Corporate Accountability and the SEC
Friday, June 5th, 2009
The issues of asbestos exposure and asbestos-related disease, such as mesothelioma, are linked closely to corporate accountability. Or, I should say, a lack of corporate accountability. Exposure to asbestos nearly always happens in the workplace, from handling products contaminated with asbestos, or from environmental contamination resulting from mining or man-made pollution. Here’s a news story about another kind of corporate accountability.
Last September, GOP presidential nominee John McCain called for the firing of SEC Chairman Christopher Cox. At the time both Wall Street and McCain’s campaign were crumbling, and McCain was flailing around for an idea, an issue, with some traction. As reported by Susan Davis for the Wall Street Journal,
“The primary regulator of Wall Street, the Securities and Exchange Commission (SEC) kept in place trading rules that let speculators and hedge funds turn our markets into a casino,” McCain says.“They allowed naked short selling–which simply means that you can sell stock without ever owning it. They eliminated last year the uptick rule that has protected investors for 70 years. Speculators pounded the shares of even good companies into the ground.”
Politicians in both parties rushed to Cox’s defense. Cox didn’t allow anything that wasn’t legal, they said. Short selling wasn’t the underlying cause of the financial crisis. And, anyway, a president cannot fire the commissioner of an independent regulatory commission.
However, this week Zachary A. Goldfarb wrote for the Washington Post that Cox really was more like the fox guarding the henhouse than an objective regulator. Although Cox may not have been personally enriched, his policies undercut enforcement of existing regulations. In effect, during his tenure “corporate accountability” became an oxymoron. Although John McCain’s assessment of what caused the financial sector meltdown missed the mark, he wasn’t entirely wrong about Cox.
According to Goldfarb, enforcement agents often were barred from meetings in which their cases were discussed. It became increasingly cumbersome for enforcement agents to get approval for subpoenas. SEC attorneys who were prepared to file suit or negotiate a settlement found their cases put on hold, for no reason, for months at a stretch. Penalties were reduced, and cases sometimes were scaled back or dropped altogether.
Cox and other SEC commissioners were concerned that the U.S. financial markets were losing business to less regulated markets overseas. This led to a less-than-aggressive enforcement of existing regulations. Nobody wants to get in the way of profitable business, but the Cox SEC seems to have believed that corporations must be allowed to get away with fraud in order to be competitive.
The new SEC Chairperson, Mary Schapiro, is cutting the red tape Cox created to hold back investigations and streamlining the process for authorizing subpoenas and depositions. The larger point is that corporations must understand they will be held accountable.
Barbara O’Brien
June 5, 2009
