U.S. News

U.S. Panel to Ask SEC About Proxy Access, Hedge Funds: Report


All five commissioners of the U.S. Securities and Exchange Commission are to appear Tuesday at a Congressional hearing that is expected to explore hedge fund activities, access to corporate proxy statements and so-called soft-dollar arrangements.

House Financial Services Chairman Barney Frank, a Massachusetts Democrat, told Reuters he wants to question all of the commissioners "just to find out what they're saying."

Frank said in an interview he will likely bring up the investor protection agency's work on Sarbanes-Oxley corporate reform law compliance, shareholders' proxy access and the SEC's new enforcement policy.

The hearing is scheduled to be held at 2 p.m. EDT. Frank acknowledged that potential regulation of hedge funds is an "important issue" that might be hit on in the hearing, but it would be more fully explored with the President's Working Group on Financial Markets, which will appear before the committee in July.

Last week, Bear Stearns said it would spend up to $3.2 billion to bail out a struggling hedge fund it manages.

The High-Grade Structured Credit Strategies Fund suffered big losses after making bad bets in the repackaged subprime mortgage loan market when homeowner defaults started rising and some experts are concerned other funds may face similar problems.

Another topic that might arise at the hearing is whether Congress should rewrite federal tax laws to boost taxes paid by private equity funds. Interest in the issue was triggered by last week's $4.13 billion initial public offering from giant private equity firm Blackstone Group .

Frank wrote a letter to SEC Chairman Christopher Cox asking for his analysis of the nature and effects of the IPO. He also helped introduce a bill last week that would more than double taxes on the pay of managers of such funds.

The panel chairman separately drafted a bill to give shareholders the right to cast nonbinding votes on the pay of top company executives, an issue tied into the SEC's current exploration of how much power to give shareholders over the proxy voting process.

"I do have real concerns about proxy access that I want to pursue," Frank said.

Georgetown University Law School Professor Donald Langevoort said proxy access "could be the most interesting question as far as its ability to illicit something we haven't yet heard from the commissioners."

Langevoort said the issue, which the SEC will address in an agency meeting next month, is one of the few topics that has been divisive for the five-member commission since Cox became chairman in 2005.

"The hearing is a chance to show that the five commissioners are working together," Langevoort said. "That's a message the commission very much wants to communicate."

An SEC spokesman said the commissioners will use the hearing to promote its investor protection activities, such as fuller executive compensation disclosure and mutual fund disclosure, increased cooperation with foreign regulators and aggressive enforcement of regulations.

Frank also wants to discuss the SEC's enforcement activities, including a new policy he said "would be helpful for them to explain."

The SEC started a pilot program at the beginning of the year in which SEC enforcement staff must first get approval from the commissioners before entering into settlement talks with companies. They also must seek approval on a range of potential penalties.

Critics say the program may lead to lighter penalties. Frank also said he would bring up the SEC's efforts to make companies' compliance with Section 404 of the Sarbanes-Oxley corporate reform law less costly and burdensome.

A topic that Cox expects to field questions on at the hearing is soft-dollar arrangements. The deals allow money managers to pay above-average brokerage commissions on customers' trades, as long as they provide items that money managers can use to benefit investors, such as stock research.

Last month, Cox asked Congress to end or roll back legal protections for such soft-dollar arrangements.