chairman the manager's amendment to the investment protection act contains numerous technical clarifying grammatical and conforming amendments that remedy drafting correct oversight streamline legislative language and improve the intent of the bill manager's amendment also contains a number of more notable modifications for example in the section on fiduciary duty we have provided new language to clarify that investment advice subject to produce commission to complete horsemen investigations and compliance examinations and inspections this provision is important and that i believe we need all the commission to the buyer to make sure that they complete their views and bring  quickly we have also made minor changes to the provisions on municipal securities in the manager's amendment the effective date for greater independence on the municipal securities roll making board is changed to and ten and the securities and exchange commission is authorized about qualifications for board members furthermore we delete the bills existing language related to requiring the securit investor protection corporation to put in place a risk assessment and provide a study by the government accountability office on the feasibility of establish such an assessment system for broker dealer last republicans and democrats have both offered legislation to address these concerns i'm hopeful that some of the bills that are sent to the house will incorporate portions of the republican financial regulatory reform plan including providing the enhanced enforcement powers and providing victims of financial fraud with additional really and thus provides a sound foundation on which to build a bipartisan consensus on investor protection the draft bill also eliminate arbitration agreement financial regulatory reform should not serve as a financial windfall for trial lawyers in addition the discussion draft does not go far enough in a restructuring  unquote in order to meet the fiduciary standard language clarified that in order to meet the best broker dealers and their reps will not be required to be knowledgeable and make recommendations to their clients from the universe of all financial products available in the marketplace there are literally thousands of products available and so it would be impossible for anyone to be knowledgeable of all these products available in the market again mr chairman i want to thank you for your great work and the rest of the committee bipartisan work on this bill i do believe this amendment clarifies and improve the manager's amendment to make these rules and then kind of giving them authority on one hand and taking it on the other hand and i think they could conceivably be s broker dealers in the manager's amendment better protect retail investors fearful that it will not furthermore imposing a new standard on the brokerage industry fails to recognize the  investors and so for example my own family savings most of it is a number of mutual funds with fidelity obviously a name of which many americans portfolio i may want to trade a particular mutual fund but in doing that as i make the decision to do that whatever voices on the other end of the telephone and tell them here's be able to trade their own accounts much less access any information at all and so again the purpose is clearly there would be a fiduciary standard at the time of the transaction but once  again i may deal with whatever voices on the other end of the telephone as opposed to a professional investment advisor relationship which has to be one one advisor and one particular investor at the end of the day my fear is  that increasing the liability standard you would end up denying affectively tens of millions of people a service that they value that otherwise would either disappear from the market or would have to be transactions a transaction go to developing relationship we're not less choice for the opportunity or the protection of investors we're increasing it and we're encouraging  investors really as a career stepping stone this idea of the revolving door is not foreign to members of congress who must comply with post employment restrictions like cooling off period before they are able to go and lobby for example during a sen keep them as long as we possibly can but they're not created by they're walking out the door and going to a farm leaving everybody to wonder whether they showed some paver to that during their time so it's a very important issue for the integrity agency and its credibility i'm not sure how to talk before we impose post employment restrictions or overreach in ways that could be detrimental to the ability to hire top experienced employees we should conduct a study of this s issue between the and wall street for some time and two things quickly become clear a revolving door does exist and that there has been insufficient data collected to put our fingers on the scope of this problem remember directs the g a o to study and report to the committee the answers the questions that we need to know before we can address it namely we need to know how long people are staying at the where they're going after and how much they make when they leave we also need to know what if any internal therefore i ask unanimous consent to strike everything after the words grant program on line eight page four paragraph little quote commissioner of the securities and exchange commission title referred to as the commission training for regulators prosecutors and law enforcement and providing educational materials to increase awareness and understanding of dozens of states have already adopted rules to protect their citizens a number of other states are looking at them now moment is going to be controversy has passed this committee and another piece of legislation before and in fact it passed the house floor in that in that condition this simply gives the f c c nationwide subpoena authority which virtually municipal securities in the division of trading and markets of the came before the committee she said this authorizing the commission to require financial advisers engaged in the activities covered by the proposed legislation to have minimum qualifications follow conduct rules designed to ensure they deal fairly with their clients eliminate pay to play activities and avoid or disclose conflicts of interest would help prevent harm to taxpayers and citizens depending on the infrastructure finance with municipal securities for clean water