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Thursday, June 02, 2005

Memo to the New SEC Chairman - Protect Investors

As a representative of ordinary investors, I believe it is important for the new SEC Chairman Congressman Christopher Cox to remember that the SEC's mission is to protect investors and not the interest of big Wall Street firms.

William Donaldson, the SEC Chairman who just resigned, had at best a mild record of supporting investor reforms. He made certain incremental changes in the conflicts of interest between research analysts and investment banks, and promoted regulation of hedge funds to protect very wealthy investors. Unfortunately, Mr. Donaldson did very little if anything to protect the millions of ordinary investors around the Country who work hard, play by the rules and save for their retirement and life savings.

The mission of the SEC is first and foremost to protect investors. A priority for the Chairman should be to promote investor restitution resulting from Wall Street and corporate fraud. Despite all of the fraud and the $1.4 billion Wall Street Global Settlement by the SEC and New York Attorney General Spitzer, only $400 million has been earmarked for restitution to ordinary investors. This paltry sum has not even been distributed and will amount to a mere token payment to the victims of the fraud.

The new Chairman also needs to promote a serious investor education program so that investors are aware of fraudulent conduct by their brokers and need to be aware of the type of investments they make. The investor restitution program from the Global Settlement set aside $55 million for the program. All of the directors of the program have resigned and the investor education program is a real disaster. This needs to also be a priority for the new Chairman.

Lastly, Chairman Cox needs to improve the Securities Arbitration system which ordinary investors are relegated to for fighting disputes with their brokerage firms. It is well documented that securities arbitration as now constituted is an anti-investor forum. The arbitration system needs to be improved to level the playing field so that investors get a fair shake in arbitration.

In the coming weeks, I will make additional specific proposals to Chairman Cox on behalf of ordinary investors.


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