From: Calvin Johnson [chjohnson@mail.law.utexas.edu]
Sent: Thursday, January 16, 2003 4:41 PM
To: rule-comments@sec.gov
Subject: File No. S7-49-02 Overall comment: Enforce pro-Investor Rules

To  Jonathan G. Katz, Secretary, U.S. Securities and Exchange Commission
	
	For all issues in the interpretation of the Sarbanes-Oxley Act of 2002, I
urge you to adopt the interpretation that most protects public investors.
We have recently had a natural experiment in which strict regulation in
favor of investors (Poland)  was put up against a
laissez-faire-management-decides system (Czech Republic).  The overwhelming
result of the experiment was that the strict regulatation pro-investor set
of rules allowed businesses needing capital by selling stock to florish.
The laissez faire system caused the stock market to atrophy and gave
insiders the chance to steal from the public investors.  Strong public
regulation, in this exceptional case, can dramatically improve the economic
health of the nation.


	I quote the conclusions of Edward Glaeser, Simon Johnson and Andrei
Schleiffer, Coase v. the Coasians, 141 Q. J. of Econ. 853, 855-56 (2001) at
some length:
			"[I]n its securities law, Poland adopted a mroe stringent regulatory
stanace than did the Czech Republic.  This differnece was reflected not
just in the general philsophies of regulation, but in the statutes and the
mechanisms of law enforcement.  In contrast to the Czech Republic, Poland
adopted legal rules highly protective of investors, mandated extensive
disclosure by securities issuers and intermediaries,a nd created an
independent and high motivated regulator to enforce the rules.  We find
that htis approach to regulation in Poland has stimulated rapid development
of securities markets, and enabled a number of firms to raise external
funds.  The expropriation of investors has been relatively modest.  In
contrast, the lax regulations of the Czech Republic, enforced by an
unmotivated offcie in the finance ministry, have been associated with
security delistings and a notable absence of equity finance through a
public market by either new or existing firms.  Expropriation of investors
has been rampant, and acquired a Czech-specific name, tunneling [referring
to the illegal or abusive extraction of assets from out of listed firms].
Starting in 1996, the Czech governmetn tightened its regulations. Hungary
adopted an intermediate regulatory stance, and has shown an intermediate
level of financial development. 

	***
		(at 892)	"The Czech banks have lent predominantly to the largest firms,
and have themselves been subject to governance problems and tunneling.  If
anything, the banking problems have exacerbated rather than cured the lack
of equity finance  "
						Respectfully submitted
	
						Calvin H. Johnson

Calvin H. Johnson 
Andrews & Kurth Centennial Professor of Law
The University of Texas School of Law
727 E. Dean Keeton (26th)  St.
Austin, TX  78705
(512) 232-1306  (voice)
FAX: (512) 232-2399
Website:  http://www.utexas.edu/law/faculty/calvinjohnson