Business as usual at the White House

[97silverlsc]

The Case Against Chris Cox

Meet Chris Cox, the man who helped produce the Enron scandal. Orange County Weekly reported that "Cox, as part of conservative Republicans' so-called Contract With America, spearheaded efforts to torpedo protections for corporate investors and shield companies -- like Enron -- and their accountants -- like Arthur Andersen -- from investor lawsuits." Cox's sustained effort to provide protections to corporate bad actors was successful; the nation's economy was not. Moreover, Cox pushed his securities reform bill through Congress at the same time he was a named defendant in two lawsuits for securities fraud. Cox's conduct raises serious questions about his ethical suitability for the job. For the last two-and-half years, outgoing SEC Chairman William Donaldson has worked to repair the damage Cox helped produce. But Cox remains committed to his ideological agenda, and, should he be confirmed, is ready to take the country back into the Enron era.

COX'S CRUSADE TO WEAKEN INVESTOR PROTECTIONS: Cox claimed on the floor of the House on 3/7/95 that securities law was "a legal torture chamber ... more suitable to the pages of Charles Dickens' 'Bleak House' than a nation dedicated to equal justice under law." Cox's efforts to weaken protections for investors culminated in the Private Securities Litigation Reform Act of 1995, which provided extensive legal protection to corporate executives, accountants and lawyers who made misleading statements. The bill was enacted into law over President Clinton's veto "after heavy lobbying from Andersen [and] the rest of the accounting industry." Duke University Law Professor James Cox (no relation) called the law "the ultimate in special-interest legislation." Barbara Roper, director of investor protection at the Consumer Federation of America, said Chris Cox's law "made it not only possible but likely that something like Enron would occur."

HOW THE COX LAW PROTECTS CORPORATE CROOKS: According to OC Weekly, "ndependent legal analyses and securities lawyers agree" that Cox's bill "significantly raised the bar at several points in the litigation process, making it much harder for plaintiffs to bring lawsuits." Specifically, plaintiffs "would have to prove there was a 'strong inference' that the defendant acted with the required state of mind for fraud. Securities lawyers refer to this requirement as "'scienter' – a mental state embracing intent to deceive, manipulate or defraud." It's an extremely difficult standard to meet. When the standard was interpreted by the 7th Circuit Court of Appeals it "even forgave executives who said they forgot to disclose bad financial news to investors."

HOW THE COX LAW PROTECTS KEN LAY: Cox's law provided additional protections for executives who made inaccurate "forward looking statements" about the future of the company to investors. So when, 12 weeks before the company declared bankruptcy, former Enron CEO Ken Lay told a reporter from Business Week, "We think the company is on solid footing, and we're looking forward to continued strong growth," he was unlikely to face legal consequences.

COX MISREPRESENTS IMPACT OF LAW: Cox has blatantly misrepresented the impact of the law. For example, according to Cox, his law "requires a company and its officers to constantly update and correct any forward-looking statement once made." The official Congressional Research Service summary of the law, however, "tates that there is no duty upon any person to update a forward-looking statement."

COX WAS SUED FOR ALLEGED INVOLVEMENT IN PONZI SCHEME: Cox's efforts to limit the ability of investors to sue for fraud was informed by his personal experience. Cox worked for the law firm of Latham & Watkins from 1978 to 1986 before leaving to join the White House counsel's office. On 9/17/94, the LA Times reported, Cox was sued for his work at Latham that involved him in a business scheme that robbed nearly 8,000 investors of approximately $136 million. The scheme cheated customers out of their retirement nest eggs by enticing them to invest in phony mortgages. High-level officers at First Pension Corporation, the company at issue, pled guilty to fraudulently diverting funds. The charge against Cox was that he helped write a deceptive plan to sell mutual fund shares. Cox claimed ignorance and said he was only distantly involved in the case, but information uncovered later revealed him to be more involved with the convicted dealer than he previously let on.

