1 THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION 

 2 

 3 

 4 UNOFFICIAL TRANSCRIPT OF THE 

 5 ROUNDTABLE OF FORMER CHAIRMEN 

 6 

 7 

 8 

 9 Wednesday, May 23, 2007 

 10 

 11 5:05 p.m. 

 12 

 13 

 14 

 15 SEC Headquarters 

 16 Station Place Auditorium 

 17 100 F Street, N.E., L-002 

 18 Washington, D.C. 20549 

 19 

 20 

 21 

 22 

 23 

 24 Diversified Reporting Services, Inc. 

 25 (202) 467-9200
 1 PARTICIPANTS: 

 2 

 3 Christopher Cox, Chairman, Securities and Exchange 

 4 Commission, 2005 - present 

 5 

 6 William H. Donaldson, Chairman, Securities and Exchange 

 7 Commission, 2003 - 2005 

 8 

 9 Roderick M. Hills, Chairman, Securities and Exchange 

 10 Commission, 1975 - 1977 

 11 

 12 Arthur Levitt, Chairman, Securities and Exchange 

 13 Commission, 1993 - 2001 

 14 

 15 Harvey Pitt, Chairman, Securities and Exchange 

 16 Commission, 2001 - 2003 

 17 

 18 David S. Ruder, Chairman, Securities and Exchange 

 19 Commission, 1987 - 1989 

 20 

 21 

 22 

 23 

 24 

 25
 1 C O N T E N T S 

 2 PAGE 

 3 

 4 Opening Remarks 

 5 by Chairman Christopher Cox 4 

 6 

 7 Introduction of Chairman Roderick M. Hills 5 

 8 

 9 Introduction of Chairman David S. Ruder 5 

 10 

 11 Introduction of Chairman Arthur Levitt 6 

 12 

 13 Introduction of Chairman Harvey Pitt 6 

 14 

 15 Introduction of Chairman William H. Donaldson 7 

 16 

 17 

 18 

 19 

 20 

 21 

 22 

 23 

 24 

 25
 1 P R O C E E D I N G S 

 2 CHAIRMAN COX: Welcome to everybody here with us in 

 3 the Auditorium at Station Place and to those who are watching 

 4 by video around the country. This is the Second Annual Past 

 5 Chairman Roundtable. You have to have two before you can be 

 6 an annual event, and so officially, now this is one. And 

 7 since this is my Second Past Chairman Roundtable, I'm happy 

 8 to report that I'm not even a past chairman myself yet. 

 9 OPENING REMARKS 

 10 CHAIRMAN COX: Our December 2005 roundtable was 

 11 thoroughly enjoyed by everybody who participated, I know, and 

 12 I hope everybody who was able to join and watch those 

 13 proceedings. And it's been a valuable source, I think, for 

 14 staff throughout the agency; the insight from past chairmen 

 15 about not only the issues that they faced during their 

 16 tenures, but the continuity of these issues over time. This 

 17 agency is an institution that endures over a long period of 

 18 time. It is very much relevant to the issues we face today 

 19 and tomorrow. 

 20 The chairman has an office on loan, temporarily, 

 21 and each of us have been a participant in something that has 

 22 been moving down the stream with a great deal of 

 23 institutional integrity and force for a long period of time. 

 24 So I hope that these gatherings will become a long tradition 

 25 at the SEC and that we'll see many more in the future. Today
 1 we are privileged to have with us no fewer than five former 

 2 chairmen, and I'll introduce each one of them. 

 3 Rod Hills served as chairman of the SEC from 1975 

 4 to 1977, and under his leadership the SEC took the important 

 5 initiative to stop the corporate practice of making 

 6 inappropriate payments to foreign governments. He is founder 

 7 and chairman of the Hills Program on Governance at the Center 

 8 for Strategic and International Studies. He served as 

 9 counsel to the President and spent his career in both the 

 10 public and private sectors. He is founder and former 

 11 chairman of the U.S. Asian Business Council and he is a 

 12 trustee of the Committee on Economic Development and a 

 13 Professor at Harvard University School of Law and a 

 14 distinguished faculty fellow at the Yale University School of 

 15 Management. He has also been visiting lecturer at the 

 16 Stanford University School of Law, his alma mater. 

 17 David Ruder served as chairman of the SEC from 1987 

 18 to 1989. His time as chairman included the stock market 

 19 crash in 1987, a harrowing experience that summoned a grace 

 20 under pressure for which he will forever be known. He also 

 21 took charge of the Commission's enforcement action against 

 22 Drexel Burnham Lambert. He launched a penny stock fraud 

 23 program and moved the SEC in significant ways into the arena 

 24 of international enforcement where we increasingly find 

 25 ourselves today. As a former dean of the Northwestern
 1 University School of Law, he now supervises the university's 

 2 administration of the San Diego Securities Regulation 

 3 Institute, the Ray Garret, Jr. Corporate and Securities Law 

 4 Institute, and the Northwestern Corporate Counsel Institute. 

 5 He is also currently the chairman of the Mutual Fund 

 6 Director's Forum. 

 7 Arthur Levitt served as chairman of the SEC from 

 8 1993 to 2001 and has the distinction of being the 

 9 longest-serving chairman. Throughout his tenure, he worked 

 10 to empower and protect investors. Important policies during 

 11 his tenure included promoting the use of plain English, 

 12 improving the market for municipal securities and promoting 

 13 the education of investors, all priorities dear to my own 

 14 heart. He created the SEC's Office of Investor Investigation 

 15 and Assistance, conducted dozens of town meetings throughout 

 16 the country to interact with individual investors. Before 

 17 coming to the SEC, he served as chairman of the New York City 

 18 Economic Development Corporation and served for 11 years as 

 19 chairman of the American Stock Exchange. 

