Levitt Opposes Bill to Change Securities Laws

Securities and Exchange Commission Chairman Arthur Levitt said he opposes a House bill that would drastically overhaul the nation’s securities laws, and analysts said his opposition makes passage of the bill unlikely.

Levitt declared his opposition to the so-called Fields bill in a letter to Rep. John Dingell (D-Mich.). The letter was written Tuesday and made public Wednesday.

Rep. Jack Fields (R-Texas), chairman of the House Commerce subcommittee on telecommunications and finance, introduced a revised version of the bill Tuesday, dropping two controversial provisions but keeping many others.

The bill would still eliminate much of the states’ role in regulating brokers and securities, change the SEC’s fundamental mission, relieve brokerage firms of some responsibility to make sure that the securities they sell are suitable for their clients and reduce stock exchanges’ oversight of brokerage firms.

In the revised version of the bill, which he introduced last year, Fields dropped a provision that would have eliminated a current requirement that investors amassing large holdings of a company’s stock publicly disclose their holdings. That requirement was meant to prevent secret takeover raids on companies.

Fields also gave up a provision that would have repealed the Trust Indenture Act, which protects investors in corporate bonds in the event of a default. Even within the securities industry there had been little support for either of those provisions.

In his letter to Dingell, Levitt said: “I am disappointed that a broader consensus was not achieved, and that the revised bill does not address a significant number of the commission’s major concerns.”

Levitt said the nation’s securities markets are “delicate mechanisms” best regulated by the SEC. “I am not sure that additional legislation is needed to solve most of the problems in our markets today,” the letter states.

A spokesman for Fields said the congressman had no comment on Levitt’s letter. “I think Jack is hopeful that his bill is going to pass,” the spokesman said.

The subcommittee is due to begin debating the bill today.

Congressional sources and others who have closely followed the fate of the bill said Levitt apparently had delayed taking a formal position in hopes that Fields would revise it enough so that Levitt could support it. Fields’ decision to leave most parts of the bill intact, they said, left Levitt with little alternative. SEC officials declined to comment.

The bill has engendered strong opposition from consumer groups, local government officials and state securities regulators.

State regulators are concerned, for example, that the bill would take away their ability to ban dishonest stockbrokers from doing business in their states and would prevent states from reviewing offerings of new securities.

Some states scrutinize new offerings by small companies much more closely than the SEC does, and they contend that they have frequently ferreted out fraud and required increased disclosure to investors.

Neil Sullivan, executive director of the North American Securities Administrators Assn., the national organization of state securities regulators, lauded Levitt’s opposition and contended that the Fields bill “stands on the side of rogue brokers, penny stock fraud and fraudulent [securities] offerings.”

Levitt also specifically opposes a provision that would change the SEC’s stated mission, which currently is to protect investors. It would be given the new responsibility of fostering “capital formation.”

In his letter, Levitt said: “The primacy of investor protection enshrined in the securities laws has been one of the greatest boons to capital formation in U.S. history. To compromise on this point, even symbolically, would serve no one well.”

The revised bill Fields introduced also incorporates a less controversial, widely supported bill updating laws on mutual funds.