I thought that what distinguishes regulators from other arms of law enforcement is that they look for the root causes of misbehavior and try to elevate the quality of conduct through mandatory changes.  In other words, they impose genuine reforms designed to raise behavioral standards for the future.

The opportunities for regulators to be true reformers abound. Let us ignore that noone noticed when a South Korean company allegedly inflated profits by $1.2bn; a Dutch grocery group announced that it had overstated its sales by $30bn and its profits by $800m; or an American telecom company discovered that it had over-valued its  assets by $80bn. These events, despite their cry for help, have become little more than a money machine for the regulators.

The financial community is told that IPOs went to corporate executives willing to spend their companies' money on a boat-load of the favour-giver's investment banking business, or that debts were moved off balance sheets through suspect special purpose vehicles. Auditors, they say, doctored financial statements, while earning copious fees from management consulting and tax planning.

Nearly all of the regulatory settlements that have resulted are based principally on the payment of money into some government bank account, and the cheque is written typically by the company (not the culprits).  This depletes its resources, sends its stock into a death spiral, degrades its credit rating, forces it to cannibalise its best assets and to lay off many of its workers and, in the end, bankrupts it. Even if a company survives, where are the improvements that regulation is supposed to bring? Depicting these massive fines as remedial is pure sophistry.

In 1998, a settlement was entered into between 46 separate States and the tobacco industry for the payment of $206bn in installments over many years. The US Department of Justice is now trying to collect another $289bn for the federal treasury. That would total nearly half a trillion dollars into government coffers, while, incidentally, cigarettes remain entirely legal and about 440,000 US smokers continue to die each year.

Recent regulatory investigations into corporate abuses are formidable cash cows as well. For example, a natural gas producer has settled with several States, arising from the California energy crisis in 2000-2001, for as much as $1.7bn including free natural gas to the States for up to 20 years. Within days, the same company also settled a dif- ferent matter with a federal regulator for $20m. A telecom firm that has been accused of massive accounting fraud was not only forced by notoriety to change its name but to pay a $500m fine. And, in 1998, a Japanese metals trading house paid $150m to settle a copper market manipulation case. More recently, another bulge bracket brokerage settled Enron-related charges for $80m involving that firm's acquisition of Enron's fleet of Nigerian barges (a "must-have" in every diversified portfolio?). The litany could continue indefinitely.

As I write this column (May, 2003), regulators are approaching, if not surpassing, the $4bn collection mark from recent corporate governance scandals alone, and there are still many more to come. In fairness, a number of these settlements contain components that call for real reform, but are combined with massive fines that sap resources needed to complete the improvements, which, by the way, tend to have "soft" deadlines, while the due date for paying fines is unfailingly precise. And, when regulators try to act like the plaintiffs' Bar by creating restitution pools, they are not only performing an unnecessary and redundant function, but are also often ill-suited to the task of processing investor claims for money. Until they return to their correct (and unique) role as standard-setters, some of us can be forgiven for wondering what ever happened to "regulation".