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Rating:What is the Fate of the SEC? Not Rated 5.0 Email Routing List Email & Route  Print Print
Tuesday, November 04, 2003

What is the Fate of the SEC?

by: Nicole Halsey

After yesterday’s hearing on mutual fund abuses before the US Committee On Government Affairs, a few senators had sharp words for the Securities and Exchange Commission and its chairman William Donaldson.

Sen. Joe Lieberman (D-Connecticut) demanded that the SEC explain how it managed to overlook the abuses.

“…The SEC was far too late to the table in addressing these problems,” Lieberman wrote in a statement. “Now that the problems have come to light, I am once again left to wonder: why did the watchdogs fail to bark?”

In an 11-page letter to Donaldson dated yesterday, Lieberman asked a number of questions of the chairman including how, after Enron, could the organization allow trading abuses to happen. Specifically, he asked the SEC why it failed to follow up on a tip it received in March. And, he asked the agency to reassure working families that their savings are safe and their trust in mutual funds and their directors is not a mistake.

“Mutual fund investment is, for many Americans, the path to retirement,” Lieberman wrote. “These working families look to the SEC, as the main federal agency charged with watching over that industry, to make sure that their investments are handled honestly and transparently.”

Susan Collins, (R-Maine) echoed Liberman in her opening statements as chairman of the subcommittee.

“I question why mutual fund companies and their boards of directors would sacrifice the trust of their investors in this $7 trillion industry to benefit a select group of individuals who can afford to ‘play’ the mutual fund market,” said Collins. “Clearly, something must be done to protect mutual fund investors, whether it is through legislation, tougher enforcement actions, stronger regulations, or all three.”

What does this really mean for the SEC? Perhaps that major changes are underway including a few resignations. Before New York Attorney General Eliot Spitzer gave his testimony yesterday, many speculated that he would call for resignations among the SEC’s board. Instead, he simply asserted that changes have to be made.

The head of the SEC’s Boston office, Juan Marcelino, decided to take the heat off his employees by resigning yesterday. He headed the division since 1993.

And, the SEC has made some attempts at damage control. Yesterday, the organization announced a number of proposals including:

Requiring orders to buy and sell shares be received by fund companies by 4 p.m. Late orders will receive the next day’s price.

Requiring funds to clearly disclose their policies on timing.

Ban selective disclosure of fund holdings to certain investors.

Encourage funds to use fair value estimates of fund holdings to curb stale pricing and fund shares.

Inflate penalites for market timing above 2% of assets.

The SEC has also named a number of firms it plans to charge with trading irregularities along with NASD in the next few days. But, this may not be enough to convince the watchdog’s naysayers that the organization is doing its job.  

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