Sec Donaldson lascia

[FaGal]

SEC chief Donaldson resigns as markets watchdog
www.menafn.com - June 1, 2005 - Agence France-Presse - Rob Lever


WASHINGTON - The chairman of the Securities and Exchange Commission, William Donaldson, quit Wednesday as the top US financial market watchdog amid criticism from the business sector that his policies were too restrictive.

Donaldson, who took office in the wake of massive corporate scandals and stepped up the agency's focus on fraud and good governance, left as criticism from business was rising that the SEC was going too far in its regulatory efforts.

The resignation is effective June 30.

"Although there will always be more work to be done to preserve and enhance the integrity and strength of our nation's corporations and markets, I believe the time has come for me to step down and return to the private sector and my family," Donaldson said in a statement.

Donaldson, a longtime friend of President George W. Bush's family, had come under fire in business and political circles for pursuing an agenda that has been perceived as being too regulatory.

Donaldson has presided over moves to register hedge fund advisers for the first time and tighter supervision of US securities markets. He also has enforced financial controls as required by the 2002 Sarbanes-Oxley Act.

That law has been the source of many businesses' complaints against the SEC. Some groups including the US Chamber of Commerce accused the Wall Street-policing agency of overreaching.

A statement after the announcement from Chamber of Commerce president Thomas Donahoe offered no praise for the departing regulator.

"William Donaldson came to the SEC at a critical time -- his job was to restore trust and confidence in our capital markets," the statement said.

"His successor will need to focus on ensuring the future competitiveness of our markets. We must have markets where good ideas are rewarded; where entrepreneurs can take risks, and create wealth and prosperity for the economy. "

A former head of the New York Stock Exchange, Donaldson last month pushed through a controversial plan to overhaul stock trading, over the objections of fellow Republican commissioners.

Donaldson took over the SEC in February 2003 from Harvey Pitt, who had been criticized for being too lax during a series of corporate scandals.

Donaldson's departure signals the latest change at the Wall Street-policy agency, coming on the heels of two other high-profile departures: Stephen Cutler, who headed the agency's enforcement division, and Paul Roye, who oversaw mutual funds. Commissioner Harvey Goldschmidt, a Democrat, is also leaving the agency on July 15.

Others in the financial markets lauded Donaldson's tenure.

NYSE chief executive John Thain said Donaldson was "a champion of investors and has successfully led the drive to restore confidence in US financial markets and corporate America."

Nasdaq president Bob Greifeld said Donaldson "has provided visionary leadership through a time of critical change for American business and the US financial markets -- and investors have benefited. The Chairman's initiatives to modernize the stock markets and regulation have helped to ensure the vitality of our markets and US competitiveness."

[FaGal]

Bush to Nominate Rep. Cox for SEC Chairman
www.record-journal.com - By DAVID ESPO - June 2, 2005


WASHINGTON - Moving quickly to fill a high-profile regulatory vacancy, President Bush intends to nominate Rep. Christopher Cox to chair the Securities and Exchange Commission, according to Republican officials.

Cox, R-Calif., a conservative veteran of 16 years in Congress with wide-ranging policy interests, would succeed William Donaldson, who announced Wednesday he was stepping down on June 30 after a two-year tenure marked by efforts to restore investor confidence in markets shaken by corporate excess.

Donaldson was an activist who often clashed with traditional business allies. They chafed over what they perceived as an excessive regulatory zeal during his tenure.

Cox would be the second House Republican picked this spring for a top administration post. Rob Portman was an Ohio congressman before his confirmation as U.S. Trade Representative in late April.

The officials who disclosed Bush's intention to nominate Cox did so on condition of anonymity, saying the White House wanted to make a public announcement, perhaps as early as Thursday.

Cox, 52, is chairman of the House Homeland Security Committee, and a veteran of the Financial Services Committee. The holder of a business and a law degree, he has voted for legislation to make it easier for companies to defend against securities fraud lawsuits.

Cox supported the Sarbanes-Oxley Act of 2002, Congress' response to financial scandals at Enron Corp., WorldCom Inc. and other large companies. The law ordered the most far-reaching changes in corporate accountability since the Depression, imposing stiff new rules on companies and their top executives.

He also is a longtime advocate of repealing taxes on capital gains as well as on dividends.

The SEC position is subject to Senate confirmation, a process that left Cox bruised once before. He was in line for an appointment to the U.S. Court of Appeals in 2001 when Democrats suddenly gained control of the Senate.

Facing opposition from at least one of his home state's two Democratic senators, Cox realized he faced a difficult fight to win confirmation to the bench without a guarantee of success. He withdrew his name.

In his announcement, Donaldson cited family reasons and denied he was stepping down because of disagreements with Republicans over commission decisions. He had sided with the two Democrats on the five-member panel on rules in such areas as stock market trading, hedge funds and mutual funds.

Donaldson, just shy of his 74th birthday, said he hoped "there will be no legalistic rollback of any of these key items." He predicted the next chairman "will leave politics at the door."

In a letter to Bush, Donaldson cited the tireless work of SEC employees and said the past 2 1/2 years "may well be remembered as the most consequential and productive period in the commission's history."

In turn, Bush wished him well. "Bill Donaldson took on a tough job at a tough time and he delivered for the American people," the president said in a statement. "He vigorously and fairly enforced our nation's securities laws and helped rebuild the public trust in corporate America that has been important to our economic recovery."

Bush turned to Donaldson, a Republican and family friend, in 2003 to replace the embattled Harvey Pitt, whom administration officials forced out after a series of political missteps.

Donaldson helped implement the Sarbanes-Oxley Act. He also won approval at the SEC for a number of rules designed to clean up the $7 trillion mutual fund industry.

Donaldson last month won SEC approval for a plan to overhaul stock trading. He joined with the Democrats on the commission as the two Republican commissioners objected to the new rules.

Under the proposal, known as the "trade-through" rule, stock brokers will be required to accept the best quoted price for any transaction, no matter which market it came from.

The rule is not due to take effect until 2006, leaving the agency free to review it under a new chairman.

In addition to Donaldson, the White House likely will have two additional vacancies to fill on the commission.

The term of one Democratic commissioner, Roel A. Campos, expires this year. Democrat Harvey Goldschmid has made it known that he intends to return to teaching at Columbia University this fall.

By law, no party may control more than three seats on the five-member panel.

Senate Democrats have suggested that the president nominate the SEC's market director, Annette Nazareth, to fill Goldschmid's slot.

