Great reporting in this Zachary Goldfarb piece about just how lame the Securities and Exchange Commission, which regulates many major financial institutions, got under Chris Cox. (GAO reports are like tiny scoop factories, apparently).
The five enforcement officials caught a morning Acela train bound for Washington. Based at the New York office of the Securities and Exchange Commission, the team was seeking agency approval to impose tens of millions of dollars in fines on a drug company, Biovail, which had allegedly used the crash of a truck hauling depression medicine to cover up financial losses.But when the group arrived at SEC headquarters on that winter day early last year, it was barred from the room where the commission was meeting, according to a person familiar with the case. Chairman Christopher Cox and his colleagues reviewed the case inside. When the doors opened, the enforcement officials learned the commission had knocked down the penalty to a small fraction of what they had sought.
The outcome, though discouraging to the team, was not a complete surprise, sources said. After Cox became SEC chairman in mid-2005, he adopted practices that undermined the enforcement division's efforts to investigate cases of corporate wrongdoing and punish those involved, according to interviews with 19 current and former SEC officials.
... During Cox's tenure, penalties imposed on companies fell 84 percent, from $1.59 billion in 2005 to $256 million in 2008.
Yipes. It gives a little more credence to Bill Clinton's plea that he wouldn't have supported broader deregulation if he knew that the SEC would check out for eight years (William Donaldson, Cox' predecessor, made some enforcement actions but allowed lenders to access what now looks like execessive leverage). That's not to say that Cox's actions were a prime motivation behind the housing bubble and the financial crisis -- the structures were already there -- but it doesn't help to be essentially encouraging corporate financial malfeasance. This story is also a reminder of how policy really gets made at the agency level, where officials have broad authority to interpret statutes and little scrutiny of how they do it. Now Mary Schapiro, the new SEC chair, has a turnaround job to do; people have been worried because of her previous work as a financial regulator closley tied to the industry, but according to Goldfarb she's at least getting out of the way of the career staff and letting them do their jobs.
-- Tim Fernholz