or they advise and financial advisors are those individuals or firms who for compensation provide advice on producing a related disclosure investment of bond proceeds and hedging and related risks related to the first and legislation that is now the subject of the amendment before the committee and at that hearing i indicated the gentleman mowhoush said that the legislative proposal to regulate on regulated m the and so that's why the amendment is structured the way it is but i am happy to work with him as we proceed forward i appreciate his support for the concept and i appreciate his support for the amendment and i am happy to work with him and the staff of the committee let me hold to see if we have a copy also rush to litigate and this amendment gets to the ability of the act itself that would permit the f c c to prohibit arbitration of disputes between consumers and and and others when there is a and an individual that believes they've been agreed this amendment would allow the pre dispute arbitration to go forward and speed arbitration as you know is oftentimes a more fair and efficient and less expensive option many studies have shown that arbitration offers either comparable or even more favorable financial outcomes than litigation it is usually less expensive than litigation and allows the injured party to be compensated more quickly than traditional courts the language in the bill would increase litigation costs and we believe strongly i believe strongly that the pre to speed arbitration is is something that actually helps facilitate  remove choice from the investor and the reality is you know when we have an opportunity to give people a good decision and if this is such a good proposition that it should be mandatory then investors will have the opportunity to make the election on their own part to have arbitration or that they will have a choice of working with other alternatives on the basis of that i think stands for the proposition that we should give and protect high frequency trading potentially has on the smaller long term investors and i'm also concerned about the impact it may have on liquid market overnight what we're asking there's been eighty percent decrease in the number of i p o s initial public offerings in the united states between two thousand and one and two thousand and eight as compared to the one thousand nine hundred eighty percent decrease i mean some of those companies that want to go public aren't going public see the burdens of being publicly traded in the reporting requirements go public and they do so by going to london going to exchange they're going public they're taking the jobs they're taking the opportunities there this law has made america less competitive in the world of finance we've chased business we've chased job opportunities and i p o s out of this country prince with the london now london is replacing new york as a most attractive money market for international companies that's not good for america's economic health in two thousand year two thousand and five survey the list on the london stock exchange ninety percent of those companies ninety percent cited sarbanes oxley as the chief reason why they listed in london rather than new york that's not good for america that's not good for jobs and i'm economic growth that's what we want to be about when companies decide to go public abroad and not go public here that does not help job creation didn't help the beginning this decade it's worse now is as we face is very very deep economic crisis recession many many americans who want to work and can't find a job when a company goes public invest in capital that company expands and jobs are understood the idea of scaling up proportional regulations for reporting under section four for we can get this right we can protect investors we can protect consumers we can also protect an i p o market that has died in the past  urge all members to support this and them and it's common sense it's for jobs it's on the it's for a sufficiently regulated private sector not too much like the last several years not too little just enough to get it right for america's future back to  glad to be joined the gentleman from new jersey for an issue that affects the medium and small sized businesses in our metropolitan area new jersey new york and connecticut but also the rest of the country as well i know you and i have spoken to small businesses around the area and they represent businesses and industries and trade associations that have been negatively impacted by a broad brush approach that has been  yet to find one who has had to detail and implement the costly requirements of the law to actually say to us what this is what the benefits that we've gotten out by implementing this legislation that we're able to have a better risk managers are able to run o company better that there's more information out there than we've had in past and that's been part of the negative side of the entire legislation not to say there isn't some positive but that's been the results we have been and then today i think is appropriate measured approach  to deal with the situation for the small and mid size companies to basically charge the f t c to go back and say you know there is a difference between a small company and one of a multinational public company as far as they're aware with all their ability to deal with these myriad and byzantine regulations and so we're going to try to have to address that and say that for them the big ones that they can more easily affordable implement these things but for the smaller mid size companies we're going to have to go back to the drawing board and come up with some internal controls for financial reporting that was a major part of section four of four this doesn't touch that all companies will be required continue to be required to have internal controls financial reporting you want them to have that you don't want to make that go away which is why i very much  there are a number of different standards of auditing and of review that could be put in place for smaller companies that they would do that would not obviate the requirement for financial control the requirement for internal controls of those financial standards and would not obviate the requirement for auditing them but simply would reduce the cost in proportion to the size of the company and the risk thereof so mr and i'd like to point out that type of companies did not cause the financial