The Commissioners of the Securities and Exchange Commission (“SEC”) recently unveiled the issues that will be a priority for the agency during the upcoming year. SEC Chairman Christopher Cox announced at a speaking event and in his testimony before the U.S. Senate Committee on Banking, Housing and Urban Affairs that, among other issues, the agency will focus on participants in the subprime debt industry. Although recognizing that the SEC is not the lead regulator of the mortgage lending business, the Chairman acknowledged the impact these businesses have on investors, whom the SEC is tasked with protecting. Specifically, Chairman Cox outlined the following approaches and action items.

  • The formation of agency-wide and international task forces, including the International Organization of Securities Commissions’ Subprime Task Force and the Credit Rating Task Force, that will concentrate on the subprime lending industry and related players.
  • An emphasis on fraud and breach of fiduciary duty investigations of entities regarding their knowledge of the specifics of and their disclosures on the collateralized debt obligations (“CDOs”) held in their portfolios.
  • An attempt to flesh out when CDO-related liabilities, which can be entitled to off-balance sheet treatment, will be forced back onto a company’s balance sheet. Investigations of whether brokers closely followed suitability requirements in selling complex debt-related derivatives.
  • A continuing focus on insider trading that leveraged the downturn in the subprime debt industry.
  • Via the Consolidated Supervised Entity program, which monitors the largest investment banks, an assessment of the quality of risk controls and liquidity of both the regulated broker entity as well affiliated unregulated entities. These assessments will include evaluating the vigor of the bank’s internal risk management systems.
  • Rulemaking under the newly enacted Credit Rating Agency Act, including mandated disclosure of past ratings to allow an investor to compare past ratings and evaluate credit rating agencies against one another.

A copy of Chairman Cox’s speech and his recent testimony before the Senate are available on the SEC’s website and can be accessed through the following links: and