Investing 101 - Jun 13, 2005 - Printable Version
- SEC's Donaldson out, Cox in: One Step Forward, Two Steps Back
by Mark Faulk It's been less than two weeks since SEC Chairman William Donaldson announced his resignation, and already, the opposing factions have begun presenting their respective cases "for and against" Bush's choice to replace Donaldson, Rep. Christopher Cox (R-Calif.).
Let's start with a recap of Donaldson's tenure as SEC Chairman. Judging from the glowing reports that most publications have given Donaldson for his two and a half year reign as head of the commission that oversees our stock market, you would have thought that he died, instead of resigning in the middle of the largest financial scandal in the history of the market. Although he did in fact enact a number of reasonable reforms that brought some degree of oversight to hedge funds and mutual funds, we stand by our last article, that said that "his failure to aggressively address naked short selling is just that....a massive failure."
In response to Donaldson's promises to address the lack of short interest disclosure on Pink Sheet and OTCBB stocks, we stated that:
"Adding Pink Sheet and OTCBB stocks to the SHO Threshold List, where many major companies, including Delta Airlines, Martha Stewart Living, Netflix, Taser, Global Crossing, and Krispy Kreme, have languished for over 100 days without recourse, is a joke. Furthermore, Donaldson's inability to adequately address questions about naked short selling from Senator Robert Bennett and others during recent Congressional hearings shows a lack of clear leadership on this important issue."
"As the head of the governing body of the stock market, had Chairman Donaldson taken a strong stand on the issue early on, we wouldn't be where we are now....so deeply entrenched in the scandal that it's nearly impossible to correct it without major damage to the stock market itself. He should have addressed this at least a year ago, if not earlier. It is the very inaction of the SEC over the course of years that has allowed this scandal to escalate to the point where they felt compelled to 'Grandfather' in past abuses in fear of throwing the market into chaos."
We stand by those statements, and feel that at best Donaldson has been a mediocre SEC Chairman who enacted just enough reform to appease those on the left, while ignoring massive fraud that has turned the stock market into a cesspool of corruption and manipulative practices involving massive counterfeiting of stocks, which flourishes to this very day, unchecked and unfettered.
We also pointed out that this same inaction prompted Missouri Senator James Talent to say in a memo about the issue of naked short selling, "As far as I know, no one in the government was held accountable for this failure.", and "In other words, firing a few people at the SEC will light a fire under law enforcement more than hundreds of pages of new regulations."
While I stand by my statement that Donaldson stepping down is a positive move for those fighting the battle for stock market reform, I also said that "As for Congressman Cox, we feel that he might very well be an improvement over Donaldson, but only time will tell. While we don't agree with his stands on many issues, his credentials as an advocate for small businesses and against Government waste make him an intriguing choice."
Now, after a week of reading every article, report, and opinion on Cox that I could find (not one of which even mentioned naked short selling or share counterfeiting, by the way), I'm going to do something that no self-righteous politician would ever do: I'm going to admit that I was wrong.
wrong- adj. 1. Not in conformity with fact or truth; incorrect or erroneous.
Although it's true that he has gained support in the past from such progressive sounding organizations as the National Taxpayers Union, Citizens Against Government Waste, Americans for Tax Reform, and was named a "Guardian of Small Business" by the National Federation of Independent Businesses, a closer look reveals that all of these groups are nothing more than shills for big business and the far-right agenda, and that every one of them support Bush's plan to privatize social security and invest billions of dollars of our retirement money into a stock market still rife with corruption and fraud. Cox even claims to have support from the 60/Plus Association, who named him "Super Friend of Seniors". The 60/Plus Association is to date the only so-called "senior citizens advocate group" to endorse privatizing social security, a plan that the AARP has strongly opposed. So much for Cox's claims to be a "friend to small business".
As much as I've tried to keep partisan politics out of the stock counterfeiting and naked short selling issue, since it so obviously affects Americans of every walk of life and political affiliation, Bush's choice of Cox to replace Donaldson reeks of political cronyism, and could turn out to be a grave mistake for the small investor. While Donaldson ignored naked short selling during his tenure as SEC Chairman, Cox might actually give it his seal of approval. After all, this is the same guy who sponsored a bill in the mid-90's that would have required investors who filed lawsuits against corporations to pay legal fees if they lost.
Cox is not without his supporters. U.S. Senate Majority Leader Bill Frist, M.D. (R-TN) said that “Chris Cox will bring an experienced and steady hand to the Securities and Exchange Commission. With a career dedicated to public service, Chris Cox has the expertise needed to handle the intricacies of securities regulation. I’m confident that Representative Cox has the vision and leadership to continue restoring our nation’s trust in corporate America."