 20 Harvey Pitt served as chairman of the SEC from 2001 

 21 to 2003. His love of the law, especially securities law, is 

 22 evident in the ways in which he has devoted his time and 

 23 abundant energies. Before becoming chairman, he was engaged 

 24 in the private practice of securities law for more than a 

 25 quarter century. He was a founding trustee and the president
 1 of the SEC Historical Society, participated in numerous bar 

 2 and continuing legal education activities on securities law 

 3 issues and was an adjunct professor of law at Georgetown, 

 4 George Washington University and the University of 

 5 Pennsylvania. Prior to his private practice, he started in 

 6 1968 as a staff attorney in the SEC's Office of the General 

 7 Counsel and in a mere seven years, he became the general 

 8 counsel, a position in which he served for three years. 

 9 Bill Donaldson served as chairman of the SEC from 

 10 2003 to 2005. He arrived at the Commission with more than 

 11 45 years of experience working in business, government and 

 12 academia. He co-founded and served as Chairman and CEO of 

 13 the investment banking firm, Donaldson, Lufkin & Jenrette and 

 14 served as chairman and CEO of the New York Stock Exchange. 

 15 He co-founded the Yale University School of Management and 

 16 served as that school's first dean. His very government 

 17 service spanned five presidential administrations. Under his 

 18 strong leadership, the SEC made great strides to address the 

 19 fallout for the dot.com collapse and the accounting scandals. 

 20 And if for any reason you're not sure he's a tough advocate 

 21 for investors, let me remind you, he's a Marine. 

 22 Thanks to all of you for taking the time from your 

 23 exceptionally busy schedules to be here with us today. I am 

 24 looking forward to what I'm sure will be an interesting and 

 25 informative discussion and I wonder, just to kick things off,
 1 since we've just finished with your very, very generous 

 2 participation, an award ceremony that was very moving. I 

 3 wonder if any of you would like to share a story you have 

 4 about a particular staff member you worked with or say 

 5 something about the staff during your chairmanship. 

 6 MR. RUDER: I was fortunate enough to have Linda 

 7 Feinberg as my executive assistant, chief of staff, when I 

 8 was chairman. And she provided the eyes and ears throughout 

 9 the whole agency and kept me informed about whatever anybody 

 10 was thinking and there was a lot of thought going on and I 

 11 was every happy to have her eyes and ears to help me know 

 12 what was going on. 

 13 We had far fewer staff people in my office than 

 14 subsequent chairmen have had, but I found that that was 

 15 really essential to my administration. 

 16 MR. LEVITT: I had a wonderful group of counsels. 

 17 Everybody in my office were really fun-loving people who 

 18 understood my eccentricities. They knew that I loved e-Bay 

 19 and that I sold everything on e-bay; and, I think I told 

 20 Laurie that "Boy, you know I'm putting four ties up for sale 

 21 on e-Bay, can you believe that?" And I began to get messages 

 22 over the computer. Do those ties have spots? If you're 

 23 selling ties, might you have a brown pair of pants 

 24 without -- do you have a left shoe? All kinds of 

 25 crazy -- and then I sold the ties at $42 a tie. It was
 1 pretty good; and, the next day when one of the counsels came 

 2 in the office, something about him looked familiar. He's got 

 3 my tie. 

 4 And then next one came in. All four of them had 

 5 conspired and that really nailed home what a rigged market 

 6 was. 

 7 MR. HILLS: I have the great pleasure of having 

 8 Harvey Pitt and Sam Sporkin on our staff and that probably 

 9 tells it all. They got along pretty well. We had the first 

 10 economist, Harvey, may recall -- Chief Economist Dick Zecker, 

 11 and nobody really wanted to know what the hell he did with 

 12 economists. Harvey may not remember this, but one day he 

 13 came in and he said, "You know, we had Dick to a meeting and 

 14 he did all right. I want to thank you Harvey for letting 

 15 Dick join the SEC." 

 16 MR. DONALDSON: I'd like to memorialize several 

 17 people. Obviously, the counsel's and the chairman's office, 

 18 but one particular person: Peter Derby. And I don't know 

 19 how many of you remember Peter, but he was a very successful 

 20 businessman, entrepreneur in Russia. He started a bank in 

 21 Russia and built it over ten years, and exhibited true 

 22 entrepreneurial instincts if you will. And I asked Peter to 

 23 come here with really no background, except in Russian law 

 24 and Russian Securities regulation, of which there was none, 

 25 to come in and take a hard look at the way we were organized
 1 and how we could do things better. 

 2 And Peter had an amazing capability to think out of 

 3 the box, if you will. He was the main force behind the risk 

 4 control, risk mapping efforts that we made, which seemed 

 5 particularly appropriate. But what he really was the unsung 

 6 here of is this building. Peter came in to me one day at the 

 7 beginning and said do you realize how many suits -- not this 

 8 kind of suit, but suit-suits -- are being levied against the 

 9 construction of this building. 

 10 Great controversy among the developers, et cetera, 

 11 et cetera, and he started to resolve some of that. And then 

 12 one day, there was a terrible rainfall in Washington, 

 13 downpour, night and day for about two days. And somehow the 

 14 top of this building was left open and the rain came in and 

 15 soaked it down, you know, four story. They had to tear out 

 16 everything on the top three stories of the building and start 

 17 all over again. And Peter, in an unsung way, managed that 

 18 whole process. That wasn't his normal job, but that was his 

 19 job and he was rewarded by coming here with me. I had two 

 20 days in my brand-new office before he came. Thanks. 

 21 CHAIRMAN COX: Well, before we leave that, I just 

 22 want to say thanks to all that effort. We had a very nice 

 23 reception on your terrace. 

 24 MR. DONALDSON: It's a nice building. Peter Derby, 

 25 in an unsung way, managed that whole process. That wasn't
 1 his normal job. That was his job and he was rewarded by 

 2 coming here with me. I have two days in my brand new office 

 3 before he came. Thanks. 

 4 MR. PITT: Well, before we leave that, I just want 

 5 to say that thanks to all of that effort, we had a very nice 

 6 reception on your terrace. I would just say, I thought we 

 7 had just some fabulous people I had the privilege of knowing 

 8 almost everybody who I came in to see at the SEC when I took 

 9 over as chairman and in particular there were a number of 

 10 people in the senior staff who were terrific. The division 

 11 directors, Steve Cutler, David Becker, who probably is as 

 12 immature as I was, Allen Beller, Paul Roy and others. 