Associated Press Writer Martin Crutsinger contributed to this report.

[FaGal]

New York Times
June 2, 2005
Bush Is Expected to Nominate Congressman to Head S.E.C.
By STEPHEN LABATON

WASHINGTON, June 1 - William H. Donaldson, the chairman of the Securities and Exchange Commission, announced his resignation on Wednesday, after repeated criticism from his two fellow Republican members of the agency and from some business groups and administration officials who contended that his enforcement and policy decisions had been too heavy-handed.

Mr. Donaldson's resignation, which becomes effective at the end of the month, will give President Bush the opportunity to appoint a successor who is expected to tip the balance at the agency toward the more deregulatory agenda favored by the remaining Republicans on the five-member commission.

Administration officials said Wednesday night that they expected Mr. Bush to nominate Representative Christopher Cox, 52, a California Republican who has long been an ally of business groups and who helped rewrite securities laws to make investor lawsuits more difficult to file. Mr. Cox could not be reached for comment.

At the S.E.C., the other Republicans on the commission have found themselves disagreeing with Mr. Donaldson and the two Democratic commissioners on a variety of significant matters, ranging from whether to regulate hedge funds to overhauling how mutual funds are run to changing the way stocks are traded.

Some of the administration's most important supporters in the corporate world - including the Business Roundtable, an organization of chief executives of the nation's largest companies, and the United States Chamber of Commerce - have complained that the S.E.C. overreacted to recent corporate frauds by imposing rules that have been more burdensome than beneficial.

Those lobbies have been at odds with groups like the Council of Institutional Investors and the Consumer Federation of America, which have supported stronger regulation.

Despite a record on Wall Street that suggested he would largely serve as a caretaker, Mr. Donaldson proved to be an unexpected ally of such groups.

At a news conference on Wednesday, Mr. Donaldson tried to play down the disagreements over policy matters, saying that they were not the reason for his departure.

"I have repeatedly said I serve at the pleasure of the president and at my own pleasure," he said. "I believe the time has come for me to drift off into the private sector."

But Mr. Donaldson has told friends of his repeated frustrations with his Republican colleagues and some members of the administration, complaining that he was also growing weary of attacks from business groups outside the commission.

Officials said that Mr. Donaldson told the White House days ago that he intended to step down by the end of June.

Mr. Cox, the expected nominee, worked at the White House under President Ronald Reagan and was elected to the House in 1988 after working at a California law firm where he specialized in venture capital and corporate finance. His district includes Orange County, and he is the head of the House Committee on Homeland Security.

In 1995, he was named a defendant in a lawsuit by investors as a result of legal work he did for an investment group in the 1980's. The suit accused Mr. Cox, his former law firm and two former colleagues of misleading regulators and investors about the condition of a real estate investment fund. Mr. Cox, who denied that he had violated any laws, was eventually dropped from the lawsuit and the firm where he worked, Latham & Watkins, settled for an undisclosed amount.

He said his experience as a defendant had helped shape his views about investor lawsuits and led him "to sympathize with people who are victimized in these suits." The bill Mr. Cox helped to write, the Private Securities Litigation Reform Act of 1995, was the only legislation to become law over a veto by President Bill Clinton.

During his career in the House, Mr. Cox has pressed the Financial Accounting Standards Board to delay new accounting rules that would eliminate more favorable treatment of some mergers. He has supported efforts to repeal the estate tax, the capital gains tax on savings and investment, and taxes on dividends.

The White House on Wednesday issued a statement in which Mr. Bush said that Mr. Donaldson "vigorously and fairly enforced our nation's securities laws and helped rebuild the public trust in corporate America."

Mr. Donaldson, whose 74th birthday is on Thursday, joined the S.E.C. in early 2003 after a successful career founding what became one of the nation's largest brokerage houses, Donaldson, Lufkin & Jenrette. He later became a chairman of the New York Stock Exchange.

When Mr. Donaldson arrived, the commission was in turmoil, short of funds and reeling from its failures to detect major corporate frauds and curb Wall Street scandals. The agency's troubles had been magnified during the tenure of Harvey L. Pitt, a respected securities lawyer who was forced by the White House to resign on election night in 2002 after a series of embarrassing political gaffes.

Mr. Donaldson accomplished his mission of restoring the agency's morale. He advanced its interests in Congress, where he won huge budget increases, and imposed tough new rules. For the White House, he achieved the most vital political goal of lowering the commission's profile as Mr. Bush began his campaign for a second term.

In the process, Mr. Donaldson often sided with the agency's two Democrats to the consternation of his fellow Republican commissioners, Cynthia A. Glassman and Paul S. Atkins. The agency's rulings provoked a corporate backlash that has become stronger, gaining significant momentum as Republicans have become more powerful in the Senate and as the White House has moved more actively in Mr. Bush's final term to advance a business agenda.

In interagency meetings and discussions with some executives, Treasury Secretary John W. Snow has been critical of Mr. Donaldson for his positions on a variety of rules, from greater oversight of hedge funds to imposing new requirements on the boards of mutual funds.

But Mr. Snow, in remarks prepared for a speech Wednesday night at the N.Y.U. Center for Law and Business in Manhattan, went out of his way to defend the Sarbanes-Oxley Act of 2002, which gave securities regulators more enforcement powers after the collapse of Enron and other major corporations embroiled by fraud.

Mr. Snow called the law a "measured" response that "reaffirmed established norms." While giving a nod to business's support for "balanced" enforcement of the law, he said that "nothing here is revolutionary."

While Mr. Donaldson achieved some of his goals, he failed in an effort to give shareholders a greater voice in electing corporate directors.

The agency's two Republican commissioners also dissented from several enforcement actions against corporations, saying that it would be unfair to impose financial penalties on them because those penalties ultimately harm shareholders. Indeed, on both major enforcement cases and regulatory policy matters, Mr. Donaldson often found himself siding with the two commission Democrats.

One of those Democrats, Harvey J. Goldschmid, is expecting to leave in the coming weeks to return to a teaching position at Columbia University. Senate Democrats have proposed that his seat be filled by Annette L. Nazareth, a senior staff official. The term of another Democratic member, Roel C. Campos, expires this month, although he hopes to be nominated for a second term.

At times, the disagreements within the commission became public in painful ways. Earlier this year, for instance, Mr. Atkins tried to summon the head of the accounting board to a commission meeting after Mr. Donaldson refused to do it.

