At SEC, a Year of Relative Calm
Wednesday, August 2, 2006
When former California lawmaker Christopher Cox took the helm of the Securities and Exchange Commission a year ago this week, his arrival inspired a cauldron of rhetoric.
Investor advocates fretted that a man who advanced a free-enterprise agenda would waste little time in dismantling rules adopted after fraud at Enron Corp. and WorldCom Inc. Business groups pointed to his 87 percent lifetime approval rating by the U.S. Chamber of Commerce as evidence that he would be their champion.
Yet, for the most part, Cox has gone out of his way to avoid actions that would incite the passion of admirers -- or the ire of his critics.
In an hour-long interview yesterday, Cox continued that tradition, speaking in measured tones on some of the most hotly contested issues before the SEC, including whether the agency should oversee investment pools known as hedge funds and how it should respond to complaints from trade groups about the expense of accounting rules.
"We're trying to go right down the center lane," Cox said yesterday of the SEC's ongoing drive to consider the costs of new audit regulations as well as their benefits. To that end, the agency is expected to announce as early as this week that it is granting foreign businesses another delay in complying with the Sarbanes-Oxley Act, a 2002 corporate-accountability law.
That move demonstrates the careful approach Cox has taken in cultivating his multiple constituencies: from visits to state regulators and the Consumer Federation of America, where he delivered an emotional speech in December, to the executive suites of businesses in the United States and abroad.
"He had a very difficult needle to thread, and he has found more hole" than anyone expected him to do, said David Hirschmann, an executive vice president at the Chamber of Commerce.
By all accounts, the five-member commission is less prone to public spats and interpersonal conflicts than it was at the end of the tenure of Cox's immediate predecessor, former New York Stock Exchange leader William H. Donaldson. Cox has devoted time to building new relationships and repairing old ones. He guided his colleagues to unanimously approve a policy statement about when to impose financial penalties on corporations.
After extensive searches, most of the SEC's top jobs are now occupied, with the exception of the unit that oversees the nation's stock markets. That vacancy, open since Congress approved Annette L. Nazareth as a member of the commission last summer, could be filled within weeks.
Under Cox, the SEC's top policy initiatives have been more prosaic than vivid. The agency unanimously passed a measure to increase disclosure of executive pay, including stock option awards, last month. Cox's predecessors had moved toward making adjustments in the compensation rules, but he put the changes, the first in 14 years, at the top of his list.
"Given where he is and where politics are, investors have had a pretty good year with him," said Damon A. Silvers, associate general counsel at the AFL-CIO. "The agency is in process in a number of areas, so it's a little hard to be sure what the final outcome is going to be."
Cox also has spent time responding to court challenges of rules adopted before his arrival. This summer, the SEC requested information about costs and benefits of a measure that would require mutual fund boards of directors to have chairmen independent of management. Public comment on the provision, which twice has been struck down by the U.S. Court of Appeals for the D.C. Circuit, closes Aug. 21.
The appeals court recently blasted the agency in a separate case for lacking authority to regulate hedge funds, loosely regulated pools of private capital that are designed for wealthy and sophisticated investors. The SEC is unlikely to appeal the court ruling, according to sources familiar with the issue who spoke on condition of anonymity because the commission has not completed its deliberations in advance of next week's deadline.
Cox instead has called on his colleagues to move swiftly to adopt anti-fraud provisions that would apply to hedge funds. He also wants to tinker with how the SEC defines sophisticated investors to reduce the likelihood that the funds will attract people unprepared for the risk. But his proposals appear to center on changes to disclosure and advertising practices rather than a more aggressive intervention in the funds.
"I'm very concerned about . . . the ability of unsophisticated individuals to purchase these complex instruments, which have heavy fees and little in the way of normal disclosure," Cox said. "In almost all cases, these will be unsuitable investments for retail investors."