The Invisible Man

SEC Chairman Cox has often been missing in action during the financial crisis, even while Treasury Secretary Paulson and Fed Chairman Bernanke tread on his turf.

By Jesse Westbrook and Robert Schmidt
Bloomberg Markets, November 2008

On Aug. 19, U.S. Securities and Exchange Commission Chairman Christopher Cox summoned the press to a conference room at the SEC's Washington headquarters for an important announcement. The agency's new computer technology to make corporate filings more useful to investors was almost ready, and Cox wanted to give reporters a preview.

In a flourish uncharacteristic of the normally buttoned-down ex-congressman, Cox, 55, strutted across the stage, took off his suit jacket and sat down at a computer to demonstrate the new Extensible Business Reporting Language, or XBRL. Investors were given a chance to ask questions about the technology online as an aide wrote a live blog.

When it came time for reporters to pose questions, however, it didn't take long for the queries to turn to the news of the day: the roiling controversy over the sale of billions of dollars of so-called auction-rate securities to investors who found they couldn't get their money back. Cox urged reporters to stick to the topic of technology and then gave a brief answer.

``Nobody is getting a pass,'' he said of the banks and brokers being probed for misleading buyers of the auction- rate bonds. The SEC, he added, had more than a dozen investigations under way.

Missing in Action

U.S. financial markets had been swooning for a year as Cox gave his computer lesson. Commercial and investment banks had suffered more than $500 billion in losses and writedowns related to the sale of mortgage-backed securities. Financial stocks were reeling, with Lehman Brothers Holdings Inc. at risk of following Bear Stearns Cos. into extinction.

Yet former SEC officials and members of Congress say throughout the tumult in the banks and markets, Cox, a Harvard University-trained lawyer, has often been missing in action.

``Cox just hasn't done anything except for XBRL,'' says Peter Wallison, who supervised the SEC chairman when he worked in the White House counsel's office under President Ronald Reagan. ``It perfectly encapsulates what Chris Cox's chairmanship has been: exceedingly cautious, a chairmanship which seemed to take as many steps as possible to avoid controversy that would result in pushback by anyone.''

Dismayed Conservative

Wallison is now a fellow at the American Enterprise Institute in Washington, which advocates for limited regulation of financial markets.

Cox was hardly part of the conversation when Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson stepped in last March and arranged for JPMorgan Chase & Co. to rescue Bear Stearns from collapse, according to people familiar with the matter at the Treasury, Fed and SEC.

On the night of March 15, when Fed and Treasury officials were hammering out the terms of JPMorgan's takeover of Bear Stearns, an SEC official looking for Cox found him at a birthday party for Mark Olson, head of the Public Company Accounting Oversight Board.

When Paulson, two weeks after the Bear Stearns crisis, proposed a reorganization of Washington regulators that would abolish the SEC, Cox didn't strongly defend his agency. He now says that was because he didn't think Congress would take such a proposal seriously.

Enforcement Uprising

Some of Cox's own enforcement attorneys say the chairman has undermined them by delaying votes on settlements they've reached with accused corporate miscreants and by publicly rebuking them in a case where they subpoenaed journalists.

``A lot of investors are looking at the SEC and saying, 'Where were you with respect to auction-rate securities? And where were you with the securitization process of home mortgages?''' says Senator Jack Reed, Democrat of Rhode Island and a member of the Senate Banking Committee.

Committee Chairman Christopher Dodd, a Connecticut Democrat, and Reed ordered a probe by the Government Accountability Office this year after the SEC disclosed that sanctions against companies and individuals accused of violating its rules fell 51 percent, to $1.6 billion, for the fiscal year ended in September 2007.

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