Risk & Compliance

Donaldson: The Last Agenda

One measure, passed 5-0, ''should substantially lower the cost of raising capital,'' according to an SEC commissioner; another measure, passed 3-2,...
Stephen TaubJune 30, 2005

William Donaldson hasn’t spent his final days as chairman of the Securities and Exchange Commission simply attending congratulatory lunches and cleaning out his desk. On Wednesday — his next-to-last day on the job — Donaldson pushed through two agenda items in a sometimes acrimonious meeting among the five SEC commissioners.

In a 5-0 vote, the commissioners loosened the guidelines governing the sale of new securities, thus ending the so-called “quiet period.”

Under the new rules proposed last year, when companies sell securities they may distribute written material in addition to the prospectus, according to Bloomberg; they may even speak with the media, provided they file a copy of their remarks with the SEC.

Companies may also sponsor presentations to the public, according to the wire service, and they may stage electronic road shows for IPOs that would enable them to avoid filing with the SEC, provided that they make the material available to an unrestricted audience.

“The package that we consider today will modernize the securities offering and communication process while maintaining investor protection,” Donaldson said at the meeting, according to Bloomberg. “Investors are entitled to information at the point they commit to purchase a security.”

“The changes to the offering process should substantially lower the cost of raising capital,” added commissioner Roel Campos, according to Reuters.

The praise for the passage of that measure, however, was very nearly drowned out by the criticism of one of Donaldson’s pet projects: ramping up the governance of mutual funds.

Donaldson, a Republican, once again teamed up with the two Democrats on the commission — Campos and Harvey Goldschmid — to approve a rule that would require 75 percent of a mutual fund’s board of directors, including the chairman, to be independent.

The measure, which had previously passed 3-2 over the objections of Republican commissioners Paul Atkins and Cynthia Glassman, had been kicked back to the SEC on June 21 by the U.S. Court of Appeals, which ruled that the commission hadn’t adequately considered the costs of imposing the regulations, or possible alternatives.

In bringing the measure to a vote less than a week after the court ruling, Donaldson reportedly stated that not doing so “would, I fear, throw the future of this rulemaking into an uncertain limbo until a new chairman is confirmed,” according to Bloomberg. “Today, however, we have intact the full complement of commissioners who have spent the last year-and-a-half thinking about the issues raised in this rulemaking.”

Atkins and Glassman were clearly displeased.

Glassman called the rule “a rush to judgment” and said the commissioners were voting on “an assembly of false statements, unsupported assumptions, flawed analysis, and misinterpretations,” reported Bloomberg.

According to the wire service, she also apologized to the court, the public and some of the SEC staff who, she said, were uncomfortable with the re-vote. “Today’s action is nothing more than window dressing,” Glassman reportedly said. “It violates the spirit, if not the letter, of the court’s opinion.”

Atkins said the action heralded “one of the saddest days in the commission’s 71-year history,” according to Bloomberg.

The U.S. Chamber of Commerce, which brought the lawsuit that led to last week’s court ruling, fired off an angry statement. “The SEC didn’t meet their legal requirements the first time around, and today’s effort is no different,” wrote president and chief executive officer Thomas Donohue. “It’s outrageous that a regulatory agency would deliberately ignore the orders of a U.S. Court of Appeals and disregard calls for a reasoned rulemaking process.”

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