How Fields’ Dream to Cozy Up to Wall Street Backfired : Legislation: The lawmaker’s securities regulation bill is being rebuffed en masse by the very executives he sought to please.

Just over a month ago, a former top aide to Rep. Jack Fields (R-Tex.), chairman of the House subcommittee on telecommunications and finance, placed a confidential call to business executives to explain the ins and outs of a bill that proposes the most drastic changes to the nation’s securities laws since the Great Depression.

“A bill this controversial is unlikely to be passed” during the current Congress, assured Stephen A. Blumenthal, who until May was finance counsel to Fields’ subcommittee and had helped in the early planning of the so-called Fields Bill.

He asserted that the bill wasn’t seriously meant to pass but was a gesture aimed at ingratiating House Republicans to Wall Street. Blumenthal said that the bill is House Republicans’ way of saying, “Here, Wall Street, look what we want to do for you.”

However, a bootleg tape of Blumenthal’s candid remarks in a conference call to clients of his new employer, a consulting firm called the Washington Research Group, quickly became a hot property in Washington, especially among the bill’s opponents. The recording also has emerged as perhaps the most embarrassing in a string of mishaps surrounding Field’s efforts to woo Wall Street by attacking securities regulation.

The stated purpose of the bill, introduced by Fields and co-sponsored by seven Republicans on the subcommittee, is to ease capital formation in America by getting big government off the backs of brokerage firms and investment banks.

But many of its provisions took Wall Street by surprise. Unexpectedly, Fields is being rebuffed en masse by the very executives he sought to please. Although Wall Street ardently desires specific reforms of securities regulation, the executives have expressed concern that the bill is so broad and radical that it might undermine confidence in U.S. securities markets. They also fear that a backlash against it may derail the drive for more limited reforms.

“We have a system that’s the envy of the world,” largely because our regulatory system has inspired global confidence in U.S. markets, said Theodore Levine, general counsel of PaineWebber Inc., the nation’s fourth-largest brokerage firm.

Levine, once a senior lawyer in the Securities and Exchange Commission’s enforcement division, said he is expressing a personal opinion and not necessarily that of PaineWebber. But, echoing a sentiment expressed by other Wall Street executives, he said the bill “is really fixing something that isn’t broken.”

The reaction has been so strong that Fields is backpedaling. In an interview, he confirmed that “we’ve heard some very negative comments” from Wall Street executives, although he maintains that there is wide support for revising the major securities laws passed in the 1930s. But he said he may back down on major provisions in the bill.

“I am not locked in that we have to do any or all of the things” in the bill, he said. “It is important for you and everyone else to understand that we are not going to compromise market security.”

Fields contended that he never meant it to pass in its original form, stating that it was simply intended “to get the debate going.” He added: “After the Democrats being in power for 40 years, I have a responsibility to put everything on the table.”

Under Speaker Newt Gingrich (R-Ga.), House Republicans have won a reputation for tight organization and being able to ram through legislation. But the drama surrounding the Fields Bill shows that their efforts to rewrite the nation’s securities laws are not yet as well polished.

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What went wrong?

For starters, Congressional staffers said Fields’ preparation of the bill was unorthodox and marked by unusual secrecy. Especially on bills that propose to overhaul major sections of federal law, Congressional drafters typically consult the agencies involved, such as the SEC, and other outside experts, to avoid mistakes and unforeseen consequences.

Although the subcommittee early on had solicited suggestions from Wall Street firms and other groups, and had alerted the SEC that a reform bill was being considered, the Republican staff consulted no one during the actual drafting. Fields confirms this but declines to offer an explanation, instead insisting that the SEC and others had adequate chance to give input.

The key drafter was someone who had had only limited experience with securities laws, people close to the subcommittee say. The bill was drafted almost exclusively by David L. Cavicke.

Cavicke, 34, joined the House Commerce Committee, which includes Fields’ subcommittee, at the end of May as Blumenthal’s successor as finance counsel. Cavicke’s experience with securities law had been limited to three years as an associate with New York law firm Milbank Tweed Hadley & McCoy, during which he worked for the firm’s banking department and spent much time on pro bono work unrelated to securities, lawyers at the firm confirmed.

Wall Street executives are scratching their heads about where several major provisions in the bill came from. But Congressional sources say the mystery can be explained by Cavicke’s pet peeves.

For example, there is an especially contested provision that would repeal the Williams Act, which protects corporations from surprise takeovers through secret raids on their stock. Marc E. Lackritz, president of the Securities Industry Assn., the Wall Street trade organization that has lobbied hard to slash some regulations, said, “I’ve not found anybody yet that’s supportive of repealing the Williams Act.”

Similarly, the bill calls for abolishing the seemingly obscure Trust Indenture Act of 1939. Although few investors have heard of it, the act for 45 years has provided the backbone for confidence in the corporate bond market, protecting investors’ interests if a company defaults. Wilbur L. Ross Jr., senior managing director of investment bank Rothschild Inc., said he knew of no one on Wall Street who favored abolishing the act.

People close to the Republican staff of the subcommittee said Cavicke put these provisions in, based on personal unpleasant experience while toiling as a young associate at Milbank Tweed. Cavicke sometimes worked late into the night complying with what he considered unnecessary, technical requirements of the Williams and Trust acts.

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Cavicke declined to answer any questions about his role in drafting the bill. “As a matter of policy, we [Congressional staffers] don’t comment on the record,” he said.

