(The news featured below is a selection from the news covered in Federal Securities Law Reporter, which is distributed to subscribers of Federal Securities Law Reporter.)

SEC Chairman Addresses Annual "SEC Speaks" Conference

SEC Chairman Christopher Cox delivered the opening remarks at the Practising Law Institute's "SEC Speaks" conference in Washington, DC. Cox reviewed the initiatives the SEC has undertaken in his 80 weeks as chairman, including the most comprehensive overhaul of the executive compensation rules in a decade. That initiative could not have been more timely, he said, given that the stock option backdating scandal was just coming to light.

Chairman Cox said the SEC's investigations into backdating practices illustrate the value of interactive data. The Forms 4 on which executives report their stock option exercises were filed on paper prior to 2003. Once the SEC began receiving the Forms 4 in an interactive data format, the information became much easier to analyze. He added that the SEC began to tag the data from the archival Forms 4 using the XML format. The SEC also adopted rules that accelerated the filing of the forms to within two days of the option grants. The result of these initiatives was the discovery of billions of dollars of backdated stock option awards.

Chairman Cox also talked about the technological improvements underway at the SEC in addition to the interactive data initiative, including a new system to track and distribute penalties and disgorgements and a new system to ensure that the SEC continues to operate if a disaster strikes.

Mr. Cox also reviewed the Commission's enforcement process. He said the SEC's "Wells" process, which provides an opportunity to present a counter-argument to a potential enforcement action, is one of the most striking models of fairness that exists in the federal system. The chairman outlined a number of cases the SEC has brought in the past year ranging from hedge fund frauds and insider trading to account intrusion schemes. During his 80-week tenure at the SEC, Mr. Cox said that over a billion dollars has been distributed to injured investors.

In the last year, the chairman reported that the Enforcement Division filed 37 emergency actions to stop fraudulent activity, sought 46 emergency asset freezes and 97 officer and director bars. The division halted trading in the securities of 71 issuers for the lack of adequate public disclosure. Chairman Cox said it is a daunting task for the SEC's enforcement officials to police the enormous capital markets, especially as the connections with global markets continues to grow. He thanked the staff for its efforts in protecting the integrity of the markets while encouraging capital formation and economic growth.

Developments in Market Regulation

The Division of Market Regulation expects to recommend the adoption of final rules this spring on proposals to prevent short sales during the period before pricing and then purchasing the security in the offering, and amendments to Regulation SHO. The staff expects to update its responses to frequently asked questions about Regulation NMS in the next couple of weeks. The staff also hopes to move quickly on its bank broker-dealer rules, which could be finalized by summer.

Atkins Remarks

Commissioner Paul Atkins spoke about court decisions overturning the SEC's mutual fund governance rules and its hedge fund adviser registration rules, and Congressional action to prompt the SEC to adopt rules for credit rating agencies and bank broker-dealer activities. Mr. Atkins observed that Chairman Cox has taken the two judicial reprimands as an opportunity to conduct a top-to-bottom review of the SEC's process for assessing the economic impact of its rulemaking.

Commissioner Atkins also mentioned a case in which the SEC was admonished in a Regulation FD case and one in which an insider trading case was dismissed for lack of evidence. He does not believe these cases suggest a systemic problem, but said they should be viewed as a lesson when deciding which cases are strong enough to take to trial.

The SEC must remain focused on the due process rights of those it investigates, according to Mr. Atkins. The SEC's ethics rules remind the staff that the power to investigate carries with it the power to defame and destroy, he said. He addressed the contentious issue of requests for waivers of attorney-client privilege. While the Department of Justice has received the most attention, the SEC has also been criticized.

It is easy to understand why government investigators want respondents to waive, he said. However, Mr. Atkins said that any demand for waivers by SEC examiners of broker-dealers or investment advisers is done without the direct supervision of the Commission. Atkins said he would take a very critical view of such requests and would question their appropriateness.

Commissioner Atkins advised that the president of the American Bar Association has asked the SEC to reconsider its policies and procedures regarding waivers. In particular, the ABA asked the SEC to revise its Seaboard report which outlines the factors the SEC will consider when deciding whether to grant credit for cooperation. The Seaboard report includes a footnote relating to waivers, which has become the back door through which credit has been given for waivers, according to Atkins. He does not view the waiver as a factor in obtaining credit, and said he would refuse to consider for credit purposes whether a respondent has waived the privilege.

The ABA has urged the SEC to delete the footnote from the factors in receiving credit. Mr. Atkins said the SEC will carefully consider the request. He also believes it is time for a review of all of the SEC's internal policies and procedures related to protected information. The SEC should consider whether to follow the example of the Department of Justice, he said, and must ensure that all waiver requests are subject to these policies and procedures.