Thursday - June 28, 2007     - Who's Guarding The Investors' Hen House?

                   New SEC Chairman Cox and Investor Protection

             The issue of a toothless, for show only,  Securities and Exchange Commission will
      not go away.  On the one hand, Wall Street's crooks are always busy finding new ways
     to rig stocks and fleece investors.  On the other hand, the SEC is charged with protecting 
     investors and keeping the playing field fair.  But it's an uneven battle.  Those on the inside have all
     the advantages, especially if the SEC is understaffed and lacks the will and muscle to
     protect investors.  I have focused www.tigersoftware.com on this imbalance. I always
     come back to the notion that investors have to look affter their own interests. And one of
     the very best is to use Tiger Software's Accumulation Index and also Joe Granville's OBV
     Line.  Let the market tell its own story.  We can usually spot insider selling, long before it is reported.

             I read with interest how the new SEC Chairman's style and priorities are becoming
      clear after being appointed a year ago.  When his appointment was announced, the LA Times
      ran an article by Michael Hiltzik on June 9, 2005 with the headline                          

           Cox's Past Ties to Con Man Raise Questions

              "In the halls of Congress, Rep. Christopher Cox (R-Newport Beach), who has just been
       nominated to be the nation's top securities regulator, stands out for his intelligence.

              "When it comes to the work he performed as a lawyer for one of the state's most notorious
      con men, however, he pleads ignorance.  Apparently he was unaware that William E. Cooper
      was a crook or that his company, First Pension Corp., was a fraud. In 1985, when Cox assured
      state securities regulators that a new Cooper investment scheme would be "low risk" and an absolute
      boon to small investors trying to save for retirement, he was apparently unaware that the scheme
     was really designed to hide the losses already incurred by Cooper's investors and to keep the scam
     alive. In 1991, when Cooper hosted a fundraiser for Cox at his Villa Park home, Cox thought of him
     as merely "an upstanding member of the community.
            "A few years after that, the fraud finally exposed, Cooper and two partners went to jail.  And now,
     Cox has been nominated by President Bush as chairman of the Securities and Exchange Commission."

                Back in 1995, as a Congressman, Christopher Cox had authored a bill which became the
     Private Securities Litigation Reform Act of 1995. This changed the long-standing Securities Exchange Act
     of 1934.  It required a plaintiff to identify in his complaint  each Insider statement which is alleged to have
     been misleading.  Seems reasonable.
            Most important, Cox's legislation required the shareholder-plaintiff to prove that the Insider knew
     the challenged statement was false at the time.  This is important because shareholders often do not
     have access to proof of what the state of mind was of the Insider.  Again quoting from wikopedia.com, 
     "This requirement allows defendants to obtain dismissal of cases where the plaintiff merely points to a
     false statement and declares that the defendant "must have known"  that the statement was false,
     based upon his position within the company. This requirement has frequently proven difficult for plaintiffs
     to overcome because, without the benefit of discovery, plaintiffs often do not have access to witnesses or
     documents that might prove the defendant's state of mind in making the false statement."  Critics called
     this piece of legislation, the "Ken Lay Protection Act".
                                                Background:  The 1934 Securities legislation:
                                            (quoting now from wikepdia.com) "gives shareholders the right to bring a private action in
                                            federal court to recover damages the shareholder sustained as a result of securities fraud.
                                            To make a such case against an insider, the Supreme Court as ruled that the:
                                                      1.     The defendant made a "material misrepresentation or omission";
                                                      2.     The defendant intended to make the material misrepresentation/omission,
                                                            or acted with recklessness in making the misrepresentation/omission);
                                                     3.     The material misrepresentation/omission was made "in connection with the purchase or
                                                            sale of a security";
                                                     4.     The plaintiff who was allegedly victimized by the fraud relied upon the material
                                                            misrepresentation/omission.   
                                                     5.    The plaintiff suffered an economic loss as a result of the alleged fraud; and
                                                     6.    The plaintiff can allege and prove "loss causation," which means that the allegedly
                                               fraudulent misrepresentation or omission caused the plaintiff's economic loss.
                                                See Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005).

               Yesterday, CNN reported that the new SEC Chairman had appeared before the House of
         Representative's Financial Services Committee, chaired by Massachusetts Barney Frank 
             To the surprise of his critics, the hearing was not heated
         or contentious.  But what did emerge was that the SEC had voted to support investors in a
         Supreme Court case that could determine liability for Enron's "secondary actors," but after
         talking to President Bush, Cox discouraged the SEC and the Solicitor General from acting
         as a "friend of the court" (amicus curiae) and siding with the investors.  President Bush stated
         it would be better for business and the economy if the SEC regulated insiders, rather than
         letting independent lawyers do it through investors' law suits.
         (http://www.cfo.com/article.cfm/9333431?f=related&x=1 ) 

                 The SEC has sued " secondary actors for  helping Enron to misrepresent its financial health
          before its collapse in 2001.    As of February, 2007, the SEC has collected $440 million from
          settlements and enforcement actions against individuals and business partners (including some
          banks) that it accused of participating in Enron's fraudulent activities. The SEC has not yet
         announced a distribution plan for the funds!. (Sarah Johnson, www.cfo.com - June 13, 2007).
         See http://www.washingtonpost.com/wp-dyn/content/article/2007/06/13/AR2007061302124.html