A year ago, the Securities and Exchange Commission was viewed in most circles as a competent overseer of the nation's financial markets, but barely a player when it came to wielding influence with Congress, much less the White House.
That was before the arrival of Richard Breeden.
Since the aggressive, sometimes brazen, Stanford graduate took over as chairman of the agency, two landmark pieces of legislation representing the most fundamental changes to securities law in 20 years now sit on the president's desk. Weaker versions of the bills were submitted to Congress as long as two years ago, but were languishing until Breeden, aided by the stock market's mini-crash of October 1989, succeeded in toughening their language and peddling them through the process.
And where Breeden is a frequent visitor to the White House -- because of his personal friendship with George Bush, he declines to say exactly how often -- his predecessors rarely talked with presidential staff, let alone the president.
Most startling, say Wall Street and government officials, has been Breeden's unbridled forcefulness in poising his agency to do what most official Washington thought unthinkable until now: challenge the Federal Reserve Board as the leading candidate to keep watch on the nation's financial services, should Congress deregulate the banking and securities industries.
But as Breeden marked his first anniversary last week as the nation's chief securities regulator, his successes have been accompanied by a torrent of criticism from those whose territory he's pushed to control. To admirers, he's a visionary, fighting to restore investor confidence in the markets through greater stability and stricter enforcement, but at the same time proving an effective cheerleader for Wall Street by pushing for measures that will ensure it equal footing with international competitors.
To critics, many of whom refer to him as "King Richard," Breeden's ambitions stem more from self-interest and a desire to expand his own empire with an eye toward landing a Cabinet post. The red Porsche with the vanity license plate "1RCB1" Breeden pulls up to work in each day isn't a symbol of Breeden's relative youth -- 40 -- but his drive for power, they say.
Several months ago, Breeden railed against news accounts suggesting he might be publicity hungry. Yet it was his special press aide that telephoned reporters to say the chairman was available for interviews if they happened to be doing stories about his anniversary at the SEC.
"It's raw ambition," said one securities regulator who asked not to be named because he wants to preserve his working relationship with Breeden.
Others dismiss such criticism as the reaction of people to having their own regulatory empires invaded. "Richard's been a very strong chairman," said Joseph A. Grundfest, a former member of the five-member SEC board and admirer of Breeden. "He has success to show for his efforts."
Visionary or empire-builder, Breeden's knowledge about the financial services industry and status as a White House insider is a combination unusual in an SEC chairman.
After Stanford, Breeden got his law degree at Harvard and went on to practice securities law at Cravath, Swaine & Moore, one of Wall Street's top law firms, until 1981. Soon after, he became deputy counsel to then vice president Bush, working under C. Boyden Gray. In 1985, he authored the vice president's report on financial deregulation. In 1989, he served as the chief architect of legislation Bush was backing to clean up the thrift industry.
If there is one thing he learned from the thrift crisis, he said, it's the importance of forcing risk-takers to use their own money, not the government's, and of forcing companies to describe accurately their problems to the public. "Accountability and disclosure" are his rallying cry.
Bush Loyalist During a recent interview in his spacious office on the sixth floor of the SEC building in downtown Washington, he spent several hours holding forth on the intricacies of the securities markets, on the achievements of his tenure at the SEC and on why his critics are wrong.
"The SEC simply has no choice," he said of his efforts to expand the agency's oversight into securities activities of banks and thrifts. "That's our job."
But he has a less serious side, occasionally when it involves the president, to whom he is staunchly loyal. A conservative dresser who sometimes adds an off-beat splash to his attire, Breeden was recently wearing suspenders with a variety of sayings on them, including "Cut the Deficit," "Create Jobs," "Stabilize the Dollar" and "Cut Taxes."
"I guess I'll have to cut that last one out," he said.
He has also learned the importance of cultivating relationships along the way, particularly among the senators and congressmen from the other side of the political spectrum who oversee his agency -- Reps. John D. Dingell (D-Mich.) and Edward J. Markey (D-Mass.) and Sen. Christopher Dodd (D-Conn.).
"You either understand how it works up here or you don't," said Dodd, chairman of the Senate subcommittee that oversees securities and a fellow sailing devotee. "Richard has good instincts."
Dodd likens Breeden to the trust-busting, reform-minded Republicans of Teddy Roosevelt's Cabinet. "He's not out of the Reagan regulator mold, where they were winking at industry all along. He's accepted a job here without a view to what his next job will be in the private industry, as some of his predecessors have done," he said.
Not everyone is so enamored of Breeden's style.
From his first day in office, he has fought bitterly and publicly with Wendy L. Gramm, chairman of the Commodity Futures Trading Commission, which regulates most of the nation's futures markets. One of Breeden's first crusades as SEC chairman was to wrest from the CFTC responsibility for overseeing stock index futures -- financial instruments that allow investors to bet on whether a group of widely traded stocks will go up or down in value.