DETAILS MURKY ON RESOLUTION OF CLASS ACTION LAWSUIT AGAINST COX: Two suits were filed against Cox: a class action by the investors of First Pension Corp. and another by the court-appointed receiver. On 6/15/96, the LA Times wrote that although Cox was dropped as a defendant from the receiver's case (a move that was meant to "streamline the case," according to the receiver), Cox remained a defendant in the class action. The other major defendant, the accounting giant Coopers & Lybrand (now PricewaterhouseCoopers) was found guilty in July 2000 by a California Superior Court jury, according to the LA Times, for having "misrepresented First Pension's condition, concealed material information and abetted the company's managers in the fraud." In August 2000, the LA Times reported that the class action was settled before the damages phase could be entered into, but "terms of the agreement were not disclosed."

CONFLICT - COX SOUGHT TO PASS CLASS ACTION REFORM BILL WHILE NAMED IN CLASS ACTION SUIT: Cox was named in a class-action suit brought by the defrauded investors of First Pension. At the same time he was named in the suit, Cox was holding hearings on the Hill on the Private Securities Litigation Reform Act, a bill that, according to the WSJ, would "sharply limit the circumstances in which investors could bring class-action lawsuits." The AP noted, "Cox was informed one week before the bill was introduced that attorneys were threatening to add him as a defendant in a securities lawsuit." Although the bill did not directly affect the case against him because the case was filed in state court, the AP noted, "it could affect future legal actions brought in federal court against him or his former law firm, Latham & Watkins, which is named as a defendant in the suit." Despite there being an obvious conflict of interest involved with Cox's legislation, the House took no action against him.

CONFLICT - COX AMENDED THE LEGISLATION AFTER LEARNING OF HIS OWN LIABILITY: Though Cox claimed he only performed a small amount of legal work for one of the convicted securities dealers, the AP uncovered documents that showed Cox had actually worked with the felon in another major transaction. When confronted with the new evidence of the relationship, Cox said, "I don't have any independent recollection of that work." Back on Capitol Hill, Cox added an additional protection for targets of securities fraud lawsuits. "The day after the AP questioned Cox about [the relationship between him and the convicted dealer,] the congressman amended his legislation to prevent lawyers and others from being sued if they 'genuinely forgot to disclose' important information."

COX'S QUESTIONABLE CAMPAIGN CONTRIBUTIONS: Throughout his career in Congress, Cox has received more than $254,000 from the securities and investment industry, the fourth-largest industry contributor to Cox. He received another $206,000 from the accounting industry. Taken together, the securities and accounting industries combine to form the largest industry contributor to Cox. Cox's single largest contributor is the law firm of Latham & Watkins, the former employer that both involved him and absolved him of his personal legal troubles. Cox received $2,000 from William Cooper, owner of First Pension, but was forced to return the funds as controversy surrounding Cox's involvement in the scandal grew. Cox received a campaign contribution from ethically challenged lobbyist Jack Abramoff in 1996. He also received $2,000 from an Andersen Accounting executive in the 2001-02 cycle.


Another winner of a nomination by Shrub.

 

[eL eS]

This has my interest; like I said you won't find me at the kool aid stand with rest of them.

 

[eL eS]

Looks like he had some help:

President Clinton Signs Securities Litigation Uniform Standards Act

By Thelen Reid & Priest LLP

On November 3, 1998, President Clinton signed the Securities Litigation Uniform Standards Act (the "Standards Act") into law. Passage of the Standards Act reflected Congressional concern that litigants were avoiding the heightened pleading and other requirements set forth in the Private Securities Reform Act of 1995 (the "Reform Act") by commencing securities class actions in the state courts.

Rationale for the Standards Act

In enacting the Standards Act, Congress cited statistical evidence showing an increase in the number of state court securities class action filings in the wake of the passage of the Reform Act. More than three years after passage of the Reform Act, however, most commentators now agree that after an initial rise in state court filings in 1996 -- mostly California filings involving high-technology companies -- state court filings returned to pre-Reform Act levels in 1997 and 1998.

Ultimately, despite questions raised concerning the need for further legislation, Congress concluded that additional legislation was necessary to ensure compliance with the Reform Act. The Standards Act responds to the purported abuses under the Reform Act by amending the Securities Act of 1933 and the Securities Exchange Act of 1934 to ensure that almost all securities class actions will be permitted only in the federal courts and will be governed under federal law.

