Chris Cox was head of the SEC when the economy came crashing down. And, he's little more than a Wall Street shill:
THE lawyer solemnly told regulators it would be far too costly for a mutual fund to seek appraisals of its assets, and no appraisals were made. When employees of the investment firm suspected something was amiss, they were reassured when a government auditor pored over the books and concluded that all was well.
And so the fraud continued for more than a decade. It later turned out that the assets sold to investors were largely fictitious, and that the supposed auditor, who presented credentials showing she worked for the California Department of Corporations, was in reality an actress hired by the man running the fraud.
The lawyer who argued that it would be a waste of money to require appraisals is about to be inundated with appeals to reduce the cost of regulation. That lawyer was Christopher Cox, who is likely to be confirmed today as chairman of the Securities and Exchange Commission. Mr. Cox did not know he was representing a crook at the time he wrote the letter. It was years later that William Edward Cooper, whose investment firm Mr. Cox was representing, pleaded guilty and was sentenced to 10 years in prison.
Then, there was a 1985 letter on behalf of the fraudsters. This letter speaks to Mr. Cox's disdain for rules to rules and regulations to keep mortgage brokers honest:
It was on Feb. 22, 1985, that Mr. Cox sent his letter to regulators at the California Department of Corporations arguing that any appraisal of the value of mortgages in the proposed fund would be subjective and worthless, and that the expenditure of fund assets for an appraisal ''would unfairly and unreasonably harm the investors' rate of return.''
INSTEAD, Mr. Cox said, regulators and investors should assume that the mortgages were worth their face amount.
Had appraisals been required for the mortgage pools Mr. Cooper had already sold, a fraud that began in 1982 might have ended. Instead it continued until 1994. More than $100 million was stolen from people who had sought safe investments for their individual retirement accounts.
''There were always red flags, but Cooper was a master at deflecting questions,'' said Roger Rauch, who worked for Mr. Cooper for six years, including a stretch as president of the company's brokerage subsidiary. ''The audit,'' Mr. Rauch said in a telephone interview this week, ''was done to alleviate suspicions, not just mine but those of the salespeople.''
The 1990 report by the fake auditor, in reality an actress who spent three weeks apparently reviewing the books, was a masterpiece. It found a few problems but concluded nothing was really wrong. The employees were reassured.
The 1985 letter Mr. Cox sent on behalf of his client also insisted that regulatory standards for the suitability of investments should not apply because the fund was so safe: ''Because all of the trust fund loans are secured and over-collateralized, there is relatively low risk,'' Mr. Cox wrote. It turned out that no investment sold by Mr. Cooper was safe.
As chairman of the S.E.C., Mr. Cox will have to decide whether to seek a weakening of rules stemming from the Sarbanes-Oxley Act that have forced companies to assure their internal controls are adequate. He will hear that the rules are too expensive and are therefore hurting the investors they are supposed to protect.
This is the real Christopher Cox. This story gives an insight into the character of the man who was at the helm of the SEC during the crash. Tomorrow, Chris Cox testifies before the Financial Crisis Inquiry Commission (FCIC). He needs to be asked the tough questions.
Today, Accountable America's Tom Matzzie praised the news that former SEC Chair Christopher Cox will testify before the Financial Crisis Inquiry Commission (FCIC). Matzzie highlighted Mr. Cox's record of failure and called on the FCIC to hold him accountable. Matzzie:
The truth is that Christopher Cox was ill suited for the post of SEC Chair from the start—like so many other Bush appointees. Cox was ideologically opposed to the type of regulation and oversight the SEC is charged with conducting.
As a member of Congress he raised more than $1,297,9661 from Wall Street, including banks and financial, insurance firms. Did anybody think Cox forgot who was buttering his bread? Or maybe George W. Bush was expecting that he didn’t forget?
Cox’s tenure at the SEC was marked by one trait: no protection for the small investor. Among other things,
The Cox SEC failed to recognize Bernard Madoff’s massive securities fraud despite repeated warnings.
- Cox failed to enforce accounting standards. The SEC had authority over the financial statements over all public companies and can set its own accounting standards if needed.
- Cox failed to supervise the rating agencies. The Credit Rating Agency Reform Act of 2006 gives the SEC the right to suspend or revoke the license of any rating agency. The SEC was their only regulator.
- Cox declined to protect the SEC’s authority by appealing a court ruling regarding hedge funds—sending a clear signal that the SEC wasn’t going to be very active during his tenure.
- Cox didn’t move quickly to appropriately curb short sellers early in the crisis.
Cox did nothing about Credit Default Swaps—only making remarks after it was clear they posed a massive threat.
- Cox was reassuring the public about Bear Stearns only days before its dramatic collapse yet the agency had failed to adequately supervise Bear and limit risk, according to an Inspector General’s report. At the time, it was reported that Cox failed to attend meetings and phone calls regarding the failing firm.
- The Government Accountability Office (GAO) repeated that Cox’s SEC slowed, hindered and hobbled investigations and enforcement, noting that, Cox’s policies, “contributed to an adversarial relationship between enforcement and the Commission.”
