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New Attack on Investor Safety Net

by Michael W. Stocker
Eyes On Wall Street |

In a November 6, 2009 speech at a roundtable conference hosted by the George Washington University Law School and the Institute for Law and Economic Policy (ILEP), SEC Commissioner Luis Aguilar warned that the powerful financial sector lobby has been working overtime to weaken reform initiatives that would benefit shareholders.

Aguilar focused on a potentially disastrous amendment to the pending Investor Protection Act of 2009. A late addition to the bill would sharply limit the reach of the investor protections set out in the Sarbanes-Oxley Act of 2002. Section 404(b) of the existing statute requires that executives of all public companies take responsibility for their internal controls, and that the controls be reviewed by independent auditors. The new addition to the Investor Protection Act of 2009, however, would turn the legislation on its head by repealing these crucial requirements for about 6,000 publicly traded companies with market capitalization under $75 million.

The Commissioner also suggested that the current preoccupation with regulating systemic risk embodied in institutions that are "too big to fail" may not adequately address market protection. Noting that "financial services exist to serve investors," he emphasized that it is essential that the dialogue be shifted from how best to preserve "too big to fail" institutions to "what is best for investors."

According to Aguilar, "systemic risk regulation should facilitate an environment where no institution is indispensable, and where other firms can step in to meet the needs of the market."