Senate Panel Backs Banker to Head SEC

Investment banker William Donaldson edged closer Tuesday to becoming the top U.S. markets cop as a Senate committee backed his nomination to become chairman of the Securities and Exchange Commission.

The full Senate was expected to vote, possibly as soon as Tuesday night or today, on the White House’s nomination of the 71-year-old former chief of the New York Stock Exchange.

If confirmed as expected, Donaldson would immediately face two major challenges upon arriving at the SEC to replace Harvey L. Pitt: finding a new sheriff for corporate accountants and laying down the law with Wall Street analysts. Both were being viewed as key tests of how he will approach the job.

“He’ll face a daunting task as the new chairman of the SEC,” said Sen. Paul S. Sarbanes (D-Md.), ranking minority member of the Senate Banking Committee, which voted unanimously in favor of forwarding Donaldson’s nomination to the full Senate.

First, Donaldson will have to name someone to head a new national accounting oversight board. The bungled establishment of the board last fall cost Pitt his job and prompted a congressional investigation that sharply criticized the SEC.

Donaldson testified to the Banking Committee last week that his No. 1 priority would be to find a chief for the four-member board, which has begun working under a temporary chairman.

Second, Donaldson probably will have to guide the completion of a $1.4-billion settlement deal with Wall Street’s largest brokerages that involves several official probes of stock analyst research, as well as the regulations expected to follow.

Federal and state officials have been circulating drafts of the final terms of the settlement, said Christine Bruenn, securities administrator for the state of Maine and president of the North American Securities Administrators Assn.

Congress last summer ordered adoption by July 30 of rules for analysts that require more disclosure of potential conflicts of interest and clearer separation from investment bankers inside brokerages.

In addition to the analysts and accounting board problems, Donaldson was expected to be confronted with other urgent issues as the SEC tries to restore investor confidence damaged by the scandals amid a three-year bear stock market.

President Bush has sent Congress a budget for the federal fiscal year starting Oct. 1 that includes $841.5 million in SEC spending, almost double the fiscal 2002 level.

Finally, Donaldson will have to address “the very large number of enforcement cases that are pending,” former SEC Chairman David Ruder said.