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Christopher Cox
Under his watch as chairman since 2005, the SEC fell short of its primary responsibility: to protect investors in publicly traded companies by enforcing honest business practices. After Bear Stearns' collapse, at the request of the Senate Finance Committee, the SEC's independent Inspector General audited the Division of Trading & Markets' (TM) Broker-Dealer Risk Assessment program and found it wasn't fulfilling its obligations in several ways. In a report issued on Sept. 25, 2008, the IG said: "TM has failed to update and finalize the rules governing the program, which would ensure that broker-dealers file pertinent information with the Commission in a timely manner" and also failed to enforce filing requirements for broker-dealers, which resulted in nearly one-third of the firms failing to file certain required documents. TM's failure to carry out the purpose and goals of this program "hinders the Commission's ability to foresee or respond to weaknesses in the financial markets," the report concluded.
In a response to the findings published in a related report, Cox said the SEC was hamstrung by its lack of a explicit statutory mandate to regulate large investment bank holding companies, and through a voluntary program, used the capital and liquidity metrics associated with commercial banks. After the Bear Stearns merger, the acquisition of Merrill Lynch by Bank of America, the bankruptcy of Lehman Brothers, and the conversion of Goldman Sachs and Morgan Stanley to bank holding companies, the SEC ended the voluntary program on Sept. 26, 2008.
In testimony before two Senate investment-related subcommittees on Sept. 18, 2008, two SEC senior staff members said the commission made efforts in late 2007 and early 2008 to encourage large financial firms to improve the transparency of their financial reporting with regard to off-balance-sheet arrangements and fair value accounting disclosure practices. They also said that as a result of an SEC request in January 2008, the Financial Accounting Standards Board on Sept. 15, 2008, proposed changes to FAS 140 and FIN 46R that would require all securitization-related trusts to be included on financial firms' consolidated balance sheets.
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