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If SEC Fails, We Will do the Job'


Many Congressmen are finding out that when it comes to fund reform, "you can't always get what you want," as Mick Jagger sings.

The House overwhelmingly passed the "Baker bill" last November, and there are a number of reform bills pending in the Senate and the House. Yet there is little chance any fund reform legislation will make it through the Senate by year-end, if at all.

Richard Shelby, the Republican Senator from Alabama and chairman of the Senate Banking Committee, stands in the way of Senators Peter Fitzgerald (R-Ill.) and Jon Corzine (D-N.J.), both sponsors of different fund reform bills, and Rep. Paul Gillmore (R-Ohio), sponsor of a companion to Fitzgerald's bill in the House, from getting any satisfaction.

As chairman of the banking committee, Shelby wields incredible power, including the ability to block any fund legislation. Shelby, who initially indicated support for new fund laws, made the bold announcement a few months ago that Congress would defer to the Securities and Exchange Commission for the time being. "We should not rush to push legislation, not knowing what we're doing in a complicated area," Shelby said.

However, while some agree with Shelby's logic, critics say he is stonewalling congressional legislation and question his motivations. Fidelity Investments is Shelby's 20th-largest campaign contributor, at more than $31,000, according to a recent report in BusinessWeek. In fact, firm officials donated more than $13,000 to the Shelby camp at a Boston-area fundraiser a week before the Senator announced he was deferring to the SEC.

Shelby, a Democrat once upon a time and currently a "ranger" in the George W. Bush fundraising hierarchy, spoke with Money Management Executive Associate Editor Chris Frankie about the scandal engulfing the fund industry, his decision to defer to the SEC, Fidelity's contributions to his campaign and the upcoming elections.

MME: You were initially in favor of legislating reform in the fund industry, but that is no longer the case. What changed your mind?

Shelby: Well, we had 10 hearings. I had seen over the course of the first four, five, six hearings that there were deep problems with the mutual fund industry, and I was concerned about the SEC and its lack of involvement early on.

I have a lot of confidence in Bill Donaldson. I've supported him and the SEC. He specifically asked me and the committee to defer legislation, to give the SEC a chance to do its job.

Having said that, we will continue to monitor what they're doing, what changes they've made, how those changes have worked, and what will happen in the next five or six, seven months. If they don't do their job, we will do the job. But, I believe there is a good chance they are going to do their job and do it well. Do we still need legislation? I think we'd do better working with the SEC, working with their recommendations, and I believe that was the feeling of the Banking Committee, at least in the Senate.

MME: How short of a leash is the SEC on, since you're saying five to seven months?

Shelby: That's what we told them. Sen. Paul Sarbanes (D-Md.) and I both believe that oversight of our agencies is a very important part of our job. That includes oversight of the SEC, dealing with the mutual fund scandals, what reforms they propose, which ones they implement and how they're working. Will there be some need for legislation to close some gaps? Donaldson tells us no,' but at the end of the day we will have to hold hearings to find out, and we will certainly do that. We'll be back here in January or February, and we'll know what they've done. At the pace they're going, they're off to a real start, a good start.

MME: Some critics have claimed that Fidelity has too much influence on the Hill. You openly opposed the requiring of an independent chairman, a point Fidelity Chairman Ned Johnson had been very vocal about. While reports of the actual amounts vary, some say Fidelity has given $10,000 to your campaign and $39,000 to the Banking Committee this election cycle. Critics say this is a conflict of interest, especially since you are currently blocking Senate bills seeking reform. What is your response to those criticisms?

Shelby: First of all, I've got a long history of independence in the House and in the Senate. I'm not beholden to any group. I have been very fortunate in that I have a tremendous campaign fund for the size of my state: $11.5 million dollars.