NEW YORK (AP) Right now, with visions of handcuffed executives and billions in scandal settlements still fresh in their memories, executives and corporations have ample reason to avoid misbehavior.
But, while economic and political uncertainties are weighing on the stock market today, it's pretty much guaranteed that Wall Street will string together another series of highly profitable years sooner or later.
And when that time comes, will memories of ruined reputations and costly settlements deter another spate of greed and scandal?
The simple, pessimistic answer is no. Human nature being what it is, there's no reason to expect that history won't continue to repeat itself. After all, it was only a little more than a decade ago that Wall Street was grappling with both an insider trading scandal and war in Iraq.
Yet there are some grounds for a more optimistic view. The legal system, for instance, looks like it is becoming more than an avenue of last resort with which to exact punishment and extract reparations after the harm is done.
In sheer numbers, the legal activity of recent years both government action and investor litigation should be enough to give any would-be wrongdoer some immediate cause for pause.
The Securities and Exchange Commission, flush with new cash and new authority from Congress, initiated 679 cases in the 12 months ended Sept. 30, 2003, up from 598 in fiscal 2002 and about 500 in both 2001 and 2000.
The tide shift has been even more dramatic on the criminal side.
Until recently, prosecutors largely avoided securities cases due to the complexity and huge resources they entailed. But last year there were 246 indictments brought by 48 different jurisdictions, SEC Commissioner Harvey J. Goldschmid noted Thursday in a speech to the New York State Society of Certified Public Accountants.
''Now everyone wants a criminal fraud case,'' said Goldschmid, with a hint of worry that such an environment could foster frivilous prosecutions.
In terms of civil suits, last year brought almost $3.20 billion worth of settlements in 164 cases, on par with 2002's tally of 166 cases settled for $3.21 billion, according to data compiled by Institutional Shareholder Services.
It's too soon to say for certain that we have reached the peak in the legal backlash to the scandal years. As evidenced by last year's sudden controversy over mutual fund timing and Dick Grasso's pay as head of the New York Stock Exchange, new unsavory surprises may yet lurk in the affairs of corporate America.
But presumably, the pace of legal activity will slow, if it hasn't already.
An annual study by Stanford Law School and Cornerstone Research found that new filings of traditional shareholder suits declined to 175 in 2003 from 225 in 2002. Similarly, last year's filings represent a combined loss in market value of $540 billion among the companies being sued, down from $1.9 trillion the prior year.
The decline in new lawsuits may suggest that the worst excesses from the boom years had been exposed by 2002, and that companies and individuals have made sure to play it safe amid all the investigations and ''fishing expeditions'' by the SEC and New York State Attorney General Elliot Spitzer.
How long, however, will executives and companies stay on their best behavior?
Notably, another reason why the number of new suits declined in 2003 may be that it was a year of strong gains for the stock market, easing the pain for those stung by scandal.
And as the pain goes away, so may the inhibitions of executives.
The best hope is that the current climate of fear is prompting companies to implement the type of controls that can help guard against a more permissive atmosphere in the future.
''I don't think there's a clear connection'' between legal risks and improper behavior, said Bruce Carton, executive director for Securities Class Action Services at ISS.
''When the misdeeds are going on, people aren't thinking years down the road, 'Will this cost me in a class action suit?' My sense is that (the legal risk) generally won't deter the bad guys, but it may spur the bad guys' employers to put safeguards in place that may catch or deter sombody down the line.''
Bruce Meyerson can be contacted at bmeyerson(at)ap.org
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