 13 One person who really did a phenomenal job was Jane 

 14 Seidman, who helped us weather the terrorist attacks of 9-11. 

 15 One of the most important things we had to do was get the 

 16 Commission back up and running, as well as getting the 

 17 markets back up and running. And Jane was just tremendously 

 18 instrumental in making certain that we did that. 

 19 The other person was my secretary, Phyllis Sommers, 

 20 who was such a gift to the Commission that when I left, she 

 21 stayed behind. It's a tribute to the Commission's drawing 

 22 power, because she had been with me for over 30 years and 

 23 it's phenomenal. There were a lot of very, very fine people 

 24 that I worked with and all of them contributed enormously. 

 25 CHAIRMAN COX: Well, let me now just open it up to
 1 the free-for-all that we instituted the last time we did this 

 2 a little over a year ago and invite anyone to jump in on any 

 3 sort of international, national, regional or local topic of 

 4 interest to you and to everybody who's listening here. Let 

 5 me just tee it off with Chairman Levitt, because you have 

 6 just been asked by Treasury to co-chair a group that's going 

 7 to be looking at issues surrounding auditing market, and I 

 8 wonder if you might discuss your own experiences in the past 

 9 that are relevant to this or, you know, what you intend to do 

 10 in the future. 

 11 Well, someone had told me when I came to the 

 12 Commission that accounting would be the number one issue that 

 13 would occupy my thinking. I would have bet a lot of money 

 14 against that. I had so many views about issues that I 

 15 confronted at the Commission that were diametrically 

 16 different and views I had coming to the Commission. I headed 

 17 a business group of 100 entrepreneurs. We used the standard 

 18 business rhetoric of government workers are overpaid and 

 19 underworked. 

 20 I was outraged at the notion expensing stock 

 21 options had been sued by trial lawyers often enough to think 

 22 that they were a plague on our society. Here, I come to the 

 23 Commission and within six months at least a half a dozen 

 24 issues that I had firm convictions about totally changed my 

 25 mind. And this whole concept about the conflicts that beset
 1 the accounting profession; their conflict with advisory work. 

 2 It never occurred to me before. I never realized what the 

 3 consequences were before. 

 4 I served on many boards and just thought that a 

 5 board was kind of a fraternal place. You got there because 

 6 you knew the chairman. Your spouse may have worked for the 

 7 same philanthropy. It was a fraternal environment and life 

 8 just changed. And I don't consider myself particularly 

 9 combative person but I found myself in constant disputes, 

 10 either with congress or other government agencies that were 

 11 encroaching on our turf or elements of one of our 

 12 constituencies, either the business community or the exchange 

 13 community. 

 14 There was always a tension, and I think that's 

 15 probably as it should be, and one of the things I learned was 

 16 that you can't be at war with all of your constituents at the 

 17 same time. They've just got too much firepower going for 

 18 them. And by the same token, I probably spend two-thirds of 

 19 the time that I spent on the Hill working with people who 

 20 didn't think as I did. Phil Gramm was the closest friend I 

 21 had in Washington, and we didn't agree on anything economic. 

 22 But we both loved Labrador retrievers, and this was the most 

 23 wonderfully rewarding experience of my life, and it taught me 

 24 so much. Mostly, it taught me what I really didn't know, 

 25 because while I was here I thought I knew it all. And I am
 1 so persuaded that a great staff makes chairmen and 

 2 commissioners look so much smarter than they are; and every 

 3 chairman learns the lesson that he's got to gain the support 

 4 of the staff to move any part of an agenda. And everybody's 

 5 always asking for an agenda. 

 6 Well, what you call an agenda is a function of 

 7 what's going on in the economy and society at that point in 

 8 time. You don't really set an agenda and almost always comes 

 9 cascading down upon you. And so much of life, particularly 

 10 life in Washington, is a function of good or bad luck. I was 

 11 fabulously lucky in having a wonderful market in which to 

 12 operate. And I was lucky because I had the experience of 

 13 owning the congressional newspaper and serving on two 

 14 base-closing commissions; that I knew so many people on the 

 15 Hill and I liked them and I enjoyed them. 

 16 And I liked the turmoil; I liked the strife. I 

 17 liked the arguing with them. So you've got me rambling and 

 18 what can I say about it except the only thing I would say is 

 19 be open to the impossible, because it's going to happen and 

 20 it is a great experience. All of us have had terrible 

 21 moments and wonderful moments, but I don't think any of us 

 22 would say that it would have been at a different place. 

 23 MR. DONALDSON: I'd like to -- not to flog an old 

 24 horse, but rather to bring up a subject I'd be very 

 25 interested to hear what the gentlemen on either side of me
 1 have to say and you may remain silent unless you want to, but 

 2 I have the right to remain silent. I can tell this is going 

 3 to be a great question. I continue to be concerned about the 

 4 influence of who will be in the market place and by that I 

 5 mean both aspects of private equity and the so-called 

 6 leveraged buy-out funds, which are gobbling up American 

 7 steadily, and hedge funds. 

 8 By the way, hedge funds continue to grow. They are 

 9 a trillion, 3- or $400 million, and it seems rather 

 10 inconsistent to me that we have that sort of economic force 

 11 operating in a market place without having any jurisdiction 

 12 over them. And I say this as the court turned down what we 

 13 tried to do. I think there was a misunderstanding, at least 

 14 as far as I was concerned, summed up by the fact that George 

 15 Soros doesn't need protection inside a hedge fund. But I do 

 16 not think people investing in hedge funds need SEC 

 17 protection. They're sophisticated investors. I would 

 18 challenge that. 

