Lisa Dutton/Toledo Blade
	Rep. Michael Oxley, R-Ohio, co-sponsored a measure aiming to make financial information released by public companies as accurate as possible. The Sarabanes-Oxley Act was enacted in the wake of corporate accounting scandals.
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WASHINGTON -- Arthur Levitt knew there was a problem -- one that could drain the savings of millions of Americans.

The government's top Wall Street watchdog had cut his teeth as a stockbroker in New York -- a place where executives always tried to make their profits look big, and where accountants tried to keep them honest.

But by the 1990s, the lines were blurring. Accountants were now making more money on corporate consulting than on corporate auditing.

As chairman of the U.S. Securities and Exchange Commission, Levitt saw a clear conflict of interest, and in 2000 he decided to try to stop the practice.

He wouldn't get far.

Standing in his way was the accounting industry and some of its best friends in Congress -- including Rep. Mike Oxley, R-Ohio, chairman of a subcommittee that oversaw the SEC. The industry showered Oxley and other congressmen with campaign cash. They beat back Levitt's attempts at reform.

A year later Enron would become a household name -- the first in a series of dramatic corporate collapses caused by the failure of accountants, executives, and bankers.

As investors lost billions, reformers demanded changes.

Levitt had been right.

In 2002, Congress finally granted Levitt's request in a bill that eventually carried Oxley's name -- the Oxley-Sarbanes Act. The Findlay congressman has since touted the bill as proof he's cracked down on corporate crooks.

But an investigation by The Blade, of Toledo, Ohio, shows that Oxley has spent years protecting American corporations from government regulators. Along the way he has become one of the GOP's biggest fund-raisers and the top recipient of campaign cash from the accounting industry.

Over his 22 years in Congress, Oxley has risen from foot soldier to general in the battle to beat back Depression-era investor safeguards to keep executives, financiers, and auditors honest.

After investors lost $11 billion in the Enron collapse, Oxley continued to argue against more ambitious reform, refusing to consider a bill that would have implemented the accounting restrictions Levitt had asked for two years earlier.

As more accounting scandals surfaced and pressure mounted, Oxley did an about-face and accepted many of the ideas from the bill he had opposed -- ideas he now takes credit for -- and included them in the final legislation that bears his name.

Democrats and reformers say Oxley remains a zealous advocate of deregulation even if his name is on the biggest corporate reform bill to come along since the 1930s.

"Oxley has taken on a reputation in Washington as being part of the mercenary culture -- the lobbying, fund-raising, big-time players' community and that includes the biggest corporations in America," said Charles Lewis, executive director of the Center for Public Integrity. "He doesn't mind taking their money and generally does favors for them."

In the last decade, the 11-term Republican has collected nearly $8 million in campaign cash from his patrons -- the vast majority from donors tied to corporate America. His take so far this year -- $1.3 million -- ranked him No. 1 among Ohio's 18 members of the U.S. House.

Half of what he now raises is put into his own political action committee, or PAC. Separate from his re-election fund, he uses the PAC to dole out cash to fund the campaigns of other Republicans.

To Oxley, 59, raising millions of dollars is part of a congressman's job.

He scoffs at critics who charge that corporations have bought his vote. As a former FBI agent sworn to uphold federal law, he calls the claims "ludicrous."

Sitting in an armchair in his congressional office one fall afternoon, with the Capitol his backdrop, Oxley said his Middle-American views have been twisted by Democrats and a biased media.

"I've always said that I'm a conservative pro-business Republican and I tend to be supported by those kinds of groups," he said.

As for the financial scandals that have rocked America -- scandals that Levitt and other critics had warned Oxley about -- the congressman offers a shrug about why he didn't see them coming.

"I'm good, but I'm not that good," he said.

GOP takes aim at banking rules

After the GOP took control of the House in the 1994 election, it didn't take long for it to set its sights on changing laws regulating banks and stock trading created in the aftermath of the collapse of 1929.

Lisa Dutton/Toledo Blade
Rep. Michael Oxley, R-Ohio, has spent years protecting American corporations from government regulators. Along the way, he has become one of the GOP's biggest fund-raisers and the top recipient of campaign cash from the accounting industry.

First up was the Securities Exchange Act of 1934.

Over the veto of President Bill Clinton and the objection of Levitt, 230 Republicans in the House were joined by 89 Democrats in passing a law that made it much harder for investors to prove they were defrauded by corporations, Wall Street firms, and auditors.

Investors who had filed lawsuits had been able to review a firm's records to find proof of fraud -- a key step to getting back the money they had lost. But the Private Securities Litigation Reform Act of 1995 changed the rules: Investors now had to establish they had been defrauded before gaining access to corporate records.