Mr. Donaldson has told some colleagues that one of his biggest regrets was failing to urge the White House not to appoint Mr. Atkins to a second term.

Mr. Atkins, meanwhile, has complained that Mr. Donaldson has embarked on a heavy-handed regulatory course and has ignored the pleas of his Republican colleagues for a more balanced approach.

Mr. Donaldson's resignation comes after the departure in recent months of several officials, including Paul Roye, who oversaw the mutual fund industry, and Stephen M. Cutler, head of the enforcement division. Both divisions were upstaged by cases brought by Eliot Spitzer, the New York State attorney general, and responded in ways that some industry groups said were excessive.

[FaGal]

Il presidente della Sec Donaldson lascia prima del tempo. La Casa Bianca nomina Cox, avvocato «allergico» a lacci e lacciuoli Troppe regole, Bush cambia lo sceriffo di Wall Street
Le dimissioni di William Donaldson, il presidente della Sec (la Consob americana) e la sua sostituzione con Christopher Cox, parlamentare repubblicano della California e avvocato d'affari assai vicino alle lobby economiche, annunciano un cambio di stagione. Banchiere ed ex presidente della Borsa di Wall Street, Donaldson era stato richiamato due anni fa da Bush dalla pensione (compie oggi 74 anni) per rimettere ordine nei mercato e ridare lustro alla Security and Exchange Commission: La Sec aveva infatti perso credibilità durante la breve gestione di Harvey Pitt, un avvocato, amico personale del presidente americano, che non aveva saputo arginare gli scandali ed anzi era stato sfiorato da alcuni di questi casi per la sua precedente attività professionale. «Missione compiuta», dice oggi Donaldson che, salutando la stampa, rivendica un primato della sua breve gestione (meno di due anni e mezzo): «E' stato il periodo più produttivo vissuto dalla Sec dalla sua fondazione, nel 1934», alla fine degli anni bui della Grande Depressione.
Vero, ma dipende da che significato si dà alla parola «produttivo», mugugna il Wall Street Journal , voce della destra liberista contraria al moltiplicarsi di regole e controlli. In effetti dall'inizio del 2003 a oggi la Sec ha attuato con molta severità la legge Sarbanes-Oaxley, la normativa votata dal Congresso nel 2002 nel bel mezzo della tempesta Enron, che rende molto più stringenti i controlli sulla contabilità delle imprese, impone trasparenza agli amministratori e allarga il perimetro delle loro responsabilità civili e penali.
In due anni la Sec ha aperto ben 1700 procedimenti contro imprese - da Xerox ad Adelphia - accusate di aver violato le norme contabili, ha comminato multe pesantissime, per un totale di oltre 7 miliardi di dollari, ha imposto regole severissime in materia di nomina degli amministratori dei fondi comuni e ha introdotto una regolamentazione degli hedge fund che è stata contesta addirittura dal capo della Federal Reserve, la banca centrale Usa, Alan Greenspan. Due mesi fa il varo delle norme più complesse e contestate: un nuovo codice degli scambi azionari che impone di vendere i titoli ai risparmiatori al miglior prezzo possibile. In tutte queste iniziative Donaldson ha avuto l'appoggio delle lobby dei consumatori e delle organizzazioni degli investitori istituzionali, ma ha visto anche crescere l'ostilità dell' establishment finanziario secondo il quale le nuove norme erano poco efficaci e troppo onerose, dato che ingessano il sistema e impongono alle imprese forti costi aggiuntivi.
Donaldson non si è fermato davanti alle critiche ed è andato avanti anche quando ha perso l'appoggio di Paul Atkins e Cynthia Glassman, i due commissari della Sec espressi dal partito repubblicano. Le decisioni principali adottate in questi anni dalla Sec sono così passate col voto di un presidente repubblicano, nominato da Bush, e dei due commissari democratici, Roel Campos e Harvey Goldschmid.
Proprio l'imminente scadenza del mandato di Goldschmid ha fatto precipitare la situazione. Donaldson ha presentato le sue dimissioni come una scelta personale, ma il capo della Sec ha confessato in privato la sua amarezza per gli attacchi ricevuti nelle ultime settimane dai commissari repubblicani e per la freddezza della Casa Bianca davanti al candidato indicato dai democratici al posto del membro uscente: Annette Nazareth, un dirigente della Sec. Con lei Donaldson avrebbe continuato ad avere una maggioranza garantita, mentre la mancata sostituzione di Goldschmid avrebbe creato una situazione di stallo.
Donaldson, che ancora qualche mese fa aveva confermato - anche in un'intervista al Corriere della Sera - di voler restare in carica fino alla fine del suo mandato, nel 2007, ha evidentemente preso atto del venir meno del rapporto di fiducia con la Casa Bianca ed ha evitato di andare allo scontro. Scegliendo lui, all'inizio del 2003, Bush sapeva di dover rimettere per un po' nel cassetto i suoi programmi di deregulation : anche i repubblicani, nel clima di quel periodo, ritenevano necessarie nuove regole per evitare che il panico dei risparmiatori si trasformasse in una fuga dai mercati. Donaldson si è mosso con molta più determinazione del previsto, ma il presidente gli ha ugualmente riconfermato la sua fiducia, l'ultima volta nel gennaio scorso.
Ora ha però deciso che era giunto il momento di ritornare alla sua vecchia agenda: lo dimostra lo stesso profilo di Cox, un avvocato che dice di essere diventato un nemico delle regolamentazioni severe dopo essersi ritrovato imputato in una causa intentata da alcuni investitori contro di lui e il suo studio legale, accusati di non aver comunicato loro le reali condizioni finanziarie di un fondo immobiliare da loro rappresentato. E lo conferma la rapidità della scelta di Bush, che è abituato a trascinare per mesi le nomine in campo economico, ma che stavolta ha deciso in mezza giornata.
Le riforme più contrastate dalla corporate America alle quali stava lavorando Donaldson - più poteri agli azionisti nella nomina e la sostituzione degli amministratori delle società e una comunicazione più trasparente delle retribuzioni complessive reali percepite dai manager - resteranno così sulla carta. E qualcuno sente già aria di «controriforma». Un problema che l'Italia non ha, visto che noi non siamo nemmeno riusciti a fare la riforma.
Massimo Gaggi
corriere

[FaGal]

Mixed welcome for Cox from business groups
news.ft.com - By Stephanie Kirchgaessner in Washington - June 2, 2005


Some of William Donaldson's toughest critics in Congress and the business community welcomed President George W. Bush's nomination of Christopher Cox to become the new chairman of the Securities Exchange Commission.

