Statement By Attorney General Eliot Spitzer On The Proposed Preemption Of States Efforts To Protect Individual Investors
Late last night, members of a House subcommittee filed a proposed amendment to H.R. 2179, the so-called "Securities Fraud Deterrence and Investor Restitution Act." This amendment would preclude the 50 states from entering into any voluntary agreements with investment banking firms that include any structural reforms to protect individual investors. The proposed amendment is expected to be offered at a mark-up of the bill this morning.
This action shreds one of the most basic protections that investors have against fraudulent activities, and is an attack on the 75 percent of Americans who own stock.
State regulators are at the front lines of investigating investment schemes, and have a long history of protecting investors by requiring brokers and dealers to institute structural reforms to prevent future frauds.
Our most recent success on this front – the $1.4 billion settlement reached with 10 investment banking firms in April – established stringent rules to prevent investment banking firms from providing tainted research to investors. That tainted research was one of the causes of the stock market bubble of the late 1990s, and cost investors hundreds of billions of dollars when the bubble burst.
Proposing state preemption is particularly outrageous because federal regulators and the Congress failed to act against these well-known frauds. As a result, the states were forced to take the lead in achieving substantive reforms.
I urge the Congress to reject this legislation, which would benefit only investment banking companies.