II 

108TH CONGRESS 

2D SESSION S. 2497

To amend the securities laws to provide for enhanced mutual fund investor 

protections, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

JUNE 3, 2004

Mr. LIEBERMAN introduced the following bill; which was read twice and 

referred to the Committee on Banking, Housing, and Urban Affairs 

A BILL

To amend the securities laws to provide for enhanced mutual 

fund investor protections, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Small Investor Protec5 tion Act of 2004’’. 

6 SEC. 2. DEFINITIONS. 

7 In this Act— 

8 (1) the term ‘‘Chairman’’ means the Chairman 

9 of the Securities and Exchange Commission; 
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1 (2) the terms ‘‘broker’’, ‘‘dealer’’, and ‘‘securi2 ties’’ have the same meanings as in section 3 of the 

3 Securities Exchange Act of 1934; 

4 (3) the term ‘‘Commission’’ means the Securi5 ties and Exchange Commission; and 

6 (4) the term ‘‘individual investors’’ means non7 professional, noninstitutional investors, as a class, 

8 including small investors. 

9 SEC. 3. DIVISION OF THE INVESTOR. 

10 (a) ESTABLISHMENT.—There is established within 

11 the Commission the Division of the Investor. 

12 (b) DIRECTOR.— 

13 (1) APPOINTMENT.—The Division of the Inves14 tor shall be headed by a Director, who shall be ap15 pointed by the Commission from among individuals 

16 who have—

17 (A) a demonstrated commitment to the 

18 rights and interests of individual investors and 

19 to the public interest; 

20 (B) experience in advocating for, edu21 cating, or otherwise assisting individual inves22 tors; and 

23 (C) knowledge of the financial markets. 
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1 (2) REPORT TO CHAIRMAN.—The Director of 

2 the Division of the Investor shall report directly to 

3 the Chairman. 

4 (c) DUTIES OF THE DIVISION.—The duties of the Di5 vision of the Investor shall be—

6 (1) to serve as an advocate for individual inves7 tors by— 

8 (A) assessing and advocating for the inter9 ests of individual investors; 

10 (B) providing views to the Commission and 

11 Commission staff as to whether policy proposals 

12 and proposed rules effectively serve, and, if ap13 propriate, how they can better serve, the inter14 ests of individual investors; 

15 (C) identifying areas of concern to indi16 vidual investors that may warrant or benefit 

17 from Commission action; 

18 (D) conducting qualitative and quantitative 

19 research to determine the information and other 

20 needs of individual investors; and 

21 (E) serving as a liaison between investor 

22 advocacy organizations and the Commission, 

23 and developing processes to receive meaningful 

24 input from such organizations and from indi25 vidual investors; 
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1 (2) to assist and educate individual investors by 

2 performing the functions performed on the day be3 fore the effective date of this Act by the Director of 

4 the Office of Investor Education and Assistance 

5 (previously known as the Office of Consumer Af6 fairs), as set forth in section 200.24a of title 17 of 

7 the Code of Federal Regulations, as in effect on the 

8 effective date of this Act, including— 

9 (A) developing and disseminating edu10 cational materials to individual investors; 

11 (B) receiving, tracking, and analyzing com12 plaints from individual investors about entities 

13 regulated by the Commission, and transmitting 

14 to other offices and divisions within the Com15 mission and to the Commission itself relevant 

16 information from such individual investors; and 

17 (C) providing information to individual in18 vestors concerning entities regulated by the 

19 Commission, the operation of the securities 

20 markets, and the functions of the Commission; 

21 and 

22 (3) to perform other functions to promote the 

23 interests of individual investors, as the Chairman de24 termines appropriate.
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1 (d) SMALL INVESTORS.—In carrying out this section, 

2 the Division of the Investor shall pay particular attention 

3 to the needs and interests of small investors. 

4 (e) VIEWS ON PROPOSED RULES.—Whenever the 

5 Commission proposes a new rule or an amendment to an 

6 existing rule, or otherwise solicits public comment on a 

7 matter of importance to individual investors, the Director 

8 of the Division of the Investor shall prepare a written sum9 mary of the Division’s views on the proposed rule or other 

10 matter, and the Commission shall include the summary 

11 in its Notice of Proposed Rulemaking or other public solic12 itation of comments. 

13 SEC. 4. OFFICE OF RISK ASSESSMENT. 

14 (a) ESTABLISHMENT.—There is established within 

15 the Commission the Office of Risk Assessment. 

