THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Tuesday, March 12, 1996 TAG: 9603120009
SECTION: FRONT PAGE: A14 EDITION: FINAL
TYPE: Editorial
LENGTH: Short : 48 lines
In December, Congress passed legislation making it harder for individual investors to sue for securities fraud. Last week, the House came close to making such fraud easier to perpetrate and harder to detect. At the last moment, prudence prevailed.
In the name of deregulation, the original bill could have deprived investors of several safeguards. It proposed requiring no collateral or margin from hedge funds, banks and other institutional investors to cover possible losses. In high-flying, volatile markets, that's risky. A compromise bill now retains the requirement and sensibly transfers supervision from the Federal Reserve to the SEC.
The bill at first proposed to free brokers from accountability for their recommendations. If, for instance, another Orange County, California, were enticed to make inappropriately dangerous investments of public funds, the brokerage firms recommending them could not be held liable. This controversial provision has now vanished from the legislation.
Finally. the revised bill reduces the power of the states to oversee and regulate financial matters. Within three years, the states will have to standardize the requirements they use to screen stockbrokers' applications for licenses. States will also lose the right to regulate mutual funds sold within their borders.
At a time when GOP dogma proclaims the superiority of state control over federal control, this is ironic. But steps to streamline and rationalize state regulations make sense. In markets that now span the nation and even the globe, forcing financial firms to comply with a hodgepodge of state regulations is onerous.
The original bill invited abuse by removing too many protections, however. There is clearly a role for government to play in keeping markets safe, honest and investor-friendly. When, in the past, government has shirked its responsibility to oversee markets, the results haven't been pretty.
Arthur Levitt, the head of the Securities and Exchange Commission and a former head of the New York Stock Exchange, was highly critical of this bill as posing a danger to the safety of investors. He was right and the House has now heeded his warnings. by CNB