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Still 'Ain't No Glory in Pain': How the Telecommunications Act of 1996 and Other 1990S

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Still 'Ain't No Glory in Pain': How the Telecommunications Act of 1996 and Other 1990S University of Arkansas at Little Rock William H. Bowen School of Law Masthead Logo Bowen Law Repository: Scholarship & Archives Faculty Scholarship 2006 Still 'Ain't No Glory in Pain': How the Telecommunications Act of 1996 and Other 1990s Deregulation Faciliated the Market Crash of 2002 andré douglas pond cummings University of Arkansas at Little Rock William H. Bowen School of Law, [email protected] Follow this and additional works at: https://lawrepository.ualr.edu/faculty_scholarship Part of the Business Organizations Law Commons Recommended Citation andré douglas pond cummings, Still "Ain't No Glory in Pain" : How the Telecommunications Act of 1996 and Other 1990s Deregulation Facilitated the Market Crash of 2002, 12 Fordham J. Corp. & Fin. L. 467 (2007). This Article is brought to you for free and open access by Bowen Law Repository: Scholarship & Archives. It has been accepted for inclusion in Faculty Scholarship by an authorized administrator of Bowen Law Repository: Scholarship & Archives. For more information, please contact [email protected]. STILL "AIN'T NO GLORY IN PAIN"': HOW THE TELECOMMUNICATIONS ACT OF 1996 AND OTHER 1990S DEREGULATION FACILITATED THE MARKET CRASH OF 2002 2 andr6 douglas pond cummings 1. TUPAC SHAKUR & OUTLAWZ, Still I Rise, on STILL I RISE (Death Row/Interscope Records 1999). 2. Associate Professor of Law, West Virginia University College of Law. J.D., 1997, Howard University School of Law. I acknowledge, with gratitude, the West Virginia University College of Law Hodges Summer Research Grant, which funded this research. I appreciate the initial valuable comments of successful corporate practitioners Ben Bates (Kirkland & Ellis, LLP, Chicago), Azin Lotfi (Ice Miller, Indianapolis) and Justin Evans (United States Department of Education). I am grateful to Professor Gregory Germain, Syracuse University College of Law for beneficial comments to early drafts of this article and Professors Kevin Outterson and Vince Cardi, West Virginia University College of Law for excellent comments to later drafts of this Article. Terrific research assistance was provided by Kelly A. Compton, West Virginia University College of Law, class of 2007. Many thanks to Laura Tingley, West Virginia University College of Law, class of 2006, John Harman, West Virginia University College of Law, class of 2007, Luke Schmitt, West Virginia University College of Law, class of 2008, and Heather Campbell, Syracuse University College of Law, class of 2004, for terrific research and editing support. Thanks also to Leigh Wald, Syracuse University College of Law, class of 2005, Brian Patrick Anderson, West Virginia University College of Law, class of 2005 and Eric L. Silkwood, West Virginia University College of Law, class of 2006, for first-rate research assistance. Finally, thanks to C. Lavinia Mann Cummings and Cole Kaianuanu Pond Cummings, for peace and constant steadiness. Of course, as usual, the politics and errata of this article belong exclusively to me. 467 468 FORDHAMJOURNAL OF Vol. XII CORPORATE & FINANCIAL LA W TABLE OF CONTENTS I. IN TRODUCTION ........................................................................... 469 II. CLOSING THE CHAPTER? ............................. .. .. .. .. 487 III. THE TELECOMMUNICATIONS ACT OF 1996 ................................. 497 A. How the Telecommunications Act Changed the Industry ... 503 B. Telecommunications Act Effect on the Industry ................. 511 C. Examination of Legislative History in Opposition .............. 522 IV. THE COMMODITIES FUTURES MODERNIZATION ACT ................... 529 A. How the CFMA Changed the Industry ................................ 531 B. CFMA Effect on Energy Industry and Economy ................. 535 C. Examination of Legislative History in Opposition to the C F M A ................................................................................. 536 V. PROPOSALS FOR RE-REGULATION ............................................... 538 A. Re-regulation Must Occur to Protect Investors and Ensure the Integrity of the Capital Markets ........................ 538 1. The 1996 Telecommunications Act ............................... 538 2. The Commodities Futures Modernization Act .............. 