 19 I think there are a lot of people with a lot of 

 20 money that don't know what they've invested in. They've 

 21 invested in a black box and some people they trust, but I 

 22 think the simple fact, the kind of registration that we tried 

 23 to do guaranteed that we weren't going after capital 

 24 structure hedge funds. We weren't trying to tell them what 

 25 they could invest in. They simply wanted to have the right
 1 to go in the front door, see what kind of procedures, how 

 2 they price securities, the whole series of inside things, the 

 3 record or criminal record of the people; just know how many 

 4 funds are out there, much less the size of those funds. But 

 5 to me, the real reason was the impact of hedge funds on the 

 6 marketplace itself. 

 7 You have every time a hedge fund -- and that's a 

 8 lousy name because most of these funds aren't hedged 

 9 anymore -- pooled capital gets into the market place. It 

 10 buys and sells from public investors -- from little people, 

 11 big people, and institutions and so forth. And I'm 

 12 concerned, it's a main concern about the impact of that on 

 13 the market place and we've seen movement here by the SEC in 

 14 terms of digging inside under the brokerage firm and finding 

 15 out some of the stuff that does go on; inside information and 

 16 all that sort of stuff. But it seems to me that we ought to 

 17 figure out some way to know more about this entity, the hedge 

 18 fund. By the same token, know more than we do about 

 19 leveraged buyout funds. I see them on the horizon as 

 20 becoming a bigger and bigger problem of potential for not 

 21 necessarily inside trading, but also to deals being made 

 22 where managements are involved in takeovers themselves to 

 23 their benefit and not for the benefit of the company. So I'd 

 24 just be interested to hear what any of my colleagues here 

 25 think about this. I see a ticking time bomb out there that's
 1 going to blow up at some point. 

 2 MR. RUDER: Bill, after the long-term capital 

 3 management crisis, I testified before congress and I was 

 4 probably alone in what I said, but I was concerned about 

 5 systemic risk. I was concerned about the fact that these 

 6 large conglomerations of capital enter into derivatives and 

 7 over the counter contracts which their counterparties are 

 8 known to them, but the counterparties are not known. And 

 9 that whole market has since that time just expanded 

 10 tremendously. And I know that at some point the Commission 

 11 joined with others to say that we didn't need to have 

 12 jurisdiction over this market because it was an open economic 

 13 free market area, but I think the regulators need to know 

 14 what the risk positions of these large firms that are out 

 15 there. I don't think they need to know their strategies, but 

 16 I think they need to have some sense of what the dangers are 

 17 to the economy if one of these or several of them should blow 

 18 up at the same time. 

 19 We've seen indications that what Amaranth advisors 

 20 went down they sold off all their good products and they were 

 21 saved by Citadel and some others are situations in which 

 22 there was risk to the society. I just think that the 

 23 Commission ought to look carefully and again at whether there 

 24 is danger for risk to the economy if things blow up, not 

 25 quite where you were with Bill, but I'm agreeing with the
 1 necessity of looking at the dangers of these new investment 

 2 deals. 

 3 CHAIRMAN COX: As you jump into this topic, which I 

 4 encourage to do, I'd be interested myself in hearing from you 

 5 based on your experience what you think is the prospect for 

 6 getting any legal result from interagency cooperation to the 

 7 extent that we're worried about, for example, counterparty 

 8 risk management. We're worried about systemic risk. The SEC 

 9 has some of the information, but so do banking regulators; so 

 10 does the Treasury; so does the CFTC and through the PWG, of 

 11 course, we're trying to focus those energies and share that 

 12 information in a much more sophisticated way that have been 

 13 proved in the past if that's possible. 

 14 I'm just going to continue a little bit. That 

 15 isn't the way to get all the information. Yes, there is 

 16 information there among the regulators, but the regulators 

 17 don't have the information about the unregulated entities. 

 18 What I've heard is there's a reluctance by the known 

 19 regulators to try to enter that area without jurisdictional 

 20 means, because they're worried about moral hazard. They're 

 21 worried about the fact that they may be seen to be trying to 

 22 regulate this area, but not be able to do it and they don't 

 23 want to be in a situation where they've tried and not been 

 24 successful. I think there's a big whole here that needs to 

 25 be addressed.
 1 MR. PITT: Let me say, when I was chairman, we 

 2 started an investigation into hedge fund practices. My 

 3 concern at the time was not with respect to regulation, but 

 4 with respect to the point that Bill makes, which I think is a 

 5 very valid point in terms of we didn't know enough about what 

 6 was going on and so I was curious as to what we could find 

 7 out. In my view, the hedge fund community is making the huge 

 8 mistake if they view the Commission's loss on its rulemaking 

 9 effort as basically an invitation for open season on whatever 

 10 practices they care to engage in. 

 11 In my view, you have a couple of trends that are 

 12 coming, which might well lead to some of the problems that 

 13 some perceive as our markets have become more efficient and 

 14 as hedge funds try to produce the same kind of historical 

 15 returns. They have to look for less efficient markets and 

 16 alternative investments. At the same time that that's 

 17 occurring, hedge funds are now becoming much more an 

 18 investment vehicle for the masses. So far, it's been mostly 

 19 through pension funds, trust funds and endowment funds, but 

 20 the interesting thing about those investors is that they're 

 21 completely risk averse. So at the same time that hedge funds 

 22 are becoming riskier in terms of their investments, they are 

 23 also being held by more and more people who were risk averse. 

 24 I think that the President's working group came up with one 

 25 of the right approaches, which was to suggest that the
 1 initiatives should start with the industry, particularly the 

 2 hedge fund industry, but also with respect to the pension 

 3 funds and others, who need to do a lot more in the way of due 

 4 diligence than many of them, although not all of them but 

 5 many of them are doing. And in addition there needs to be a 

 6 data collection, so the people have an understanding of the 

 7 impact. I think that's as far as I'm concerned that's a very 

 8 different direction from requiring registration, but it 

 9 nonetheless suggests that regulators are very much like 

 10 nature. They abhor a vacuum; and, if the industry doesn't 

 11 take steps to do something itself, we can expect to see some 

 12 kind of regulatory response if things become more 

 13 precipitated in terms of losses and other problems. 

 14 So I think that's really the issue; and 

 15 registration in my view was not ever really that significant. 

