Jul 12 2011

Shelby: Dodd-Frank Did Little to Improve Investor Protection

U.S. Senator Richard Shelby, ranking Republican on the Senate Committee on Banking, Housing and Urban Affairs, today made the following statement at a Committee hearing on investor protection in the wake of the financial crisis. 


Committee on Banking, Housing and Urban Affairs

July 12, 2011

“Thank you, Mr. Chairman.

“The title of today’s hearing is ‘Enhanced Investor Protection after the Financial Crisis.’  The reality, however, is that the passage of Dodd-Frank did little to improve investor protection.  Instead, the Act codifies a series of special interest provisions of questionable value to the average investor. In fact, several of these provisions threaten to harm investors.

“For example, under the proxy-access provision, the SEC adopted a rule that would grant shareholders with a mere 3% of a company’s shares the special right to have their board of director nominees included in a company’s proxy materials.  Special interest groups like unions, State pension funds, and hedge funds will now have the leverage to force companies to adopt politically-motivated agendas, regardless of whether doing so would benefit all shareholders.  As a result, Dodd-Frank’s corporate governance provisions could move control of corporations away from ‘average investors’ to special interests with minority positions and political clout.

“Another troubling Dodd-Frank provision is the mandate that the SEC pay whistleblowers.  Although encouraging people to inform the SEC of corporate misdeeds is a good idea, the whistleblower provision in Dodd-Frank is drafted in a way that could actually harm investors. 

“Whistleblowers, even those who were part of the scheme, will receive ten to thirty percent of fines that the SEC collects as a result of their tips.  Rewards in a single case could run into the tens of millions of dollars.  This would be a huge windfall for whistleblowers and their attorneys.  It would also be far in excess of the amount needed to encourage whistleblowers. 

“Recent history has demonstrated that the problem has not been a lack of tips, but rather the SEC’s failure to follow up.  Perhaps the millions that will go to whistleblowers under Dodd-Frank should be redirected to harmed investors.

“Finally, Dodd-Frank’s mandated internal changes at the SEC are symbolic of the Act’s empty promise of investor protection.  Dodd-Frank requires the SEC to set up an Office of Investor Advocate and an ombudsman for that office.  The SEC is supposed to be the investor’s advocate and already has an Office of Investor Education and Advocacy.  Adding another two layers of bureaucracy is not the kind of help investors need.

“It is now one year since the passage of Dodd-Frank and we can see more clearly the consequences of its special interest agenda.  The Act has not helped investors, but has saddled Main Street and providers of capital -- the engines of economic growth -- with a long list of new regulatory requirements.  At a time when the unemployment rate is at 9.2%, this hardly seems like a wise course.

“Thank you, Mr. Chairman.”