Keeping an Eye on the Funds
Low-key congressman watches out for `the investor class'
Richard Baker is not the most obvious candidate for the role of mutual fund watchdog in Congress.
First, he's a very conservative, nonheadline-seeking Republican House member, who wouldn't appear to be eager to make trouble for big business. (The U.S. Chamber of Commerce gives him a rating of 95 percent for his pro-business votes.) His east-central Louisiana district surrounding the state capital Baton Rouge is a world away from the caverns of Wall Street. He's a staunch free-marketer and, though a real-estate broker before joining the Louisiana Legislature and coming to Congress in 1987, his modest background didn't prepare him to take on giants of finance.
Yet Baker, the leading congressional advocate for tougher regulation of mutual funds, views his position as a natural one, even an ethical one for the son of a Methodist preacher. His populist role, meanwhile, sits well with the Louisiana political tradition. "It is unfortunate that Republicans are characterized as being for big business no matter what," says the nine-term congressman. "It's pretty simple: Some of these companies are abusing their privileges. And the investor class has grown; it's people in my district, in all our districts. This is no longer just a few rich people throwing money at Wall Street."
Elected to the Louisiana state Legislature at 23, Baker began his career as a Democrat, switching parties in 1985 when GOP leaders asked him to run for a House seat that became vacant when the congressman ran for the Senate. When the Republicans won control of the House of Representatives in 1994, Baker became chair of the House subcommittee overseeing financial markets. In recent years, he has championed fairly tame legislation to combat corporate fraud and toughen regulation of investment banking practices following the Enron scandal. And he has, with little success, sought stronger oversight of powerful mortgage financiers Fannie Mae and Freddie Mac.
But in recent months, it has been the trading scandals of the $7 trillion mutual fund industry that led Baker to call for a more active federal role in regulating the nation's financial markets. Last June, Baker introduced legislation seeking greater disclosure of mutual fund fees. He didn't get far. That changed last fall, after the scandals became public and the House in November passed--by a vote of 418 to 2--his bill intended to crack down on abusive trading practices and limit conflicts of interest by fund managers. The Senate is expected to address the matter this year.
Political element. Even in this election cycle, Baker predicts some legislation will pass, especially if the allegations of fund abuses deepen. Others on the Hill seem less sure, saying the recent market run-up has taken some of the sting out of the abuses, which largely involved institutional investors. And they note the lack of public outrage that led to the Sarbanes-Oxley corporate governance law in the wake of the Enron and WorldCom fiascos. But the legislator points to the potential benefits of passing pro-investor legislation in an election year and denies trying to co-opt the issue from Democrats who have accused Republicans and the Bush administration of being too close to big-money contributors. "Certainly, there is a political element to it; the investor class is quite large and diverse," he says. "I have a long history of trying to protect the growing investor class."
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