The — already rattled by more than two years of falling stock prices - disenchanted and dissatisfied with corporate America. Rather than looking for investment opportunities, many appear to be waiting for the next shoe to drop on Wall Street.

On June 25, WorldCom - the nation's second-largest long-distance carrier - announced accounting discrepancies totaling at least $3.8 billion.¹ Its confession followed on the heels of Enron, Global Crossing, Rite Aid and Xerox, which also allegedly inflated earnings and misled investors. Even homemaking icon Martha Stewart has been accused of insider trading.

Not surprisingly, revelations about big-business mischief have left many investors feeling betrayed by their faith in corporate America. Combined with uncertain corporate earnings and a weak dollar, this loss of confidence has contributed to an accelerating stock market decline in recent weeks.

While many factors continue to influence the financial markets, the loss of investor confidence is particularly worrisome. In an attempt to restore investor faith, President Bush recently addressed corporate executives on Wall Street, promising to "end the days of cooking the books, shading the truth, and breaking the law."² In late July, he signed legislation that establishes criminal penalties and prison terms for company fraud and document shredding. It prohibits top executives from receiving personal loans from their companies, creates a private-sector oversight board to police the accounting industry, and limits the consulting work accounting firms can do for the companies they audit. It also creates a federal account for defrauded investors that includes civil fines, payments, and assets of corporate wrongdoers and extends the amount of time during which investors can sue companies that have wronged them.

As legislators look for ways to protect investors, many corporations have adopted more conservative accounting practices on their own. Coca Cola, Bank One, and The Washington Post recently announced that they will change the way they account for stock options in order to make earnings statements more transparent for investors.³ Other companies have restated past earnings to shore up shareholder confidence and reflect a renewed commitment to upright accounting methods. Public accounting firms seem to be taking their role as watchdogs more seriously as well.

Despite these efforts, some investors continue to feel skeptical about the integrity of big business. Until reforms on both the corporate and legislative levels can restore their faith, the markets may continue to feel the effects of investor mistrust.