One on One: "You can’t underestimate the need to restore the faith of investors in the system"

As president of the North American Securities Administrators Association Inc., Christine A. Bruenn found herself in the national spotlight this year.

State securities regulators have joined New York Attorney General Eliot L. Spitzer in his investigation of investment banks that led to the record $1.4 billion settlement over alleged research conflicts.

That led to complaints from Washington officials, including Sen. Jon Corzine, D-N.J., Securities and Exchange Commission member Harvey Goldschmid, House Financial Services Committee Chairman Michael G. Oxley, R-Ohio, and Richard Baker, R-La., chairman of that panel’s subcommittee on capital markets.

They fear that state involvement in national securities cases could cause a fragmented, inefficient system of securities regulation.

Ms. Bruenn, 46, who is also Maine’s securities administrator, hasn’t backed down from supporting states’ right to get involved.

Joseph Borg, the director of the Alabama Securities Commission, credits Ms. Bruenn for coordinating action between state and federal regulators.

“She brought everybody to be on the same page,” says Mr. Borg, who was president of the Washington-based NASAA last year. “I don’t think this would have happened without [Ms. Bruenn’s] great work in this area.”

Q Where do you see the states heading now that they have had such success with the analyst case?

A We’ve done a number of multistate actions in the past. Prudential, Salomon, Lloyds of London come to mind. There are others. What happens is, the big case gets all the attention.

This case has been in the news a lot. All the while that this case has been getting the big press, back home we’ve been carrying on as we always do. We see ourselves as the local cops on the beat, the securities regulators closest to the investor.

We’re accessible to our citizens, and our focus is on responding to bread-and-butter fraud complaints, [and] doing on-site exams of brokerage firms and investment advisers to make sure that they’re doing their jobs properly – responding in sort of a Main Street kind of way to the local investors’ concerns and needs.

Q A bipartisan group of people involved with financial industry regulation and oversight has expressed concern over the states’ taking a leading role in regulating national securities issues. What is your reaction to those criticisms?

A I don’t think they need to be concerned. The state regulators acted exactly the way [they were expected to] in this complementary state and federal regulatory system, in that we identified a problem, we publicized the problem.

We put together a multistate response to the problem and worked with the federal regulators on a national response.

The strength of our system is that we complement each other. When the federal regulators were not paying attention to the research analyst issue, the New York regulator highlighted the issue.

But then we all came together to work on a national response – a unified and national response to that problem. Our everyday regulatory responsibilities are focused on the investor back home.

One of the important things we do is communicate the problems we see to our federal partners. We’re not in the business of national rulemaking. It’s the SEC’s job to do that. We fully support and work with them.

Q Apart from the issue of 50 states’ coming up with different rules, isn’t it too fragmented and cumbersome to involve the states in investigations that are normally handled by the SEC?

A I disagree. I think that we worked together.

Each of the regulators has their own jurisdiction and interest in the analyst case. We didn’t approach it in a fragmented way.

We sat down at the negotiating table with the firms, NASD, the [New York Stock Exchange] and the SEC, and negotiated together. It was a model for working together. It was not fragmented in any way.

Q What about uniformity in securities regulation? That was an issue that the NASAA set out to deal with a few years back. States are now passing their own versions of Sarbanes-Oxley and their own privacy statutes. Won’t the lack of uniformity, as well as more layers of regulation, impose undue costs and burdens on the financial industry and other businesses?

A We’ve become a nation of investors. Investors trust us with their retirement funds, the funds that educate their children, the funds that buy their homes.

It’s very important that we ensure the integrity of that system. The way we do that is with regulation that gives confidence to investors. While they’re not guaranteed a profit, they’re guaranteed honesty.

I’m very proud of the work we’ve done to streamline regulation, like broker-dealer licensing. We have uniform applications, financial statements, disclosure from firms about previous business in that state.

We have an ongoing process to achieve that in other areas, where we can find commonality among the state requirements so that we minimize the amount of unnecessary paperwork for the firms and at the same time ensure the integrity of the licensing system.

To do business in my state, you need to comply with the requirements of my state.

Securities regulators need to know who is doing business in our state and who can find them if something goes wrong.

You can’t underestimate the need to restore the faith of investors in the system. The research analyst case shows why you need state securities regulators to provide another point of view.

Q Does doing national-scope investigations divert the states from covering issues they are best suited to cover, such as small-time operators’ bilking investors and running from state to state?

A We’ve put a lot of resources into our piece of these investigations and the settlements. At the same time, we have continued those services back home, of responding to individual investors’ complaints, reviewing license and registration applications.

One of the ways we could do that was because we collaborated. We had a task force.

Q Congress included a provision in the Sarbanes-Oxley Act aimed at getting money back to bilked investors when firms pay fines. What are the difficulties of getting money back to investors?

A State securities regulators always make restitution a priority.

In my office, the first thing we do is figure out, have investors in our state been damaged, who’s the wrongdoer, and try to get the money back for investors. It’s a daily priority. We’ve been doing this for a long time. This isn’t a new idea for us.

In the research analyst cases, there are a number of problems that make meaningful restitution very, very difficult. One is identifying the victim. It’s unfair to just make payments to investors who purchased through the firms that we settled with.

In addition to that, it’s very difficult to figure out what their damages are, how much of their losses are attributable to these bad research reports.

SNAPSHOT

Christine A. Bruenn, 46, securities administrator for the state of Maine since 1997 and president of the North American Securities Administrators Association Inc. in Washington since last fall

Career: 1988-96, director, enforcement, licensing and examination activities, Maine Office of Securities; 1987-88, investigator

Education: bachelor’s degree in history, Michigan State University, 1979; law degree, Memphis State University, 1987