Scope of the Standards Act

The Standards Act bars class actions in either federal or state court based on state law if the lawsuit alleges:

(A) an untrue statement or omission of a material fact in connection with the purchase or sale of a covered security; or

(B) the defendant used or employed any deceptive device or contrivance in connection with the purchase or sale of the covered security.

Significantly, under the Standards Act, plaintiffs in "covered actions" in federal court will no longer be able to bring pendent state law claims such as fraud or breach of fiduciary duty claims where these state law claims concern misrepresentations or omissions in connection with the purchase or sale of a "covered security". 1

What are "Covered Securities"?

Covered securities are defined to encompass securities that satisfy the standards of sections 18(b)(1) and (b)(2) of the Securities Act of 1933, including nationally-traded securities such as those listed on the NYSE, AMEX, or NASDAQ, or similar exchanges selected by the SEC, as well as securities issued by registered investment companies. Covered securities also include securities senior to publicly traded common stock such as senior debt securities.

Definition of "Class Action"

Throughout the Congressional debate over the Standards Act, differences remained between the House and Senate with respect to the scope of actions covered by the statute. Concerned that the standards should not unfairly limit litigants' rights while at the same time being sufficient to prevent further abuse, Congress ultimately adopted a definition of class action which is broader than the standards set forth in Rule 23 of the Federal Rules of Civil Procedure.

In addition to a single lawsuit brought by a representative plaintiff(s) on behalf of a class, the class action definition used in the Standards Act also includes so-called "mass actions" brought on behalf of more than 50 persons and which are later joined or consolidated. Accordingly, cases not traditionally viewed as class actions may fall under this definition, such as a breach of warranty action by the purchasers under a note purchase agreement, where the number of investors can often exceed 50 persons.

Exclusions Under the Standards Act

The Standards Act's definition of a covered security does not apply to securities that are exempt from registration under the SEC rules pursuant to section 4(2) of the Securities Act of 1933. However, careful attention must be paid to the underlying statutory basis for an issuer's exemption from registration. For example, securities issued under Rules 504 or 505 of Regulation D may not be exempt under the Standards Act because they originally derive their statutory exemption from section 3(b) of the Securities Act of 1933 and not section 4(2).

Another prominent exclusion under the Standards Act is the so-called "Delaware carve out". Congress agreed to exclude certain actions which would otherwise be covered by the Standards Act if they related to corporate governance issues under state law. For example, communications made by an issuer or its affiliate to shareholders concerning voting, tender offers, proxies or appraisal rights would be excluded under the Standards Act.

The Standards Act also excludes certain state court actions, including actions involving political subdivisions, state pension plans, shareholder derivative actions, and actions commenced by indenture trustees to enforce contract agreements between an issuer and an indenture trustee. Earlier versions of the Standards Act did not include the exception for actions by indenture trustees. During the legislative debates on the statute, Congress realized this oversight and the statute was corrected. In contrast, a substantially similar action that is not commenced by an indenture trustee, but by more than 50 parties under a note purchase agreement, will be governed by the restrictions of the Standards Act. It is likely that courts will be faced with other examples of Congress' careless drafting as they interpret other provisions of the statute.

Procedural Changes: Removal and Discovery Stays

The Standards Act also alters the removal rules with respect to securities class actions involving covered securities. Defendants will be permitted to remove state court proceedings to the federal courts even in the absence of diversity jurisdiction.

The Standards Act also provides that federal judges may quash discovery in state actions if the discovery interferes with proceedings in the federal courts. This provision is intended to be applied liberally so that parties may not use state court actions to obtain discovery that would otherwise be stayed in an action governed by the Reform Act.

