Public Policy and Law Alert
April 2009
Authors:
Daniel F. C. Crowley
dan.crowley@klgates.com
+1.202.778.9447
Bruce J. Heiman
bruce.heiman@klgates.com
+1.202.661.3935
Michael J. Missal
michael.missal@klgates.com
+1.202.778.9302
Michael J. O’Neil
mike.oneil@klgates.com
+1.202.661.6226
A Congressional Investigation
of Wall Street Looms
Momentum is building in Congress to undertake the most comprehensive inquiry
into Wall Street practices since the 1930s. In a speech before the Commonwealth
Club of California on April 15, House Speaker Nancy Pelosi (D-CA) stated that
Congress will consider legislation “very soon” to create a commission to conduct an
investigation into the causes of the current economic and financial collapse.
Pecora Commission Hearings of the 1930s
Congressional staff has indicated that the Speaker would like to model the probe on
the Pecora Commission hearings which took place between 1932 and 1934. Named
for Ferdinand Pecora, chief counsel of the investigation, the Senate Committee on
Banking and Currency undertook the series of hearings to investigate the causes of
the stock market crash of 1929.
Karishma Shah Page
karishma.page@klgates.com
+1.202.778.9128
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The Pecora Commission hearings were resounding in both their scope and impact.
The Commission scrutinized a wide range of issues, including the securities market,
stock exchange practices, banking system, and tax evasion. Widely covered by the
media, the Commission actively examined the many high-profile witnesses that were
called to testify and uncovered a number of issues that caused public outcry. The
final hearing record contained approximately 12,000 pages and included more than
1,000 exhibits.
As a result of the Commission's findings, Congress enacted the Securities Act of
1933 and the Securities Exchange Act of 1934, creating the Securities and Exchange
Commission (SEC) and putting in place the laws that have governed financial
services for more than 70 years. Associate historian for the U.S. Senate Donald
Ritchie has characterized it as “probably the single most important Congressional
investigation in the history of our country.”
Round Two?
Although a number of lawmakers have proposed convening a body to inquire into
the causes of the financial crisis in recent months, Speaker Pelosi’s support is the
first to come from Congressional leadership. Speaker Pelosi noted that she has
communicated with Treasury Secretary Timothy Geithner on the issue and will be
discussing the prospective commission with Congressional colleagues, including
House Financial Services Chairman Barney Frank (D-MA), in the near future.
Soon after Speaker Pelosi’s comments, the Senate adopted two amendments to S.
386, the Fraud Enforcement and Recovery Act of 2009, calling for an independent
commission to investigate the causes of the financial crisis. By a vote of 92 to 4, the
Senate approved an amendment offered by Senators Johnny Isakson (R-GA) and
Public Policy and Law Alert
Kent Conrad (D-ND) to create a Financial Markets
Commission. The Commission, modeled on the
9/11 Commission, would have subpoena power and
the authority to refer matters for prosecution to state
and federal authorities. The Senate also approved an
amendment offered by Senators Byron Dorgan (DND) and John McCain (R-AZ) that would establish
a select committee, similar to the Senate Watergate
Committee, of the Senate to supplement the work of
the Financial Markets Commission. The Senate
approved S. 386 on April 28, 2009.
On April 21, Congressman John Dingell (D-MI)
introduced H. Res. 345 calling for a Pecora-style 15member House select committee to conduct the
investigation. The resolution has been referred to
the House Committee on Rules. Congressional staff
has stated that H.R. 768, the Commission on
Financial Crisis Accountability Act of 2009, may
also be a starting point for legislation to create such
a body. Introduced by Democratic Caucus
Chairman John Larson (D-CT) on January 28, 2009,
H.R. 768 would create a nonpartisan,
Congressionally-appointed commission to examine
the current financial crisis, its causes, and its impact
on the federal deficit and tax revenues.
Opportunities and Risks
Lawmakers continue to be under extreme pressure to
proactively address the financial crisis. Although
the details are still in flux, it is clear that Congress’
massive reform of the financial services regulatory
system will be coupled with high-profile
investigations and hearings. For those who are
called to testify, Congressional investigations
provide an opportunity to help shape regulatory
reforms.
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Congressional investigations, however, are also
fraught with risks, both personally and for the
business that the subject of the investigation
represents. These investigations are highly
orchestrated events, governed by rules Congress
makes for itself, and conducted in a hyper-political
and publicly scrutinized environment. Moreover,
Congressional inquiries may take place in
conjunction with other governmental investigations.
In addition to thoroughly strategizing and preparing,
experienced and competent counsel is crucial to
navigate through these landmines. For more
information, see the K&L Gates Alert
Congressional Investigations 101: What You Need
to Know.
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April 2009
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Public Policy and Law Alert
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This publication is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon
in regard to any particular facts or circumstances without first consulting a lawyer.
©2009 K&L Gates LLP. All Rights Reserved.
April 2009
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