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To: Giordano Bruno who wrote (252149)	7/25/2003 6:46:48 AM
From: Giordano Bruno	Read Replies (1) \| Respond to of 436258

State-Level Stock Cops Retain Power By RANDALL SMITH and DEBORAH SOLOMON Staff Reporters of THE WALL STREET JOURNAL State securities regulators won a temporary reprieve from legislative efforts to cut their clout in policing Wall Street. Congressional Republicans, after being faced with mounting opposition, retreated from an effort to curtail the power of state regulators by postponing a vote on the bill until September. The decision by leaders of the House Financial Services Committee was a victory, in the short run at least, for New York State Attorney General Eliot Spitzer, who had criticized the measure and waged a vocal campaign against it. Mr. Spitzer was quick to crow over the action, calling it "an encouraging step" because the bill "was attempting to address a nonexistent problem and was being supported by investment houses that simply do not want state prosecutors to protect small investors." He had rejected a last-minute call for a compromise from New York Republican Vito Fosella of Staten Island and Brooklyn. But the bill's author, Louisiana Republican Richard Baker, chairman of the House panel's capital-markets subcommittee, shot back: "I would kindly caution opponents of this bill not to misunderstand this postponement as a victory. The votes are there to win committee passage." Ohio Republican Michael Oxley, the full panel's chairman, said members had expressed concerns and "the bill needs more work." The bill would have boosted the ability of the Securities and Exchange Commission to collect penalties for securities fraud in states such as Florida that shelter some assets such as homes. It also would have boosted the SEC's ability to direct penalties collected to victims of securities-law violations. However, Mr. Spitzer objected to a provision he said would have crippled state regulators' ability to force overhaul on Wall Street, as he did in negotiating changes in the stock-research practices at Merrill Lynch & Co. in May 2002; those changes later set the model for an industrywide settlement of allegations that top securities firms tailored their stock research to win more investment-banking fees. Mr. Spitzer rallied support from other state securities regulators, which eventually produced opposition from such disparate quarters as the Republican governor of Mr. Oxley's own state, Bob Taft of Ohio, whose office later retracted as "an unfortunate staff mistake" Mr. Taft's July 22 letter opposing the bill, and Florida Republican Katherine Harris, who voiced opposition to the proposed weakening of her state's homestead laws. Mr. Fosella said he hoped a compromise could be found among the House Republicans, the state regulators and federal regulators led by SEC Chairman William Donaldson. Mr. Donaldson, who had been challenged by Mr. Spitzer to oppose the bill, instead voiced support for its goal of restoring regulatory primacy to the SEC and curtailing possible "Balkanization" of securities regulation on a state-by-state basis. Clearly referring to Mr. Spitzer and his investigation of Merrill Lynch, Mr. Baker said in a statement, "one provision of this bill has been unfairly and misleadingly criticized. Its intent is not to stop states from doing the helpful investigation and enforcement actions they've always done. What it does clarify is that having a single official from a single state in a back room with a defendant whose back is against the wall and holding a fine in one hand and new home-made regulations in the other is not the best way to make national public policy beneficial to investors." Rahm Emanuel, a Democrat from Illinois on the committee, said he believed the Republicans "thought they were going to get the goods through customs" by including new restrictions on state regulators in a bill that was advertised as strengthening the SEC's powers. The bill was postponed partly because Mr. Baker wasn't willing to strip out the provision or compromise in any way that would be seen as handing the states a victory, according to people familiar with the matter. SEC officials and several House members, including some who didn't sit on the Financial Services Committee, were interested in seeing the language clarified so the bill would stand a better chance of passing, but Mr. Baker refused, people familiar with the matter said. Michael DiResto, a spokesman for Mr. Baker, said the congressman was willing to clarify the bill but "didn't feel he was offered a compromise." "If language is floated that amounts to dropping the provision, that's not compromise, that's surrender," Mr. DiResto said. "He's not willing to surrender. He probably would be willing to talk about a good-faith compromise." Write to Randall Smith at randall.smith@wsj.com and Deborah Solomon at deborah.solomon@wsj.com Updated July 25, 2003