16 (b) DIRECTOR.— 

17 (1) APPOINTMENT.—The Office of Risk Assess18 ment shall be headed by a Director, who shall be ap19 pointed by the Commission from among individuals 

20 who have—

21 (A) demonstrated experience in public and 

22 private risk analysis or in uncovering and inves23 tigating financial fraud or other financial mis24 conduct, or both; 
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1 (B) knowledge of the financial markets; 

2 and 

3 (C) demonstrated commitment to the pub4 lic interest. 

5 (2) REPORT TO CHAIRMAN.—The Director of 

6 the Office of Risk Assessment shall report directly to 

7 the Chairman. 

8 (c) DUTIES OF THE OFFICE.—The duties of the Of9 fice of Risk Assessment shall be— 

10 (1) to assess industry practices within the juris11 diction of the Commission to identify any risks asso12 ciated with those practices that could most likely 

13 harm investors and the public; 

14 (2) to develop strategies to address and miti15 gate any such risks, and prevent or lessen the poten16 tial harm to investors and the public; 

17 (3) to coordinate risk assessment and risk man18 agement activities throughout the Commission; and 

19 (4) to prepare annual reports to the Commis20 sion assessing areas that potentially pose the most 

21 significant risks to investors during the 3-year pe22 riod following submission of each such report. 

23 (d) USE OF INFORMATION.—In performing its duties 

24 under this section, the Office of Risk Assessment shall 

25 seek and make use of information from a wide range of 
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1 sources, both within and outside of the Commission, in2 cluding securities filings, information gathered in compli3 ance inspections and examinations, consumer complaints, 

4 tips from individuals working within publicly traded cor5 porations or the securities industry, academic research, 

6 and relevant information from industry and other sources, 

7 consistent with applicable privacy and other laws. 

8 SEC. 5. CONSUMER RESEARCH. 

9 (a) IN GENERAL.—Whenever it considers requiring 

10 significant disclosures to investors, whether in advertising, 

11 on web sites, or in documents required by law or regula12 tion, the Commission shall consider and give weight to em13 pirical evidence as to whether the proposed disclosure as 

14 a whole, including its wording, its format, the context and 

15 location in which it appears, and the timing and manner 

16 of its dissemination, is likely to meaningfully improve un17 derstanding by individual investors to assist them in mak18 ing wise financial decisions, and whether alternative dis19 closures would be more effective in improving investor un20 derstanding. 

21 (b) TYPES OF EVIDENCE.—Empirical evidence re22 ferred to in subsection (a)—

23 (1) may be qualitative or quantitative; 
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1 (2) should be of a type that relevant experts 

2 would consider competent and reliable evidence of 

3 the understanding of average investors; and 

4 (3) may include evidence developed by the Com5 mission or by others. 

6 SEC. 6. FUND SUMMARIES. 

7 (a) SUMMARIES REQUIRED.—

8 (1) IN GENERAL.—Section 12 of the Investment 

9 Company Act of 1940 (15 U.S.C. 80a–12) is amend10 ed by adding at the end the following: 

11 ‘‘(h) SUMMARIES REQUIRED FOR OPEN-END COMPA12 NIES.—It shall be unlawful for an open-end registered in13 vestment company to offer its securities for sale, unless, 

14 prior to completion of the sale, it provides to investors a 

15 summary of relevant characteristics of the investment, in16 cluding information on expenses, risk, and diversification, 

17 and any other information that the Commission deter18 mines will assist investors in making wise financial deci19 sions.’’. 

20 (2) EFFECTIVE DATE.—Section 12(h) of the In21 vestment Company Act of 1940, as added by para22 graph (1) of this subsection, shall become effective 

23 on the earlier of—

24 (A) the effective date of regulations issued 

25 under subsection (c); or 
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1 (B) 1 year after the date of enactment of 

2 this Act. 

3 (b) STUDY.—The Commission shall conduct a study, 

4 including usability testing where appropriate, to deter5 mine—

6 (1) the information most likely to assist average 

7 mutual fund investors in making wise financial deci8 sions; and 

9 (2) the best media and format in which to 

10 present such information so as to ensure that it is 

11 readily accessible and understandable to average in12 vestors. 

13 (c) IMPLEMENTING REGULATIONS.—Not later than 

14 1 year after the date of enactment of this Act, the Com15 mission shall issue final regulations implementing the re16 quirements of section 12(h) of the Investment Company 

17 Act of 1940, as added by subsection (a), and specifying 

18 the content and format of the summary required under 

19 that section 12(h), consistent with the findings of the 

20 Commission in the study conducted under subsection (b), 

21 except that such summary shall not exceed in length the 

22 equivalent of 4 printed pages of text.

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