crisis it was a larger company enron and tyco and others and the companies are a very important part of the american economy in creating new innovative jobs we are seeing a very troubling in the financial markets where the jobs are moving where companies are listing on foreign exchange in one study over ninety percent of the people cited the reason that they went to london was the requirement burdensome requirements of sarbanes oxley now this amendment only a and these are the companies that create america's new jobs and help drive our economy often have very very slim profit margin and much of their available capital is possible to devote to their company and during help and assistance on this very important moment also appreciate the work on the previous and then in the camaraderie of the damage from new jersey where there's interest as well not realizing that our nation is in tough economic times and these times are compound if you're a small business guy and so the last thing we should be doing to small business during these new and costly regulations on top of the regulations that they can ill afford or they can ill afford i think we can all agree that our nation small businesses are not the reason for our current economic woes i always ask in the committee whatever we do we should be looking at the root causes and not doing it and outside of the area but small businesses everyone agree would not brought us to where we are today in fact small businesses are the very institutions i small businesses and if this is maloney said had been exempt from these reporting requirements and are still exempt now so i do realize as mr kanjorski said that a lot of in the industry a lot of businesses have already implemented the law and have internalized it but for this segment of the economy they have not they have been exempted during those period and they're telling us they do not want to come under it and they cannot afford it so this is simply kind of what the current status quo is now the  repeatedly extended this deadline to six months or a year at a time for small businesses to begin providing audit assessments of their internal controls and i think what that says by the f t c it's an acknowledgment of the continued concern with the compliance cos benefits this was especially true among smaller companies and that's exactly what we're trying to do here help the small guys in addition to having effect on individual businesses socks section for poor may have a dramatic effect on the competitiveness of u s capital markets as a high cost of compliance has the tension to cause public companies to go private or private companies from going public in the first place so this is different from what the chairman was saying before the old argument saying we're going to drive these things offshore i think that's still an argument you can make small businesses are probably not the ones that are going to go sure but small businesses hope someday to become big businesses and they hope will help one become public and what the studies have shown is that there's an incentive we're going to stay private outside the purview of a lot of regulations in that area and that's not something that necessarily good for the country so as our country struggles to emerge from recession the last thing america small businesses need is another barrier to economic stabilization so this very bipartisan manner would ensure that small businesses don't have this on us regulations that allow them to focus on what they should be focusing on creating jobs for the unemployed and getting our economy moving again i believe this man will lessen the burden section a for a foreign necessarily imposes on these businesses while continuing to a bolster transfer including interest earned from the dividends even though the correct address of the security holder at all time this issue is not unique to my constituent fact according to data provided can consider this when it gets to the floor thank you read gentleman from new york thank you mr chairman my amendment would take the important step of grandfathering existing agreements between investors and their brokers or advisors two weeks ago during the consideration of derivatives legislation we included a similar provision i offered in order to ensure that neither congress nor the changes the rules in the middle of the game at the same premise applies to this bill as well we must not forget th contracts are already in place for all participants knew exactly where they were what they were agreeing to nearly half of this country and invest in equities or by these individuals have signed agreements in place investors to protect this year alone we have more than five thousand arbitration cases have been filed with an average resolution under one year the system is definitely working it would be i was already in the process to change increased from forty percent up to seventy or seventy seven percent of my book that's good but that seems as though they have a ways to go and i would hope in this day for both sides of the aisle that we need to do everything we can for the economy and the taxpayer that they would try to find a most efficient and effective method confines as the chairman says with proprietary propriety to private information and i think that we certainly contract out in a number of other areas where we're dealing with confidential information and there are security clearances and everything else you can impose on them and i'm not sure that an issue with regard the f c c but i'm sure that can all be handled effectively if you put it in the capable hands of the  looking at taxpayers money that's going on collected because of our inability collecting i think the best of the taxpayers we should do whatever it takes to recover that money when people can violate i think is a travesty a travesty if we don't do everything that we can to make them more accountable for the people who put the question is on the images reclaiming my time then on that point i think that's an interesting a here and bring in those victims i'd be curious if we asked them who are you more concerned about going after those victims and getting back every penny on the dollar you possibly can or are you concerned about the unions the panel will say all care who i was taken by which scam i was involved and i'm still burnt by this i'm hurt financially if you have a senior citizen i don't care whether who took advantage of them