Meanwhile, supporters of the outgoing chairman expressed reservations about Mr Cox's record.

The most significant endorsement came from Richard Shelby, the powerful chairman of the Senate banking committee, who said Mr Cox was “an outstanding choice”.

“I think the most important thing for Chris Cox to do as chairman is bring leadership and bring consensus where he can. Some of us have been troubled in recent times that there has been a lack of consensus,” Mr Shelby said in reference to Mr Donaldson's controversial support of some recent SEC rules that the commission's other two Republican commissioners opposed.

Mr Shelby said that, while he agreed with Mr Donaldson's assertion that SEC leadership should “leave politics at the door”: “You don't leave your philosophy at the door. You don't leave things that you believe will be good for the economy you should never leave that at the door.”

Mr Shelby said he hoped the SEC's two Republican commissioners, Cynthia Glassman and Paul Atkins, would be recognised by Mr Cox, after having been “ignored” on some issues recently.

The nomination was also praised by the US Chamber of Commerce, the most influential pro-business lobby group in Washington, which was a harsh critic of the SEC's enforcement policies and other rule-makings under Mr Donaldson. David Hirschmann, vice- president at the chamber, said Mr Donaldson had served his tenure during a time of “crisis” in the US financial markets and that the job of an incoming chairman would be “forward looking”.

“The job of the SEC chairman right now is to work to really modernise and build the future of our capital markets. [The person should be] someone who believes in [and] understands the importance of investment, risk taking but at the same time is focused on fairness and transparency,” Mr Hirschmann he said.

Ted White, deputy director of the Council of Institutional Investors, which represents public pension funds and other investors and was a strong supporter of Mr Donaldson, emphasised the importance of the SEC taking a “balanced” approach to regulation. Barbara Roper, director of investor protection at the Consumer Federation of America, a non-profit consumer rights group, said she did not oppose the nomination of Mr Cox, but some of his prior actions, including his support for legislation that made it more difficult for victims of corporate fraud to file suits against corporations, raised concerns.

“He's clearly qualified. . . but you would hope that Congress would seek some assurance that he would not use his position to overturn the progress that has been made,” Ms Roper said.

[FaGal]

June 3, 2005
Bush S.E.C. Pick Is Seen as Friend to Corporations
By STEPHEN LABATON

WASHINGTON, June 2 - In Republican and business circles, William H. Donaldson has been viewed as the David Souter of the Securities and Exchange Commission, a disappointingly independent choice who sided too frequently with the Democrats.

President Bush, hearing complaints about Mr. Donaldson's record from across the business spectrum, responded on Thursday by nominating Representative Christopher Cox, a conservative Republican from California, as a successor whose loyalties seem clear. And unlike the Supreme Court, where Justice Souter has a lifetime appointment, the S.E.C. provides the White House with an immediate opportunity to tip the balance of the five-person commission in a more favorable direction.

Mr. Cox - a devoted student of Ayn Rand, the high priestess of unfettered capitalism - has a long record in the House of promoting the agenda of business interests that are a cornerstone of the Republican Party's political and financial support.

A major recipient of contributions from business groups, the accounting profession and Silicon Valley, he has fought against accounting rules that would give less favorable treatment to corporate mergers and executive stock options. He opposes taxes on dividends and capital gains. And he helped to steer through the House a bill making investor lawsuits more difficult.

That measure, which Congress adopted over President Bill Clinton's veto, was hailed by business groups, which say it has reduced costly and frivolous cases.

It has also been criticized by consumer and investor organizations. They say its adoption in 1995 contributed to an unaccountable climate that fostered the big accounting scandals at companies like Enron and WorldCom a few years later.

Mr. Cox's legislative record was cited on Thursday by President Bush as a primary qualification.

"As a champion of the free-enterprise system in Congress, Chris Cox knows that a free economy is built on trust," the president said in the Roosevelt Room, as he introduced the third man in his tenure to lead the commission.

Mr. Cox, following in the tradition of other nominees to major government jobs, declined through a spokesman to comment about his record or his plans for the agency while awaiting Senate confirmation proceedings.

Appearing beside Mr. Bush on Thursday, Mr. Cox, 52, praised the commission as "one of the best-run agencies in the federal government."

"During my time as a securities practitioner," he said, "I was consistently impressed by the high caliber of professionals who regulate corporate finance and our markets. It will be an honor, if confirmed, to join this exceptional team."

Representative Cox has both fierce supporters and detractors. But both sides agree that the Securities and Exchange Commission will soon become a very different place if, as expected, he is swiftly confirmed to become the agency's 28th chairman.

Under Mr. Donaldson, a Rockefeller Republican whose credentials on Wall Street and corporate America led some to believe he would be a cautious caretaker, the commission responded to a wave of business scandals through a series of restrictive regulations and tough enforcement cases.

On the big votes, he often broke ranks with the commission's two Republicans, Cynthia A. Glassman and Paul S. Atkins, who complained repeatedly that the rules and enforcement cases promoted by Mr. Donaldson and the two Democrats were unnecessary and overly burdensome.

Senator Richard C. Shelby, the Alabama Republican who heads the Senate Banking Committee, which will hold a confirmation hearing soon, said he strongly supported Mr. Cox. Once Mr. Cox joins the commission, he said, Ms. Glassman and Mr. Atkins will almost certainly no longer find themselves in the minority.

"I have long thought that the lack of consensus on a number of big issues was very troubling, with 3-to-2 votes, and especially with a Republican chairman slipping from the two other Republicans on several big votes," Senator Shelby said in a telephone interview from Turkey. "Under Chris Cox as chairman, you are probably not going to have much of that. Chris Cox is superbly qualified for the job and he will make an outstanding chairman."

William Lerach, a prominent shareholder lawyer in San Diego who a decade ago found himself on the losing end of the political battle over investor lawsuits, agreed that the Republicans on the commission will now be more unified. But as a result, he argued, the policies it sets could be devastating for investors.

"I would expect that Cox will use his authority for an across-the-board assault on investor protection," Mr. Lerach said. "In my experience with him, I found him to be virulently anti-investor and unrestrained in his desire to gut the securities laws. It's hard to think of a worse choice for the S.E.C. This is a world-class payback to the corporate world."

