- The Washington Times - Thursday, February 6, 2003

William H. Donaldson, President Bush's pick to head the Securities and Exchange Commission, pledged yesterday to strictly enforce securities laws and bring corporate criminals to justice to restore lost confidence in the markets.
Senators of both parties warmly received the former chairman of the New York Stock Exchange and founder of the prominent investment house Donaldson, Lufkin & Jenrette at a hearing on his nomination, which the Senate is expected to quickly approve.
Despite a few pointed questions mostly surrounding his Wall Street background, he was introduced to the Senate Banking, Housing and Urban Affairs Committee with ringing endorsements by two liberal New York Democrats, Hillary Rodham Clinton and Charles E. Schumer.
Mr. Donaldson, a family friend of Mr. Bush's, would replace Harvey Pitt, who resigned in November amid questions about his handling of the staffing of a new board created by Congress to police auditors. Mr. Donaldson said naming a chairman to that board would be his most immediate priority.
"Violation of trust was great" in the past year, he said, particularly in the eyes of small investors, who have been steadily pulling money out of the stock market.
A series of corporate scandals "fanned the flames of their distrust and outrage with corporate America and Wall Street," he said.
"Many Americans' individual savings accrued over a lifetime were simply devastated," he said. "This loss was more than simply monetary it was a loss of their hopes and their dreams and their futures, and in many cases their security."
Mr. Donaldson said that as SEC chairman his primary mission would be to protect investors from such abuse, working with the Justice Department and other state and federal law enforcement agencies.
But getting investors to return to the stock market won't be easy, he said.
"Just as the war on terrorism cannot be won overnight, neither can investor confidence be completely restored so quickly. Corporate America, Wall Street and their professional stewards lawyers, accountants, corporate and financial managers and financial regulators still have a lot of work to do."
A former investment banker, Mr. Donaldson said he found particularly "deplorable" the way Wall Street firms catered to corporate clients to generate fees during the 1990s stock market boom, shunning their obligation to provide objective advice to small investors.
Wall Street's credit-rating agencies also require close scrutiny, he said, for failing to warn investors of the depth of financial problems at Enron, WorldCom and other leading companies that fell into scandal and bankruptcy in the past year.
The U.S. capital markets, while long admired as the most efficient and intelligently regulated in the world, suffer from basic conflicts like those of the rating agencies and auditors, whose services are bought and paid for by corporate clients even as investors rely on them to provide independent advice, he said.
Democrats on the committee questioned whether Mr. Donaldson, who has a net worth exceeding $100 million, was overcompensated when he was paid more than $12 million by Aetna Inc. to turn around the flagging insurance company.
Mr. Donaldson acknowledged that his pay was substantial, but he contended the arrangement was exemplary from a regulator's point of view because it was fully disclosed to investors and it was designed to align his own interests with that of the stockholders.
Mr. Donaldson also said that media reports suggesting he tolerated illegal trading practices by members of the stock exchange while he was chairman are wrong.
He said he had ordered a cleanup of those practices, and that the criminal problems were uncovered after he left the exchange.
Despite some needling questions, Democrats seemed eager to expedite Mr. Donaldson's nomination so as to quickly unseat Mr. Pitt, who has stayed on as chairman for three months despite widespread criticism.
"It's now the first week in February and he's still on the job. We need to get moving," said Sen. Paul S. Sarbanes, Maryland Democrat and co-author of Congress' sweeping overhaul of securities laws last year.
Sen. Richard C. Shelby, Alabama Republican and the new chairman of the committee, said Mr. Donaldson has the "requisite experience" and education to "be one of the outstanding chairmen of the SEC."

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