Dr. No Digs In At The SEC

Commissioner -- and fierce libertarian -- Paul Atkins is slowing some key reforms

When the Securities & Exchange Commission voted behind closed doors late last year to fine Goldman Sachs Group Inc. (GS ) $40 million for allegedly trying to pump up the prices of initial public stock offerings, there was one holdout. Commissioner Paul S. Atkins argued that the penalty was "too high," according to people with knowledge of the session. But Atkins didn't win over fellow commissioners, who ultimately approved the fine. Atkins declined to discuss the settlement, which Goldman accepted without admitting or denying wrongdoing.

It wasn't the first time that Atkins was out of step. A firm believer in limited government, Atkins has harshly criticized SEC Chairman William H. Donaldson's drives to regulate hedge funds, force mutual fund boards to have independent chairmen, and promise investors that the best prices will be protected when they buy or sell stock. Behind the scenes, Atkins increasingly balks at the heavy fines that the five-member commission metes out to corporate wrongdoers and wayward executives.

So far he has managed only to slow key elements of Donaldson's agenda. But his hand is likely to get stronger. President George W. Bush's reelection and the Republicans' gains on Capitol Hill give the GOP commissioner -- whose term lasts into 2008 -- more running room to resist fines and an overhaul of stock-trading rules, a Donaldson priority.


Turnover at the SEC also could bolster Atkins. Harvey J. Goldschmid, a Democrat and strong Donaldson ally, plans to step down this year. And it's uncertain whether Democrat Roel C. Campos will be reappointed this summer. Bush can't replace either of them with Republicans -- but business-minded Democrats could tilt the balance in Atkins' favor.

Atkins' public broadsides against "regulatory overreach" have made him a hero in business and conservative circles. But some SEC-watchers think he's a growing thorn in Donaldson's side. His open challenges to the SEC chief's initiatives have fragmented the agency's voice and sown doubts about its commitment to post-Enron reforms. Facing opposition from Atkins and Cynthia A. Glassman, the other Republican, Donaldson has relied on the two Democrats to push controversial proposals through on 3 to 2 votes.

Donaldson, who is expected to remain at the SEC at least through the end of 2005, declined repeated requests to comment for this story. A staff tally shows that of 2,361 commission votes during Donaldson's tenure through 2004, all but 36, or just 1.5%, were unanimous. But at an agency that prides itself on nonpartisan consensus, dissents are rare -- and 3 to 2 votes on the chairman's priorities rarer still. Atkins' strong concerns have also contributed to the stalemate on Donaldson's plan to help shareholders nominate directors to corporate boards.

Atkins makes no apologies. A libertarian, he believes the SEC should set disclosure standards, establish clear rules, educate investors, and nail fraudsters -- but steer clear of dictating business practices that are better left to markets. "Markets have great power to discipline people," Atkins told BusinessWeek. "We shouldn't try to second-guess them."

Raised in Florida, the soft-spoken lawyer is, at 46, the youngest commissioner. Before Bush appointed him in 2002, he ran a PricewaterhouseCoopers unit that did internal compliance investigations and consulting for financial firms. An engaging conversationalist fluent in French and German, Atkins practiced law in Davis Polk & Wardwell's Paris office for two and a half years in the 1980s and still travels widely. He lives in Virginia, where his wife home-schools their three sons. "Even though we're at the opposite ends of the policy spectrum, he's who I'd want to be seated next to at a dinner party," says Cynthia M. Fornelli, a former top SEC official who helped write the mutual fund and hedge fund rules.

Despite his easygoing manner, Atkins sparks palpable tension at the SEC. Glassman, a former Federal Reserve Board economist, also questions the SEC's rush to regulate. But insiders view her as a straight shooter who raises her concerns about proposals well in advance. Atkins, by contrast, tends to cloak his objections until the last minute, gumming up policymaking or blindsiding the agency in public, insiders say. Staffers were surprised at a meeting last February, when Atkins likened a plan to modernize stock-trading to the much-ridiculed 1975 Gremlin car. Atkins ultimately voted to publish the proposal, but his comments had staffers stewing. "We didn't see it coming," recalls one. Atkins says that any misunderstanding was unintentional. "I try to communicate as much as possible."

Atkins' attacks raise eyebrows at the staid SEC. Last year he accused the agency of making "a tortured end run" around the law in order to regulate hedge funds. He shook up another meeting by trotting out a made-for-TV chart to dispute Donaldson's contention that registering hedge-fund advisers would have deterred many frauds.

What most incenses Atkins' critics, though, are rumors that he badmouths the agency and Donaldson to White House officials and has encouraged outsiders to battle SEC policies. The U.S. Chamber of Commerce quoted from Atkins' and Glassman's dissent when it filed a lawsuit in September challenging the rule requiring mutual fund chairmen to be independent. "It appears as if he is trying to undermine the SEC" and position himself as Donaldson's successor, says one SEC-watcher. Atkins flatly denies the accusations and says he hasn't discussed the lawsuit with anyone at the Chamber. "The chairman has my loyalty," he says. "I'm not out to climb the ladder." Many observers think the White House would be wary of such a controversial choice.


Atkins also is digging in against Donaldson's push to exact hefty payouts from corporate wrongdoers. Several sources say Atkins opposed the $250 million penalty the SEC levied on Qwest Communications International Inc. (Q ) for accounting abuses and its $37 million fine for Wachovia Corp. (WB ) for failing to fully disclose its purchase of First Union Corp. shares during their 2001 merger. He has backed other big fines, though, including the $750 million penalty WorldCom Inc. paid. While he won't discuss specific cases, Atkins argues that corporate penalties in many financial fraud cases hurt shareholders, who already have seen their stocks battered. "We ought to hold individuals accountable, not shareholders," he says. Proponents counter that penalties help to deter illicit behavior. "Executives do not want to be responsible for corporate penalties on their watch," says Commissioner Campos. "And to sting, a penalty in certain circumstances must be high."

Atkins' admirers applaud his outspoken dissents. "There's no reason for commissioners to fall into line" with the chairman, says Peter J. Wallison, a resident fellow at the American Enterprise Institute, a conservative think tank. If Atkins ruffles feathers, so be it, says Wayne A. Abernathy, a former top Treasury official. "What he does is ask the tough questions," says Abernathy.

His outspokenness is in marked contrast to Atkins' smooth SEC stint in 1990-94, when he worked for two activist chairmen. As executive assistant to Richard C. Breeden, a Republican, he helped evaluate enforcement cases and revamp proxy rules. "He is an extremely thoughtful person who did a wonderful job," recalls Breeden. Atkins stayed on as counsel to Breeden's successor, Democrat Arthur Levitt Jr., helping to develop town hall meetings for investors. (As a commissioner, he is passionate about investor education and has headlined several of his own meetings.)

Now, though, Atkins has a platform and a favorable political climate to push his views. "The election seems to have emboldened him," says one top SEC official. Many shareholder advocates and Wall Street watchdogs fear that the SEC's post-Enron activism has already peaked. With changes in the commission and growing resistance from Corporate America, Atkins may not be on the losing end of SEC votes for long.

By Amy Borrus in Washington

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