WASHINGTON — As a Republican congressman from Orange County, Christopher Cox put his energies behind a bill that raised the bar for shareholder lawsuits, earning him kudos from private industry and brickbats from investor advocates.
Now Cox is chairman of the Securities and Exchange Commission, and critics again fear he is pushing for restrictions on investors' ability to sue.
The SEC early this month filed a brief in a Supreme Court case arguing that a stricter standard should have been used to decide whether a manufacturer of fiber-optic equipment had knowingly broken the law. In addition, the SEC's chief accountant, Conrad Hewitt, has been urging that accounting firms be given some protections from liability when they fail to uncover fraud.
These developments have raised questions about whether Cox, a free-enterprise enthusiast who has long assailed "frivolous lawsuits," is using his SEC post to carry on the battle.
"This is an example of Cox using the SEC to fight for corporate America to the detriment of shareholders," said Chris Mather, a spokeswoman for the American Assn. for Justice, which represents trial lawyers. She compared Cox to "the fox guarding the henhouse."
In an interview last week, Cox said that the SEC merely had weighed in on a straightforward legal issue based on the 1995 law and that appropriate shareholder suits could be beneficial.
"Private litigation under SEC rules is an important complement to the commission's enforcement program," said Cox, who in public remarks often points to investors' need for protection. At the same time, he added, the SEC had an interest in preventing "abusive litigation" that harmed shareholders and companies.
Interest in the matter is stirred by Cox's personal link to the Public Securities Litigation Reform Act, a law ardently sought by Silicon Valley that was passed by Congress over the veto of then-President Clinton. The law made shareholder suits more difficult to pursue, increased disclosure requirements and strengthened the hand of judges to consider lawyers' conflicts of interest.
The SEC and the Justice Department submitted their brief in a Supreme Court case involving Tellabs Inc., an Illinois-based communications equipment maker. They argued that the 7th Circuit Court of Appeals in Chicago had set too easy a standard for shareholders to sue.
