By On the occasion of our 20th anniversary
By Gustavo Arellano
By R. Scott Moxley
By Alfonso Delgado
By Courtney Hamilton
By Joel Beers
By Peter Maguire
By Charles Lam
There was bipartisan debate over Cox's conference report. Some believed he removed the Specter language to leave the door open for the U.S. Supreme Court to decide that recklessness is not sufficient in such cases. But Democratic Senators Chris Dodd (D-Connecticut) and Bill Bradley (D-New Jersey)—who received heavy backing from Wall Street—were among those who defended Cox's report, and before the year ended, Congress overrode Clinton's veto with a 319-100 vote.
Since that law made it harder for securities-fraud cases to be argued in federal court, those cases started migrating to the state courts, particularly in California. Silicon Valley noticed this trend and contacted their friends in Congress, Republicans and Democrats, who pushed the Securities Litigation Uniform Standards Act of 1998, which forced state courts to abide by Cox's '95 reforms.
This resurrected the debate over the recklessness issue, and when the bill got to the Senate, Specter once again inserted his amendment, something Clinton insisted on before signing the law.
That was not the end. When the law was printed by the government printing office, the final page—the one containing the Specter language—had mysteriously disappeared. It was put back in after Dingell caught the error.
More recently, in 2000, Cox and Representative Cal Dooley (D-Fresno) introduced a bill that would have delayed the implementation of accounting standards established by the Financial Accounting Standards Board (FASB) so investors could know the true cost of company mergers. Cox's bill brought a strong rebuke from FASB chairman Edmund L. Jenkins: "To delay the completion of the project on business combinations is clearly a political intrusion into the FASB's mission." That intrusion worked. The threat of Cox's bill spurred the FASB to relax its new standards.
If you still believe that Cox is a pro-business Republican, consider that the FASB is an industry—not government—board. One accounting expert accused him of acting on behalf of high-technology interests.
Cox told the Weekly he opposed the proposed FASB standards because they would have distorted the actual costs to a merged company. The purpose of his legislation, he said, was to incorporate accounting principles developed by the SEC and academics.
Once mentioned as a possible Bush nominee to chair the SEC (the job ultimately went to Harvey Pitt), Cox knows the investment game intimately. Before he was elected to Congress in 1988, he was a corporate lawyer for the failed Irvine securities firm First Pension Corp. First Pension's flashy founder, William E. Cooper, lavished the Cox campaign and Orange County Republican Party with hefty contributions.
First Pension collapsed in 1994 after stealing $136 million from 8,500 investors, many of whom were senior citizens who lost their life savings. As previously reported in the Weekly (R. Scott Moxley's "Chris Cross," Aug. 9, 1996), an investor suit accused Cox of knowing of the securities fraud and helping to conceal it. A judge later dismissed Cox from the case, saying there wasn't enough evidence to link him to the scheme.
These days, like many of his colleagues on Capitol Hill, Cox has reinvented himself. He has resurrected his longtime criticism of agencies that rate companies, saying they proved "essentially worthless" in the bankruptcies of both Enron and Orange County, and when Andersen's CEO recently appeared before the House's Capital Markets subcommittee, Cox grilled him over the giant accounting firm's alleged violations of the 1995 reform act.
But as Cox's Democratic House colleagues and the New York Times observed, corporate monkey business is not only something Cox tolerates, but also something he outright encourages. They point out that Cox's securities "reforms" from the '90s paved the way for the Enron/Arthur Andersen debacle. "It was the ultimate in special-interest legislation," Duke University law professor James Cox (no relation, obviously) recently told the San Francisco Chronicle.
"The '95 act protects a company's shareholders, employees and retirees who in the past have been victimized by strike suits," Cox told the Weekly. "It grants many new rights to plaintiffs that make good cases more rewarding and requires of complaints only that they not be of the 'word processor' variety—an abuse that hearings showed was all too common."
Ironically, Cox, who championed the measures to reduce frivolous lawsuits, now brags that his law has had the opposite effect.
"Since its enactment," he said, "the number of securities class-action suits has gone up, and the average settlement has doubled."
Cox also contradicted the independent legal analyses of his reforms, claiming that the law not only allows forecasts of a company's health to be used against companies, but it also "requires a company and its officers to constantly update and correct any forward-looking statement once made," something that further protects investors. He also disagreed with legal experts' assertions that the law stops evidence gathering while a motion to dismiss is being considered.
Indeed, Cox cast his reforms as a godsend for Enron's screwed employees and investors. One section of the law, he said, "is devoted to imposing elaborate new requirements on accountants that strongly anticipate the Enron situation. The failure of Andersen and Enron to observe it will provide another weapon in the plaintiffs' arsenal in the lawsuits and government enforcement actions now under way."