 16 It might become necessary once one has more information, but 

 17 what is significant is that the industry itself recognize 

 18 that they need to take steps to make sure that they are 

 19 transparent, which right now they are not. And, secondly, 

 20 that they are taking care of due diligence issues for those 

 21 who invest in them. 

 22 MR. LEVITT: Bill, I think that you're absolutely 

 23 on the right track, that the Commission gave the industry 

 24 regulation light. The light is kind of regulation and by 

 25 overturning it, by fighting it, they set the stage for
 1 something that is as inevitable as we are sitting here. I 

 2 don't think the stars are aligned in the right way to get 

 3 regulation of hedge funds and private equity right now, not 

 4 in the midst of a runaway bull market where everybody thinks 

 5 it's their brilliance that has produced these results. 

 6 But when we have the next blowup, when we have the 

 7 inevitable market downturn, congress will step in, in 

 8 characteristic fashion, responding to a crisis and do 

 9 something that's Draconian. The industry will absolutely 

 10 regret they didn't take your deal. They will look back upon 

 11 that as being having missed a golden opportunity. I think 

 12 it's appropriate. I think it's a step in the right 

 13 direction. I don't think we can expect the industry to do 

 14 this on their own. They need some nudging and I think you 

 15 nudged them and you got turned back. 

 16 MR. HILLS: Excuse me. Let me see if I can get my 

 17 voice back. Sorry. I think I'll pass. I'll come back 

 18 later. Sorry about that. 

 19 CHAIRMAN COX: Let me segue into another topic. 

 20 Now this is going to be a broad topic so you can pick your 

 21 piece of it that you're most interested in that's related to 

 22 this because when we look at systemic risk, we're really 

 23 looking at phenomenon that is global. Our capital markets 

 24 are converging faster than ever before. The international 

 25 piece of what we do is of extraordinary importance. I
 1 wonder, if based on your experience and your focus on 

 2 America's capital markets in the midst of all that's going on 

 3 around us around the world, do you want to provide some 

 4 advice or some thoughts or some perspective on how the SEC 

 5 should view its responsibility to the global capital markets. 

 6 Prior to that, just as an add in, clearly the 

 7 regulatory enforcement side of things is going to require 

 8 tremendous cooperation of independent agencies in sovereign 

 9 nations so that we get some coordination that doesn't allow 

 10 some part of the world to be the place where games are 

 11 played. I think, I for one, would like a clear examination 

 12 of what's going on in London. The FSA has a great reputation 

 13 for sort of a principals-based approach to regulation. I 

 14 remember talking to the head of the FSA a number of years ago 

 15 and discovered they have 8,000 rules at the FSA. 

 16 I think we have 2,000, or something like that. But 

 17 this dichotomy, I think, we have to have some resolution of a 

 18 global regulatory hands together. We've got to decide how 

 19 much of it is going to be principals-based, and how much of 

 20 it's going to be rules-based. And how do we get there, 

 21 because I see, and everybody in this room probably knows 

 22 better than I. I see an awful lot of things going on around 

 23 the world. We used to call it trading in the closet years 

 24 ago and now it's trading in the closet somewhere else in the 

 25 world and it worries me in terms of our market.
 1 MR. PITT: I think the Commission is headed in 

 2 exactly the right direction. I think there's a great need 

 3 for global cooperation. I think the efforts that the SEC 

 4 undertook with its counterparts in connection with the NYSE, 

 5 Euronex merger. We're very constructive efforts in which the 

 6 agency has tried to make certain that market developments 

 7 carry the day but investor protection remains paramount and 

 8 that's a difficult balance to come up with, but I think the 

 9 Commission is doing an excellent job. I think that one of 

 10 the Commission senior staff, Ethiopus Tafara has written a 

 11 very thoughtful piece about the need for international 

 12 recognition of comparable, regulatory schemes. 

 13 I think that it's going to be impossible for any 

 14 one governmental regulatory to manage all of the facets of 

 15 global trading and by working along the lines that have been 

 16 suggested in that article in particular, which I realize is 

 17 only a staff view and not the Commission's view, I think the 

 18 Commission can achieve some very, very major accomplishments 

 19 by working with other regulators, coordinating the 

 20 activities, taking joint enforcement actions when those 

 21 become necessary, and making certain that as we move to a new 

 22 environment, it isn't really important where stock is listed. 

 23 It's important where it's traded. 

 24 And I think where the stock is traded is infinitely 

 25 more important than where it's listed, and so we are working
 1 toward a diminution of the barriers that now exist and I 

 2 encourage the Commission's efforts in this regard and think 

 3 it's clearly headed down the right path with respect to that. 

 4 MR. RUDER: I think you're absolutely right, 

 5 Harvey, but I would urge the Commission to look at whether or 

 6 not it should start over -- should ask whether some of the 

 7 ideas that exist in foreign countries, particularly European 

 8 Union, may make sense for the Commission. We simply don't 

 9 want to be, it seems to me, isolated in which we try to 

 10 protect our own markets when the result of that may be that 

 11 the market trading, as you put it, Harvey goes over seas, 

 12 goes to other markets, and these markets are fungible in a 

 13 way. 

 14 I don't mean we should abandon everything we have, 

 15 but we should look to see whether there are ideas abroad that 

 16 make sense for us, whether we can interact with the other 

 17 regulatory agencies abroad to see that we can have agreement 

 18 and I have thought for quite a while that the Commission is 

 19 on the right track looking at what its relationship is with 

 20 foreign regulators. But I urge as much new thinking and 

 21 flexibility in that thinking as possible in trying to get to 

 22 a good answer. 

 23 CHAIRMAN COX: Rod, I don't know how you're doing. 

 24 You can vote. 

 25 MR. HILLS: I could vote.
 1 CHAIRMAN COX: All right, well, then the question 

 2 occurs on the motion from the former chairmen. Let's stay 

 3 with this for just a moment. One of the things that has been 

 4 going on is this. Certainly you and Chairman Hills, and I'm 

 5 quite sure before that, because the gestation period for IFRS 

 6 has been over a decade in a serious way. 2005, the European 

 7 Union mandated the use of IFRS were now very close to 

 8 considering finally reaching the reconciliation requirement 

 9 here which would give us the result of two accounting systems 

 10 operating side-by-side in the United States. 

