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Treasury Releases Investor Protection LegislationSubmitted by: Ted Allen, Publications

The U.S. Treasury Department has released a draft bill, the ?Investor Protection Act of 2009,? which would increase the authority of the Securities and Exchange Commission to protect retail investors.

The new powers outlined for the SEC were part of the regulatory reform proposals released by the Obama administration in mid-June. The Treasury bill would authorize the commission to:

* Promulgate rules to harmonize the fiduciary duty standards for broker, dealers, and investment advisers and to clarify that any investment advice should in the interests of the investor, rather than the broker, dealer, or investment adviser.

* Prohibit sales practices and compensation schemes by brokers, dealers and investment advisers that are contrary to investors? interests.

* Restrict investor agreements with brokers, dealers, investment advisers, and municipal securities dealers that mandate arbitration of future disputes.

* Require investment funds to provide a summary prospectus (with disclosure of costs) to investors before completion of a sale.

* Provide payments to whistleblowers who assist the SEC in fraud cases that result in penalties that exceed $1 million. The SEC now only has the authority to compensate whistleblowers in insider trading cases.

* Bar regulated persons who engage in misconduct from serving in any part of the securities industry, rather than just one market segment.

The legislation also would make permanent the SEC?s new Investor Advisory Committee. The bill states that the group should meet at least twice a year.

While the Obama administration has said supports legislation to mandate ?say on pay? votes at all public companies, the Treasury Department?s bill does not address that matter or other contentious governance issues, such as proxy access, that are included in bills offered by Democratic lawmakers.

Senator Charles Schumer of New York and Rep. Gary Peters of Michigan have introduced separate bills that would require companies to hold an annual advisory vote, to allow shareholders to nominate board candidates to appear on management proxy statements, to adopt a majority vote standard in uncontested director elections, and to appoint an independent board chair.

In addition, Senator Richard Durbin of Illinois has introduced legislation, the ?Excessive Pay Shareholder Approval Act,? that calls for supermajority shareholder approval of ?excessive? executive pay. His bill, S. 1006, would require public companies to obtain 60 percent investor approval before paying total compensation to an executive that exceeds 100 times the average compensation paid to all employees.

In April, Rep. Peter DeFazio of Oregon introduced an amendment to require binding (instead of advisory) compensation votes at financial firms that receive government assistance, but the House rejected his proposal.

Full post as published by Institutional Shareholder Services -- Corporate Governance Blog on July 13, 2009 (boomark / email).