And even if investors met that challenge and won their lawsuits, the new law made it harder for them to collect on their losses.

Supporters of the new law, including Oxley, argued many of the lawsuits had little merit, and only the lawyers were getting rich.

Seven years later, a congressional investigation identified the 1995 litigation reform law as one of the culprits in the Enron collapse.

But before Enron was ever an accounting scandal, it was a banking scandal.

In a decade, the Houston company had evolved from a regional natural-gas provider to a major corporation that bought and sold the rights to future energy. But it had a problem: Its books didn't show much cash flow -- a calculation Wall Street uses to decide if a company is worthy of investment.

To fix the problem, Enron just faked cash flow. And the company got help from banking giants Citigroup and J.P. Morgan Chase, regulators would later conclude.

The banks and Enron created off-shore companies that were used to make bank loans look like legitimate cash flow -- $8.5 billion worth over six years. The misleading dollars helped fool Wall Street into thinking Enron was worth more than it was.

Using those glowing cash-flow statements, Enron and the banks peddled Enron securities to investors. That pumped money into Enron -- money used to then pay off the bank loans.

For the banks, it created a huge pay day.

When it all collapsed, $11 billion in stock value evaporated overnight.

The relationship between the banks and Enron wasn't the kind Congress wanted banks to be in -- at least the Congress of 1930s.

That earlier Congress had watched how J.P. Morgan had injected itself into Wall Street, unfairly inflated stock prices, cashed in on the high prices, and left investors hanging when the market collapsed.

Four years later, Virginia Sen. Carter Glass and Alabama Rep. Henry Steagall pushed a bill through Congress to ban commercial banks from participating in the stock business.

From the beginning bankers chafed at the prohibition. But it wasn't until the 1980s that their lobbying to get rid of it began to pay off.

In November, 1999, bankers finally got their wish.

The Financial Services Act of 1999, known as the Gramm-Leach-Bliley Act, was overwhelmingly passed by Congress and signed by Clinton.

In the end, Congress believed it was time to trust banks again, to give them greater latitude, and that the country shouldn't fear the repeal of a 66-year-old banking law.

Consumer and investor advocates said the new law removed the final barrier to stopping bankers from getting too cozy with crooked executives.

San Diego securities lawyer William Lerach points to the Enron collapse as proof of the need for the separation of banks and brokerage firms.

If each had been acting independently, they would have both required Enron to have a sound business plan before doing business with the energy firm, Lerach said. Instead, without the Glass-Steagall firewall, the business plans didn't matter -- so long as the banks knew the loan money could be paid back by investors' cash.

In light of the banks' role in the Enron disaster, does Congressman Oxley feel the repeal of Glass-Steagall was warranted?

Definitely.

"Gramm-Leach-Bliley was basically a recognition that the world had changed, the world of finance had changed, that customer desires had changed, technology had changed, and that Glass-Steagall was an antiquated relic of the past," he said recently.

One thing that has not changed is the banks' support of Oxley.

Since 1997, J.P. Morgan's PACs have given Oxley's re-election fund $16,000. His tally ranks in the top 10 percent of J.P. Morgan money given to 380 members of Congress. And that doesn't count the $13,000 the bank gave to Oxley's PAC.

During that same time, Citigroup's PACs gave Oxley's re-election fund $23,000 -- fourth out of 414 congressional recipients of Citigroup money. That doesn't count another $15,000 the bank gave to Oxley's leadership PAC.

Too cozy on Wall Street

In 1934, the Securities and Exchange Commission didn't lose any time going after the bankers and brokers who had manipulated stocks.

Stephen J. Boitano/Associated Press
As head of the Securities and Exchange Commission, Arthur Levitt Jr. met resistance in his attempts to address conflicts involving corporate accounting. His fears proved to be well-founded when scandals at Enron and other firms surfaced.

Sixty-four years later another SEC chairman, Arthur Levitt, began a crusade of his own.

In a landmark speech in 1998 at New York University Levitt said said he was increasingly concerned about what he saw on Wall Street.

"Too many corporate managers, auditors, and analysts are participating in a game of nods and winks," said Levitt. "Managing may be giving way to manipulation. Integrity may be losing out to illusion."

By the late 1990s, the country's biggest accounting firms were making more in consulting fees from corporations than they were from auditing the corporations' books. An SEC study found that consulting generated $16 billion in revenue in 1999, compared to $9 billion for auditing.

In July, 2000, Levitt drafted rules that would have banned accounting firms from providing consulting services to the same corporations they were auditing.

After announcing his proposed crackdown on consulting fees, Levitt said, the pressure from Congress to kill his plan was intense.