 11 That's virtually unprecedented. Where is this 

 12 taking us? In many respects, the chairmen and former 

 13 commissions have set the Commission on this path. Where 

 14 should this lead and what should the Commission be thinking 

 15 about in the future on the issues. 

 16 MR. RUDER: May I speak? I was a member of the 

 17 Board of the Financial Accounting Foundation which oversees 

 18 the FASB, and a member of the Board of the International 

 19 Accounting Standards Committee Foundation which oversees the 

 20 IASB. And I was very intimately involved in the efforts, 

 21 both from the SEC side and internationally to create this 

 22 convergence of reconciliation and I'm just as happy as I 

 23 could be that we've gone as far as we can. And I don't know 

 24 whether I was delighted or amazed with the intimation that 

 25 once IFERs are accepted as the basis for filing in the United
 1 States that the Commission may be willing to allow U.S. 

 2 corporations to use IFERs rather than U.S. GAAP. 

 3 That would be an outstanding result in terms of 

 4 creating global financial markets with the opportunity to 

 5 have comparability internationally, the holy grail, if you 

 6 will, of accounting, at least as far as I've been concerned. 

 7 Of course, it raises the question of how the United States 

 8 would then interact. The FASB would then interact with the 

 9 IASB to create standards that are acceptable in the U.S. for 

 10 U.S. corporations. I think it's a wonderful opportunity, 

 11 requires a lot more work by the Commission, and I urge you to 

 12 continue along the lines that you apparently have announced. 

 13 MR. DONALDSON: Can I just take up where you left 

 14 off? I think the moving toward getting away from the 

 15 reconciliation is definitely a step in the right direction. 

 16 The 2009 date, I hope we do it sooner than that. I think the 

 17 next step will be quickly allowing U.S. Companies to do this 

 18 and I think to use IFRS, I think the devil is going to be in 

 19 the details of that. I mean, there's a lot of work to be 

 20 done down in the trenches as far as I can make out. 

 21 But there's something else going on that I think 

 22 deserves equal attention, and this has to do with the 

 23 usefulness or lack of usefulness of accounting as we practice 

 24 it today and as we publish it in our filing papers. 

 25 Accounting systems are retroactive. They have no room for
 1 attempting to get at what's really going on in the company, 

 2 and you know, we can talk long and hard about this, but the 

 3 kind of information -- let's say a leveraged buyout fund digs 

 4 out of a company -- in terms of what its true condition is, 

 5 what it's strategies are, what the equality measurement, what 

 6 the quality of the various aspects of management, the quality 

 7 of research, the quality of products, et cetera, et cetera. 

 8 The accounting systems don't have any room for 

 9 that. I think we need to make the recordkeeping, if you 

 10 will, more forward looking and more helpful to investors than 

 11 it is now; the accounting system, I defy anybody that's not 

 12 a CPA, anybody that doesn't have a lot of time to look to 

 13 really get out of accounting what you should be getting. So 

 14 to me, it's two tracks there. 

 15 MR. PITT: I think I agree completely with Bill and 

 16 Ed. I'm not sure that it relates strictly speaking just to 

 17 accounting. I think our whole disclosure system is 

 18 retrospective. We give investors a review of what took place 

 19 but not what's going on and what can be expected and I think 

 20 we have to come up with a system that encourages companies to 

 21 provide that kind of disclosure. But with respect to IFRS 

 22 and GAAP, it seems to me that in the United States, GAAP has 

 23 lost a lot of its juice or leverage. People aren't receiving 

 24 what they need in the way of guidance many times the process 

 25 is too slow. The use of prescriptive rules as opposed to
 1 principle-based rules is a problem. And so I think I agree 

 2 with David. 

 3 Moving toward one global standard will be quite 

 4 important and quite valuable. The difficulty will be in 

 5 interpreting that standard. Because even if you have one 

 6 standard, if 100 different countries can interpret the 

 7 standard differently, then you have 100 different standards. 

 8 And there has to be some mechanism built into the process so 

 9 that we get to a single standard, but we also have some way 

 10 of giving corporations all over the globe the assurance that 

 11 whatever the interpretations are, whatever the rules are, 

 12 they understand. Most rules are basically going to be 

 13 followed in every single country where those standards are 

 14 applicable. 

 15 MR. RUDER: I'm happy to announce that I speak with 

 16 two voices. Chairman Hills has authorized me to read a 

 17 statement on his behalf, which strangely agrees with what has 

 18 been said here. He says: "We need to move away from 'the 

 19 brittle illusion of accounting exactitude which can collapse 

 20 in times of economic stress'." I understand that to be 

 21 paraphrased from an "Economist" article, but what it does I 

 22 think is to agree with what you're saying, Harvey, and you, 

 23 too, Bill. And I think we need to look at our accounting 

 24 system to see whether it's giving us the right information. 

 25 I know from conversations with Rod in other areas
 1 that he would subscribe to the proposition that we ought to 

 2 look at the accounting certification to see whether we're not 

 3 being too harsh on the economists for having them certify to 

 4 matters which really are matters of judgment, and whether we 

 5 should change that system in a way so that the accounting 

 6 profession doesn't purport to give us what it's not capable 

 7 of giving us. That's all I care to say about it. Thank you. 

 8 MR. HILLS: I can't say anything. 

 9 MR. RUDER: He says, he can't say it at all. Ed, 

 10 while we're staying on the international point for a moment, 

 11 in the area of enforcement, certainly more than anywhere 

 12 else, if we ever thought we could go it alone, we're unable 

 13 to do so now, because so much of securities fraud takes place 

 14 using, if you will, instrumentalities of global commerce, 

 15 specifically, telecommunications, computers, and the 

 16 internet. 

 17 So that it's very simple now for the old puppet 

 18 dumps games, the boiler room, and so on, that has always been 

 19 our bread and butter, to take place multi-jurisdictionally 

 20 and indeed intentionally so, so that the interest of any 

 21 particular nation, any particular regulator will pale, will 

 22 dissipate, because there are insufficient contacts there. 