they just don't know that they were taken advantage of they may have no retirement funds anymore and hundred eighty that examines how products are sold to retail customers and what information the customer should receive prior to purchasing promulgated rules to address the items identified within the study this amendment will strengthen point of sale disclosure by seeking to ensure that they are applied to all appropriate products under the amendment is pro investor providing investors with more consistent and comparable disclosures and additionally this campbell ninety two was the correct amendment yearly instead of quarterly or four times yearly financial statement this amendment would change the law to require only financial statements instead of quarterly financial statements and thereby align our financial reporting with many of the other public markets around the world now why might we want to do this and why are they doing that a lot of the discussion lately in this committee and elsewhere in this house since the financial crisis of last year has been about executive compensation and various things encouraged toward short term thinking where many compensation practices and other practices within corporate america were designed towards driving the quarterly earnings not caring about what happens a several quarters or a year or so down the line if the if we were to move to semiannual reporting instead of quarterly reporting it incur the gentleman than rather than four times yearly the point being that there are that it would align us with with other major markets around the world and it would start to encourage a little more long term thinking companies are not so driven by quarter by quarter by quarter but instead more by year by six months going to do this all by itself no but it will be a step in that direction the other thing it will do is we hear a lot about how much speculation had to do with some of the problems that we had last year and obviously the longer you have to wait between reporting periods the more you're going to discourage speculation encourage investment this also would clearly reduce costs at companies they would only have to have cut off public companies and been in a public company been executive in a public company doing those cutoffs every four times a year and making all the decisions on reserves and all that sort of stuff frankly is a little difficult and  interpretation of the law when it comes to the claw back where the gathering of the assets back and in particular the issue relates to the fact that people had received statements over the years that a particular thing led them to believe without any reason otherwise that they had a certain value of their investments they put money and some people took money out over the years to pay taxes obviously had paid taxes as their counts were allegedly increasing and now after all this fact heard the trustee is taking a position that apparently there are different legal interpretations but it appears at least in my reading of it to be inconsistent with the law and the way these have been treated in the past mr made off ponzi scheme as thought to be the largest securities fraud in modern history defrauded thousands of people obviously many of my congressional district both individually and it's had a great impact on our community as well and other places around the country through charitable contributions or has been a very dramatic impact by this failure the episode was an embarrassment at the we know the stories now about information was presented a long time ago and was ignored time and time again the received information didn't do anything with it and certainly there's anything we've learned about the scandal and this year the global economic crisis is that we need smarter oversight that doesn't mean the government has to check up on every move every investor but this means that someone like made off can't get away with this type of incredible scheme the committee is currently working on a number of bills that will significantly strengthen the financial regulatory system and i'm confident that these measures will achieve a smarter a comprehensive reform but it is essential for the american investors to know that when they put money in investment accounts and there's an s i p symbol attached to those accounts and those investment companies that there is trust and there's confidence that their investments will be protected and we're not a bad investments we're not talking all those kinds of things we're talking about the solvency and when when failures take place it's also important as i said to follow the law we know that there are some investors that participated and were complicit in this fraud and they along with mr made off and anybody else who was involved need to be punished they need to be consequences need to be the book needs to be thrown at them and they just on the rest are live in jail from my perspective but there are a lot of people most people who participated directly through that they put directly into made up accounts or through feeder funds where they participated through investing in accounts or even those large as one billion dollars and now they're finding out that there's nothing there behind them so the purpose of the  eness and consistency and ongoing forward basis arum and i know that this committee indicated an interest in looking at the whole investor protection system including the whether it's properly funded whether it has exclusions which will undermine the confidence of the american investor as we rebuild the economy we need to make sure that people know when they put their money in that that money will be secure and there's a fund of acted up and that means you need to be enough money in th fund and that participants who fund it put enough money in there so if you have a major failure that there will be enough money to account for that and secondly that there's a fairness doctrine that goes along with it so mr chairman the purpose of the amendment as i said is to offer a way that congress believes is appropriate for consistency and interpretation made off investors i know that has indicated that he is offered to bring together create a structure which would solve this particular problem the amendments that i'm offering go to how to do that in a way that would empower those and ensure that those who come forward in my district were in union pensions they had no whatever you think of