- Cox cut transparency inside the SEC—barring enforcement personnel at the SEC from more than 40 percent of the meetings considering sanctions or legal actions.
- Cox undercut morale deeply at the SEC. At one point in his tenure the Bush Treasury Department proposed abolishing the SEC—Cox failed to quickly protest the idea leaving many to think he supported it.
Cox has a lot to account for in front of the Financial Crisis Inquiry Commission. It will be a hearing worth watching.
We encourage FCIC Commissioners to challenge Mr. Cox for his many failures.
A senior attorney at the SEC's Washington headquarters spent up to eight hours a day looking at and downloading pornography. When he ran out of hard drive space, he burned the files to CDs or DVDs, which he kept in boxes around his office. He agreed to resign, an earlier watchdog report said.
An accountant was blocked more than 16,000 times in a month from visiting websites classified as "Sex" or "Pornography." Yet, he still managed to amass a collection of "very graphic" material on his hard drive by using Google images to bypass the SEC's internal filter, according to an earlier report from the inspector general. The accountant refused to testify in his defense and received a 14-day suspension.
This occurred under Christopher Cox's watch. Christopher Cox, George W. Bush's SEC Chairman, was asleep at the switch during the run up to the global financial crisis and he needs to be held accountable for failures like this. This failure to crack down on employees' porn habit is a sign of of the kind of inefficient and incapable office he ran. He needs to answer questions about his incompetence and failures. The Financial Crisis Inquiry Commission should subpoena Cox and hear his testimony.
A $7 BILLION ponzi scheme. The SEC knew about it in 1997. But, no action was taken against the scheme until 2009. TPM Muckracker has the story:
In news buried by the Goldman fraud charges, the Inspector General for the SEC issued a blistering 159-page report Friday concluding that the agency's Fort Worth office knew that Texas businessman Allen Stanford was operating a Ponzi scheme in 1997 -- but didn't make a serious effort to pursue the matter for eight years, until 2005.
Stanford, a flamboyant Texas billionaire, is currently in jail facing charges of operating a $7 billion Ponzi scheme.
The inspector general's report paints the enforcement section of the Fort Worth office as the main culprit. The IG concludes:
"[T]he SEC's Fort Worth office was aware since 1997 that Robert Allen Stanford was likely operating a Ponzi scheme, having come to that conclusion a mere two years after Stanford Group Company ('SGC'), Stanford's investment adviser, registered with the SEC in 1995. We found that over the next 8 years, the SEC's Fort Worth Examination group conducted four examinations of Stanford's operations, finding in each examination that the CDs could not have been 'legitimate,' and that it was 'highly unlikely' that the returns Stanford claimed to generate could have been achieved with the purported conservative investment approach.
Fort Worth examiners dutifully conducted examinations of Stanford in 1997, 1998, 2002 and 2004, concluding in each case that Stanford's CDs were likely a Ponzi scheme or a similar fraudulent scheme. The only significant difference in the Examination group's findings over the years was that the potential fraud grew exponentially, from $250 million to $1.5 billion."
This is a massive failure on the part of the SEC. For too long, a revolving door between the SEC and Wall Street has created an agency that is incapable of enforcing the law. SEC leaders sat idly buy as more and more innocent people fell victim to Allen Stanford. That must not happen again. The SEC and our financial regulatory environment need reform.
This is encouraging. But, it's also a sign that George W. Bush's SEC chair Christopher Cox should've done more to bring these schemes to light before the global financial crisis. Accountable America's Tom Matzzie:
The SEC's action against Goldman Sachs is a good step in the right direction but more is needed urgently. More than any other Wall Street bank, Goldman Sachs gamed the system to the bank's benefit and to the detriment of the public, taxpayers, investors and the U.S. economy. What Goldman Sachs did was no different than a baseball player placing bets against his own team. In addition to civil action, there should be criminal investigations.
One thing that is also becoming clear is that the SEC under former Chairman Christopher Cox was asleep at the switch. This fraud happened 20 months before Cox left his post as SEC Chair. It is clear that Cox hobbled the SEC when it was most needed to protect the public. We need financial reform to setup structures and rules that make it impossible for a regulator to hobble investor protections. But we also need public accountability for Christopher Cox and other regulators who failed to do their job. The Financial Crisis Inquiry Commission should immediately subpoena Cox to appear at their next hearing. Cox should answer as to why he didn't stop these frauds before they spun out of control and wrecked the U.S. economy. If there was any impropriety by Cox that should not be swept under the rug--it must be exposed.
While this action by the SEC is encouraging, the pace and volume of civil and criminal actions related to the financial crisis is woefully inadequate. During the S&L crisis, a series of strike forces based in 27 cities were staffed with 1,000 FBI agents, analysts and dozens of federal prosecutors. The result was no less than 1,852 S&L officials were prosecuted and 1,072 were jailed. More than 500 of these were top officers. Where are those task forces today? Where are those prosecutors? Where are those investigations? The SEC, the Department of Justice and other agencies need to do more and do it now.
The Financial Crisis Inquiry Commission (FCIC) can hold Christopher Cox accountable. They can seek subpoena powers and make him testify before the committee. It's time for the FCIC to act.