Finally, the adoption of the Standards Act may bring some clarity to the disputed issue whether the Reform Act modified the scienter requirement for liability under the Securities Exchange Act of 1934. In an effort to clarify the confusion caused by the Reform Act's legislative history, the Joint Committee of Managers for the Standards Act has stated that the Reform Act did not alter the standards for liability under the Securities Exchange Act of 1934. Individual Senators and Representatives have cited the Managers' statement as authority that the pre-Reform Act pleading standards developed by the United States Court of Appeals for the Second Circuit remain viable, namely that evidence of a defendants' motive and opportunity or recklessness can be used to demonstrate scienter under the securities laws. It remains an open question, however, how persuasive courts will find such post-written legislative history. Moreover, given the ingenuity previously shown by plaintiffs counsel in the securities class action area, the jury shall remain out for some time on the ultimate effects of the Standards Act.
***********************************


Reminds me of global crossing and white water. If it was good enough for slick willie then it should be good enough for you now!

 

[eL eS]

simple search returns plenty of links between clinton and the law firm of Latham & Watkins.

Your posting this is honorable but where was your activism when clinton signed this legislation and did business with this law firm.

Ya know the fact is is that it is all ok when your team was doing. More of the double standard. Your post holds as much water as a screen door on a submarine submerged to 900ft.

 

[97silverlsc]

My activism was there, this website wasn't!!

 

[eL eS]

First, we all know the website is barely a year old!!

So you opposed Clinton signing this legislation then why not add some commentary indicating you did? Your actively criticized the Clintion administration for all their bad deeds, I doubt it.

I defy anyone to show me an honest politician lets face it they do not get in to politics to promote the well being of thier fellow Americans so why put a guy on blast for signing this guy on to head the SEC? After readiong much about the legislation it obviously has some benefits for the economy/markets else it would not have passed.

Is/was it your intent to discredit the president again by nominating this guy? If so, I will refer you back to the screen door analogy.

 

[97silverlsc]

My intent in posting the article was to highlight how unqualified the nominee is. In view of his history of questionable dealings, it seems to me this would be another case of putting the fox in charge of the hen house.
I have no "team", I'm registered as an independent. I do find most things that Shrub and his administration have done at best questionable, though mostly objectionable. He made promises before the 2000 election concerning the environment and has since gone back on them, often times repealing or weakening existing rules, all to the benefit of corporations and to the detriment of the public. He turned budget surpluses into record deficits that will affect the country for years to come. His administration is the most secretive since Nixon's, in a time when there is supposed to be more "transparency" in government. The only thing I can think of that has been done during his administration of a positive nature is the do not call list. I honestly think he will go down in history as one of the worst presidents we've ever had.

 

[MonsterMark]

I honestly think he will go down in history as one of the worst presidents we've ever had.

You and the liberals in the MSM will certainly try to paint him that way but history has a strange way of getting to the truth. He presided over the worst attack on US soil, rebounded from an inherited recession, rebuilt the economy after 2,000,000 job losses due to 9/11, has added 3,000,000 jobs in the last 1-1/2 years, strong economic growth for 2+ years, will sign the 1st energy policy in 40 years, and is working to fix the SS system, environmental air and water quality, the list goes on and on.

The greatest President of the 21st century!

 

[JohnnyBz00LS]

My intent in posting the article was to highlight how unqualified the nominee is. In view of his history of questionable dealings, it seems to me this would be another case of putting the fox in charge of the hen house.
I have no "team", I'm registered as an independent. I do find most things that Shrub and his administration have done at best questionable, though mostly objectionable. He made promises before the 2000 election concerning the environment and has since gone back on them, often times repealing or weakening existing rules, all to the benefit of corporations and to the detriment of the public. He turned budget surpluses into record deficits that will affect the country for years to come. His administration is the most secretive since Nixon's, in a time when there is supposed to be more "transparency" in government. The only thing I can think of that has been done during his administration of a positive nature is the do not call list. I honestly think he will go down in history as one of the worst presidents we've ever had.

:I

Bryan, sure, I'll concede that BuSh isn't a total F-Up, but the cons FAR outweigh the pros. Keep drinking that red kool-aid!

I find it hilarious how the conservatives "label" liberals as pushing socialism, while the BuSh administraion's actions again and again follow suit with socialistic ideals. Hypocrites!