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SEC chairman says unity needed on business ethics

By David Sedore
Palm Beach Post Staff Writer
Saturday, November 06, 2004

BOCA RATON — A year ago, Securities and Exchange Commission Chairman William Donaldson promised brokerage executives that his agency would cut wrongdoers from the industry the way a surgeon cuts disease from a patient.

On Friday, Donaldson, speaking before the same group, said the SEC has lived up to that promise and will continue to do so. But he also promised that the agency will work with the industry, citing mutual interests the two sides have in keeping securities markets clean.

"We at the SEC intend to identify areas where your goals align with ours," Donaldson said during the annual meeting of the Securities Industry Association at the Boca Raton Resort and Club. "We must recognize our shared interest in deterring and preventing potential violations of the securities laws."

Donaldson, a co-founder of the Donaldson, Lufkin & Jenrette brokerage house and former chairman and CEO of the New York Stock Exchange, became SEC chairman in February 2003 after the brief and troubled tenure of Harvey L. Pitt.

At the time of his appointment to the SEC, the securities industry was rife with scandal. Enron was well-established as a synonym for fraud. WorldCom had collapsed and exposed the conflicts within brokerages, as they touted company stocks to customers while wooing the same companies to use their investment banking services.

Investor confidence had eroded, and trading volumes on the New York Stock Exchange declined year over year for the first time in more than a decade.

Since Donaldson's appearance at last year's meeting, the SEC has helped the NYSE overhaul the way it governs itself and passed a series of new regulations for mutual funds, including measures to make their boards more independent.

In the past two years, the SEC has brought more than 1,300 enforcement actions against members of the securities industry, resulting in more than $5 billion in penalties and disgorgement orders, Donaldson said.

Although that has earned him the ire of some business groups, Donaldson said the SEC intends to take a new approach that will anticipate problems rather than react to them after the fact. To accomplish this, he asked for industry's help.

"Companies and managers and employees from top to bottom must embrace a spirit of integrity that goes well beyond simple adherence to the letter of the law," Donaldson said. "What's really needed is a commitment to be guided by a moral compass."

Answering reporters' questions afterward, Donaldson declined to say whether he will step down as President Bush's first term comes to an end, as has been speculated.

"I serve at the pleasure of the president," Donaldson said. "I also serve at my own pleasure.

"My answer, in short, is stay tuned."

Also Friday, Wachovia Securities President and CEO Daniel Ludeman provided a list of priorities for the securities association during the coming year.

Ludeman, who takes over as the group's chairman in 2005, said it will work to raise public awareness of the need to save, increase tax incentives to save and maintain current tax rates on capital gains and dividends.



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