Corporate reform dead; SEC chief should resign
By Loren Steffy
February 28, 2006
Corporate governance reform is dead. Its last gasp was stifled by the subpoenas issued last month by the Securities and Exchange Commission against several news organizations and writers.
Last week, Marketwatch.com columnist Herb Greenberg and Dow Jones Newswires columnist Carol Remond acknowledged receiving the subpoenas, which involved stories about Internet retailer Overstock.com.
Late Monday, the financial Web site TheStreet.com said it and columnist Jim Cramer, who also hosts the wacko stock-picking show Mad Money on CNBC, also were subpoenaed.
The SEC's investigation apparently involves claims that short-sellers conspired with the media to drive down Overstock's price. It's worth noting that Overstock's chief executive, Patrick Byrne, is far from the voice of clarity and reason. He has, for example, claimed in a public conference call that Wall Street is controlled by a mysterious "Sith Lord." That's right, as in Star Wars.
After a blistering column in the New York Times by Joe Nocera over the weekend, SEC Chairman Christopher Cox offered a scathing rebuke of his agency's enforcement staff.
"Until the media reports this weekend, neither the chairman of the SEC, the general counsel, the office of public affairs, nor any commissioner was apprised of or consulted in connection with a decision to take such an extraordinary step," Cox said in a prepared statement issued Monday.
It's tempting to cast Cox as another bad manager, too detached to know what his subordinates were doing, or too spineless to take the blame.
Or he could be something worse: a political hack masquerading as a market watchdog.
SEC subpoenas of reporters are rare, and with good reason. Business reporting tends to be a primary source for SEC investigations. Cox acknowledged as much in an interview with the Associated Press: "The SEC and financial journalism are highly complementary; there's a symbiosis."
Business lobby angered
Cox was ushered in as SEC chairman last year after his predecessor, William Donaldson, angered the business lobby with his calls for more enforcement in the wake of corporate scandal.
Some commissioners have been openly critical of the agency's enforcement division. Paul Atkins, for example, has argued against corporate fines, saying they hurt shareholders.
Of course, any SEC action investigation can depress a company's stock. The question is whether fines hurt investors more than lax enforcement.
Certainly, many Enron shareholders these days are wishing the company had been subject to a few fines that might have kept it honest.
With Monday's statements about the media subpoenas, Cox appears to ally himself with the anti-enforcement camp.
For all his bluster about who at the SEC didn't know about the subpoenas, Cox failed to mention who did. The SEC's enforcement chief, Linda Thomsen, knew about them before they were issued, according to a report in Tuesday's New York Times that cited commission officials.
That, by the way, is how it's supposed to work. The commission authorizes the investigation, but it doesn't meddle in how the case is handled. The arrangement is supposed to shield the SEC's enforcement process from political pressures.
Cox, it seems, has found a way around that. Less than a year after he left Congress, Cox has shown he's still the master of the political game. With journalists rallying to Greenberg's defense, he can look like a champion of free speech while heaping public humiliation on the enforcement division.
A fading memory
The Enron trial is months away from a verdict, yet its significance already is a faded memory. Reform efforts have faced a mounting backlash from business leaders.
Executives, bristling at the idea of accountability, bemoan the costs of the Sarbanes-Oxley law, spin the myth that companies like Enron were taken down by uncontrollable market forces rather than their own deceit, and complain that the proverbial pendulum of regulation has swung too far.
Now, the SEC is beating down its own enforcement efforts.
Investors, though, are left with a nagging question. Is the market's top cop inept, spineless or a political hack? No matter the answer, the solution is the same:
Mr. Cox, we await your resignation.
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