Opponents of the choice of Cox have begun to line up and present their arguments as well, and many present compelling cases against him. In "The Case Against Chris Cox", the Center for American Progress lists a number of questionable activities by Rep. Cox, and points out that he has received over $250,000 in contributions from the securities and investment industry, and another $206,000 from the accounting industry.
Another article, written in 2002, entitled "Made in Newport Beach - How Chris Cox helped produce the Enron scandal" says that:
"Cox pushed for securities-fraud reform in Congress. Nine hearings were held between 1993 and early 1995 before Cox unveiled his Private Securities Litigation Reform Act of 1995.
Consumer advocate Ralph Nader had a different name for the legislation: The Swindlers & Crooks Protection Act. The accounting and high-tech industries—Cox’s biggest campaign contributors—pushed for the "reforms" because companies were being sued by investors when artificially inflated stock values crashed. Representative John Dingell (D-Michigan) characterized the bill as a raid on the small investor and predicted that Congress would regret it.
Lefties weren’t the only critics. Former Nixon and Ford economic adviser Herbert Stein, then-Securities and Exchange Commission (SEC) chairman Arthur Leavitt, and top state regulators all opposed the bill, contending it would make it more difficult for defrauded investors to recover stock losses."
Yet another article says that "Cox has been a strong critic of class action lawsuits in general, helping to push the bill passed into law earlier this year that severely limits the ability of ordinary Americans to use this legal mechanism as a way to challenge the actions of big business."
The Nation put it even more bluntly, saying in their article "Surrender at the SEC" that:"The appointment of Representative Christopher Cox to lead the Securities and Exchange Commission is as shameful as sending John Bolton to the United Nations, and should arouse a comparable swell of objections. Cox is a wholly owned agent of the financial and corporate interests the SEC is supposed to regulate. His political career has been financed by the same sectors--banking, accounting, corporate--that produced scandals like Enron and WorldCom. In return, he's worked to shield his patrons from the scrutiny of the government regulators, whom they duped, and the shareholders, whom they swindled."
Do all of these warning signs mean that Cox will pander to big business and trample on the rights of the millions of small investors who have been robbed blind by the stock market fraud that has been allowed to run rampant for years? Not necessarily, but there are enough red flags here to cause serious doubt as to his qualifications to lead the organization whose own mission statement is "to protect investors and maintain the integrity of the securities market".
We believe that the Senate should be asking hard questions of Rep. Cox, and in fact, the very first question, which should serve as a litmus test for whoever heads the SEC, should be a straightforward and simple one:
"What specifically do you intend to do to stop the abusive and fraudulent practice of naked short selling, or stock counterfeiting, that has plagued our stock market for years, and how do you intend to make restitution to the millions of investors who have harmed by this illegal activity?"
Answer that question to the satisfaction of those who have been robbed of their hard earned money in a corrupt stock market, and convince Americans of his impartiality when it comes to protecting small investors, and we'll support Rep. Cox in his efforts to reform our financial system. Allow the corruption to continue by either endorsing it or ignoring it, and we'll do everything we can to see that Cox's nomination is denied. And that, more than ever, is the Faulking Truth.
Contact Rep. Christopher Cox yourself, and ask him what he intends to do to "stop the abusive and fraudulent practice of naked short selling" if he becomes Chairman of the SEC.
http://cox.house.gov/html/contact_email.cfm
Washington office:
Phone: (202) 225-5611
Fax: (202) 225-9177
Orange County, CA office:
Phone: (949) 756-2244
Fax: (949) 251-9309
Voice your opinion to your state's representatives at http://www.congress.org/congressorg/home/
To contact members of the US Senate Committee on Banking, Housing, and Urban Affairs, go here and click on the members' names:
http://banking.senate.gov/index.cfm?FuseAction=Information.Membership
To contact members of the Senate Finance Committee, go here and click on the members' names:
http://finance.senate.gov/sitepages/committee.htm
To contact those Congressmen who have already had the courage to speak out about the naked short selling scandal known as Stockgate:
Senator Robert Bennett (R-UT)
http://bennett.senate.gov/contact/dc.html
Rep. Joe Wilson, (R-SC)
http://joewilson.house.gov/Contact
Senator Richard Shelby (D-AL)
senator@shelby.senate.gov
Senator Richard Durbin (D-IL)
http://durbin.senate.gov/sitepages/contact.cfm
Senator Susan Collins (R-ME)
http://collins.senate.gov/high/contactemail.htm
Senator James M. Talent (R-MO)
http://talent.senate.gov/Contact/default.cfm
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