Cox Hard to Figure Out

In a recent article by Bloomberg, we see that Chris Cox is a complicated and often unpredictable regulator who has drifted from his legislative roots. See http://www.bloomberg.com/apps/news?pid=20601103&sid=ax1WWAMfrL6A&refer=us .This is a maturity one can respect.

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SEC Chief Cox, Seeking Consensus, Draws Fire From Both Sides

By Jesse Westbrook and Otis Bilodeau

June 18 (Bloomberg) -- U.S. Securities and Exchange Commission Chairman Christopher Cox, entering his third year as head of the nation's top market regulator, says he's trying to strike a balance between protecting investors and keeping American companies competitive.

``There's no question that regulation has benefits; it also has costs,'' he said in a June 15 interview in New York. ``The job of the regulator at all times is to make sure that the equation works out in favor of investors and markets.''

That approach is a departure from Cox's predecessor, William Donaldson, who riled business groups by voting with Democrats on the panel to impose record fines and ram through new rules on hedge funds and mutual funds. Yet it's also drawing heat from SEC constituents on both sides.

Cox, 54, a Republican nominated by President George W. Bush, in February came under fire from shareholder advocates including the Consumer Federation of America after the SEC backed efforts to thwart an investor lawsuit at the Supreme Court. Then earlier this month, Cox caught flak from the other side when he angered the U.S. Chamber of Commerce by urging the solicitor general to side with shareholders in a securities- fraud case.

``This is a guy who looks at problems from many different angles and proceeds cautiously after considering the consequences of each step,'' said former SEC general counsel David Becker, now in private practice. ``You can't just look at one or two considerations and from that predict how Cox is going to act.''

Frank Holds Hearing

House Financial Services Committee Chairman Barney Frank, who has scheduled a hearing this month to examine the agency and will hear from all five SEC commissioners, praises Cox, a former congressman.

``Chris Cox understands the difference between being a legislator on the one hand and being a law-enforcement officer on the other,'' said Frank, a Democratic representative from Massachusetts who has been quick to criticize regulators he considers lax. ``He appreciates the role he is playing as a law- enforcement officer in interpreting the law instead of a legislator who can change the law.''

After months of accusations by shareholder advocates that he favors business over investors, Cox recently has taken steps to push for company fines and punish compensation abuses. He also joined the SEC's two Democrats in calling on the solicitor general to back shareholders who are trying to sue two companies for helping a third commit fraud. Cox's deciding vote overruled the agency's other two Republican commissioners.

`Controversy-Free Zone'

Since arriving at the SEC, Cox mostly has avoided partisan rifts, pressing for unanimous decisions in every public vote on rules and regulatory proposals, in contrast to Donaldson, another Republican.

Cox said he has worked to create ``a very collegial atmosphere'' on the commission. Still, ``when so much money and so much responsibility is at stake, it's hard to imagine a controversy-free zone,'' he said in the interview.

``The purpose of consulting with my fellow commissioners is to get a better quality result, it's not to dumb down the result,'' he said. ``If I ever stopped gaining useful information that I thought was improving the product, that's the time to blow the whistle and say we're done talking.''

Cox's efforts aren't producing a consensus with Bush administration policy makers: The Treasury Department recently signaled in a letter to the Justice Department that it was at odds with the SEC over the Supreme Court case involving third- party securities fraud. Treasury Secretary Henry Paulson, former chief of Goldman Sachs Group Inc., has argued the cost of shareholder suits may be driving U.S. companies overseas.

Paulson's Campaign

Paulson, 61, has led a campaign to make the U.S. legal and regulatory frameworks less burdensome on companies, at times stepping on the SEC's turf. Last month, he said he would form a committee led by former SEC Chairman Arthur Levitt and former SEC Chief Accountant Donald Nicolaisen to study the accounting industry.

Cox, who served in Congress for 17 years representing California, also is facing critics from the states, including the attorneys general from Ohio and Utah. They complained that he has restrained the SEC enforcement unit and advocated limits on shareholder litigation.

The state officials were critical of the SEC's position on a shareholder lawsuit before the Supreme Court that accuses Tellabs Inc., a Naperville, Illinois-based phone-equipment maker, of making false business projections. That suit hinges on whether cases should be dismissed unless plaintiffs can prove executives knew they were deliberately providing false information. The SEC said it would lower the bar for shareholder suits, leading to more frivolous litigation.

Enforcement Crackdown

At the same time, Cox has stepped up the agency's pace of enforcement.

On May 31, the SEC announced the first corporate fines in a probe of stock-option backdating that has ensnared more than 100 companies. Cox pushed through the penalties against Brocade Communications Systems Inc. and Mercury Interactive Corp., ending a months-long dispute among the five commissioners over how to punish companies that falsified the dates of option grants to inflate their value.

Republican Commissioners Paul Atkins and Kathleen Casey had questioned whether the companies benefited from the misconduct. Democratic Commissioner Roel Campos has typically supported corporate fines on the grounds they deter fraud. Atkins declined to comment. Casey, Campos and Annette Nazareth, another Democrat, didn't return phone calls seeking comment.

Fines Over Fraud

The SEC also decided last month to seek a fine from Nortel Networks Corp. for accounting fraud, in the first test of a new policy that requires staff lawyers to obtain approval from commissioners before negotiating corporate penalties.

Cox authorized the staff to extract a fine from Toronto- based Nortel within a set range that tops out at less than $100 million, a person familiar with the matter said on June 8.

Critics including former SEC Chairman Levitt had argued that the new policy might undermine the enforcement unit. Levitt is a board member of Bloomberg LP, the parent of Bloomberg News.

Levitt said last week he doesn't think the Nortel case is ``terribly significant'' in showing how the new enforcement policy will work. ``It's one case,'' he said.

Rejecting the SEC

Solicitor General Paul Clement, who argues government cases before the Supreme Court, declined to follow the SEC's advice to back shareholders in the securities-fraud case involving St. Louis-based Charter Communications Inc. The investor suit at issue accuses Motorola Inc. and Cisco Systems Inc.'s Scientific Atlanta unit of helping Charter inflate its revenue.

The Bush administration voiced concern that so-called third-party lawsuits -- those targeting a company's business partners -- would harm the U.S. economy.

In a June 9 editorial, the Wall Street Journal said Cox's decision was ``a shocker, given that few people have campaigned more against frivolous securities lawsuits than the former California congressman.''

During his tenure on Capitol Hill, Cox helped draft a law making it tougher for shareholders to mount suits.

If the Supreme Court adopts the SEC's view of the case, other companies may be sued for unwittingly participating in transactions with businesses that were later deemed fraudulent, said Peter Wallison, a White House counsel to former President Ronald Reagan.

`Very Disappointing'

Cox's position ``is very disappointing,'' said Wallison, now a fellow at the Washington-based American Enterprise Institute. ``We are trying to attract companies to our markets. The danger of class-action lawsuits is very severe.''

Until now, Cox has tended to hold off on bringing contentious matters to the commission table for a vote. The 3-2 vote on the Supreme Court recommendation indicates Cox is becoming more willing to go out on his own, said Harvey Goldschmid, a former SEC commissioner.

``It's of considerable significance,'' said Goldschmid, now a law professor at Columbia University in New York. ``While it would be ideal to have all five commissioners voting together on an issue, it is of far greater importance to do the right thing.''

To contact the reporters on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net ; Otis Bilodeau in Washington at obilodeau@bloomberg.net .