exempt companies from certain critical legal obligations. These
obligations include keeping accurate "books, records, and accounts" and
maintaining "a system of internal accounting controls sufficient" to ensure
the propriety of financial transactions and the preparation of financial
statements in compliance with "generally accepted accounting principles."
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R. A. Hettinga
The Internet Bearer Underwriting Corporation http://www.ibuc.com/
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
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R. A. Hettinga
The Internet Bearer Underwriting Corporation http://www.ibuc.com/
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'