WASHINGTON -- A panel of experts yesterday urged Congress to overhaul the nation's 60-year-old securities laws governing investors and public companies, but cautioned lawmakers to guard against changes that could increase fraud.
The panel, which included three former commissioners of the Securities and Exchange Commission, said a bill introduced in July by Rep. Jack M. Fields Jr., a Texas Republican, has been long needed to restructure outdated laws that add costs and red tape to both companies that issue stocks and brokerage firms.
But critics say the bill would strip away consumer protections, eliminate most state regulatory functions that help keep fraud in check, and put larger investors such as counties, universities and municipalities at risk of being sold bad securities without having the ability to sue the brokers that sell the instruments.
"Viewed in context of the marketplace that exists today, many of the changes are long overdue," said J. Carter Beese Jr., a former SEC commissioner and an executive with Alex. Brown Inc., the Baltimore-based brokerage and investment banking firm. "A fundamental top-to-bottom review is timely."
Mr. Beese was one of five experts who testified before the subcommittee on Telecommunications and Finance, which is chaired by Mr. Fields. The subcommittee will hold a second hearing Nov. 30, where Federal Reserve Chairman Alan Greenspan and SEC Chairman Arthur Levitt are scheduled to testify. A final hearing on the bill, known as H. R. 2131, is set for Dec. 5.
Mr. Fields said criticism of the bill is overblown, and his intention was to "initiate a national debate on our securities laws.
"This is a work in progress," he said. "During this process, parts of the legislation may be deleted or modified and good ideas may be added to the legislation."
But while Democrats said they would work with Mr. Fields, they questioned the need for such sweeping legislation, especially when the stock market is setting new highs almost daily, and companies are raising billions from the public.
"Even healthy patients need periodic checkups," acknowledged Rep. Edward J. Markey, a Massachusetts Democrat. "But the statistics do suggest that our exam need not and should not be conducted under the extreme procedures and pressures appropriate only in an emergency room."
John C. Coffee Jr., a law professor at Columbia University, gave the bill a cooler reception than the others. He worried that fraud would increase if the bill is passed. He took issue with a provision that would no longer require brokers to send investors a prospectus unless they request the document, which outlines a company's strategies and finances.
"Unfortunately, those who fail to request [a prospectus] may be those who most need disclosure," Mr. Coffee said. He added, "Like death and taxes, fraud and conflict of interest will always be with us."
Others lauded Mr. Fields' efforts to cut states' powers to regulate securities and mutual fund sales within their borders. They argued that a uniform national system is necessary because it would reduce costs for issuers of securities.
"I have seen no evidence that state registration requirements generally benefit investors," said Charles C. Cox, a former SEC commissioner.
Mr. Beese agreed, saying "51 sets of state regulation flies in the face of the realities of today's national, indeed global, markets."
He proposed that the United States should adopt the European approach, where a company issuing stock in one country can sell it across national borders.
"The structure that got us here to date is not the structure that is going to enable us to compete over the next 10 years," Mr. Beese said.