Confounding His Critics
GOP stalwart Cox sidesteps partisan labels as he settles in as the country's chief financial watchdog
Watchdog. At a time when some business interests have drastically increased the pressure to roll back regulation, Cox has pushed for new ones or tried to strengthen existing regulations. He says he is proud that he was able to force greater disclosure of executive pay. Also, in the face of intense lobbying, Cox instituted a rule requiring brokers to fill orders based on the fastest trade at the best price regardless of which exchange offers it. And Cox has continued to seek a Donaldson-era proposal that would require the chairman and the majority of the board of directors at mutual funds to be independent. "My job is to keep us focused on the facts and our legal authority," says Cox.
Robert Glauber, the former chief of the NASD, a private-sector securities regulator, says Cox's political acumen has served him well, both in wrangling consensus among the other SEC commissioners and in selling his policies to the public. "I think he's shown himself to be more balanced than people on either extreme expected," says Glauber. "I think he has been very effective so far."
Cox has had a more difficult time recently. Last spring, the chairman was battered by questions about the SEC's willingness to go after all corporate wrongdoers. And the SEC's handling of a probe into trading by the hedge fund Pequot Capital raised questions of whether political considerations were affecting investigations. The investigator in charge of the probe was fired after he insisted on interviewing Morgan Stanley CEO John Mack, an important Bush fundraiser. Republican Sen. Chuck Grassley, who conducted hearings into the matter, says that the case shows "there's good reason to question whether the SEC enforcement division treats all investors equally."
Last month, the SEC's chief accountant, Conrad Hewitt, urged the capping of legal damage awards against accounting firms that fail to uncover fraud in corporate audits. Cox has distanced himself from Hewitt's remarks. But he has defended the SEC's calls for courts to use a stricter standard in deciding whether shareholders can sue companies for fraud, saying it protects shareholders from "unscrupulous lawyers" bringing frivolous cases.
His stridency on this issue has raised new questions about his agenda. "If I remember my history correctly, the SEC was not established for the purpose" of limiting shareholder litigation, says Boston University law Prof. Tamar Frankel, an expert on financial regulation.
Reforms. One reason shareholder lawsuits skyrocketed early in the decade, of course, was the avalanche of fraud that occurred in cases such as Enron, Tyco, WorldCom, and Adelphia Communications. Prosecution of these cases brought about the sweeping antifraud provisions known as the Sarbanes-Oxley Act of 2002, a law now under broad attack.
Such litigation has decreased substantially, says Columbia Law School Prof. Harvey Goldschmid, who was an SEC commissioner from 2002 to 2005: "There are a lot more important things to do" than offering new protections to accounting firms or "setting up high hurdles in plaintiffs' lawsuits, in a world where there are already high hurdles."
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