Sen. Christopher Dodd has his own reasons for pushing hard for financial services reform next year.
The Connecticut Democrat, who as chairman of the Senate Banking Committee is closely involved in drafting the Senate version of regulatory legislation, is facing a tough 2010 re-election bid.
“He will lean over backwards to show that he is tough on the financial industry ... because of his own ethical problems,” said Burton Greenwald, a mutual fund industry consultant.
Most notably, Mr. Dodd has to overcome memories of his dealings with collapsed mortgage lender Countrywide Financial Corp.
Countrywide was one of the biggest issuers of the ruinous subprime mortgages that led to the housing market collapse, and the senator proposed a program in June 2008 that would assist it and other troubled lenders.
But as Mr. Dodd was proposing his program, reports surfaced that in 2003, he had refinanced his homes in Washington and Connecticut through Countrywide, receiving favorable terms because of his association with Angelo Mozilo, the company's chief executive.
In August, Mr. Dodd was cleared of any wrongdoing by the Senate Ethics Committee.
But the scandal continues to loom large over his re-election efforts.
“He's obviously running for his life,” said Geoff Bobroff, a mutual fund industry consultant.
Mr. Dodd, via his press office, declined to comment.
But his troubles could actually prove a boon to those hoping for true reform.
In October, Mr. Dodd introduced a proposal that would eliminate the “broker-dealer exemption” from the adviser registration provisions under the Investment Advisers Act of 1940, effectively requiring brokers providing advice to register as advisers and be subject to a fiduciary standard.
The plan received a cool reception in the brokerage world, but advisers' groups were thrilled because it is believed that the suitability standard that governs brokers gives them a competitive advantage, requires more limited disclosure of conflicts of interest and carries less liability.
“Clearly, we like the draft that [Mr. Dodd] put out,” said David Tittsworth, executive director of the Investment Adviser Association.
But Mr. Tittsworth is realistic.
The proposal is “going to be changed,” he said. “I think anyone that believes it will survive intact is not reading the tea leaves properly.”
If Mr. Dodd's proposal does survive intact, it will do much more than eliminate the broker-dealer exemption.
Under the proposed legislation, an office of the investor advocate would also be created within the Securities and Exchange Commission. It would report directly to Congress annually on the 20 most serious problems encountered by investors in dealing with the SEC and the
Financial Industry Regulatory Authority Inc.
