GOP Unveils Legislation to Overhaul U.S. Securities Laws : Policy: Opponents say the sweeping plan will strip investors of protections and unleash a rash of corporate takeovers.

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House Republicans introduced sweeping legislation Thursday that they said would streamline the nation’s securities laws, eliminate outdated regulations and lower the cost of raising capital.

But opponents--including state regulators, consumers and Democrats--argued Congress opens debate to dismantle housing, environmental and other social programs that the proposal would strip investors of needed protections and unleash a wave of corporate takeovers.

The legislation, unveiled by Rep. Jack Fields (R-Tex.), chairman of the House Telecommunications and Finance subcommittee, is aimed at revamping the nation’s tangled securities laws and is part of a broad move by the GOP to deregulate financial markets.


Among other things, the proposed laws would:

* Limit the liability of brokers to institutional investors who suffer investment losses.

* Grant broad authority to the Securities and Exchange Commission to eliminate outdated rules.

* Relax rules requiring that investors receive detailed financial information before the purchase of securities.

* Eliminate disclosure requirements on firms considering launching corporate takeovers.

* Amend the SEC’s mission to include not only protecting investors, but also ensuring the efficient formation of capital.

The bill would also preempt state laws governing securities transactions and reduce the size of the SEC to three commissioners from five.

“This initiative represents the most significant revision of federal regulation of financial markets since the Great Depression,” Fields said in a statement.

He added that the proposal “will serve to open debate on a vast array of provisions to eliminate unnecessary regulation and lower the cost of capital to American business.”


The proposals were greeted warmly by the securities industry.

“We’re very enthusiastic about . . . taking a fresh look at securities laws and trying to find ways to modernize them, strengthen capital markets, improve investment opportunities for consumers and strengthen the economy as a whole,” said Stuart Kaswell, general counsel of the Securities Industry Assn. in Washington, which offered suggestions to Fields in drafting the legislation.

But Democrats, led by Massachusetts Rep. Edward J. Markey, characterized the initiative as “a solution in search of a problem.” He argued that record stock market prices show that American business is having little difficulty raising capital, and said the proposed reforms would “free Wall Street takeover artists to prey upon Main Street American companies.”

Markey was joined by state securities regulators and the Consumer Federation of America, who argued for keeping state regulatory mechanisms in place.

Investors examined the proposed legislation warily.

“It is a poor day for the individual investor to strip away protections that have existed for decades,” said Patrick Grannan, the Los Angeles-based partner of Chimicles Jacobsen & Tikellis, a law firm that specializes in class-action shareholder lawsuits.

He said the proposal is “part of an overall effort . . . to make it difficult, if not impossible, for private and individual investors to protect themselves against fraud.”

Pension funds and other institutions were worried about the proposal to limit the liability of brokerages that recommend investments that ultimately lose money.


In California, the question of liability is at the heart of a $2-billion lawsuit by bankrupt Orange County against the Merrill Lynch & Co. investment firm, which sold money-losing securities to a county investment pool.

“Accountability is one of the fundamental issues we face,” said Alyssa Machold, deputy director of the Council of Institutional Investors in Washington.

Kaswell at the securities industry association downplayed such concerns. The proposed legislation simply “makes clear that when institutions . . . make their own investment decisions, they have to accept the consequences of those decisions, and they can’t say after the fact that . . . you have to buy them back.”


Congress opens debate to dismantle housing, environmental and other social programs. A1