Risk & Compliance

Nazareth to Leave SEC

On the heels of her fellow Democrat commissioner's departure, Annette Nazareth's resignation leaves the commission politically lopsided.
Sarah JohnsonOctober 2, 2007

After nearly a decade of working at the Securities and Exchange Commission, commissioner Annette Nazareth is stepping down. She has not specified when she will leave the SEC but theoretically could stay in her current role until 2009.

Nazareth’s announcement on Tuesday has long been speculated. Her first term as commissioner ended in June, and commissioners can stay in their positions for up to 18 months after their terms end, depending on when a successor is named. Nazareth has told President Bush—who appointed her to the position two years ago—that she does not want to be reappointed. She plans to return the private sector. The SEC’s announcement did not specify where she is looking for her next job, and she did not respond to CFO.com’s request for comment.

Nazareth’s pending departure puts the makeup of the SEC’s five-commissioner roster in limbo. Just two months ago, Roel Campos, Nazareth’s fellow Democrat on the commission,announced he was leaving. He began working as a partner for Cooley Godward Kronish LLP last month. Considering that the five-person commission cannot have more than three members from the president’s party, President Bush will have to find two Democrats worthy of joining SEC chairman Christopher Cox and the other commissioners, Kathleen Casey and Paul Atkins, who are all Republicans.

The empty seats come at a critical time and serve as a test of Cox’s ability to toe the line between the political parties and the interests of businesses and investors. In particular, this test is evident in the SEC’s two opposing shareholders proposals, whose comment period ended Tuesday. When both proxy-access proposals came to a vote, the commissioners split along party lines—a rare occurrence during Cox’s reign. Campos, Nazareth, and Cox voted in favor of proposing that shareholders who own 5 percent of a company should be able to propose changes to that company’s bylaws regarding director nominations. But Cox also voted with his two fellow Republicans in favor of another seemingly contradictory proposal to allow companies to exclude such bylaw proposals. It was an issue that the outgoing Campos looked upon reluctantly. “I wish we could have brought that to a final vote while I was there,” he told CFO.com in late August.

Another issue that Nazareth may not see resolved before she leaves concerns whether the SEC forges ahead with the idea of allowing U.S. companies to use international financial reporting standards. When the commissioners unanimously agreed to publish a concept release raising many questions about such an allowance, Nazareth worried that the convergence project between the International Accounting Standards Board and the Financial Accounting Standards Board would be hindered. “I hope these actions will not halt or slow the convergence process,” she said at the time. “We need high-quality global accounting standards.”

Another recent topic before the SEC is the intense scrutiny from the Bush administration and Congress about its oversight role over the credit rating agencies, which the commission designates as nationally recognized statistical rating organizations, an area Nazareth dealt with when she was director of the SEC’s Division of Market Regulation. She held that position when some of the credit rating agencies came under fire for their laxity in updating their investment-grade ratings of Enron until shortly before its collapse. Last month, she said Congress’ reform act that resulted, giving the SEC broader oversight over the agencies, has not yet had time to prove its effectiveness. “It clarified our authority, but I don’t think it resulted in a sea change in the rating agencies’ practices in any way,” she said.

Nazareth can look over nearly 10 years of accomplishments during her SEC tenure. Indeed, she called her time at the commission as “the most rewarding of my career.” She has worked under four chairmen; in addition to Cox, she served with Arthur Levitt, Harvey Pitt, and William Donaldson.

The SEC listed her achievements as helping to modernize national market system rules, fighting for regulatory principles for investment bank holding companies, and helping to lead the SEC in the successful reopening of the securities exchanges following the September 11, 2001, terrorist attacks. In an unusually long statement from Cox on Nazareth’s tenure with the SEC, Cox praised her work in the Division of Market Regulation and for laying the groundwork in “dramatic changes that continue to take place in the evolution of our securities exchanges. It has been an honor and a privilege to serve with her on the commission—to which she added professionalism, collegiality, wise judgment, and an always-welcome sense of humor.”

Before joining the SEC staff in 1998 as Levitt’s special counsel, Nazareth worked at Smith Barney as deputy head of its capital markets legal group, and she served as counsel for Lehman Brothers and Mabon Securities Corp. She began her career at law firm Davis Polk & Wardwell, working with commercial banks, investment banks, and corporations on mergers and acquisitions, syndicated loans, and securities offerings.