New tilt at the SEC

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The departure on Tuesday of Roel Campos, the senior Democratic member of the US Securities and Exchange Commission, could spell trouble for some but be good news for others. Activist investors have lost an ally but companies trying to settle stock options backdating cases may see reason for cheer.

Mr Campos, a commissioner since 2002, advocated proxy reform that would make it easier for shareholders to nominate board directors. A former federal prosecutor and the first Hispanic to sit on the body, he favoured large financial penalties for companies accused of accounting fraud and other violations.

The SEC has been divided on both issues. Two Republican members have argued that big fines for corporate wrongdoers punished their current investors unfairly. Mr Campos and the other Democratic commissioner countered that such penalties helped deter others and noted that settlements were mostly distributed to those shareholders who had suffered from the violation. That left Christopher Cox, the consensus- seeking chairman, struggling to find a middle ground. He delayed consideration of stock options cases for months while searching for a valuation formula that would satisfy both sides. On the proxy issue, Mr Cox cast preliminary votes for both the Democratic proposal and a tighter plan favoured by the Republicans and industry groups. The SEC is due to make a final ruling this year.

By law, Mr Campos’ slot must go to a Democrat and Congressional leaders have not yet suggested potential candidates. Senate confirmation is also required and a nomination could get stalled as the 2008 presidential election approaches. In the meantime, the commission will continue to hear cases and consider regulatory changes with a reduced membership. Now that the other commissioners are divided 2-1, Mr Cox may find it easier to side with his fellow Republicans and stop trying to split the baby.

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