 23 And so by collaborating, we have an opportunity perhaps to 

 24 still apprehend those who are playing to the jurisdictional 

 25 scenes, but there's a lot of experience here at this table
 1 and it's not as easy as it sounds. What are the pitfalls 

 2 here, as we go forward and do what we must. What should we 

 3 be on the lookout for and what are the big opportunities. 

 4 MR. RUDER: Commissioner Campos is here, and I 

 5 attended a conference in which he was the representative of 

 6 the United States on International matters at IASCO. And I 

 7 want to say what a wonderful job he's done. That's my 

 8 observation of it. And IASCO has adopted a common memorandum 

 9 of understanding, which it's expected he have all of the 

 10 securities regulators in the world sign within a few years. 

 11 But the signing of that document, which promises equal 

 12 cooperation and obtaining information isn't enough. 

 13 I think that you're going to need to have some 

 14 additional cooperation in terms of joint enforcement efforts, 

 15 because if you have an international fraud, which affects 

 16 many jurisdictions, you can't have one regulator reaching one 

 17 result and another regulator reaching another result, and a 

 18 third regulator wondering what to do. It seems to me that 

 19 this area requires more than agreements towards international 

 20 cooperation, but an effort to see that there's a way to 

 21 engage the enforcement apparatus in all the countries when 

 22 there's a true international problem. 

 23 MR. PITT: I think one of the biggest problems or 

 24 pitfalls that the Commission may confront is its own sense of 

 25 what operates as a fraud or deceit on investors. No matter
 1 what reciprocity and what coordination exists, I think the 

 2 Commission is always going to have to make its own judgments 

 3 about whether public investors have been harmed by particular 

 4 conduct. 

 5 And so it will be very, very important to have the 

 6 kinds of constant communications that I believe will enable 

 7 the Commission to know how other regulators feel about 

 8 certain issues to be able to express its own point of view. 

 9 But one of the things that I had thought about doing but we 

 10 were never able to get around to it was opening up an office 

 11 of the Commission in Brussels, where the Commission could 

 12 have much more direct intersection with the EU and figure out 

 13 what its European counterparts were thinking and doing. 

 14 I think you would have to expand this at some 

 15 point, but right now, the EU has probably the most 

 16 sophisticated form of regulation outside of the U.S. and it's 

 17 the most comparable to the U.S. And so figuring out what 

 18 types of issues are likely to arise, how to work on them, how 

 19 to allocate responsibility in cross-border enforcement issues 

 20 so that in some cases the Commission takes the lead, but in 

 21 other cases, other countries take the lead and so on. These, 

 22 I think, are very critical elements, and it will be hard for 

 23 the Commission not because it doesn't want to achieve the 

 24 right result, but because at the end of the day we'll want to 

 25 make sure that U.S. investors are fully protected and
 1 sometimes our views may differ from the views of other 

 2 regulators and that's a process that is best worked on before 

 3 you have a specific issue. It's much better to work together 

 4 to lay out some of the parameters when there's no immediate 

 5 crisis facing the regulators, and that's something I think 

 6 the Commission can be very, very, constructive in bringing to 

 7 bear. 

 8 MR. DONALDSON: One of the things that I wondered 

 9 about in the struggle on getting IFRS accepted in different 

 10 countries was the cultural differences in Italy and France 

 11 and China, and so forth, coming together somehow on the IFRS 

 12 that would be acceptable to all of them. This leads me to 

 13 wonder what sort of regulation is going to be brought to the 

 14 standard setters themselves. We're seeing the issue, I 

 15 believe, in France, where I forget the numbers of the IFRS 

 16 standards that the French banks refuse to go along with. 

 17 MR. PITT: Thirty-nine. 

 18 MR. RUDER: Thirty-nine. 

 19 MR. DONALDSON: As an industrial power, we address 

 20 that in Sarbanes-Oxley by changing the whole financing of 

 21 FASB and getting these special interests out of it. And I 

 22 wonder whether that isn't the level that has to go on 

 23 internationally, some superbody, if you will, which maybe 

 24 even we are a part of. And as a super regulator that has the 

 25 power to set the standards consistently, country-to-country.
 1 CHAIRMAN COX: Do you want to add to that? 

 2 MR. DONALDSON: Well, IFRA is our International 

 3 Financial Reporting Standards. This question of jurisdiction 

 4 was addressed in the reorganization on the IASC when IASB 

 5 emerged and the conclusion was that there ought to be a body 

 6 which creates international accounting standards but that 

 7 each jurisdiction would have the right to adopt those 

 8 standards in whichever way he wanted. And I for one don't 

 9 see any possibility that we get agreement by all the 

 10 countries to accept a certain level of accounting standards 

 11 that would become law in all those countries. 

 12 But it seems to me the best we can do is to try to 

 13 get the standards, which are widely accepted by a lot of 

 14 countries and then the other ones will follow. Because not 

 15 having those standards will put them in a situation in which 

 16 their securities are not fairly tradable. So I agree with 

 17 your result, Bill, but not with the way to get it done. I 

 18 just don't think an international body is going to work. 

 19 Well, here's another report from the hinterlands. 

 20 We do not need to develop more non-financial. We do need to 

 21 develop more non-financial indicators of value. This could 

 22 be a worldwide effort. We do need to have more non-financial 

 23 indicators of value. Somewhere along the lines, I think, 

 24 with what Harry was talking about, but this can be a 

 25 world-wide effort in the sense, I take it, that there would
 1 be the same kind of cooperative looking at what our 

 2 accounting standards or our disclosure standards are creating 

 3 with cooperation by the various countries and regulators. 

 4 Is that okay? He says, thank you. 

 5 CHAIRMAN COX: You have a new career. I'm going to 

 6 have to wrap this up just because of the time constraint that 

 7 we're all under here, but I want to do two things as we wrap 

 8 it up. 