Mr. Lerach recalled that the final legislation Congress adopted to restrict investor lawsuits, the Private Securities Litigation Reform Act of 1995, was much milder than the legislation Mr. Cox first proposed. That bill had significantly raised the standard of proof for investors and had included a provision forcing the losing party in such lawsuits to pay legal fees, a provision that some experts said would have effectively killed most investor lawsuits.

Ultimately, lawmakers adopted the Senate version of the measure, which did not include those provisions.

Senator Charles E. Schumer of New York, a Democratic member of the banking committee, said he wanted to learn more about Mr. Cox's views before deciding how to vote on him.

"Donaldson achieved a good balance," Mr. Schumer said. "The question is whether Cox sees the need for balance. If he sides with somebody like Atkins, who doesn't believe in regulation at all, then we will have trouble."

One issue that is certain to arise is whether Mr. Cox will feel obligated to Wall Street and the business groups that have been among his most important political contributors.

Since 1989, his campaigns have raised more than $6 million, with more than $2 million coming from business political action committees, according to federal election reports analyzed by the Center for Responsive Politics, a nonpartisan research organization that favors tighter controls on campaign contributions. The list of top 20 industries contributing to his campaigns includes securities and investment, which have given him over $256,000; law firms, which have given $364,000; and accountants, which have given over $207,000.

Marc E. Lackritz, president of the Securities Industry Association, one of Wall Street's lobbying groups, praised the appointment. "He has a particular sensitivity to costly and unnecessary regulation," Mr. Lackritz said. "He understands that the increased costs of regulation put an unnecessary tax on investors."

But Barbara Roper, director of investor protection at the Consumer Federation of America, said that Mr. Cox's record was not encouraging to her. She said she was particularly concerned that his close ties to Silicon Valley would lead him to take steps to roll back a provision of the Sarbanes-Oxley Act that requires management to assess the effectiveness of internal financial controls and report on weaknesses.

"I expect he will be extremely activist," Ms. Roper said, "and will rework the agency in his own image."

Indeed, Mr. Cox has been consistent throughout his career. He served at the White House under President Ronald Reagan and was elected to the House in 1988 after working in California at the law firm of Latham & Watkins, specializing in venture capital and corporate finance.

After graduating from the University of Southern California, he received degrees from both the law school and the business school at Harvard.

Over the last 16 years in the House of Representatives, Mr. Cox has played a central role as one of the strongest pro-business voices.

But his advocacy for some interests also caused him some trouble. Early in the first term of President Bush, Mr. Cox withdrew his name before it was formally put forward by the White House for a federal appeals court seat on the Ninth Circuit, in San Francisco, because the slender Democratic majority in the Senate had threatened a bruising confirmation battle.

NYTIMES

[FaGal]

The Donaldson resignation

seclogo2.jpg
Securities and Exchange Commission Chairman William H. Donaldson announced yesterday that he will resign at the end of the month. President Bush appointed Mr. Donaldson in 2003 in reaction to the wave of hyper-publicized corporate scandals that resulted from the bursting of the stock market bubble in the early part of this decade. Here is the SEC press release on the resignation and an earlier post from late last year on concerns that business interests were expressing over Mr. Donaldson's performance.

President Bush intends to nominate Republican California Congressman Christopher Cox to replace Mr. Donaldson. Representative Cox was a White House counsel during the Reagan administration and a corporate finance attorney with the law firm of Latham & Watkins. He is in Washington for being one of the Congressional leaders advocating repeal of inheritance and estate taxes.

Mr. Donaldson clearly alienated business interests during his two and a half years at the Commission. He was an advocate of hefty fines for corporate wrongdoers, registration of hedge fund advisers and a requirement that stock marketplaces always give investors the best possible price. Although it was enacted before he was appointed, Mr. Donaldson was the first SEC chairman who was required to deal with enforcement of the landmark Sarbanes-Oxley corporate reform law, which has been no picnic. Most business leaders have criticized the law as another costly governmental regulation of business. Finally, Mr. Donalson was often at odds with his two fellow Republican commissioners as he increasingly sided with the commission's two Democrat commissioners in pushing through controversial proposals.

However, the straw that broke the camel's back was probably the disclosure last week of the Commission's $48 million budget shortfall stemming from real-estate costs relating to its sparkling new building in Washington and a GAO audit report that found that the agency had failed to institute some of the same financial controls that it requires of public companies. Oops!
http://blog.kir.com/archives/2005_06.asp#002037

[FaGal]

SEC Chairman Donaldson to Resign
After two-and-one-half turbulent years as head of the commission, William Donaldson will step down at the end of this month; "I hope the acts of the SEC have not been characterized by a pendulum.''
Dave Cook, CFO.com
June 02, 2005

Follow the continuing discussion on the CFO Blog: Ron's Rant

William Donaldson, the 27th chairman of the Securities and Exchange Commission, will step down from his post on June 30.

In a statement, Donaldson said that he took the reins of the SEC at a time when "public confidence was severely undermined, reflecting the corporate and financial scandals that had shaken the nation." He added that there was still work to be done to bolster the integrity and strength of corporations and the markets, but he believed it was time to "return to the private sector and my family."

Donaldson, a Republican who was appointed by George W. Bush (and who, like the President, is a Yale graduate and a member of Skull & Bones), has sided with Democratic commissioners Harvey Goldschmid and Roel Campos on a number of high-profile issues such as mutual fund and corporate governance, stock trading, and hedge fund regulation. Those positions were opposed by the SEC's two other Republicans, Paul Atkins and Cynthia Glassman.

In a press conference late Wednesday afternoon, Donaldson maintained that "any disagreements we may have had, had nothing to do with my decision to resign." He noted that of the roughly 3,000 decisions made by the commission during his tenure, 99 percent were unanimous, adding that only "three or four" prominent decisions were made by a three-to-two vote.

"I hope the acts of the SEC have not been characterized by a pendulum," he added, in a nod to recent statements by the commission and by the Public Company Accounting Oversight Board. Although Donaldson insisted yesterday that the Sarbanes-Oxley Act of 2002 has been generally "well-received," the SEC and the PCAOB acknowledged earlier this month that implementing the internal-controls provisions of Section 404 had proved very costly. Critics of 404 have "legitimate" gripes about its expense, he added yesterday.

"We had to go through year one of those rules" to see how Section 404 might have been misapplied, said Donaldson. "I want to caution everybody that the one thing we're not doing is undercutting the thrust of 404," just reducing inefficiencies in how those provisions are being applied.

