Risk & Compliance

Frank Question: Is the SEC Going Soft?

Barney Frank, chairman of the House Financial Services Committee, schedules a June hearing to ask SEC chairman Christopher Cox and the rest of the ...
Sarah JohnsonMay 10, 2007

Facing growing criticism from their congressional overseer, the Securities and Exchange Commission commissioners may have to defend their policies during a Financial Services Committee hearing in late June.

Since he took over the chairmanship of the committee, Rep. Barney Frank (D-Mass.) has been vocal about his concerns that the SEC may be siding too often with companies rather than investors as it sets policies and practices. Frank’s office has invited SEC chairman Christopher Cox and the other four commissioners for a hearing to talk in particular about the SEC’s policy regarding shareholder lawsuits, as well as general oversight issues, staffing, and budgeting, Steven Adamske, the congressman’s spokesman told CFO.com.

SEC spokesman John Nester said the SEC has not received a formal request from the committee.

In April, Frank sent a letter to Cox, worried about news that the regulator was planning to allow companies to make shareholders sign mandatory arbitration agreements, which, he said, would hamper shareholder rights. Prohibiting shareholder litigation “would allow a company to insulate itself from litigation from its shareholders, even when it has engaged in fraud, by making it uneconomic for most individual shareholders to bring suit,” he wrote.

Frank sent the letter one week after The Wall Street Journal said the commission was in the early stages of considering a policy of allowing mandatory arbitration requirements. The article implied that if adopted, the measure would shift more power from shareholders onto corporate management. However, Nester told CFO.com, “there is no plan under consideration nor will there be one under consideration.”

If there were to be such a proposal, Frank made it clear in his April 25 letter that he wants his committee and Congress to review it. He similarly reinforced his committee’s involvement in the SEC’s business soon after taking over as chairman of the Financial Services Committee in January. He was irritated that the SEC had amended its executive compensation rules late on Christmas Eve without giving him the head’s up about the change, he told CFO.com at the time. He said that the commission failed to grasp “how greatly they have pissed off America over stock options.” Since then, Frank has shown he does not think the compensation disclosure rules were effective enough; he quickly pushed his “say on pay” bill through the House, despite criticism from Republicans that Congress should wait until the SEC’s rules had been given a chance to work. His bill would give shareholders a nonbinding, advisory vote on executives’ pay packages.