Monday, February 18, 2008

Chairman Cox Details SEC's Sub-Prime Agenda for 2008

Chairman Christopher Cox outlined the SEC's top priorities in 2008 in an appearance at the Practising Law Institute's "SEC Speaks" conference in Washington DC. A large part of the Commission’s agenda will be to examine the role of market participants in the recent financial markets turmoil.

The full impact of the subprime mortgage crisis for the U.S. and global markets is not fully known, but Cox said the SEC has begun investigations into whether fraud or breaches of fiduciary duty were implicated with respect to collateralized debt obligations. The SEC will examine whether bank holding companies and securities firms properly disclosed information about their CDO portfolios and valuations.

Moreover, Cox said the staff will examine whether brokers adhered to the suitability requirements when they sold complex debt-related derivatives and whether insiders traded on nonpublic information to sell these securities.

The SEC chair also indicated that the role of the credit rating agencies will be examined. Currently, the European Commission is also looking into the role that rating agencies played in the valuation of complex securitized financial products.

The problems with the subprime market also raise significant accounting questions, he said, so the Office of the Chief Accountant plays a significant role as a member of the task force. The Division of Corporation Finance will focus on disclosure-related concerns.

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