Keeping an Eye on the Funds
Low-key congressman watches out for `the investor class'
Congress-watchers in the financial services industry are somewhat skeptical about the need for legislation along the lines of what Baker proposes. They believe the Securities and Exchange Commission already has the laws and tools to regulate funds adequately, if given support for tougher enforcement from the White House. "I think there may be some frustration by Mr. Baker that historically the SEC may have moved too slowly," says Geoff Bobroff, a consultant to the money management industry. "When [New York Attorney General Eliot Spitzer] ratcheted up his enforcement action, there's no question that influenced Congress."
Like skeptical legislators, Bobroff adds that some of the steam has been taken out of the legislative push by the stock market's steady rise. "Investor sentiment has improved" with the Dow Jones industrial average's 25 percent jump last year and continued run-up this month, Bobroff says. "There is probably a great deal less angst about `Oh, my 401(k) statement.' "
Unlike some in Congress, Baker publicly professes support for the actions of Spitzer, whose investigation into mutual fund trading abuses led to charges against fund companies and executives, forcing some high-level resignations. But Baker proudly notes that he introduced his bill in June, before Spitzer's findings were announced. "I don't fault [Spitzer] for doing what he has done," he says, "but frankly, the Congress was out in front of him on all counts."
Federal muscle. Even so, Baker remains a firm believer that it is the job of the federal government, and not the states, to regulate the financial markets. After Spitzer settled with Merrill Lynch for $100 million over allegations of conflicts of interest by its analysts, Baker wrote a letter to the nation's other 49 attorneys general asking them not to follow Spitzer's example and threatening them with legislation that would curb their powers. They let Spitzer take the lead.
Baker's bill would bar insiders from short-term trading in shares of their own funds. It would also require that at least two thirds of a mutual fund's board be independent of the money manager who chooses the investments for the funds, a standard that, not surprisingly, has drawn opposition from the fund industry. Baker also would seek restitution from the fund companies, and wants individual investors to "be made whole" by imposing stiff fines and penalties on funds and their managers who run afoul of standard trading practices. And he is pushing for disclosure of mutual fund fees, requiring fund companies to show in their reports to investors how much they are paying in operating fees on a hypothetical $1,000 investment. The fund industry takes the position that funds can continue to be regulated by the SEC and, while publicly supporting fee disclosure, argues that legislation to force this could end up costing investors more.
Though Baker maintains that most of his financial services battles aren't done specifically for the benefit of his district--which has few direct ties to the industry, except for the investments of its residents--he is especially proud, he says, that upon his return home during the December recess, some constituents thanked him. "This is our voting base that loses through these ill-gotten gains," he says. "It's my responsibility--it's all of our responsibilities."
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