the particular building trades that did these pensions certainly their workers are innocent victims of this and anything we can do to avoid this kind of think the advantage of this was laid out during the testimony but i would just i would just as an example the national transportation safety board for example uses a a model exactly this type of endeavor this is an agency whose mission is to investigate accidents and provide careful and conclusive forensic analysis and make recommendations for avoiding such in the future and so manager make sure the investment manager uses an independent third party custodian the proper allocation to hedge funds from zero to twenty five percent of total assets and so forth this is the type of thing that can be publicized at the  focus and your focus on ensuring that such protection is effective in the marketplace in particular the enhanced disclosure requirements of the new fiduciary standard will help ensure that consumers have important about their relationship to broker dealers an investment advisors ultimately this will result in consumers making more informed investment decisions to further this goal of an amendment that is technical but an important clarification in other words it would help us determine what the bill is about and what it's not about specifically my ma'am it would make it explicit what is already implicit in the current legislation before it would clarify that we are in fact establishing the fiduciary standard that applies to personalise investment advice about security this clarification would make the language consistent with other references within the legislation before us as well as the federal securities laws that we  standard to protect the best interests of the retail investor the bill currently states that the state of conduct for investment advice should be without regard without regard to the financial or other interest of the broker dealer investment adviser advice this is important i'm supportive of that strong standard but the language should not be misconstrued in any way that could undercut our efforts to get consumers a crucial investment advice they need about making but my full statement on this in the record but i too would would support the gentleman's amendment but also the gentleman is withdrawing the amendment if we if we can continue to work on it without  mr chairman there is a broad consensus that the f c c fell down on this responsibility to protect investors maintain their orderly and efficient markets and facilitate capital formation by completely missing bernie made off another ponzi schemes in recent years errors were so great that i believe significant structural and cultural changes are needed at the f t c in response to the significant mistakes the f c c has put out a document called the securities and exchange commission post made off reform is easily accessible from the spotlight section on the home page this document contains twelve areas in which the f c c is committing itself to making changes we all know how organizations bow to never let this happen again after a major scandal i think we need to hold the c accountable for its internal reforms this is why this amendment would require a report from the f c c to this committee and the senate banking committee of those stated reforms and progress in implementing them as we all know the f t c inspector general released a four that there are different from the f t c self announced post made up of forms mr chairman i urge the adoption of this amendment the effect of this amendment will be to allow the american public to see out government response to admitting agency failures in the same way the financial crisis inquiry commission was created to report to congress next year on the causes of the current financial and economic crisis in the united states we share the gentleman's concern of course as you know my subcommittee been holding hearings and will continue to hold hearings on this chairman we've all been outraged at the various ponzi schemes that have come to light recently the most egregious being bernie madoff almost sixty five billion dollars scheme for which he is currently serving eight hundred fifty years in prison the scheme only came to light because bernie madoff himself confessed to his son in fact according to the inspector general the f c c which had oversight authority over made off business had conducted two investigation and three examinations of made often vestment advisory business and received six serious complaints about made up operation between june one thousand nine hundred two and december two thousand and eight this is an appalling lapse clearly the wrong questions were asked and the information was not followed up on the f c c office of compliance inspection and examinations actually had two separate examinations going on in two different offices without either office knowing about the other examination and neither of these examination asked questions that would have revealed made off ponzi schemes and in neither case were legitimate concerns followed up on and the i g report shows that examiners didn't seem to understand how it made off executed cleared and settled as reported trades a key point that should have led to more questions the chairman has included a third party study of the f c c structure based upon clear deficiencies revealed in the f c c failed to identify both the made up and stanford ponzi scheme i applaud the chairman's effort and the efforts outlined by chairman shapiro in her post made off reform document but still believe that we need to get something done now the amendment would have the effect of strengthening the inspection and examination functions of the f c c by moving them back into the policy offices of trading and markets and investment management the original goal of separating these functions was given t greater visibility however by separating the policy makers from the inspectors and examiners you lose the synergy of having all those folks in one place and understanding how rules are created in the commission intentions for the rules this is key how can you expect an exam and  business if you don't have a good understanding of what you are looking for or why how can a pipe organization successfully execute it's charter mr chairman i've had discussions and even today with chairman shapiro and  deal with the problems we have identified currently sipek which advances money to investors who