Administrative Law

SEC's Chief was MIA as US Markets Swooned, Some Say

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Federal Reserve Chairman Ben Bernanke and U.S. Treasury Secretary Henry Paulson were the men of the hour last week, stepping in with a viable emergency plan as the U.S. economy appeared to be on the verge of a massive meltdown following a year of ongoing bad news.

But where was Christopher Cox, the chairman of the U.S. Securities and Exchange Commission? The 55-year-old attorney has taken a more active role recently, but he still doesn’t appear to be key player in federal efforts to address a lack of regulatory oversight that has eliminated a number of once-mighty corporate names from Wall Street, reports Bloomberg in a magazine-length article. Meanwhile, if Paulson has his way, the SEC itself could largely be eliminated from the regulatory landscape, and merged with the Commodity Futures Trading Commission.

“Paulson and Bernanke have stepped up to the plate and taken the lead in responding to the current economic crisis,” says former SEC general counsel Ralph Ferrara, a Republican. “There is a risk that the SEC will be marginalized unless the chairman insists on a seat at the table.”

Although the SEC took a more active role in recent events such as the failed efforts to find a way to help the Lehman Brothers investment bank avert a bankruptcy filing, many observers feel it was a case of too little too late, Bloomberg reports. “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.”

As discussed in an earlier post, the SEC last week imposed both a temporary ban on short selling the stock of 799 financial companies and new rules limiting so-called “naked” short-selling of any stock.

And, although Cox declined to be interviewed for the Bloomberg article, he has previously said that he has been a more independent and tougher enforcer than his predecessors.

But yesterday’s Fed approval of a bid by Wall Street’s two remaining investment banks to become bank holding companies, trading their independent status for the benefits and stricter regulation accorded to commercial banks, further emphasizes the SEC’s waning influence, one observer tells the news agency.

“It’s a downward spiral where the less significant the population you regulate, the less your available resources,” says David Becker, a former SEC general counsel who is now a partner at Cleary Gottlieb Steen & Hamilton in Washington, D.C. “It also makes it harder to attract and retain people who want to hitch their professional careers to rising stars.”

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