Oxley sent two letters to Levitt. In one, dated April 17, 2000, he asked Levitt to respond to 16 questions related to the proposed accounting rules. "[Your] responses will help to determine if hearings on the SEC's oversight of the accounting profession are warranted," Oxley's letter stated.

As chairman of the House subcommittee on Finance and Hazardous Materials, Oxley was in a position to hold hearings on Levitt's proposed accounting rules.

Levitt said the "the threat of having your appropriations denied, closing down the agency, was a fairly serious threat."

The former SEC chairman said he had little doubt why Oxley and others in Congress backed the accounting industry in opposing his reforms.

"Campaign contributions," Levitt said. "They were clearly doing the bidding of the largest part of their corporate constituency. [The accounting industry] gave a huge amount of money, a huge amount of money."

That view angers Oxley.

"That's baloney. He ought to be ashamed of himself," Oxley said. "I guess he's saying he was subject to political pressure. He couldn't take the heat apparently, which is too bad."

As Oxley and other members of Congress were stopping attempts in 2000 to reform the accounting industry, Enron was paying accounting giant Arthur Andersen for consulting work and auditing work.

It was later found that Arthur Andersen approved the highly complex plan by Enron executives to hide the true extent of the financial problems at the giant energy trader.

In October, 2001, Enron announced that it had overstated its earnings by $1 billion because of "accounting errors."

Within a month the company filed for bankruptcy, and a special committee set up by Enron's board of directors soon found blame. It was as if Levitt had written the report.

Suddenly a reformer

Now chairman of the House Financial Services Committee, and with his name on one of the most sweeping corporate reform bills in history, Oxley came back to Oxford, Ohio, in March. He came to tell the students and professors gathered at Hall Auditorium how he had helped restore investor confidence to the nation's financial markets.

Introduced as a "vision of integrity" who "bravely challenged the corporate world," Oxley told the packed auditorium how he had helped craft legislation that would prevent corporate scandals and was on hand last year when President Bush signed into law the Sarbanes-Oxley Act of 2002.

What he didn't tell the packed auditorium was that even after Enron had failed, he proposed a reform bill that contained few of the regulations he would later trumpet. In fact, as lawmakers tried to unravel the Enron mess, he cautioned them not to go too far. He said they should avoid covering the financial and accounting industries "in a sea of red tape."

That view was opposed by Rep. John LaFalce, a Democrat from New York who had proposed his own reform bill. It was far tougher than Oxley's original proposal and included more of Levitt's proposed ban on accountants offering consulting and auditing services to the same corporate clients.

Oxley, as chairman of the committee, had control of the gavel. He refused to hold hearings on the LaFalce bill and instead pushed his own -- with fewer restrictions on accounting firms -- through the House.

	Doug Mills/Associated Press
	President Bush greets Rep. Mike Oxley, R-Ohio, and Sen. Paul Sarbanes, D-Md, center, before signing the Sarbanes-Oxley Act, a measure the Ohio congressman originally resisted but later took credit for creating.

Time, it turned out, was on the side of Democrats. Before the Senate could vote on the bill, the WorldCom failure would unfold, costing investors billions more and putting reform on the center stage. President Bush demanded congressional action.

With the public waiting for Washington's reaction, Oxley's bill was rewritten. The reforms he eschewed were put in. The bill finally got teeth and a new name: The Sarbanes-Oxley Act.

Oxley said the failure of WorldCom had changed everything.

In the end, he signed on to stronger restrictions on accounting firms. He agreed to the same rules he had fought Levitt on two years earlier -- and the same rules he had fought Democrats on just three months earlier.

Levitt takes solace in that Congress -- including Oxley -- finally took his advice.

"He saw the light, like so many others did, and his name is on a significant bill which most of his constituents would have opposed," said Levitt, who stepped down from the SEC in 2001.

Oxley defends his role in crafting the accounting reforms of 2002. He said it is "one of those great urban myths" that he originally backed a weak bill to protect the accounting industry.

His detractors say it's no myth -- it's reality.

Oxley's bill prohibited accounting firms from providing two types of consulting services to companies they audit. LaFalce's bill included those two and identified an additional eight prohibited services. All 10 of LaFalce's restrictions were placed in the final bill.

"Anyone who followed the Sarbanes-Oxley bill closely knows who the reformer was in that, and it wasn't Oxley," said Charles Lewis of the Center for Public Integrity.

"He's seen as part of the problem, fairly or unfairly, because he's taken so much money from so many of these powerful industries. And back in the '90s, before this blew up, he was helping to protect them."

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Tomorrow: How a Leadership PAC lets a congressman live and travel in style.