Former SEC chairman criticizes reform law

The Dodd-Frank legislation enacted by Congress earlier this year will raise regulatory responsibilities for corporations, pension funds, endowments and many other entities, warned a former chairman of the Securities and Exchange Commission, speaking Monday in Phoenix.

The law will usher in "an era of increased liability and aggressive government regulation," Harvey Pitt told roughly 700 people attending a professional investment conference known as the Super Bowl of Indexing.

The Dodd-Frank bill, passed largely along partisan lines, was enacted in hopes of curbing the worst practices that led to the financial meltdown of 2008, yet its ultimate impact isn't known, Pitt said.

"It's 2,300 pages long, and each page drips with unintended consequences," he added.

Pitt, who served as SEC chief under President George W. Bush from 2001 to 2003 and now heads Kalorama Partners, a Washington-based business-consulting firm, criticized the bill for creating "ponderous" new layers of bureaucracy, for not requiring sufficient transparency of systemically risky entities and for failing to set "trip wires" to warn regulators of problems that could blow up into future crises.

Pitt warned public companies and other entities that are active in the financial markets that new provisions rewarding whistleblowers could encourage employees who suspect misconduct to disclose this information to the government before reporting it internally, as whistleblowers stand to share in any legal settlements or other awards generated. Even so, he advised companies to address potential misconduct problems proactively by appointing a senior officer to oversee a formal compliance program.

Pitt also questioned whether regulators are up to the task of increased oversight. The Dodd-Frank bill imposes huge new responsibilities for agencies such as the SEC, with hundreds of new rules to regulate and an obligation to conduct numerous studies. But with federal agencies facing a salary freeze, it could be difficult for them to attract talented new staff.

"It sets the SEC up for failure," he said.

Pitt also derided some aspects of the bill that call for increased oversight of the vast market in derivatives, the financial contracts that allow entities to hedge or speculate on the prices of commodities, other assets or more.

Pitt said companies, pension funds and others should be allowed to enter into customized derivatives contracts, which could be severely restricted by the legislation.

This could have an impact on jobs, profits and other aspects of the financial-services industry.

"I'm very concerned that Dodd-Frank could harm innovation because of the uncertainty it creates," he said.

by Russ Wiles The Arizona Republic Dec. 6, 2010 07:25 PM




Former SEC chairman criticizes reform law