Donaldson's announcement follows the April departure of Stephen Cutler, the director of the SEC's Division of Enforcement, and the announcement earlier this year by Harvey Goldschmid that he will leave the SEC this summer to return to teaching at Columbia Law School. Asked about the proposals by Democratic leaders that director of market regulation Annette Nazareth fill Goldschmid's seat and that Roel Campos be nominated to another term, Donaldson said that the positions were for the White House to decide, adding "those are two excellent people."

The best candidates for such positions, suggested Donaldson, would be people who would "leave the politics at the door" and make their decisions by considering "what's best for the investing public."

Donaldson, who turns 74 today, became chairman of the SEC in February 2003, succeeding Harvey Pitt, who resigned amid controversy the previous November. At that time he was best-known as a co-founder of Donaldson, Lufkin and Jenrette, an investment bank that was especially adroit at underwriting junk bonds.

After graduating from Yale, Donaldson served in the U.S. Marine Corps from 1953 to 1955 before receiving his MBA from Harvard Business School. In addition to founding the investment bank that bore his name, Donaldson's wide-ranging experience includes serving as undersecretary of state under Henry Kissinger from 1973 to 1975; co-founding Yale's Graduate School of Management in the late 1970s; and serving as chairman and chief executive officer of the New York Stock Exchange from 1990 until 1995.
http://www.cfo.com/article.cfm/4033075?f=related

[FaGal]

William H. Donaldson Speaks His Mind On Staving Off Future Crises
2005-05-12 08:00:00.0 CDT




I am a firm believer in the unique role of private foundations in the life of our country, having served as a trustee and chairman of several. In that capacity I’ve witnessed firsthand the ability of a foundation to augment its work with a thoughtfully administered investment program.

Before I proceed, our ethics rules require that I tell you that the views I express here are my own and do not necessarily represent those of the Commission or its staff.

I. Addressing the corporate and mutual fund crises
I’d like to touch first on some of what the Commission has done to address the corporate and mutual fund scandals of the past few years, and the erosion of confidence in our capital markets that followed. I speak from the perspective of having worked in these markets for a substantial part of my professional life. This experience has shown me that a culture of well-regulated markets and well-governed corporations can reduce the cost of capital for corporations and provide a more stable platform for long-term investment and economic growth.

But these benefits are compromised if markets are dysfunctional or corporate governance breaks down. As we all know, the ebullient markets of the 1990s eventually came to an end, followed by revelations of widespread malfeasance at a number of leading companies and a recognition that ethical standards had eroded throughout the business sector. It was a period similar to that following the stock market crash in 1929, though in the more recent era a much higher number of investors and percentage of households were directly touched. This combination of corporate corruption and widespread public participation in the equity markets laid the groundwork for a crisis in investor confidence, the likes of which I have not seen in my career. It led to Congress’s decision to adopt the sweeping reforms contained in the Sarbanes-Oxley Act of 2002.

A. The Sarbanes-Oxley reforms
Following the guideposts laid down in the Sarbanes-Oxley Act, the Commission set itself on an active course to calm investor fears and to begin the delicate work of restoring investor confidence. In the summer of 2002, the Commission launched its most active period of rulemaking since it was founded in 1934.

By mid-2003 we completed – under extremely tight mandated deadlines – the extensive rulemaking required by the Sarbanes-Oxley Act. Critically important has been nurturing the growth of the Public Company Accounting Oversight Board, which was created by the new law to restore integrity to the auditing and accounting profession.

Another key piece of this reform effort was the adoption of rules by the Commission and the PCAOB requiring that management report on the effectiveness of their system of internal controls, and that the auditor attest to management’s report. These rules, required by section 404 of Sarbanes-Oxley, have, I believe, the greatest long-term potential to improve the quality and usefulness of corporate reporting of any of this era’s corporate reforms.

At the same time, implementation of these requirements for the first time in connection with the 2004 annual reporting cycle resulted in significant costs. Some of this may be attributable to one-time start-up expenses as many companies, for the first time, rigorously and systematically documented and tested their key internal controls. However, we are also aware that some costs may have been due to excessive or duplicative effort by management and auditors. This may have been driven by a lack of a clear risk-based focus by participants in the process. We believe the implementation of the section 404 rules needs to be improved going forward. After extensive consultation at our recent roundtable, we intend to issue guidance that will address ways for making the process more efficient and effective. As I have said on other occasions, section 404 is too important not to get right.

B. The mutual fund reforms
As the Sarbanes-Oxley rulemaking was being completed in the fall of 2003, we began to learn of widespread abuses in the mutual fund industry, the eight-trillion dollar home to the investments of millions of investors. The willingness of some within the industry to condone unethical practices and to engage in outright illegal behavior came as a shock to investors and regulators. It was apparent that the hard work of trying to restore investor confidence was not yet completed. Our ambitious program of regulatory reform and complex enforcement actions continued well into the next year and, indeed, continues today.

In addition to the unprecedented level of enforcement activity targeted at mutual fund advisers, as of today the Commission has approved 10 major new mutual fund reform initiatives. Taken together these initiatives seek to strengthen the governance structure of mutual funds, address conflicts of interest, enhance disclosure and transparency, and foster an atmosphere of high ethical standards and compliance.

The centerpiece of the Commission’s efforts is the rule that requires funds relying on certain exemptive provisions to have an independent chairman and 75 percent independent board members. By addressing the basic conflict of interest between the financial interests of mutual fund shareholders and the financial interests of their fund’s management company, our new rule amendments create a structure that I believe will facilitate implementation of both the letter and the spirit of our reforms.

To further reduce the incidence of ethical breakdowns at mutual funds, the Commission approved a rule that requires compliance policies and procedures, as well as a chief compliance officer. To help foster an ethical, compliance-oriented atmosphere, we have required that all registered investment advisers adopt a code of ethics. The code of ethics must set forth standards of conduct for advisory personnel and address conflicts such as those that arise from personal trading.

I do believe that our rulemaking and enforcement actions, coupled with the critically important Sarbanes-Oxley Act, have begun to correct many of the abuses that characterized our financial markets in the late 90’s and early years of this decade.

II. Staving off future crises
But before one gets the idea that our work at the Commission over the last few years has been completely reactive in nature, let me talk about a change in emphasis that we have tried to bring to the Commission, and give you a few examples of this approach in action.

