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News August 8, 2005 Issue

Our First Look at SEC Chairman Christopher Cox

The new SEC chairman speaks five languages (English, Spanish, Latin, Greek, and Russian).

Heís got a sense of humor.

And he may be leaning towards putting disclosure of mutual fundsí brokerage costs in the prospectus.

Those are just some of the things we learned about Christopher Cox during his first speech as SEC chairman, delivered to the staff (but publicly webcast) just a few hours after taking office August 4.

Cox was confirmed by the full Senate July 29 and sworn in by Federal Reserve Chairman Alan Greenspan August 3 (Greenspanís involvement is interesting, given that he and former SEC Chairman William Donaldson repeatedly clashed over the SECís role in overseeing hedge funds).

In his speech, Cox said that his very first staff meeting had been with Division of Enforcement director Linda Thomsen. "She and her entire Division will have my unstinting support," he said. More generally, Cox pledged "to go to bat" for all SEC staffers. "Not just on issues of pay and benefits, although I imagine thatís important; but Iím talking about an entire climate ó the kind of work you do, how you do it, and why you do it. You are smart people who deserve to be respected, appreciated, and listened to." Cox said that he hoped to make the SEC an even more stimulating and satisfying place to work: "I will count it as my business to see to it that the SEC can always attract and retain the brightest, hardest-working, and most dedicated professionals."

The new SEC chairman, it seems, has a sense of humor. His first joke ("Iím happy to be here on the job at OPM. Donít worry. I know where I am. And I know this isnít the Office of Personnel Management. But to me, thatís not what OPM means. OPM stands for ĎOther Peopleís Money.í") fell a bit flat. Later, however, he got an appreciative laugh from the SEC audience when he said that predictions of whether he would be business-friendly "have as much factual basis as a WorldCom prospectus."

On a serious note, Cox attempted to put to rest concerns that he would kowtow to the interests of big business. The Department of Commerce, he said, serves businesses. The SECís role is that of the investorís advocate. "If a business is investor friendly, the SEC will be friendly to it," said Cox. "But during my chairmanship, anyone who attempts to drive a wedge between the interests of their business and interests of investors in that business will find themselves confronted by a relentless and powerful adversary in the SEC."

Cox added that it isnít necessary for the interests of investors and the interests of business to conflict. "After all, if weíre talking about common stock holders, the investors own the business. If the business succeeds, so do they . . . . The vast majority of businesses get it. We are concerned with the ones that donít."

While Cox acknowledged, in passing, that the SEC faces "some truly thorny issues" such as the implementation of Reg. NMS, hedge fund adviser registration, and mutual fund governance, he focused the remainder of his speech on significantly less controversial subjects: investor outreach and plain English.

As the investorís advocate, said Cox, "the SEC has an obligation to actively seek out from our customers, from the investors, their views on whatís important for their investing decisions." Due to the complexity of the SECís regulations, Cox noted that average investors may not be able to get their issues before the SEC, unlike markets, hedge funds, and mutual funds that have professional advocates. Cox urged everyone at the SEC to re-dedicate themselves to the mission of protecting individual investors. "Itís got to be in the DNA of every office and every division," said Cox. Without such a conscious effort, he added, "the concerns of the individual investor will take a back seat to the legions of professional, well-financed special interests." While all stakeholders in the capital markets are entitled to a voice, he said, "no one is entitled to line-jump and press their issues to the forefront simply because lobbying the SEC every day is just part of doing business."

Being an investor advocate, added Cox, involves finding out what type of information is most useful for investors. For example: "When a young worker starts putting away money for her retirement, and goes online to compare mutual funds ó should she have to be a detective in order to see how much the funds pay in brokerage fees each year? Or should she be able to comparison shop on the basis of clearly expressed and reliable information written in a language people actually speak?"

Coxís reference to disclosure of mutual fund brokerage fees was surprising, given the complex issues involved in quantifying non-commission costs such as spreads and market impact costs. The reference may simply have been a reflection of his discussions with Susan Wyderko, who heads the SECís Office of Investor Education and Assistance. Cox mentioned Wyderko by name and said her work "is destined to play a far greater role in everything that the SEC does for investors."

Cox clearly plans to breathe new life into the SECís ongoing plain English initiative. "The challenge of creating truly useful disclosure in the 21st century goes well beyond exhorting the use of everyday language, active voice, personal pronouns, and shorter sentences," he said. "It extends to the questions of what is disclosed, and why. Weíve got to continue to ask investors what they need ó in order for them to decide whether to purchase an investment in the first place, and to decide whether to hold or sell."

Lastly, Cox touched on homeland security issues, saying that there is no more critical infrastructure in the world than the capital markets protected by the SEC. The agency itself, he added, is a key part of Americaís critical infrastructure.

If Cox wanted to send a signal to middle America that he was on their side, he did. The day after his speech, national headlines trumpeted Coxís pro-investor approach: "SEC Chief Vows to be ĎRelentlessí Ally to Investors," said USA Today. "Cox Pledges to Serve Investors," said the Washington Post.

And what did industry folks think of Coxís speech?

"I liked it," said former Division of Investment Management director Kathryn McGrath (who moves from Crowell & Morning to Mayer, Brown, Rowe, and Maw August 8). "He gave the SEC staff a pat on the back and he recognized their quality and their good work. He also picked exactly the right tone as to whose interests they are all supposed to be protecting. Supportive of the staff and pro-investor ó what more could you ask for?"

Shearman and Sterling partner Barry Barbash, also a former division director, wasnít surprised at Coxís pro-investor stance. "The SEC has a mission and everyone who takes the job of SEC chairman has to sign on to that mission," said Barbash. "He certainly has signed onto it."

Cox "said all of the right things," said Mutual Fund Directors Forum president Allan Mostoff. "It is very encouraging to hear that he comes in without a predetermined agenda, other than to protect investors and do the right thing." But, he added, "weíll see how things play out." According to Mostoff, Cox already is earning a reputation at the agency as "a very bright guy, with a lot of background and experience" in the securities area. "Certainly the staffís very impressed with him," added Mostoff. "The feedback Iíve heard is very positive."

Cox is "making all the right noises," agreed Investment Adviser Association executive director David Tittsworth. "Itíll be very interesting to see what team he puts in place to implement his agenda, whatever that may be."

In particular, it will be interesting to see who Cox picks to be the next director of the Division of Investment Management. Not surprisingly, IM Insight has heard that several individuals seeking to be appointed as the next IM director have already attempted to get their bios on Coxís desk.

So stay tuned.

Lastly, for a look at what Cox has been up against, check out the video posted on