Defense Lawyers Pleased With Nomination of Cox to SEC Post

Justin Scheck
The Recorder
06-08-2005

Securities lawyers know what they're getting with Christopher Cox, the Orange County Republican congressman President Bush nominated Thursday to be the Securities and Exchange Commission chairman. But how they feel about the former Latham & Watkins partner depends on their side of the aisle.

Defense lawyers hail the longtime plaintiff bar foe as a savior for companies squeezed by the tight regulatory regime of current Chairman William Donaldson, who announced his resignation Wednesday. Plaintiff lawyers are less sanguine.

"It's putting the fox in the chicken coop. He's the worst possible nominee imaginable," said plaintiff-side securities lawyer William Lerach. "He's blindly pro-business and anti-investor." The partner at Lerach Coughlin Stoia Geller Rudman & Robbins said he expects Cox to roll back enforcement of Sarbanes-Oxley provisions, reduce penalties for violating SEC regulations and give companies more leeway to delay compliance with corporate responsibility laws.

For the most part, the defense bar agrees. "[Judging] from his background, Cox is going to be more reluctant to impose fines that would be borne by innocent shareholders," said W. Hardy Callcott, a partner at Bingham McCutchen and a former SEC assistant general counsel.
"The SEC may not be pushing the envelope as it was before," said Jahan Raissi, a defense lawyer at Shartsis Friese and a former SEC enforcement attorney.

The defense bar tends to see that as a good thing. "It is pretty clear the regulatory environment, in many ways, has swung too far, said Jordan Eth, a partner at Morrison & Foerster. "In an effort to punish the Enrons and WorldComs of the world, other companies have incurred huge compliance costs."

Raissi said Cox is a classic small-government, regulation-wary conservative, and predicts a "slower approach to regulation, perhaps rolling back some of the requirements that are in place, and some of the ones Donaldson was championing." This irks Lerach and other plaintiff lawyers, who for years have been arguing for greater transparency and tightened regulation of corporate boards and accounting firms. Furthermore, tighter SEC enforcement has meant a closer relationship between the plaintiff bar and government lawyers, especially in recent years, Callcott said.

"Enforcement staff has worked very closely with the securities plaintiff bar," he said. "Cox is very suspicious of the securities plaintiff bar, and it may be that some of those leads are going to dry up." That suspicion was most evident in his sponsorship of the Private Securities Litigation Reform Act, a 1995 law that hogtied securities lawyers' suits over alleged stock fraud.

But Lerach says he's more worried about consumer issues than how plaintiff firms will fare.
"I'm not worried about the plaintiff bar," he said. "Don't worry about us. I'm worried about investors. I'm worried about Sarbanes-Oxley." And Solomon Cera, a partner with the plaintiff firm Gold Bennett Cera & Sidener, said he was more concerned when Cox was mentioned as a potential judicial nominee several years ago.

"I guess it's good that he's in a big federal bureaucracy in Washington rather than on the bench," he said.