I believe in the positive impact of identifying potential problem areas and dealing with them before they erupt into full-blown crises. The importance of this kind of forward-looking approach is underlined by the nation’s experience with both the scandals that preceded the Sarbanes-Oxley reforms and the scandals that led us to institute the mutual fund reforms. In both cases, an ounce of prevention might have been worth a pound of cure. Yet I can only imagine the indignation and outrage in some quarters that such an ounce of prevention might have precipitated.

There is a certain mindset that holds that significant regulatory action is appropriate only in retrospect, or only after things have gotten so bad that the risk of investor harm threatens to become a certainty. We have sought to launch the Commission on a different course, an approach that anticipates problems before they develop, and deals with areas of concern that have perhaps lingered untended for many years with their pernicious consequences long unnoticed by the public at large.

A pair of recent rulemakings exemplifies this forward-looking approach: our hedge fund adviser registration requirement, which we adopted last December, and our market structure reforms, which we adopted a few weeks ago in April. The controversy generated by these reforms both within and without the Commission also illustrates the practical difficulties faced by the Commission when it seeks to take action that is anticipatory in nature, as well as reactive.

A. Hedge fund adviser registration
The hedge fund adviser rule may be of particular interest to you given your own investment portfolios. As you are well aware, there has been explosive growth over the last few years in the hedge fund industry – in terms of the number of funds, investors, and investment managers participating in the industry, as well as the assets under management. From what we can tell, the number of hedge funds has increased at least five-fold over the last 10 years, and the dollar amount invested in hedge funds is approaching the $1 trillion mark – up fifteen-fold in the last 10 years.

Against the backdrop of this growth, we witnessed the broadening of the investor base from institutions such as pension funds, endowments, and, of course, charitable foundations, to include relatively small investors investing through funds of hedge funds. At the same time, there has been an increased number of enforcement actions involving hedge funds, and it was difficult to deter this fraud – or to discover it – without a compliance regime and a program of examinations and inspections by our staff.

To address this concern and others, the measure we adopted requires certain hedge-fund managers to register with the Commission under the Investment Advisers Act. This is far from the Draconian measure some have portrayed it to be. It will simply permit the Commission to collect important information about the operations of hedge fund advisers; allow us to conduct examinations; require hedge fund managers to adopt basic compliance controls; improve disclosures made to investors, particularly with respect to portfolio valuation; and prevent felons or individuals with serious disciplinary records from managing hedge funds.

Some critics have said that to bring hedge fund managers under the Advisers Act will create a false sense of security – a kind of good housekeeping seal of approval. But from our long history with mutual funds, it should be clear that our oversight of investment companies and investment advisers is not meant to endorse the merits of a particular fund management style. In fact, Congress anticipated this concern and explicitly prohibited registered advisers from making any representation that we have recommended or approved them.

Instead, registration will help the Commission to better understand the impact that hedge fund advisers have on the interests of individual, institutional and professional investors, while also enhancing our ability to address those instances of fraud that are probably inevitable in a market this large. Given the size of the market and its growth rates, I believe we would have been remiss had we failed to take action on this front. Every week seems to bring another article in the press about the crowding of hedge funds into similar investment strategies and the difficulty that this implies for hedge fund managers eager to post market-beating returns. If history is any guide, it is just this sort of pressure that can lead otherwise well-intentioned professionals to pursue practices that can ultimately result in disaster for the investors that they serve. While I do not believe that our registration initiative will prevent all scandals from occurring in the future, I am hopeful that it will provide a much-needed ounce of prevention by helping to foster a culture of compliance among these heretofore unregulated or lightly regulated investment professionals.

B. Market structure reforms
I’ll turn briefly to the market structure reforms that we adopted early last month. Regulation NMS is an integrated set of reforms that will modernize the regulatory structure of the U.S. equity markets. Many of the issues settled by Regulation NMS had lingered for years and had caused serious discord among market participants. Few opposed the notion that the existing structure of the national market system was outdated in many respects and needed to be modernized. Although these issues had been studied and debated and evaluated from nearly every conceivable angle, the Commission still faced considerable pressure not to act in the absence of a headline-grabbing crisis.

After a long and exceptionally open period of public comment on the rulemaking process, the Commission finally decided to move forward and make decisions on final rules so that the U.S. equity markets could continue to meet the needs of investors and public companies. Although the substance of the final rules was not welcomed with open arms by all market participants – nor could it have been – I believe there was a great deal of consensus that the Commission needed to act with a degree of certainty and finality so that market participants could make strategic plans with the firm knowledge of how their regulatory landscape would be structured.

While I don’t think that the groundbreaking transactions announced by the four major equity marketplaces two weeks after the adoption of Regulation NMS were caused by the specific action that we took, I do believe that their ability to come to terms was facilitated by a clear understanding of what the rules of the road were going to look like. I imagine that their negotiations would have been considerably tougher had they been dealing with a Commission that announced that after more than five years of studying equity market structure in all of its complexity, it still hadn’t been able to make up its mind.

C. Other proactive initiatives
Let me give you a few more illustrations of what the Commission is doing to be more proactive and to anticipate incipient problems before they become major crises. While these activities may not have generated the same level of coverage as the controversies surrounding our hedge fund adviser and market structure initiatives, each of them is an important and worthy effort by the Commission and its staff to get out in front of developing issues – to look over the hills and around the corners.

Increased professional staff
On the structural side, since December 2002 we have hired more than one thousand new professionals – accountants, lawyers and economists. As we bring in new people, we are trying to improve communication across the lines of our operating divisions and offices to protect against the natural organizational tendency towards a “silo” mentality.

Office of Risk Assessment
We established our Office of Risk Assessment. This office brings together professionals experienced in seeking out potential areas of concern, and will equip the Commission to better anticipate, find and mitigate areas of risk, fraud and malfeasance.

Conflicts Review Project
Our Enforcement Division has embraced the effort to help identify and solve problems proactively, instead of deferring action until after harm has occurred. Working with other parts of the agency, it has spearheaded a broad-ranging Conflicts Review Project. Securities industry firms have voluntarily conducted comprehensive reviews of the conflicts of interest they encounter in their business. A number of large firms have met with Commission staff to discuss the results of their reviews. The staff has worked to make these sessions a dialogue, and the meetings have also provided a forum for the firms to identify industry-wide conflict issues and potential solutions. Efforts like the Conflicts Review Project could be a catalyst for the industry to address conflicts on its own, in advance of a scandal, and make future regulation unnecessary.

