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Friday, June 25, 2004

SEC Commissioners Try the Back Door

Reported by Theresa Sim

It appears that SEC Commissioners Cynthia Glassman and Michael Atkins are launching a counteroffensive on the independent chairmen issue. Although the two Republicans commissioners lost out 2 to 3 on a Wednesday SEC vote requiring independently chaired, independent supermajority-staffed fund boards, the two are already taking steps to undermine the new rule.

Glassman and Atkins opposed the vote, reasoning that the proposal chooses regulation over free markets, and lacks empiricial evidence in support of independently chaired fund boards.

Atkins continued to challenge the independent chairman vote at -- of all places -- a soft dollar conference sponsored by the Securities Industry Association in New York on Thursday. Why did Atkins choose a conference focused on soft dollars and attended primarily by brokers to air his views on mutual funds?

The reasons may be murky, but air his opinions, he did. Speaking clearly and slowly (enough for reporters), Atkins reiterated a few points, nearly verbatim, that he made during Wednesday's vote. During both the speech and the vote, Atkins questioned the circumstances around the vote, saying that we are living in an "age of atmospherics."

He also implied that commissioners' reasons for voting for the proposal were suspect -- "I do not subscribe to the…contagion out there that we do something lest we be accused of doing nothing."

Not to be outdone, Glassman gave the A-OK for her comments to be published on the SEC's website. Of the five commissioners, only Glassman's comments were posted to the site.

The decision to publish a record of statements, whether they were made during hearings or at conferences, is up to the individual commissioners, said John Nester, spokesman for the SEC. Nester added that Chairman Donaldson's comments may be added later.

Although Glassman's action might seem harmless, by providing her comment online, she provides fodder for web loggers (bloggers) to link to, discuss, and further disseminate. Unless the other commissioners join her by publishing their statements online, interested followers will have to listen to the webcast of the entire meeting or rely on articles to understand their rationale.

A few bloggers have already taken note of Glassman's statement. A UCLA professor of corporate law posted a link and commentary on his blog, ProfessorBainbridge.com. For those unfamiliar with blogging, consider that Bainbridge's blog posting on Glassman is in turn posted on another blog, and you may begin to understand the power of these unconventional media and opinion outlets, some of which are widely read.

During Wednesday's vote, Glassman and Atkins also said they would submit dissenting opinions along with the final rule, an indication that while the vote is over, the opinion war is still going strong.

But what exactly are the two fighting for?

While Glassman and Atkins decried the lack of evidence supporting the independent chairman rule, the real issue may be more ideological -- a classic struggle between pro-regulators and pro-free marketers.

James Glassman (no relation to Commissioner Glassman) summarized the point nicely in a op-ed published in the WSJ on Thursday -- "[r]ather than explaining the truth to investors -- and vigorously encouraging investors to dump funds that disappoint them -- the SEC is exploiting investor ignorance by enshrining a dangerous idea that's called independence but that is (as the commissioners know very well) something else entirely."

Where this battle will ultimately lead -- to more "atmospherics," a divided SEC and more 3-2 votes, or legislative intervention -- is anyone's guess. 

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