SEC Chairman William Donaldson, appointed by President George W. Bush to help restore confidence in scandal-ridden markets, announced his resignation today, effective June 30.
At the press conference on Wednesday, Donaldson recalled his appointment in February 2003 when “public confidence [in corporate America] was severely undermined,” and heaped praise on the Commission for a job well done. “This period may be remembered as the most consequential and productive period in the Commission’s history.”
Donaldson came in at a turbulent time in the SEC’s history. His predecessor, Harvey Pitt, was considered too friendly to the businesses he was appointed to monitor and was called the “Reluctant Reformer.” Indeed, Pitt’s conflicts of interest were perceived to be so big that he was pushed out as a result. Donaldson, who made his fortune on Wall Street, and was considered by some to be the wrong man to lead the SEC, turned out to be an energetic reformer who annoyed Wall Street veterans and surprised the conservatives who appointed him.
As a Republican appointed by Bush, he has also been criticized over his tenure for siding with Democratic Commission members Raol Campos and Harvey Goldschmid on a handful of key issues. Most recently he sided with the Democrats in a 3-to-2 decision approving Regulation NMS, the so-called trade-through rule that executes stock trades based on best prices no matter where the securities are traded. In general, old-school NYSE member firms opposed the rule; Charles Schwab said the rule would slow down, not speed up, the trades of millions of Americans.
Donaldson acknowledged the “three or four votes” he made on the side of Democrats in his press conference, but pointed out that 99 percent of the 3,000 or so decisions made by the Commission were unanimous and that heat for his voting record had nothing to do with his resignation. “I’ve tried to [leave the politics at the door] on each and every issue—if it’s in the public interest, the investor’s interest, that’s how I’ve always operated.”
For consumer advocate groups, his exit is a big letdown. For them, Donaldson’s efforts to wipe out conflicts of interest in mutual fund and brokerage relationships, and increase disclosure in business arrangements, was welcome. “Yes, it’s disappointing. He’s been a stronger advocate for investors than one would have expected from this Administration—we hoped he would stay for a long, long time,” says Barbara Roper, director of investor protection at the Consumer Federation of America, and vocal advocate of reforms in the financial services world.
Besides tightening regulation and oversight of the mutual fund industry, some of Donaldson’s accomplishments have included:
- overseeing the completion of the Sarbanes-Oxley Act;
- adoption of rules requiring hedge fund managers to register;
- obtained $3.3 billion in penalties and disgorgement in FY04 and $2 billion in FY03, the largest two annual totals in the agency’s history.
As for what happens now, some say his departure can’t result in anything positive for the Commission’s agenda in the near future. “Pitt lasted only 15 months, now this, this is a disaster in terms of regulatory consistency,” says Bill Singer, a securities lawyer with Gusrae Kaplan & Bruno in New York. “You might as well hang a sign on the SEC that says ‘Gone Fishing for the Summer’—nothing is going to get done until they elect someone to replace him.”