Hearing of the Senate Banking, Housing and Urban Affairs Committee

Federal News Service

HEADLINE: HEARING OF THE SENATE BANKING, HOUSING AND URBAN AFFAIRS COMMITTEE

SUBJECT: MUTUAL FUND INDUSTRY

CHAIRED BY: SENATOR RICHARD SHELBY (R-AL)

PANEL I LOCATION: 538 DIRKSEN SENATE OFFICE BUILDING, WASHINGTON, D.C.

WITNESSES: WILLIAM DONALDSON, CHAIRMAN, SECURITIES AND EXCHANGE COMMISSION;

BODY:
SEN. JACK REED (D-RI): Well, thank you very much, Mr. Chairman, and welcome, Commissioner Donaldson.

I want to thank the chairman for holding this very important and timely hearing. And I hope that we will use this as an opportunity for a thoughtful discussion on effective and aggressive enforcement and also to continue to encourage all the regulators, both the SEC, the NASDAQ and the attorney generals, to work collaboratively to punish the wrongdoers.

The behavior we've observed represents a profound breach of trust. And ultimately, all markets rest on a foundation of trust, so this is not merely an example of technical problems; these very well could be existential problems if we don't move rapidly, aggressively and effectively. And I hope we can do that.

There's approximately 8,200 mutual funds with over $7 trillion in assets. Thirty-eight percent of those assets come from 401(k)s. To many investors, mutual funds are for professional adviser, instant diversification, liquidity, and a wide range of investment choices, and the advantages of mutual funds would be hard to achieve for the small investor on his or her own. However, with these daily revelations of wrongdoing by some of the most reputable mutual fund companies by allowing favored investors to take advantage of rank and file, it's clear that average investors are becoming increasingly worried about their financial futures.

There was an article in last Sunday's New York Times that said it well: "Employees saving for retirement can't seem to catch a break.

After nearly three years of painful bear-market losses, revelations of improper trading by insiders and a few favored investors began to raise fundamental questions about the trustworthiness of mutual fund managers." And if we don't rapidly and effectively answer those questions about trustworthiness, then the market will be in a serious, serious predicament.

I hope this hearing will go a long way to start responding to the concerns of the investing public and maintain the advantages of mutual funds without the trading that has discouraged people today from participating as they should.

Thank you, Mr. Chairman.