have lost due to failed brokerage firms like made off treats individuals and pension plans identically individuals are limited at five hundred thousand and pension plans are limited to five hundred thousand per plan so pension plans of multiple participants as are many in my congressional district affected by the made up scandal and funds meant to support the retirement of hundreds of thousands of retirees are only eligible for the same invest protection as one individual we feel this inequity makes no sense union pension funds and that around my congressional district have been hit hard by the atrocious actions of bernie madoff and his now infamous ponzi scheme more than thirty upstate new york labor funds were invested and made had invested in made up these labor pension funds invested over three hundred million dollars and made off which has exposed nearly sixty thousand retirees to deep devastating losses some funds are more than fifty percent exposed destroying so many retirement funds meant real financial insecurity and sometimes hardship for many of our my hardworking constituents amounting to postpone retirement and increased fees for enrollees in customers just one tangible result i'd like to mention local plumbers in my district nearly double the hourly rate they have to pay i am please the investor protection act includes a number of civic related reforms including that would make the fund more adequately capitalized however more needs to be done including clarification proposed in our amendment i wholeheartedly dealing with taxpayers money directly here in the sense all of their monies and expenditures are derived from placed on transactions within the securities industry regulations and if i could give a little proportion here what we're talking about his potential expenditure as much as a billion dollars or a billion dollars a year more than is being expended now now if you less materially the likelihood of that last fourteen trillion dollars i think that's about the best definition i've ever heard penny wise pound foolish we do not heard and this would be a great have been a great bill to have had a hearing on and to bring in all the folks who have lost in the made all situation or made up like situations to have them come before the committee and if we were to say to them  guess what we're going to give that same agency that failed to listen to mr mcardle as when he came to tell them that there was all problems they did nothing for a year after year after year and all the other scams that went along and no one ever caught  really be curious what they would have to say when we're going to say we're going to give them that same agency about one hundred percent increase over time and yet there's been a very few very few changes at the top of the very top there was but we've looked into strong and as i concur with his appealing and their answer was basically nothing and i'm so we wrote a letter to the f c c about this and said you know who are these people that did this and were responsible and what are you doing about it and they said well as you are aware these employees have certain legal rights and they must be fully respected our intentions are to be fair to our employees and to take whatever disciplinary action is appropriate under the circumstances you know it's not different at the couple people the top of change but it's the same employees that we're talking about and we're not saying don't give them any raise don't give people any raises or any bump up snow on the telephone texas is looking about a fifty percent increase none the less the going forward and i know the general from pennsylvania says we've already looked at the issue of best practices and all those things will cost money well there i beg to differ some of those things may cost more money but i think again there was questions from the other side of the aisle on this earlier on back changes to an organization sometimes and sometimes those changes actually save you money and sometimes they cost the same but what we were looking for was a restructuring of the agency and here we are so that year after whatever the time after of the of these scandals we haven't gotten anything other than they're going to treat these people nicely they're going to look into changes and congress is doing what congress always does solve the problem by throwing one hundred percent more money to people over at the agency who are responsible and i didn't see whether it was the top or the bottom or the middle i'm talking about what the common man on the street is looking at this and he's looking at an agency nobody no one's looking at the political issue on the is out there protecting the investors were actually suggesting just the opposite to make sure that that does it's job for the first time in a long time regarding part of putting politics all sides and saying you know how do you do that well you suggest a study and looking into it good the f c c inspector general has already made a series of recommendations in a recent report to address the deficiencies in the office of in force money so how about we make sure that those studies are listened to implemented and then have the f c c come back to us and say this is what it's going to cost to implement those recommendations give us the money to do that then you also say we should do a study to do other things good let's do those and then have the f c c come back to us and say here's what we need to do a b c x y z this will protect all the investors like you and i think we should and here's what it's going to cost and then we can discuss it here whether we give it to him and i would probably say if that's what they say needs to be done fine but to go before and say we're going to give a hundred percent increase before before they took care of the answer to our question as far as what happened to the people who are involved in these other i'll call them what they are scandals before they implement what the inspector general has suggested that they do before they've done the study and said this is really what else we need to do before they've done anything else we're going to say here's money for them no business in the private enterprise in the entire country would operate this way if we heard the c e o s of or any other of these wall street companies that have had i would ask members have remembered to bring them forward we have an hour and a half when we may be able to complete the work