The Case Against Chris Cox

By Nico Pitney and Christy Harvey and Judd Legum and Mipe Okensinde, The Progress Report. Posted June 3, 2005.

Meet Chris Cox, the man who helped produce the Enron scandal. Orange County Weekly reported that "Cox, as part of conservative Republicans' so-called Contract With America, spearheaded efforts to torpedo protections for corporate investors and shield companies -- like Enron -- and their accountants -- like Arthur Andersen -- from investor lawsuits." Cox's sustained effort to provide protections to corporate bad actors was successful; the nation's economy was not. Moreover, Cox pushed his securities reform bill through Congress at the same time he was a named defendant in two lawsuits for securities fraud. Cox's conduct raises serious questions about his ethical suitability for the job. For the last two-and-half years, outgoing SEC Chairman William Donaldson has worked to repair the damage Cox helped produce. But Cox remains committed to his ideological agenda, and, should he be confirmed, is ready to take the country back into the Enron era.

Cox's crusade to weaken investor protections

Cox claimed on the floor of the House on 3/7/95 that securities law was "a legal torture chamber ... more suitable to the pages of Charles Dickens' 'Bleak House' than a nation dedicated to equal justice under law." Cox's efforts to weaken protections for investors culminated in the Private Securities Litigation Reform Act of 1995, which provided extensive legal protection to corporate executives, accountants and lawyers who made misleading statements. The bill was enacted into law over President Clinton's veto "after heavy lobbying from Andersen [and] the rest of the accounting industry." Duke University Law Professor James Cox (no relation) called the law "the ultimate in special-interest legislation." Barbara Roper, director of investor protection at the Consumer Federation of America, said Chris Cox's law "made it not only possible but likely that something like Enron would occur."

How the Cox law protects corporate crooks

According to OC Weekly, "[i]ndependent legal analyses and securities lawyers agree" that Cox's bill "significantly raised the bar at several points in the litigation process, making it much harder for plaintiffs to bring lawsuits." Specifically, plaintiffs "would have to prove there was a 'strong inference' that the defendant acted with the required state of mind for fraud. Securities lawyers refer to this requirement as "'scienter' - a mental state embracing intent to deceive, manipulate or defraud." It's an extremely difficult standard to meet. When the standard was interpreted by the 7th Circuit Court of Appeals it "even forgave executives who said they forgot to disclose bad financial news to investors."

How the Cox law protects Kenneth Lay

Cox's law provided additional protections for executives who made inaccurate "forward looking statements" about the future of the company to investors. So when, 12 weeks before the company declared bankruptcy, former Enron CEO Ken Lay told a reporter from Business Week, "We think the company is on solid footing, and we're looking forward to continued strong growth," he was unlikely to face legal consequences.

Cox misrepresents the impact of law

Cox has blatantly misrepresented the impact of the law. For example, according to Cox, his law "requires a company and its officers to constantly update and correct any forward-looking statement once made." The official Congressional Research Service summary of the law, however, "[s]tates that there is no duty upon any person to update a forward-looking statement."

Cox was sued for alleged involvement in Ponzi Scheme

Cox's efforts to limit the ability of investors to sue for fraud was informed by his personal experience. Cox worked for the law firm of Latham & Watkins from 1978 to 1986 before leaving to join the White House counsel's office. On 9/17/94, the LA Times reported, Cox was sued for his work at Latham that involved him in a business scheme that robbed nearly 8,000 investors of approximately $136 million. The scheme cheated customers out of their retirement nest eggs by enticing them to invest in phony mortgages. High-level officers at First Pension Corporation, the company at issue, pled guilty to fraudulently diverting funds. The charge against Cox was that he helped write a deceptive plan to sell mutual fund shares. Cox claimed ignorance and said he was only distantly involved in the case, but information uncovered later revealed him to be more involved with the convicted dealer than he previously let on.

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