Thursday, February 15, 2007

Changing Circumstances in the Global Financial Marketplace

Photobucket - Video and Image Hosting In a recent post (here), I noted that the cross-border Siemens bribery investigation shows that regulators throughout the world increasingly recognize the importance of vigilance and scrutiny, and that the extent of alleged misconduct in that case could spur further efforts for oversight and reform. In that same vein, a February 15, 2007 New York Times article entitled “Germany Battling Rising Tide of Corporate Corruption” (here) notes with respect to the Siemens case and other investigations that “the current spate of scandals will prompt a serious, systemic effort by German companies to impose more stringent internal controls and systems of legal compliance to stop corruption from happening in the first place.”

Whether the current wave of German corruption cases reflects lax legal compliance or simply more aggressive prosecution, it is clear that the number of cases is increasing. Germany did not have laws allowing prosecutors to bring bribery cases until 1997, by contrast to the United States, which has had the Foreign Corrupt Practices Act for over 30 years. One source quoted in the article says that in the last five years, “the notion that we need to prosecute economic criminality took on an entirely new dynamic.”

This new dynamic clearly will influence both prosecutorial priorities, and by extension, expectations of corporate compliance. As I have previously noted (here), as these regulatory efforts elsewhere gain traction, differences in regulatory standards between the U.S. and other countries will diminish – a consideration that is clearly relevant to the current calls for regulatory reform in the U.S.

Photobucket - Video and Image Hosting Ready, Fire, AIM: In prior posts, I have raised concerns (most recently here) about regulatory standards for London’s Alternative Investment Market (AIM), and more recently (here) I have suggested that the AIM may be facing increasing pressure to tighten up. In a February 12, 2007 article in The Times (London) entitled “Most AIM Fundraisers Fail to Enrich Backers Over Three Years” (here) takes a look at the 802 companies that listed on the AIM during the three years ending on December 31, 2006, and finds that 52 percent were “either trading at or below their issue price, or have had their shares suspended.”

The Times concludes that the “findings are likely to fuel criticism of AIM that, although it has been the most successful growth market in terms of new listings, it has often sacrificed quality for quantity.”

Whatever conclusions may be drawn from the data about the quality of AIM listed companies, the fact that over half of the last three years’ listings have failed to make money for investors does have important implications for the likelihood of the past level of listings to continue in the future. This is just one more example of the reasons why current global marketplace circumstances may well change for their own reasons, without any of the regulatory revisions for which the would-be reformers in the U.S. are clamoring.

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