Chairman Cox: What He Says v. What He Does

“The inference that some have drawn that this competition is caused by regulation is wrong (responding to the claim that regulations are causing America to lose its global competitiveness). Some have made the case that our strong regulation and enforcement are indeed the cause of the opposite, of our strength.  At the SEC it is our intent to make those observations true.” Is the SEC Changing Course?, February 28, 2007.  New York Times.

The SEC issued a proposed rule that would weaken Section 404 of the Sarbanes–Oxley Act.  The proposed rule would make financial reporting less reliable and harm the investing public.

"Private litigation under SEC rules is an important complement to the Commission's enforcement program," said Cox, who in public remarks often points to investors' need for protection.” Fear SEC Chief is Seeking to Limit Investors' Ability to Sue, February 20, 2007.  LA Times.

The SEC recently filed an amicus brief in Makor Issues and Rights Ltd. v. Tellabs, Inc. advocating a narrowing of securities laws.  The interpretation the SEC supports would in practice make it substantially more difficult than it already is for shareholders to hold companies accountable for fraud by significantly heightening already very high pleading standards for shareholders to bring suit.

My "natural bent is toward the retail investor and the little guy."    The New SEC Chairman's Agenda, October 7, 2005. Forbes.

In April, the SEC announced it is exploring a new policy that would permit companies to resolve complaints by aggrieved shareholders through arbitration, limiting shareholders' ability to sue in court.   While Cox has stated that   "There is no pending rule or proposal before the Securities and Exchange Commission to allow corporations to mandate arbitration of shareholder claims,'' given his shaky track record Cox’s denial is questionable.    Arbitration is widely criticized for siding with the large industries that place the clauses in their contracts at the expense of the consumer.  SEC Explores Opening Door to Arbitration, April 16, 2007.  Wall Street Journal;and Cox Sets Off Alarms on Investor Rights With SEC Moves, May 24, 2007.  Bloomberg.

“Our role is to be the investors’ advocate.  I want to make sure that every company understands that so long as they treat their investors well, the SEC will be friendly to them. And if they attempt to drive a wedge between the interests of investors and the interests of management, we will be their relentless adversaries.” Is the SEC Changing Course?, February 28, 2007.  New York Times.

In April 2007, the SEC filed civil fraud charges against Tenet Healthcare Corporation and several others for failing to disclose to investors that Tenet's strong earnings growth from 1999 to 2002 was driven largely by its exploitation of a loophole in the Medicare reimbursement system. After paying a fee to the SEC to settle the charges, the SEC helped protect   the company from shareholder lawsuits by waiving an agency rule that says companies engaging in fraud lose a statutory shield that makes it harder for shareholders to file securities-fraud suits.

“We are relentless advocates for investors . . . every day we come to work, that's our priority.”   Cox Sets Off Alarms on Investor Rights With SEC Moves, May 24, 2007.  Bloomberg.

Chairman Cox severely restricted the ability of SEC staff to impose penalties on companies. Cox’s plan requires SEC enforcement lawyers to seek authorization from the agency's five commissioners before negotiating a set range of fines. Until now, staff attorneys have been free to reach settlements with companies under investigation and then refer the agreements to the commissioners for a vote.   The SEC’s move will likely result in lower fines. Even more disturbing, in Cox's first full year at the SEC, the agency brought 9 percent fewer enforcement cases. SEC's Cox Tightens Reins on Enforcement Division, April 13, 2007. Bloomberg.

"The prevalent forms of [executive] compensation have migrated away from what is transparent to what is opaque." "The market is capable of disciplining excessive compensation, provided that the market has adequate information. Too often in recent days, however, shareholders have been surprised to learn after the fact what their executives are being paid."  SEC to Propose Overhaul of Rules On Executive Pay, January 10, 2006.  The Washington Post.

The SEC issued an executive compensation rule that allows companies, in their total pay figure for top executives, disclose stock and option compensation when the cost is recognized, rather than at the time of the award. This rule will make it easier for firms to report lower compensation costs by spreading expenses over years. The SEC’s lax new rule ensures that total compensation to the individual executive is once again a number to be painstakingly summed up from various footnotes and other small-print entries. Cox Sets Off Alarms on Investor Rights With SEC Moves, May 24, 2007.   Bloomberg; and Will The Real Chris Cox Please Stand Up, March 7, 2007. Forbes.