President Bush today appointed Rep. Christopher Cox (R-Calif.) as chairman of the Securities and Exchange Commission, the often-embattled agency charged with regulating the stock market.
If confirmed, he will replace William H. Donaldson who said yesterday that he will resign at the end of the month, capping a 2 1/2-year tenure that marked the most active period since the agency's founding during the Great Depression.
Cox, a congressman from Orange County since 1988, is best known as the high profile chairman of the House Committee on Homeland Security. A graduate of the Harvard Law School and Harvard Business School, he has served on several committees with oversight over securities regulation and was a chief advocate for a law limiting securities lawsuits by private investors and for tax code changes reducing levies on income from investments, including dividends.
He was a White House lawyer during the Reagan administration and a corporate attorney specializing in securities law with the firm of Latham and Watkins before being elected to the House of Representatives.
Cox, 52, calls himself "a leading advocate of economic growth through lower taxes, free enterprise, and limited government" in a biographical sketch on his Web site.
"In the years ahead, Chris will vigorously enforce the rules and laws that guarantee honesty and transparency in our markets and corporate boardrooms," Bush said today in a morning announcement.
"I've given Chris a clear mission: to continue to strengthen the public trust in our markets so the American economy can continue to grow and create jobs," Bush said.
The laws enforced by the SEC have given the United States "the most dynamic and vibrant capital markets in the world," Cox said. He vowed to stand up for "clear and consistently enforced rules" if confirmed by the Senate, calling the agency one of the "best run" of the U.S. government.
Cox would be the administration's third SEC chief. Donaldson, a former chairman of the New York Stock Exchange, was brought in after the controversy-filled 15-month chairmanship of securities lawyer Harvey Pitt.
The Bush administration had tapped Donaldson in 2003 to help clean up the securities industry after Wall Street trading abuses and scandals at Enron Corp. and WorldCom Inc. shook the stock market and the confidence of investors.
"Although there will always be more work to be done to preserve and enhance the integrity and strength of our nation's corporations and markets, I believe the time has come for me to step down and return to the private sector and my family," Donaldson said yesterday.
Under Donaldson's watch, the agency hired an unparalleled 1,200 new employees and brought a record 1,700 enforcement actions against securities violators from Adelphia Communications Corp. to Xerox Corp., collecting about $7 billion in disgorgement and penalties. But in recent months, business groups have begun to complain that the SEC has gone too far in interpreting the 2002 corporate accountability legislation known as the Sarbanes-Oxley Act. They argue the agency imposes too many new costs without producing enough benefits.
Donaldson's departure could presage an era of dramatic change and give the Bush administration an opportunity to reshape the SEC. On several key issues, including rules on stock market structure and the imposition of civil penalties against corporations, Donaldson has cast his vote with the agency's two Democrats, both of whose terms will have ended this year.
Donaldson said, "Right from the beginning, we felt that the enforcement side of our work had to be reinforced. . . . We've done that."
But he acknowledged that there has been "legitimate worry" about parts of the Sarbanes-Oxley Act. However, he said there is broad support for the law generally.
He also cautioned business critics of the agency, noting that as a result of the abuses of a few years ago, "disillusionment with American industry goes way beyond just the investor community" and that polls show much of the public views "the business world as not a very attractive group of people."
The Business Roundtable, a group of corporate chief executives, yesterday issued a statement in which they urged Donaldson's eventual successor to strike "the right balance so that companies continue to grow and create jobs." The U.S. Chamber of Commerce, which is suing the agency over mutual fund rules, pressed the need for "modern, effective regulations that foster innovation and growth," according to a statement by chief executive Thomas J. Donohue.
"There are certainly elements of the business community that are hoping for a counterrevolution," said David M. Becker, general counsel at the SEC from 2000 to 2002. "Whether or not the administration will accommodate is an open question. Who the chairman of the agency is, is more important than it has been in a long time."
Donaldson said there are a number of issues still "cooking" at the agency, including providing investors with more information about executive compensation.
"Donaldson has been a far stronger champion for investors than we had reason to expect," said Barbara Roper, director of investor protection for the Consumer Federation of America. "The likelihood is we will see a very different and less active SEC emerge."
Democrat Harvey J. Goldschmid will leave this fall to return to his teaching post at Columbia University. The term of Democrat Roel A. Campos expires later this year. Senate Democrats have proposed elevating SEC market division director Annette L. Nazareth to fill Goldschmid's shoes, but the White House has not yet acted on the recommendation.
Investor advocates said Donaldson's departure probably means the death of a proposal that would give shareholders more power to nominate corporate directors. Donaldson had issued a proposal, but it bogged down amid complaints from trade groups and Treasury Secretary John W. Snow.
Richard Ferlauto, an official at the American Federation of State, County and Municipal Employees, said he is concerned that the proxy issue could become a "litmus test" in the search for Donaldson's replacement.
The timing of Donaldson's announcement came as something of a surprise. Though agency insiders had openly speculated he might leave by the end of the year, word that his last day would come June 30 gave observers pause. Senate Banking Committee Chairman Richard C. Shelby (R-Ala.) yesterday praised Donaldson for leading the agency out of a crisis when it was condemned for not acting quickly to detect large-scale accounting frauds and trading problems.
Donaldson told commissioners about his decision Wednesday morning, after they met in private to discuss enforcement division business. Before he made his announcement, all five commissioners had their photos taken together in a conference room, the last time they would meet there before the agency relocates to a new office near Union Station. According to people who have spoken with him in recent weeks, Donaldson has reflected on the toll his job has taken on his wife and 15-year-old son, whose lacrosse games he has missed. Both had remained in their New York home.
Joel Seligman, a longtime historian of the agency and dean of the law school at Washington University, said Donaldson played a key transitional role for the SEC, though the results of the November elections emboldened business interests to campaign against closer corporate oversight and Donaldson's regulatory agenda. Two recent incidents put Donaldson's management team on the defensive. An audit called into question some of the agency's financial controls at the same time the SEC is pressing companies to improve theirs. Separately, agency officials uncovered a $48 million budget shortfall in part because of problems with leases and renovations.
Staff writer Jeffrey H. Birnbaum contributed to this report.