Campos Resigns from the Securities and Exchange Commission

Moments ago, we received a trusty securities alert from Securities Mosaic announcing that Roel C. Campos was leaving the Commission.  The press release is here.  Campos was a steady vote on the side of shareholders.  He was apparently one of the three commissioners to support the Agency's decision to ask the Solicitor General to file a brief seeking reversal in Stoneridge (a request not ultimately approved) and was one of the three that supported the shareholder access proposals recently issued by the Commission (that would allow shareholders to include in the company's proxy statement bylaw proposals concerning the election of directors).  It makes his replacement crucial.

There should be little reason to worry, at least in the short term.  The SEC was created in 1934.  See Section 4 of the Exchange Act, 15 USC 78d.  Until then, securities enforcement had been left to the FTC.  The FTC had a reputation for rigorous enforcement and, ironically, at least one motivation for creating the SEC was to weaken this rigorous enforcement. 

As was the case with independent agencies created back in that era, the Exchange Act provided that "[n]ot more than three of such commissioners shall be members of the same political party".  15 USC 78d(a).  As a practical matter, this means that three of the positions will be help by people in the same party as the President (who appoints them) and two will be held by the minority party (although there have been instances in the past when the minority slots went to independents rather than members of the minority party). 

The SEC web site does not list political affiliation of the commissioners.  Nonetheless, three are Republicans:  Cox, Casey and Atkins.  Campos is a Democrat (as is Nazarath).  The President can, of course, meet the literal requirements of the statute by appointing any non-Republican to replace Campos, including a Democrat or Independent with views that resemble those held by Casey and Atkins. 

As a practical matter, however, this will not occur.  Any commissioner has to receive the advice and consent of the Senate.  They will, therefore, have to be cleared by the Senate Banking Committee, with Senator Dodd, as chair, the key figure.  If he does not approve the nominee, it won't get out of committee.  It was Senators Sarbanes and Daschle who played a key role in ensuring the appointment of Harvey Goldschmid, a Democrat on the Commission who served during this same administration (Senator Sarbanes actually conducted the interviews).  With respect to Commissioner Nazareth, it was apparently Senator Schumer who played a substantial role in the appointment.

Given the weakness of the current administration, the Democrats are, in fact, in a position to insist that the President nominate their candidate.  If the President does not, for example, the Committee and the entire Senate can hold up confirmation of other appointments to other agencies.

Ordinarily, this is a no brainer.  The President would accept and nominate the person designated by the Democrats.  After all, they will have at most only two seats on the Commission, with the President's party still retaining a majority.  But in this case, the stakes are substantially higher.  With Chairman Cox sometimes siding with the two Democrats on key issues, President Bush may want someone appointed with a voting record more closely resembling Casey and Atkins.  Senators Dodd and Reid, on the other hand, are unlikely to let this happen. 

What could happen here is a stand off.  No one is appointed and for the time being Casey and Atkins are able to stymie the Commission through tie votes.  But this strategy will all depend upon how much the President needs other appointments approved by the Senate.  Alternatively, it will work as a strategy until one of the Republican members steps down, with the Senate Banking Committee able to prevent any new appointment from being confirmed until the Campos position is filled.  

Stay tuned.