The bill also includes a provision banning state governments from regulating investment advisers, giving all responsibility instead to the federal government. In their haste to draft the bill, Fields and his staff failed to notice that Sen. Phil Gramm (R-Tex.) had already proposed doing just the opposite, giving all responsibility to the states. Gramm’s support as chairman of the Senate subcommittee on securities would be crucial to ultimate passage of the Fields bill. Staff members said Fields is now ready to endorse Gramm’s stand.

Washington lobbyists and Wall Street executives said Fields probably could have avoided some of these pitfalls if preparation of the bill had been more open. But some aides to subcommittee members said Fields was so insistent on secrecy in drafting the bill that the operation took on the feeling of planning for a commando raid.

Democratic staff members of the subcommittee said they weren’t given any preview of the bill, and said they believed they were deliberately misled that it wasn’t going to be introduced until this fall. The SEC and state securities regulators were given no warning that the bill was about to be filed.

Although Fields denies there was any secrecy, Congressional sources contend that Fields was anxious to orchestrate the filing to make sure he got credit for a major securities reform bill. In particular, they said he wanted to keep from being upstaged again by an upstart freshman on his subcommittee.

Just 10 days earlier, Fields had delegated some responsibility to subcommittee member Rep. Daniel Frisa (R-N.Y.), a first-term Congressman, to help review possible reforms of the SEC as Congress considers the SEC’s budget. Frisa would seem an unlikely candidate to evaluate the finer points of securities law--he is not a lawyer, and his limited experience with business before entering politics included some years as a salesman and assistant manager at Fortunoff department store on Long Island. In an interview, Fields insists that he had only asked Frisa “to work with me.”

But without consulting Fields or Commerce Committee Chairman Thomas J. Bliley Jr., Frisa on July 17 issued press releases headlined, in big letters, “Frisa to Spearhead SEC Reform.” In it, Frisa announced that “he will lead a Commerce Committee review of the SEC.” Another was headed “Dan Frisa: Wall Street’s Congressman.” Congressional staffers said Fields was furious about Frisa’s unauthorized grab for credit.

Fields denied that the Frisa episode had anything to do with the way the his bill was introduced. But he confirmed that “when I saw press releases saying he was going to spearhead the effort, we did talk about that and he apologized.”

Frisa didn’t respond to more than six messages left by The Times seeking comment.

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However, no sooner was the bill introduced than the effort suffered a major blow from someone else who had been inside the Fields camp: Blumenthal. In the taped conference call he suggested that the bill was meant to ingratiate House Republicans with Wall Street.

“It’s a way of them showing Wall Street that there’s a difference between Republican and Democratic control of the House of Representatives,” Blumenthal said. Some critics, including state securities regulators, contend that means the bill was intended primarily as a Republican fund-raising tool.

Fields confirmed that he was angry about the conference call. “He spoke as a private citizen” Fields said. “In my view his analysis is absolutely wrong.” Fields acknowledged that the leak of the conference call may have hurt the bill’s prospects.

Blumenthal declined to be interviewed but faxed a copy of a letter in which stated that “it is our position that Congressman Jack Fields is engaged in a historic undertaking of enormous benefit to the country.” He also sent a note to The Times asking that it not quote from the tape because he said it is copyrighted.

Meanwhile, a proposal in the bill to eliminate most state securities laws has evoked a storm of protest from state securities regulators and investors groups. State regulators have been in the vanguard of cracking down on major frauds involving small investors, taking the initial lead, for example, in prosecuting penny stock violations and the massive Prudential Securities limited partnership fraud. The North American Securities Administrators Assn., the national organization of state regulators, has said it views the bill as an attempt to eliminate state oversight of Wall Street firms.

The reaction has left some Wall Street executives fearing an unintended consequence of the bill--that state regulators, anxious to prove their worth, may step up or more publicly advertise actions taken against Wall Street firms.

Fields denies that the bill was intended to gut state securities regulation, and signaled he is ready to water down the provision. “We’ll sit down with the states and try to work through a compromise,” he said.

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The “Fields Bill”

Officially known as the Capital Markets Deregulation and Liberalization Act of 1995, major provisions would:

* Drastically curtail state securities laws, and limit state securities regulators to enforcing federal laws and standards. For example, states would be prevented from having tougher standards than the federal government has for licensing individual stock brokers.

* Release brokerage firms from liability for recommending securities that may be unsuitably risky for institutional customers, such as municipal governments and pension funds.

* Reduce the number of Securities and Exchange Commissioners to three from five, and fundamentally change the SEC’s mission. Currently, all SEC decisions must be consistent with “the public interest” and “investor protection.” The bill would additionally require the SEC to take into account “promotion of efficiency, competition and capital formation.”

* Eliminate most of the Williams Act, which protects corporations from hostile takeovers carried out through secret raids on their stock. The Williams Act requires public disclosure when any investor intends to take over a company or acquires 5% or more of the company’s stock.

* Repeal the Trust Indenture Act of 1939. The law protects investors in corporate bonds, by giving an independent trustee detailed responsibilities for looking out for their interests if a company defaults on its bond payments.

* Eliminate the requirement that investors be sent a prospectus before they buy newly offered securities.

* Limit inspections of brokerage firms books and records for rule violations. The bill would require that only one stock exchange or the National Assn. of Securities Dealers would have responsibility for inspecting each brokerage firm. Currently, more than one exchange examines larger firms’ records.

--SCOT J. PALTROW