Mutual Fund Regulation

Mr. ISAKSON. Mr. President, I wish to take just a minute to address 48 extraordinary hours in my life -- (Senate - June 28, 2005)

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MUTUAL FUND REGULATION

Mr. AKAKA. Mr. President, the Securities and Exchange Commission--SEC--has been impressively led by Chairman William Donaldson. Chairman Donaldson inherited an agency in turmoil. The previous chairman left an agency with limited effectiveness and demoralized staff. The SEC needed a vocal, imaginative, and forceful leader to restore the trust of investors.

Chairman Donaldson has accomplished much during his tenure, such as reform of the mutual fund industry, the implementation of Sarbanes-Oxley, the registration of hedge funds, while improving the integrity of exchanges. He has been the friend and protector of investors. Unfortunately, this has brought him a lot of criticism. I have been impressed by his ability to fight for what he considers to be in the best interests of investors and the public. I was deeply saddened when Chairman Donaldson announced his resignation. I am concerned about the future of the Commission after his departure.

In particular, I am worried about mutual fund reform. Mutual funds are of particular interest to me because they are investment vehicles that millions of middle-income Americans utilize that provide diversification and professional money management. Wealthier individuals can have their own investment managers and private bankers, or invest in hedge funds. Mutual funds are what average investors rely on for retirement, savings for children's college education, or other financial goals and dreams.

I was appalled by the flagrant abuses of trust among mutual fund companies that were discovered by New York Attorney General Eliot Spitzer and the SEC in 2003. Ordinary investors were being harmed due to the greed of brokers, mutual fund companies, and institutional and large investors. In November 2003, I introduced S. 1822, the Mutual Fund Transparency Act of 2003. I introduced legislation to bring about structural reform to the mutual fund industry, increase disclosures in order to provide useful and relevant information to mutual fund investors, and restore trust among investors. Several key provisions of the legislation were the requirements that mutual fund chairman and 75 percent of board members be independent. The transgressions brought to light made it clear that the boards of mutual fund companies are not providing sufficient oversight. To be more effective, the boards must be strengthened and made to be more independent. Independent directors must have a dominant presence on the board to ensure that investors' interests are the paramount priority.

I applauded the efforts of the SEC to adopt proposals that will improve the governance of mutual funds and that mirrored provisions from my legislation. Again, Chairman Donaldson and the majority of the commissioners have made great attempts to address the widespread abuse of investors by the mutual fund industry. The independence requirements are an important part of the Commission's response that will ultimately lead to improved governance, better protect shareholders from possible abuse, and improve the transparency of fees. The SEC requirements for an independent chairman for mutual fund boards and an increase in the percentage of independent directors to 75 percent are significant steps towards ensuring that independent directors are better able to protect shareholders' interests. I believe that the Commission must go forward with the independence rule and address the concerns raised by the Federal appeals court.

Several of my colleagues have written to the Commission saying that the reissuance of the rule would be inappropriate. I respectfully disagree. It is not out of the ordinary for outgoing agency leaders to move rules forward prior to their departure. The uncertainy of the future of the independence rule for the mutual fund industry and of the outcome of the confirmation process, require that action be taken on the rule as soon as possible.

On May 16, I reintroduced a modified version of my original bill, S. 1037, to further strengthen the independence of boards, make investors more aware of the true costs of their mutual funds, and prevent several key reforms from being rolled back. Legislation is needed to ensure that the increased independence rule is applied universally among mutual funds, not just those that rely on exemptive rules.

I look forward to meeting with Representative Cox to discuss mutual fund regulation, prior to consideration of his nomination by the Senate. It is my hope that Representative Cox will be as aggressive in protecting investors as Chairman Donaldson has been.

I look forward to working with all of my colleagues to enact mutual fund reform legislation. I support the efforts to move the mutual fund independence requirements forward and appreciate all of the hard work of Chairman Donaldson and the SEC staff on this important issue.

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Mr. AKAKA. Mr. President, I thank the Senator from Massachusetts for yielding me the time.

I rise today in support of the amendment to rectify the funding crisis for VA health care. You heard Senator Murray expound on this eloquently. This morning, the committee held a hearing on the revelation that VA is more than $1 billion in the hole for this year. With the VA's announcement, we at least now have an admission that the VA hospitals and clinics are in the red, and this is the first step in turning things around.

Despite the tremendous pressure to keep quiet, VA's dedicated providers have been forthright with us about the fact that they were raiding capital accounts just to make ends meet. There seems to be some confusion about what kinds of projects will be done because of the $1-billion shortfall. We have asked for a specific list from VA and hopefully we will receive that shortly. At the very least, we are talking about deferred maintenance, and anyone who is familiar with the military knows that deferred maintenance means trouble for our troops. The same is true for a hospital or clinic. The purchase and replacement of equipment directly impacts the quality of care provided. Let there be no mistake about that. Deferring capital projects may also mean that needed clinics--and there are more than 120 clinics in the queue--will never come to fruition. My colleagues in the Senate will be familiar with this issue. Indeed, we raised the issue earlier this year on the Senate floor. Unfortunately, VA officials denied that trouble was ahead. Our amendment is a way to fix the problem. But let me say that I am open to any approach that ensures the highest quality health care for our Nation's veterans.

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