WASHINGTON — In late February, Christopher Cox, the chairman of the Securities and Exchange Commission, was jolted to learn from news stories that his agency had subpoenaed two financial journalists as part of an investigation.
Coming at a time of acute sensitivity over press freedom and government action against journalists, the subpoenas came from an agency that rarely goes after reporters' records. Moreover, neither Cox nor the SEC's general counsel nor its public affairs office had been told about the subpoenas issued by enforcement attorneys in the commission's San Francisco regional office.
Cox issued a statement Feb. 27, saying he was halting pursuit of the journalists — a move some observers saw as a rebuke of his enforcement director, Linda Thomsen. Three days later, he brought reporters into his 10th floor conference room and discussed new guidelines the SEC would adopt for subpoenas of the news media.
Cox's actions surprised some observers and brought applause from the Society of American Business Editors and Writers, the largest group representing financial journalists. His initiatives and actions in his seven months as SEC chairman have likewise surprised investor advocates who expected a more free-market approach given his background and orientation.
"It was apparent to me immediately that . . . the media would be very interested and this wouldn't end
with the weekend," Cox recalled this week in an interview with The Associated Press, saying he was surprised though not angered when he learned of the subpoenas during the weekend of Feb. 25-26. "It was clear enough by Monday morning that this was an extremely unusual circumstance."
It was a delicate move for Cox, a deft politician and longtime conservative Republican congressman from California who became the government's top market regulator last August. He has walked a fine line during that time, stressing the importance of protecting investors and cracking down on corporate fraud while also seeking in some cases to avoid imposing changes through regulations.
The SEC's new policy for issuing subpoenas to journalists will not preclude them but will lay out the circumstances under which it is appropriate for the agency to do so in investigations when other means of getting the information are exhausted. In the case at issue, financial writers were subpoenaed in early February for telephone records, e-mails and other material related to Salt Lake-based online retailer Overstock.com Inc. Their employers objected.
Overstock.com has accused the research firm Gradient Analytics of issuing negative reports on the company in exchange for payments from a hedge fund seeking to profit from a drop in its stock price.
The SEC subpoenaed Gradient in the investigation late last year. A second subpoena to the firm, dated March 10, sought documents related to its contacts with journalists.
Among other initiatives Cox has taken or led in recent months:
The SEC moved in January to require companies to provide far greater detail about executives' pay and perks in an effort to bring more openness to an area that has provoked investor anger. Cox had made fuller disclosure of executive compensation a priority since taking the agency helm.
Also in January, the SEC announced new guidelines for fining companies for fraudulent conduct, addressing an issue that split SEC commissioners along political lines during the tenure of Cox's predecessor, William Donaldson. The guidelines are meant to bring "clarity, consistency and predictability" to the agency's enforcement efforts, Cox said.
Cox has pushed several technology initiatives meant to give investors more useful (and usable) and complete information about companies and mutual funds. One initiative involves developing the use of interactive data to make the information that companies are required to disclose in SEC filings easier to find and understand and to compare from company to company.
President Bush named Cox to head the SEC last spring after the surprise resignation of Donaldson, a Wall Street veteran whom Bush had installed to help restore confidence in a stock market shaken by the wave of corporate scandals in 2002. Donaldson took an activist regulatory stance that irritated business interests and delighted investor advocates, and his tenure was marked by bitter division among the five SEC commissioners.
The business groups, particularly the U.S. Chamber of Commerce, had lobbied the White House to replace Donaldson with someone like Cox: an unabashed free-enterprise lawmaker, a member of the House GOP leadership, who also had worked as a securities and corporate lawyer. In the House, Cox wrote legislation in the mid-1990s that made it easier for companies to defend against some types of lawsuits by shareholders.
If business lobbyists are disappointed with Cox's tenure so far, they haven't publicly criticized him.
But the investor advocates — who had feared that Cox would relax enforcement by the SEC and reverse rules protecting investors put in after the scandals — are again surprised and fairly happy.
"Certainly, all his credentials going in were of the deregulatory sort," said Barbara Roper, director of investor protection for Consumer Federation of America.
The Chamber, however, is still battling the SEC in court over mutual fund governance; it recently criticized the agency's enforcement actions against companies as overly punitive.
Cox has used his political skills to build a consensus among the commissioners.
"The supposed problems of a regulatory agency pale in comparison" with getting a bill enacted into law or running a congressional committee, he said in the interview. Before he left the House for the SEC, Cox was chairman of the Homeland Security Committee.
"I give him very high marks," said James Cox, a professor at Duke University who specializes in securities law. "He's been careful, cautious . . . a good politician of the process."
Joel Seligman, the president of the University of Rochester and an expert on SEC matters, said Cox had "gotten off to a good start in part because he hasn't tried to unwind anything."
A big test, observers say, is what Cox may or may not do regarding a key part of the Sarbanes-Oxley anti-fraud law enacted in 2002 amid the scandals. Business interests, especially smaller public companies, have been complaining vocally about the costs of complying with the requirement to file reports on the strength of their internal financial controls — and they want the SEC to give smaller companies exemptions.
Cox says his "inclination" is toward looking at ways to make the requirement work rather than waiving it for some companies. "It's not a question of whether to apply (the requirement), but how," he said Wednesday.
Nonetheless, Cox said, he will take into account the recommendations of a small-business advisory panel, due out soon.
Roper's message to Cox: "Let's not undo the reforms that were so hard-won."
If he moved toward granting exemptions, she said, "Then I think we would know that the early billing of him was right."