Signs of cooling in the US securities regulatory environment have appeared recently. In the wake of William Donaldson’s resignation as Chairman of the US Securities and Exchange Commission at the beginning of this month, President Bush has nominated US House of Representatives member Christopher Cox, a legislator with a strong pro-business record, to succeed him.  And in the wake of the US Supreme Court’s ruling last month in the Arthur Andersen case, which has largely been viewed as a warning to US prosecutors and regulators to curb their overheated pursuit of professionals, New York State Attorney General Eliot Spitzer has lost an important case himself.  Finally, the US Circuit Court of Appeals for the District of Columbia has put the SEC’s plans to regulate mutual funds on ice, at least temporarily.  We look at each of these new developments in turn.

President Bush Appoints Cox

SEC Chairman William Donaldson will formally step down this week, on June 30.  President Bush has nominated US congressman Christopher Cox to succeed him.  Before entering elected office, Cox was a lawyer representing various business interests.  In his role as a US representative from California, the Republican Cox has regularly championed business interests and is known to favor lighter regulation of businesses.  We expect that he will review the SEC's position on many issues, including enforcement, and may very well work with his two Republican colleagues on the five-member Commission to develop more business-friendly policies.

Spitzer Runs into Trouble

At the same time that the SEC looks set to re-evaluate its policies, a prominent state prosecutor is also facing the prospect of being forced to cool his zealous state-law prosecutions of financial institutions, executives and others.  After a full trial, a jury recently acquitted a broker charged with improper trading by New York State Attorney General Eliot Spitzer.  Although Spitzer has prosecuted many financial institutions and individuals in the financial and insurance industries, he has generally reached settlements before trial.  The failure to achieve a conviction in this matter may encourage others to take their cases to trial rather than settle, and prosecutors may have an increasingly difficult time obtaining convictions in cases that push at the edges of existing law.

SEC Rulemaking Meets Defeat

Finally, a federal appellate court has thrown some cold water on the SEC’s recent rulemaking efforts.  A three-judge panel of the United States Court of Appeals for the District of Columbia Circuit ruled that when the SEC adopted certain of its hotly debated new requirements for the corporate governance of mutual funds in the US, it failed to take adequately into account the costs of its proposals or an alternative proposal proposed by two dissenting members of the Commission.  The court ordered the SEC to reconsider those issues.  It is unclear whether the ruling will result in any changes to the new mutual fund rules, but it does suggest that the courts in the US may be applying increased scrutiny to attempts by the SEC to tighten its rules.

Signs continue to point to a more hospitable environment for issuers of securities registered in the United States.  As cooling sets in on the US regulatory front, the US capital markets may become increasingly attractive for non-US issuers.

We would be pleased to speak with you if you have any questions about US capital markets matters, or if we can be of any other assistance to you.