End Cox’s enforcement settlements, senator says

Securities and Exchange Commission chairwoman Mary Schapiro should end her predecessor’s policy of negotiating settlements with corporations under investigation because it weakens enforcement efforts, an influential U.S. senator said today.
Sen. Jack Reed, D-R.I., chairman of the securities subcommittee of the Banking Committee, which oversees the SEC, said the commission should no longer require enforcement staff to submit possible penalties for members’ approval before starting talks.
He said former SEC chairman Christopher Cox’s policy “handcuffed” enforcement attorneys from imposing tougher penalties against companies under investigation.
That 21-month-old policy “has had a chilling effect on attorneys in enforcement, and this policy must end with the new leadership,” Mr. Reed said in a speech at the Council of Institutional Investors conference in Washington.
In the past, enforcement staff members had the flexibility to negotiate fines on their own and then submit the settlement to commissioners for final approval.
The staff has always had to get commission approval before initiating a formal investigation or filing a case.
Mr. Reed also said that any reorganization of federal regulation by Congress should preserve the investor protection functions of the SEC. Banking regulators are not as focused on investor protection as the commission, he said. The SEC “has to maintain a very, very strong role,” Mr. Reed said.
The senator did not say whether he thought the SEC should merge with the Commodity Futures Trading Commission or other agencies, as some lawmakers have suggested.
His remarks align him closely with those of Ms. Schapiro, who was sworn in as chairman today. Both have called for increased SEC enforcement resources, a slowdown in Mr. Cox’s efforts to move U.S. companies to an international accounting standard and giving shareholders a voice on executive pay.
Mr. Cox’s policy for enforcement negotiations was set in place in April 2007 after complaints that fellow Republican commissioners erected roadblocks that delayed settlements for as long as a year.
“If I had to hazard a guess, it would be that if anything, the penalties you will see imposed in future cases will be stiffer – because the staff lawyers negotiating them won’t have to hedge their bets wondering whether the commission will later on back them up or rather cut them off at the knees,” Mr. Cox said in a speech announcing the new program.
In the wake of the collapse of The Bear Stearns Cos. Inc. and Lehman Brothers Holdings Inc., both of New York, and the Bernard Madoff scandal, lawmakers have complained that the SEC became largely toothless under Mr. Cox.
SEC spokesman John Nester declined to comment.

Related Topics: Securities and Exchange Commission