I appreciate your interest in this topic, because it is vital to allow the flow of critical information so that investors and creditors can correctly evaluate the performance of business enterprises. Anything that impedes that flow of information is detrimental to the economy. In particular, if we wish to attenuate the destruction of financial accounting by managers who wish to advance their own selfish interests, then it is necessary to prevent these managers from harassing and persecuting those who analyze corporate reports.

Senator Wyden, you sent this letter to Christopher Cox on August 4, 2005, and so far the SEC has taken no action on the matter. Don't you think it is time to investigate why?

Chairman Cox, you responded to the Senator in a letter dated September 1, 2005. After thanking the senator for his inquiry, you stated that you share his concerns about issuer retaliation and its adverse impact on the investment community. You added a postscript in your own handwriting, "This is indeed a concern and we will tackle it." Almost three years have elapsed since you wrote that response. Don't you think it is time to advance a solution and ensure free-flowing information in stock and credit markets?

In the letter sent to Senator Wyden, you attached a memorandum from Robert Colby, the Deputy Director for the Division of Market Regulation. Dated August 23, 2005, this memorandum reviews the results of an informal survey conducted by the SEC staff. Several analysts and their firms revealed issuer retaliation in the form of limits to participation in company organized conference calls or other events, reduced access to senior management, limited time with managers during road shows and similar events, threats to withdraw business from other areas of the researcher's firm, intimidation and humiliation, and threats of litigation. These incidents prove the issuer retaliation is a reality.

The memorandum also includes a synopsis of the guidelines prepared by the CFA Institute that describes best practices with respect to relationships between analysts and issuers. I do not understand the purpose of this inclusion, for the CFA Institute is trying to deal with the serious problem of how CFAs ought to behave when they confront retaliation from managers because of critical comments made by the researcher. The CFA Institute is exhorting its members to maintain their independence and objectivity even in such difficult circumstances. The issue before the commission is different. The issue is what to do about the villains who are trying to lie about the well being of their corporations and to prevent the dissemination of negative information by those who have discerned their lies and their exaggerations.

The financial accounting during 2002-2004 was quite embarrassing. Scandal after scandal was uncovered by critical research analysts, financial journalists, short sellers, and hedge funds. District attorneys issued criminal indictments to managers; investors sued managers in record numbers; and corporations restated over 1,000 financial statements. Do we want to return to that type of world by allowing issuers to retaliate against financial analysts, journalists, and others who unearth facts critical of how managers run their businesses?

Chairman Cox, the SEC has had more than enough time to address this issue and consider remedies. I think you need to assert leadership and have the SEC retaliate against these miscreants who abuse analysts and others who want to report the truth. We need a solution today.

Senator Wyden, if the SEC continues to drag its feet, please call a hearing and ask the chairman about this delay. If necessary, please draft legislation protecting those who criticize managers for their poor management and their cover-up in embellished financial statements.

This essay reflects the opinion of the author and not necessarily the opinion of The Pennsylvania State University.

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J. EDWARD KETZ is accounting professor at The Pennsylvania State University. Dr. Ketz's teaching and research interests focus on financial accounting, accounting information systems, and accounting ethics. He is the author of Hidden Financial Risk, which explores the causes of recent accounting scandals. He also has edited Accounting Ethics, a four-volume set that explores ethical thought in accounting since the Great Depression and across several countries. He is the co-author of a monograph, Fair Value Measurements: Valuation Principles and Auditing Techniques (with Mark Zyla, Managing Director, Acuitas, Inc.) to be published by BNA.