But Gramm, like Breeden, is a fighter and not about to give up jurisdiction easily. The public sniping between the two didn't play well in the House and Senate agriculture committees, which oversee the CFTC, because of the commodity industry's heavy tie to corn, soybeans, pork bellies and other farming products. Gramm denounced Breeden's initiative as "regulatory imperialism." He denounced her as an apologist for an industry whose practices amount to gambling on borrowed money.
Despite an ally as significant as the U.S. Treasury, Breeden's clout was simply no match for the influence wielded in the committees by the futures industry. Even Breeden's admirers think he was too shrill.
"Arguably, he was too aggressive," said Dodd. "They both were."
So far, Breeden's efforts have been stymied.
Uniform Standards Breeden also has angered state securities regulators by arguing for the need to impose a uniform federal standard on what companies must disclose to the public when selling stocks and bonds, a position that threatens to usurp state jurisdiction over stock registration.
"We at the state level get the feeling that there's not the cooperative feeling there used to be at the SEC," said M. Douglas Mays, securities commissioner of Kansas and president of the North American Securities Administrators Association, which represents commissioners in the 50 states.
Breeden denies he's out to eliminate state regulators' jobs. But, he said, his first concern is American competitiveness in a fast-changing financial world where the quilt-work pattern of U.S. law could leave the country's securities industry hobbled. Once Europe unifies its stock sale rules, he said, "It could be easier to sell stock in Europe than in Michigan or Texas for a company based in New York."
Breeden also has the banking and insurance industries incensed over proposals to force them to report loans and other investments at values that reflect the prices such assets could fetch in today's market. Because of the downturn in the real estate and stock markets, that could force bankers and insurers to take massive write-downs on their balance sheets to reflect the current value of these assets on their books.
The accounting switch is one for which Breeden is willing to fight. Congress is still smarting from the savings and loan debacle, and Breeden knows how to make use of that fear to push through reforms he deems important, said a top official at a major Wall Street firm.
"Breeden knows how to spook Congress," the official said.
And possibly his own staff. Current and former SEC employees generally praise Breeden as dynamic and bright. But some also mentioned that morale at the SEC may have sagged somewhat because Breeden, unlike some previous chairmen, frequently questions the opinions of his staff. That reportedly has been somewhat unnerving to an agency where the staff is used to more autonomy in decision making.
Breeden shrugs off the criticism: "It's good to shake the staff up once in a while."
He has created a special group within the agency to better scrutinize banks and thrifts, and another to foster uniform international trading rules. And he has undertaken all this while vowing that catching and punishing wrong-doers is the top priority of his regime.
Critics charge that Breeden is spreading the agency too thin and that he spends too much time on global issues to the detriment of more prosaic domestic ones. He counters that the fault is not his but an over-burdensome workload heaped on a too-small staff. Breeden, who is paid an annual salary of $89,000, rules an agency with roughly 2,300 employees, a number virtually unchanged from a decade ago despite his attempts to have its size increased.
Wall Street has generally applauded Breeden for his responses to crisis during his his first 12 months in office -- the 1989 mini-crash and the bankruptcy of the former Wall Street powerhouse, Drexel Burnham Lambert Inc., early this year.
And they recognize his effectiveness in getting legislation passed, even if they don't like every portion of its contents.
"Those bills wouldn't have been passed without him," said Bruce Thompson, director of Merrill Lynch & Co.'s Washington office.
Too Zealous? If the securities industry has one worry, several Wall Street officials say, it's that Breeden may be overly zealous in his attempt to be a tough cop. But they recognize that his political effectiveness may serve Wall Street well as Congress and the White House debate the decade-old question of whether to tear down barriers separating banking from securities. In a sign that such deregulation is moving forward, the government last month approved J.P. Morgan & Co. to become the first major bank company to gain permission to buy and sell corporate stock.
With any move toward deregulation will come the question of who regulates the changed institutions. Most government officials have viewed the Federal Reserve, which currently regulates the parent companies of banks, as the logical candidate to oversee companies engaging in a variety of financial businesses.
But Breeden argues that the SEC has as much experience as the Fed in regulating companies that own banks or thrifts or other financial companies because it regulates the securities that these firms issue. Thus, on this issue, Breeden is positioning himself against Fed Chairman Alan Greenspan, who many view as unlikely to step aside quietly.
Whether Congress will ever decide to undertake a fundamental revamping of the regulatory system remains a big if. But should it do so in the next few years, Richard Breeden will most surely be there.
The major portions of the two securities bills President Bush is expected to sign this week would do the following:
Expand SEC authority to suspend trading during a market emergency.
Give the SEC access to names and other information on traders who deal in large volumes, helping the agency to detect insider trading or other abuses.
Expand SEC access to financial information on securities brokers.
Give the SEC power during market turmoil to restrict certain large-volume trading directed by computers.
Give the SEC greater power to bar promoters of so-called penny stocks -- high-risk securities that sell for less than $5 a share and are traded over the counter.
Expand the range of fines and civil penalties the SEC now impose for insider trading to include other abuses, such as fraudulent sales practices.