III. Initiatives on the near horizon
Let me give you a preview of what you might expect from us in the coming months.

Soft dollars
We are examining the conflicts that can arise from the use of soft dollars by money managers, a topic that you and your colleagues may have a direct interest in. Improved disclosure practices may be the best prescription here, and we are looking at ways to make sure that fiduciaries better inform their investor clients about their use of client brokerage, because we believe that clients should have a better understanding of who benefits from the deployment of this important portfolio asset. I am a firm believer in the value of independent research, and in taking any action on the subject of soft dollars we will endeavor to promote a level playing field between independent research and proprietary research.

Securities Act reform

I also expect that we will finalize a number of important reforms to the offering process under the Securities Act of 1933. These reforms have many components, but of particular interest to investors is that the reforms seek to modernize and liberalize our existing regulations on communications, with the goal of allowing more information to be disseminated to investors during the offering process.

Mutual fund disclosure review
Turning back to mutual funds, I have asked the staff to carry out a top-to-bottom review of the entire mutual fund disclosure regime and how we can maximize its effectiveness on behalf of fund investors. Few would disagree that many mutual fund disclosure documents are too long and complicated. Investors need disclosure that is clear, understandable, and in a usable format. Investors also need information that is timely. We need to examine ways to make better use of technology, including the Internet, in our disclosure regime.

The Commission is currently considering a proposal that would require certain critical disclosures to be made to investors at the point of sale – exactly when the investor is being asked to make an investment decision. I believe that this particular initiative, though modest in scale, could ultimately presage a profound evolution in our overall approach to disclosure.

Executive compensation
Finally, I expect that the Commission will consider improvements to the disclosure regime that applies to executive compensation. While I do not believe that the Commission could or should act to limit executive compensation, I would like to see greater disclosure of pay packages – with not only the total amount of compensation provided, but a clearer explanation of each element of the package, including benefits that may not be easily quantified but which the CEO clearly cares about. The Commission is continuing to evaluate the disclosure required under our existing rules, while our staff is looking at ways to modernize these rules.

IV. Conclusion
I’ve spoken of the Commission’s ongoing work to address the root causes of the corporate and mutual fund scandals of the last few years, and the erosion of investor confidence that followed. Non-profit organizations have also found themselves under scrutiny in recent years. The IRS is exploring compensation levels at some non-profits, and has increased funding for examinations devoted to tax-exempt entities. In Congress, Senator Grassley has been leading an effort to improve public disclosure by tax-exempt organizations.

While I don’t believe that non-profits should anticipate a regulatory response of the magnitude experienced by public companies, corporate governance is a topic that continues to be on the minds of policymakers. I do believe that there is an opportunity for non-profit organizations to learn from the governance failures at some of the country’s largest corporations, and it seems to me that your foundations have a leadership role to play in setting the standard for non-profit governance.

There’s another public dialogue in which you, as the financial officers of the country’s largest foundations, should be able to play a constructive role. As you are no doubt aware, there is a feeling voiced in some quarters that the reforms of the last few years have been too fast and furious, and that the “pendulum has swung too far.” These concerns don’t seem to have been voiced by investors, but they are an influential part of the policy debate.

I believe that it is important for investors to have a voice in this dialogue, and I think we’d be better for it if investors such as yourselves made your voices heard. As financial officers of America’s largest foundations, I hope you will use your influence and authority to demand that markets and intermediaries live up to the spirit of our reforms, and not just the letter of the law. For while we’ve seen real progress over the last couple of years, every generation seems to learn anew that the price of well-functioning markets and honest intermediaries is eternal vigilance.

http://www.s-ox.com/News/detail.cfm?ArticleID=844

[FaGal]

Cox was defendant in suit led by Aguirre
www.signonsandiego.com - By Dean Calbreath - UNION-TRIBUNE STAFF WRITER - June 3, 2005


Rep. Christopher Cox, President Bush's choice to head the Securities and Exchange Commission, has firsthand experience with securities lawsuits, having been named a defendant in 1995 in an Orange County investment scam.

Although Cox was dropped from the case, he said the experience confirmed his belief in the need to severely limit shareholder lawsuits.

But San Diego City Attorney Michael Aguirre – who filed the case against Cox when Aguirre was in private practice – said Cox's onetime role as an attorney for Orange County's First Pension Corp. raises questions about whether he's the right person to head the SEC.

"Three of Cox's clients went to prison regarding the matters he was advising them on," Aguirre said. "There are a lot of questions that need to be asked of Mr. Cox about his actions in the First Pension case. A careful examination of the record should be made."

Officials in Cox's office were asked about the case but declined to comment.

The First Pension case dates to the mid-1980s, when Cox was an attorney working in the Irvine office of the Latham & Watkins law firm. As part of his duties, he prepared legal papers and conducted other work for First Pension Corp. in Irvine.

Apparently unbeknown to Cox, First Pension was running a large pyramid scheme, selling investments in fictitious properties and then using money from new investors to pay back old investors.

When First Pension collapsed in 1994, its founder, William Cooper, was sentenced to 10 years in jail and ordered to repay investors $73 million. Two other First Pension executives, Valerie Jensen and Robert Lindley, also received prison terms.

Aguirre filed a class-action lawsuit against First Pension, hoping to recoup money for 350 mostly elderly investors. Aguirre also sued First Pension's accounting firm, Coopers & Lybrand, and legal firm, Latham & Watkins, as well as Cox, for allegedly concealing information from investors.

Cox has long maintained that his activities for First Pension were legal and that he was not aware of the company's fraud.

"First Pension concealed the fraud," he said at the time, adding that the allegations that he was involved were "defamatory and false."

After three years of litigation, Aguirre dropped Cox from the suit, although he says he used Cox's papers in his case against Latham & Watkins, which later settled out of court.

The suit was filed just after Cox had authored the Private Securities Litigation Reform Act of 1995, which among other things limited the ability of shareholders to sue accountants and lawyers who unwittingly work for fraudulent schemes.

"This type of case has everything to do with the need for my legislation," he said at the time.

But Aguirre insisted there was nothing frivolous about the First Pension case.

"This case resulted in a major finding of fraud by Coopers & Lybrand and a settlement by Cox's own law firm," he said. "If he thinks this is the type of case that shouldn't be brought to the courts, that means he doesn't want to see cases brought that actually have merit."