544 V I. C ONCLUSION ..............................................................................548 2007 STILL "AIN'T NO GLOR Y IN PA IN" I. INTRODUCTION The stock market collapse of 2001-02 devastated the U.S. capital markets and wreaked havoc on the lives of millions of American investors.3 Over the past several years, a steady drumbeat of scholars have laid blame for large portions of the market crash at the feet of 4 Congress and its shortsighted deregulatory legislation of the mid-1990s. Specifically, these critics have exposed the "Republican Revolution" 5 Congress (the 1 0 4 th Congress) and its passage of several congressional 3. See Justin Lahart, The Crash of 2002: Dow Hits Lowest Level in Nearly Four Years as Crisis of Confidence Worsens; J&J Latest Casualty, CNN MONEY, July 19, 2002, available at http://money.cnn.com/2002/07/19/markets/markets-newyork/index. htm; see also Kate Berry, Global Crossing Top Brass May Get Off Hook in Civil Suits: Will Justice Be Served?, L.A. Bus. J., Aug. 25, 2003, at 1 (explaining that a consequence of market collapse "[f]ormer employees, shareholders and bondholders of Global Crossing Ltd. are nearing a broad settlement of all civil litigation filed against the bankrupt telecommunications firm, its co-founder, Gary Winnick, and 32 former officers and directors." In addition, "[t]he amount of the potential settlement represents a fraction of the money lost by investors and employees when Global Crossing filed for Chapter 11 bankruptcy protection in January 2002."); infra notes 96, 156 (describing the value loss of the capital markets in the wake of the 2002 crash). 4. See andr6 douglas pond cummings, "Ain't No Glory in Pain": How the 1994 Republican Revolution and the Private Securities Litigation Reform Act Contributed to the Collapse of the United States Capital Markets, 83 NEB. L. REv. 979, 1044-59 (2005); see also Ernest E. Badway & Jonathan M. Busch, Ending Securities Industry Self-Regulation As We Know It, 57 RUTGERS L. REv. 1351, 1358-76 (2005); Jeffrey T. Cook, Recrafting the JurisdictionalFramework for Private Rights of Action Under the Federal Securities Laws, 55 AM. U. L. REv. 621 (2006); Joseph F. Morrissey, Catching the Culprits: Is Sarbanes-Oxley Enough?, 2003 COLUM. Bus. L. REV. 801 (2003); Joseph M. Schwartz, Democracy Against the Free Market: The Enron Crisis and the Politics of Global Deregulation, 35 CONN. L. REV. 1097 (2003); Stuart A. Shorenstein & Loma Veraldi, Symposium: Are New Media Really Replacing Old Media? Broadcast Media Deregulation and the Internet: Defining The Public Interest In Terms of Regulatory Necessity, 17 ST. JOHN'S J.LEGAL COMMENT. 45, 60-61 (2003); Jacqueline Lang Weaver, Can Energy Market Be Trusted? The Effect Of The Rise and Fall of Enron On Energy Markets, 4 Hous. Bus. & TAX L.J. 1, 11-16 (2004); William S. Lerach, Plundering America: How American Investors Got Taken for Trillions by Corporate Insiders: The Rise of the New CorporateKleptocracy, 8 STAN. J.L. Bus. & FIN. 69, 76-85 (2002). 5. cummings, supra note 4, at 980. The Republican party swept into power in 1994: This election sweep shifted control of the Congress from the Democrats to the Republicans for the first time in forty years. The still-faintly-echoing mantra that 470 FORDHAMJOURNAL OF Vol. XII CORPORATE & FINANCIAL LAW enactments, including the Private Securities Litigation Reform Act of 1995 ("PSLRA"), 6 the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"),7 the Telecommunications Act of 1996,8 and the Commodities Futures Modernization Act ("CFMA") 9 amongst others, as responsible in part for the crushing collapse of 2002.'0 reverberated in the halls of the Capitol as those newly elected congresspersons took their revolutionary seats was that of 'deregulation.' As a cornerstone of its 1995 agenda for change, the 'Revolution Congress' made deregulation, particularly deregulation of corporate America, one of its primary objectives. Indeed the Revolution Congress's leadership felt that the nearly sixty years of 'big government' reign, namely federal regulation, as initiated by President Franklin Delano Roosevelt, and buttressed by the United States Supreme Court since 1937, had finally run its course and the time for complete regulatory rollback and reversal had arrived. Many of the Revolution Congress's leaders believed that extensive federal regulation - of all industries - was an evil that necessarily had to be eradicated. Id. at 980-83. 6. See Private Securities Litigation Reform Act of 1995, Pub. L. No. 104-67, 109 Stat. 737 (1995). 7. See Securities Litigation Uniform Standards Act of 1998, Pub. L. No. 105-353, 112. Stat. 3227 (1998) (codified in scattered sections of 15 U.S.C.). 8. Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (1996). 9. Commodity Futures Modernization Act of 2000, Pub. L. No. 106-554, 114 Stat. 2763 (2000). 10. See cummings, supra note 4, at 1029 (stating that "the bubble burst in a spate of malfeasance, fraud, and deceit. One enduring legacy of the PSLRA and 1990s Revolution Congress deregulation will be the market crash of 2002. 'Simply put, Congress reduced the incentives against committing fraud."') (citing Abner J. Mikva, Share and Shares Alike: Now Let's Fix the "Reform" of our Securities Laws, LEGAL TMEs, Apr. 8, 2002, at 50); see also
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