Despite the positive reports from various sources regarding improvement of investors’ faith to the stock market, the paper explains why the Wall Street can not anymore convince the investors who had fled from NYSE to engage in the stock bourse.
Replete with scam histories which were encounters that the New York Stock Exchange never learned from, the passage of the Sarbanes-Oxley Act is still deemed an unsure measure to relinquish con gamers from defrauding hapless investors. With reference to the Enron Scam, the exemption in consideration of the Merill Lynch rule and the concurrent instances within the Wall Street, the paper justifies the flight of investors from the Wall Street stock market.
While it can be argued that the reason behind the investors’ flight out of the New York Stock Exchange is because of the passage of the Sarbanes-Oxley Act of 2002 (HR 3763) which demands firms to provide clean and audited financial reports and which, if done will entail compliance costs for firms, such legislation being favorable to the entire stock exchange community can not be the total reason why the sudden exodus of the wealthy happened. It is just too superficial a reason.
The Sarbanes-Oxley Act of 2002 was created to have a whistle-blowing mechanism within firms to prevent any anomalous transaction and any internal auditing misconduct swathing the real value of stocks in the market. Analysts show that raising corporate standards in Wall Street indeed turns out to increase costs which are unfavorable to investors. But such instance can be negotiated with. Unfavorable to most investors as it may seem because it would mean ‘transparency’ in everyday dealings thus no more short-selling maneuvers for analysts, but there has got to be a more tenacious rationale than the Sarbanes-Oxley law.
What really happened to Wall Street is a slow upheaval of small investors upon discovery of the fraudulent machinations of Wall Street insiders on the stock prices. The orchestration of ups and downs of stock prices for the advantage of stock analysts was beyond too obvious that many investors faced bankruptcy due to such perfidy. This corporate selling strategy of stock analysts has brought many downfalls of particular firms such as Enron and Worldcom (Chanetsa), and has brought millions of investors, including the retirees who invested their retirement pays to the last buck, to a destitute lifestyle.
The confusing Merill Lynch Rule allowing broker-dealers engage in the market for fee-based accounts without registering as investment advisers also casts doubts on Wall Street’s fair and transparent stock market image. While the costs of doing business in a higher standard can be negotiated and dealt with NYSE’s board, the various anomalies within Wall Street are totally not.
This paper therefore unveils and enumerates the reasons why investors have lost faith and confidence in the Wall Street given the aforementioned circumstances and some other situations which Wall Street proliferated for itself. METHODOLOGY An analysis of concurring points is employed in this research to justify the hypothesis that it is not only the Sarbanes-Oxley Act which repelled investors out of Wall Street but other reasons pertinent to the internal relations within the Wall Street con game.
Smith Barney, a company brokerage under the umbrella of Citigroup, can not lay deaf and blind in these anomalies given the fact that it has been recently charged with a $50 dollar fine “for improper trading practices, including deceptive market timing by its brokers” and for “failing to supervise trading of mutual funds and maintain adequate records” (Reuters) while all other firms are freely roaming around constructing their new strategy to circumvent the Sarbanes-Oxley law.
The firm has therefore been significantly affected not only because of the financial dilemma to recover from the $50 million fine, but also because of the loss of a number investors from which it derives its revenues from and the challenge to improve auditing processes amid lack of guarantee that it would not be fined again.