The SEC Gets Grilled on the Hill
Tuesday, June 26, 2007PAUL KANGAS: For the first time in a decade, the three Republicans and two Democrats that make up the Securities and Exchange Commission all testified before the House Financial Services Committee. Lawmakers questioned the commissioners about several high-profile issues today, including the recent Blackstone IPO and the Bear Stearns hedge fund debacle. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: It's not unusual for the chairman of the investor watchdog agency to testify before the House Financial Services Committee. But it is unusual for the entire commission to appear. Committee Chairman Barney Frank says he didn't call all five commissioners to signal dissatisfaction with their work.
REP. BARNEY FRANK, CHAIRMAN, FINANCIAL SERVICES COMMITTEE: I really just want to dispel the notion that the fact the reason, the fact that we have asked all five commissioners means that somebody has a sense of impending doom. That is not the case.
DHUE: But lawmakers took the opportunity to air concerns about a wide range of issues. Congresswoman Carolyn Malony asked about disclosure requirements of collateralized loan obligations, which are packages of bank loans, sometimes used to finance buyout deals. They are not regulated now, but even so, SEC Chairman Chris Cox says his agency is now working with bank regulators to ensure the risky products don't compromise the market.
CHRISTOPHER COX, CHAIRMAN, SEC: We come at these problems in many cases through our division of enforcement. Because of the overlapping regulatory jurisdiction, our enforcement currently has opened about 12 investigations focused on issues such as this.
DHUE: New Hampshire Democrat Paul Hodes questioned the wisdom of allowing Blackstone to complete an IPO instead of filing as an investment company.
REP. PAUL HODES, (D) NEW HAMPSHIRE: I'm concerned that this offering sets a precedent for other hedge funds, private equity funds to go public without complying with applicable law.
DHUE: SEC Chairman Cox says Blackstone didn't meet the criteria to be considered an investment company. Lawmakers also asked about the impact of a bill aimed at Blackstone that would increase the tax rate on the profits of publicly traded private equity firms to 35 percent from the current 15 percent. The SEC chairman cautioned against laws that would discourage business investment.
COX: Particularly if the legislation is drafted in such fashion as to discriminate between public companies and private companies, thereby discouraging companies from going public.
DHUE: Cox was also asked about the risks from the Bear Stearns hedge funds that nearly collapsed last week. He said there is little systemic risk from the troubles in those funds. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