 9 First, we have an interesting, fascinating proposal 

 10 on the table that the SEC consider opening an office in 

 11 Brussels and I would be interested, particularly since 

 12 Chairman Hills can vote, just have a quick vote on that one. 

 13 And then second, I want to ask each of you just 

 14 quickly if you could do one thing differently in hindsight. 

 15 As chairman of the SEC, what might you have done while you 

 16 were chairman. So let's take a quick vote while you're 

 17 thinking about the answer to that question. 

 18 How many people here think that this idea of 

 19 opening a Brussels office is worth pursuing? 

 20 MR. RUDER: Can we modify that and say open our 

 21 office, maybe a couple of offices, not necessarily just in 

 22 Brussels but perhaps out. 

 23 CHAIRMAN COX: I take it that's a yes. 

 24 MR. DONALDSON: Open an office. 

 25 CHAIRMAN COX: Opening offices overseas, all right.
 1 MR. RUDER: I would say yes. I think Brussels is 

 2 the place because of the importance of the EU in the 

 3 developments of our market. Bill, is that a yes? 

 4 MR. HILLS: Ruder, Bill says yes. 

 5 MR. PITT: I want to make sure that David Ruder is 

 6 not getting two votes here. 

 7 CHAIRMAN COX: Rod, are you really a yes on that? 

 8 MR. RUDER: He wants a diplomatic office, I take 

 9 it, one that has more power than just the SEC, one that has a 

 10 broader good relations which come from good diplomacy. 

 11 MR. DONALDSON: Well, I hope that that quick vote 

 12 has given you all time to think of the answer to the final 

 13 question before this very distinguished panel. What, if 

 14 anything in hindsight, would you do differently as chairman 

 15 of the SEC? 

 16 MR. COX: Absolutely nothing is the answer. 

 17 MR. RUDER: I think I would have, knowing what I 

 18 know now, you would have warned people before that 1987 

 19 crash. 

 20 MR. COX: That's right. I would have known a lot 

 21 more about the securities markets. When I came in, I would 

 22 have had more attention to it when I left and I would have 

 23 left a better legacy to tell the Commission that this is 

 24 probably still the most important aspect of the Commission's 

 25 operation; that is, if the markets aren't stable and good,
 1 then our economy won't be that way. 

 2 MR. DONALDSON: I wish that I had put more emphasis 

 3 on changing the structure of the SEC working at the so-called 

 4 stovepipe structure in getting at structures that would bring 

 5 cross-disciplines together in a more permanent way. And I 

 6 wish that I'd spent more time on the whole concept of risk 

 7 mapping in order to meet the problem of limited resources and 

 8 explosive number of things. For instance, we've got to get 

 9 more efficient in the way we do it. We've got to figure out 

 10 ways to use our limited number of people to concentrate on 

 11 the real problems or we're going to come apart at the seams, 

 12 like an explosion, financial securities throughout the world. 

 13 MR. PITT: I don't know if we have enough time for 

 14 me to try to answer that but the one thing I would say is I 

 15 had a notion that the SEC, and we've spent a lot of time 

 16 saying how wonderful the staff is and it is wonderful, but 

 17 the SEC has traditionally been a lawyer's agency and the one 

 18 thing I would have liked to have had the opportunity to 

 19 change would have been to make it more of an economic agency, 

 20 not to diminish the importance of lawyers, because I think 

 21 the lawyers do a fabulous job, but to introduce much more in 

 22 the way of economic thought in everything that the Commission 

 23 does. 

 24 We tried to get the office of Economic Analysis 

 25 involved at the beginning stage of every rulemaking, but I
 1 think what we did was rudimentary, even compared to what's 

 2 been done subsequently. And I think that's an area where the 

 3 Commission can sort of become the agency vis-a-vis the 

 4 capital markets that the Federal Reserve Board is with 

 5 respect to the financial markets. 

 6 I think that's really a function the Commission 

 7 needs to evolve and it's something I think it's capable of 

 8 evolving over time. 

 9 MR. RUDER: Commissioner, Chairman Hills says he 

 10 can't talk. 

 11 (Laughter.) 

 12 CHAIRMAN COX: Well, before we properly pay tribute 

 13 to each of you for being here, I also want to pay tribute to 

 14 a very special group that are truly the backbone of this 

 15 institution. It was remarked upon earlier during our award 

 16 ceremony that no chairman is any good at all without an 

 17 excellent staff. It's the staff that makes the chairman, 

 18 certainly not the other way around. That's undoubtedly true; 

 19 but I think we'll also agree that this is a five-member 

 20 commission and no chairman can do anything without the wise 

 21 advise of counsel and votes of the other members of his/her 

 22 future commission. 

 23 So I want to take this opportunity to recognize the 

 24 current commissioners: Commissioner Campos who is sitting 

 25 right here in the front row; Commissioner Nazareth is here
 1 also and may have been here with us all day; Commissioner 

 2 Atkins and Commissioner Casey were with us here earlier, but 

 3 you all know their exceptional backgrounds and extraordinary 

 4 experience with this agency and with these disciplines. And 

 5 I have to say that without their intellectual and energetic 

 6 support, and what we do here at the agency that would be the 

 7 same; and I'm sure that if we had another hour, you could 

 8 tell stories about your fellow commissioners that prove the 

 9 same point. 

 10 So I want to ask everybody here to join a round of 

 11 applause for the current commissioners and by extension, all 

 12 those that preceded them. 

 13 And with that, this is an opportunity for all of us 

 14 to express our thanks for the presence of these 

 15 five -- currently four, now -- former chairmen who have been 

 16 with us for the awards ceremony. And now for this 

 17 extraordinary roundtable, it's really just such a privilege 

 18 and a pleasure to be here with you and to share in your 

 19 wisdom and your expertise. 

 20 Let's all show our appreciation to the past 

 21 chairmen of the Securities and Exchange Commission. 

 22 CHAIRMAN COX: That concludes the Second Annual 

 23 Former Chairmen's Roundtable. Thank you all for joining us. 

 24 (Whereupon, at 6:10 p.m. the forum was adjourned.) 

 25