One of the key decisions facing Rep. Christopher Cox (R-Calif.) if he is confirmed to take over the Securities and Exchange Commission is who will head the agency's enforcement efforts.
The head of the SEC's 1,200-person enforcement division -- which has sued former Enron Corp. and WorldCom Inc. executives, among others -- is Linda Chatman Thomsen, who took office only last month. A former prosecutor who is well respected among defense lawyers and her SEC colleagues, Thomsen serves at the pleasure of the agency's chairman. Whether Cox retains or replaces her will be watched closely as a clue to his commitment to stringent enforcement.
But Thomsen's is not the only key job that Cox may be able to fill. Because of turnover in other top jobs at the agency -- which may give him a chance to replace three other division chiefs -- he will enjoy an unusual opportunity to reshape the Securities and Exchange Commission if the Senate confirms him as the next chairman.
"It gives him great flexibility that few chairmen have had," said former SEC official Brian J. Lane, now at the law firm Gibson, Dunn & Crutcher LLP.
Last week the Bush administration nominated Cox to replace SEC Chairman William H. Donaldson, who will leave June 30. Donaldson's departure coincides with those of two other commissioners, and who their successors are will also make a difference in the SEC.
The past 21/2 years have been among the most active since the agency's founding in the Roosevelt era, prompting business groups to urge the SEC to ratchet back on regulation and enforcement.
Cox is a self-described "free market" proponent who has backed efforts to rein in plaintiff lawsuits and opposed efforts to treat stock options as expenses on corporate balance sheets. In public comments, however, he has stressed the need for tough penalties for securities lawbreakers. His spokesman declined comment yesterday, saying Cox would refrain from speaking until his confirmation hearing. As a first step, Cox may meet privately with individual members of the Senate Banking Committee as early as this week.
If he is confirmed, Cox could be one of three new commissioners. Democratic Commissioner Harvey J. Goldschmid will leave this summer to return to a teaching position at Columbia University's law school. And the term of the other Democratic commissioner, Roel C. Campos, will expire soon. Senate Minority Leader Harry M. Reid (D-Nevada) has recommended that Campos be appointed to a second term, but the White House has not yet acted on the proposal.
Meanwhile, some of the agency's four biggest divisions are undergoing change as well. Donaldson has not filled the job of director of the investment management division left vacant when Paul F. Roye departed for private practice earlier this year. That unit oversees regulation of mutual funds, a $7.9 trillion industry that has been plagued by trading abuses and conflicts of interest in the past two years.
On Donaldson's watch, the SEC passed more than a dozen rules imposing new oversight and disclosure requirements on mutual fund companies and their boards of directors. The U.S. Chamber of Commerce sued the agency over a rule that mandates board chairmen be independent of management, arguing that the SEC does not have the authority nor the evidentiary support to make such a change. The U.S. Court of Appeals for the D.C. Circuit has not yet ruled on the case, and it is unclear whether Cox would stand behind the rule if the court sends it back for further work.
Annette L. Nazareth, who heads the market regulation division, is a leading candidate to fill Goldschmid's slot as a Democratic commissioner. Nazareth, a former Salomon Smith Barney and Lehman Brothers Inc. official, sits at the helm of a unit that regulates the New York Stock Exchange and the Nasdaq Stock Market, among other things. Earlier this year, her division pushed through a plan that provided investors increased price protection on their stock trades. The move was adopted in a controversial 3 to 2 vote, with Donaldson siding with the two Democrats on the panel as he has done on other controversial votes. Lawmakers including Senate Banking Committee Chairman Richard C. Shelby (R-Ala.) expressed concern over the vote at the time. Critics say it favors the old-line systems at the NYSE to the detriment of more modern electronic trading platforms.
The market regulation and investment management divisions "are critical divisions for regulating financial services," said University of Mississippi law professor and former SEC lawyer Mercer E. Bullard. "There is a lot of work to be done there."
The leader of the SEC's corporation finance division, Alan L. Beller, has served in that role since early 2002. Beller had been a longtime partner at the law firm Cleary Gottlieb Steen & Hamilton LLP. His division reviews public companies' financial statements and examines disclosures about such things as executive pay and initial public offerings. It is not clear how much longer Beller intends to remain at the agency. He did not return e-mails yesterday.