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July 16, 2005
The fox that Bush appointed to guard the corporate henhouse at the SEC is appropriately named Cox, a Republican congressman with a disturbing history
Just another pig at the trough. From Judd Legum in Salon: When President Bush announced Rep. Chris Cox, R-Calif., as his nominee to chair the Securities and Exchange Commission last month, he said Cox would work to "guarantee honesty and transparency in our markets and corporate boardrooms." It was an odd choice of words, considering that Cox's signature achievement during his 17 years in Congress is the enactment of a law, the Private Securities Litigation Reform Act of 1995, that by all accounts has made it more difficult for corporate executives who lie to investors to be held responsible for their actions. According to experts, this law played a significant role in bringing about the spate of fraud cases at WorldCom, Enron and numerous other corporations in recent years. Although Senate hearings have not yet been held on Cox's nomination, corporations are already anticipating the changes he would be likely to make in their favor, considering his pro-corporate stance in the past. Corporate lobbyists are "almost giddy at the prospect of Cox" being put in charge of market regulation as SEC chairman, Business Week recently reported. If confirmed, Cox would be in a position not only to dial back enforcement of investor-friendly laws like the Sarbanes-Oxley Act of 2002 but also put the brakes on initiatives set into motion by former SEC chairman William Donaldson (who stepped down June 30), such as requiring corporations to treat stock options as an expense and mutual fund companies to have independent board members. Co-sponsored by Cox and Sen. Chris Dodd, D-Conn., the Private Securities Litigation Reform Act was a central plank of the Republicans' "Contract With America," and was ostensibly aimed at discouraging frivolous lawsuits by investors. But the law provides considerable legal protections for corporate executives -- and, just as important, their accountants and lawyers -- who mislead investors. For example, the law provides a "safe harbor" for executives who make inaccurate "forward-looking statements" about their company's future prospects. Securities lawyers refer to this provision as "the license to lie." Under the PSLRA (which became law over President Clinton's veto), before a court can even accept a corporate fraud case, investors must prove there is a "strong inference" that the corporate defendant acted with the specific intent to "deceive, manipulate or defraud." This is a very tough standard to meet. The 7th Circuit Court of Appeals, interpreting the PSLRA, dismissed fraud cases against corporate executives who said they simply forgot to disclose damaging information to investors. (Cox favored an even more severe version of the law that would have shielded corporations from lawsuits in nearly every circumstance.) But describing Cox as a principal author of the bill doesn't do justice to his significant role in its enactment. Cox was a PSLRA evangelist, and he sought to demonize his opposition. During a congressional hearing on the bill on Jan. 19, 1995, Cox described lawsuits by investors for securities fraud as "a scandal of corruption on a scale Congress hasn't witnessed since the days of Eliot Ness and Al Capone." These lawsuits, in Cox's view, were nothing more than an "extortion racket."... Cox's evangelism about the law isn't terribly surprising. He has admitted that his approach to securities law is intensely personal. For much of the time that he was pushing the PSLRA through Congress, he was being sued for securities fraud. Cox conceded to the New York Times in 1995 that being the target of securities fraud litigation had caused him to "sympathize with people who are victimized in these suits." Cox's trouble started while he was practicing as an attorney for the firm of Latham & Watkins in the mid-'80s. In 1985, Cox wrote a letter on behalf of a client, First Pension Corp., to California securities regulators, assuring them that a new investment scheme dreamed up by First Pension CEO William Cooper was "low risk" and designed to be "fair, just and equitable" to investors. (Cox left out of the letter that Cooper was then under investigation by the SEC and had had his real-estate license suspended in connection with fraud at another company.) In fact, the investment Cox touted was a scam that defrauded small investors out of $130 million. Los Angeles Times columnist Michael Hiltzik described it as "one of the most flagrant con schemes in Orange County history."... |
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