SEC official defends enforcement record
The chairman of the Securities and Exchange Commission yesterday defended the agency’s record in pursuing corporate misconduct and rebuffed accusations that it may be tilting toward business interests.
At the same time, the government’s top securities regulator showed some understanding for Republican lawmakers’ complaints that class-action lawsuits against corporations have exploded out of control and their plea for the SEC to study their costs and benefits to ordinary individual investors.
“Regulation has costs, so does litigation,” Chairman Christopher Cox said at a hearing of the House Financial Services Committee, where he appeared with the other four SEC commissioners. “The challenge is always to make sure that you get benefits that exceed the costs.”
He said regulators must be “particularly attentive” to potential conflicts of interest on the part of those who bring lawsuits against companies.
Mr. Cox also disclosed that the agency has started about a dozen investigations related to complex aggregations of debt known as collateralized debt obligations, in which hedge funds have increasingly invested. The situation took on urgency last week with the near-collapse of two hedge funds managed by Wall Street investment firm Bear Stearns Co.
In the first half of the year, he said, the SEC has imposed nearly as many penalties on companies as in any full year in its history.
The hearing marked the first time in more than a decade that all five SEC commissioners testified together before Congress.
Lawmakers advanced a number of concerns in lengthy questioning of the regulators.
The panel’s chairman, Rep. Barney Frank, Massachusetts Democrat, referred to a proposal long under study at the SEC to increase access to company ballots so proposals can be more easily put to a vote by all investors. “This is an issue of great significance,” he said, pressing Mr. Cox on when it might be completed.
Business interests have been pressing for an easing of corporate governance rules and restraints on class-action lawsuits against corporations and auditors. On the other side, some critics and investor advocates see recent moves by the SEC under Mr. Cox, a longtime free-market Republican congressman, as favoring business and Wall Street.
As the gap widens between corporate executives’ compensation and employees’ pay, and workers lose jobs at companies bought out by big private-equity firms, yesterday’s hearing also afforded Democratic lawmakers a chance to highlight themes likely to be sounded in next year’s election.
Mr. Cox disputed the notion that the agency has leaned toward corporate interests or Wall Street, saying that its commitment to investor protection has not wavered.
“If a business is investor-friendly, the SEC will be friendly to it,” he said, but added that those that work against the interests of their shareholders will ” will face a relentless … adversary” in the SEC.