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Protecting Investors and the Integrity of Financial Markets

Joseph Borg
Director, Alabama Securities Commission
President, North American Securities Administrators Association

March 22, 2007
NASAA Symposium
National Press Club
Washington, D.C. 

Good afternoon everyone. I’m Joe Borg, Director of the Alabama Securities Commission and President of the North American Securities Administrators Association, the oldest international organization devoted to investor protection. Our members include securities regulators in the United States, Canada and Mexico.

On behalf of NASAA, welcome to our Symposium: Protecting Investors and the Integrity of Financial Markets. I also welcome those of you listening to the live webcast of today’s discussion.

Investor confidence is the cornerstone of the success of our capital markets. A key component of investor confidence is a regulatory framework that provides strong investor protection.

As many of you heard last week, some on Wall Street and in Washington are calling for weakening this framework in an attempt to do away with laws and regulations that require accountability and punish wrongdoing.

With record profits on Wall Street and the echoes of Enron still reverberating, rolling back a system of regulation that has vigorously protected U.S. investors for decades could have profound and costly consequences if it went too far.

NASAA supports a strong and effective regulatory structure for capital markets and to do so requires the preservation of the authority of state securities regulators, the local cops on the securities beat. It also requires a strong Securities and Exchange Commission to properly implement laws, and it requires a strong SRO for efficient compliance. It takes all three of us working in equal partnership to maintain investor confidence in the world’s deepest and most transparent markets.

Recently, those who would seek to eliminate or reduce state authority are focusing on a new, more subtle methodology – the research study – such as the Committee on Capital Markets Regulation’s Interim Report, the McKinsey Report, and last week’s report of the Commission on the Regulation of U.S. Capital Markets in the 21st Century, sponsored by the U.S. Chamber of Commerce.

These short-sighted reports seek to use an “appeal to fear” that “the sky is falling” in an attempt to obstruct state, federal and SRO regulators who are aggressively protecting investors, the bedrock of our market confidence.

Market globalization has for so long been the mantra of Wall Street for loosening regulation. That globalization is here, with stronger, deeper foreign markets, technology equivalent to ours and a populace willing to invest in their own domestic markets.

Predictably, Wall Street is attempting to blame “burdensome regulation” for increased competition. It should be noted, however, that numerous journalists, academics and other experts have questioned the premises, “conclusions” and “recommendations” of these reports – and rightfully so.

Are we really losing ground in our markets – or is it that the rest of the world has begun to draw alongside? Let’s not forget that Wall Street has a large overseas stake in those foreign markets as well. The measurements utilized by the reports are suspect and deserve a much more detailed review. Many believe that the wrong conclusions have been reached and the arguments made do not hold water.

For example, we agree with a recent New York Times editorial responding to the McKinsey Report that “while common-sense changes are needed, the rights of shareholders and the stability of our markets cannot be trampled in the headlong rush for competitive advantages.”

We also strongly concur with recent remarks by SEC Chairman Christopher Cox that there is no need to change the Sarbanes Oxley Act. In fact, one of the central themes of our 2007 legislative agenda is the need to maintain federal laws designed to ensure corporate accountability and shareholder confidence. And, we also recognize and agree that proper and fair implementation of any law is important to assure that it does not create excessive burdens, while at the same time making sense for investors and the markets.

Chairman Cox said it best when he addressed the summit hosted last week by the U.S. Chamber of Commerce. The chairman sent a powerful message when he said:

“. . . It is wrong to conflate the implementation problems of [Section] 404 with the entirety of the Sarbanes-Oxley Act. While it’s a handy whipping boy, overall the law has had important positive effects. It may fairly be credited with correcting the most serious problems that beset our markets just a few years ago. It has played a significant and valuable role in restoring integrity to our markets. Remember where we were, and what happened. We needed decisive action. Sarbanes-Oxley delivered.”

The international competitiveness of our capital markets is, of course, important to maintaining America’s economic leadership in the world. But weakening a regulatory framework that has vigorously protected U.S. investors for decades could profoundly affect the very foundation of our markets. History does repeat itself when its lessons are forgotten or worse, when those lessons are ignored.

In light of the proposed consolidation of the NASD and the NYSE Regulation, the need for strong state securities regulatory authority is only heightened. With more than 100 million investors relying on our securities markets to meet their financial goals – and on regulators to keep those markets well policed – we must ensure that the successful and cooperative regulatory relationship between state, federal, and industry regulators remains as strong as possible.

And we state securities regulators will continue to vigorously defend our authority to regulate at the state level and bring enforcement actions seeking appropriate remedies against those firms and individuals that violate securities laws and thereby harm investors.

Before I turn the program over to our moderator, I want to thank all of our distinguished participants for their insights. Today’s discussion will reinforce the fact that investor confidence is the key to the success of our capital markets. And the key to maintaining that investor confidence is a regulatory framework that provides strong investor protection.

And now I am pleased to introduce our moderator for today’s symposium, University of Mississippi Law Professor and Fund Democracy Founder and President Mercer Bullard.

Professor Bullard has been recognized as one of the nation’s leading advocates for mutual fund shareholders. He teaches in the areas of securities and banking regulation, corporate finance and contracts. He received his J.D. from the University of Virginia School of Law, an M.A. from Georgetown University and a B.A. from Yale University.

In January 2000, Professor Bullard founded Fund Democracy, a nonprofit membership organization that serves as an advocate and information source for mutual fund shareholders and their advisers. He was named by Investment News as one of the 25 most powerful voices in the financial services industry, and was recently cited by BusinessWeek for leading the fight for shareholders’ rights.

Prior to joining Fund Democracy, Professor Bullard was an Assistant Chief Counsel in the SEC’s Division of Investment Management. While at the SEC, he was responsible for a wide range of matters involving mutual funds and investment advisers. He worked at the SEC from 1996 to January 2000. From 1991 to 1996, Professor Bullard was an attorney in the investment management practice of Washington law firm Wilmer, Cutler & Pickering, which he joined after clerking for the Honorable Will Garwood, U.S. Court of Appeals, Fifth Circuit.

Please join me in welcoming Professor Bullard.

March 22, 2007