FOR IMMEDIATE RELEASE
March 7, 2005
Travis Plunkett, CFA, (202) 387-6121
Ed Mierzwinski, US PIRG, (202) 546-9707
John Rao, NCLC, (617) 542-8010
Groups Urge Senators to Strike Change That Would Benefit Investment Banks at Expense of Individual Investors, Retirees, Employees
WASHINGTON D.C. – Five of the nation’s leading consumer advocacy groups decried a provision in the bankruptcy bill that would allow the very same investment bankers who had worked with a corporation prior to bankruptcy to advise the debtor company during the bankruptcy. The organizations endorsed an amendment by Senators Patrick Leahy (D-VT) and Paul Sarbanes (D-MD) that would strike this change.
If enacted into law in its current form, the bankruptcy bill would put investment bankers in a position to review the validity of past transactions in which they may have been involved, setting up a clear conflict of interest at investors’ expense
In a letter sent to all Senators late last week, Consumers Union, Consumer Federation of America, Consumer Action, U.S. Public Interest Research Group and the National Consumer Law Center urged senators to eliminate what they called a “significant threat to the interests of investors, employees and pensioners.”
“Investment firms that have previously advised a bankrupt company have a prima facie conflict of interest and should continue to be automatically prohibited from offering advice in a bankruptcy restructuring case,” the letter authors said. “Imagine how the public would have reacted if the investment banks that were later found to have profited enormously from structured financial deals with Enron had been hired to offer advice in the Enron bankruptcy.”
Consumer groups pointed out that Congress and the Securities and Exchange Commission have devoted considerable time and energy in recent years to eliminating just these kind of conflicts in an effort to restore investor confidence. The SEC has made important strides, for example, in implementing the Sarbanes-Oxley corporate reform law and in cracking down on Wall Street conflicts of interest. In addition, the Chairman of the SEC, William Donaldson, has previously expressed his opposition to the change in conflict of interest provisions proposed in the bankruptcy bill.
More recently, the National Association of Securities Dealers (NASD) has been considering whether to place new limits on investment banking firms’ ability to write fairness opinions for deals in which they are involved.
By allowing a significant new financial conflict, the current version of the bankruptcy bill “runs completely contrary to this trend,” the groups said.
Click here to view copy of the letter sent to Senators