Investor Protection Act, Part of Broader Financial Regulatory Reform, Takes Shape

Investor Protection Act, Part of Broader Financial Regulatory Reform, Takes Shape:
Draft Legislation Released On Say-on-Pay, Comp Committees, Hedge Funds,  More

Yesterday, the U.S. Treasury Department delivered to Congress draft legislation on say-on-pay and independent compensation committees. This action follows the release earlier this week of draft legislation enhancing certain powers of the SEC, including as relate to whistleblowers, and making the SEC's new Investor Advisory Committee a permanent committee at the SEC. All of the aforementioned sections of draft legislation and potentially others to come are organized under Title IX of the broader financial regulatory reform bill; Title IX is called: Additional Improvements to Financial Markets Regulation, aka The Investor Protection Act of 2009.
A separate section of draft legislation released by Treasury earlier this week would require registration of hedge funds and other private investment funds, add related record-keeping and examination requirements, and require the SEC to share certain information with other regulatory agencies to assess potential systemic risk posed by the funds. These provisions currently appear under Title IV of the broader financial regulatory reform bill; Title IV is The Private Fund Investment Advisers Registration Act of 2009.   
Highlights of the draft Investor Protection Act and Private Fund Investment Advisers Registration Act follow, based on sections of draft legislation released so far, and Treasury's related Fact Sheets. 

IX - Investor Protection Act of 2009

Subtitle A - Disclosure (draft legislation, contains Subtitles A and B) Fact sheet.

SEC. 911. Investor Advisory Committee Established. [NOTE: I can hear a representative of this committee answering the phone: 'Section 911, what's your investor advisory emergency?']  This section of the legislation would make
SEC's recently formed Investor Advisory Committee - formed with a finite life in
accordance with the Federal Advisory Committee Act, and slated to hold its first
meeting July 27 - a permanent advisory committee.

SEC 912. Clarification of the Commission's Authority to Engage in Consumer Testing. [NOTE: Broc Romanek observed in blog earlier this week: "Consumers? I think they mean investors? The SEC's stated
mission is investor protection and I don't recall the term "consumer" being
mentioned in any of the existing statutes that give the SEC some sort of
authority nor any of the agency's rules and regulations."]

SEC. 913. Establishment of a
Fiduciary Duty for Brokers, Dealers, and Investment Advisers, and Harmonization
of the Regulation of Brokers, Dealers, and Investment Advisers.

SEC. 914. Clarification of Commission Authority to Require Investor Disclosures Before Purchase of Investment Company Shares. [Note: this
section would require additional disclosures TO investors, not FROM investors,
prior to their purchase of funds.]

Subtitle B - Enforcement and Remedies (draft legislation, contains Subtitles A and B) Fact sheet.

SEC. 921. Authority to
Restrict Mandatory Pre-Dispute Arbitration.

SEC. 922, 923, 924. Whistleblower Protection (and related Conforming Amendments, Implementation and Transition Provisions) [Note: although entitled whistleblower 'protection,' this section mainly provides the SEC with the authority to establish funds to pay whistleblowers whose information/analysis leads to enforcement actions for securities law violations generally, expanding on what is currently referred to as the 'bounty' program which offers payment in certain instances to those who provided information leading to charges of insider trading. As noted in this Fact Sheet: "This authority will encourage insiders and others with strong
evidence of securities law violations to bring that evidence to the SEC and
improve its ability to enforce the securities laws.  The Administration
supports the creation of this fund using monies that the SEC collects from
enforcement actions that are not otherwise distributed to

SEC. 925. Collateral

SEC. 926, 927. Aiding and
Abetting Authority Under the Securities Act and the Investment Company Act (and
related Authority to Impose Penalties for Aiding and Abetting Violations of the
Investment Advisers Act).

SEC. 941. Shareholder Vote on Executive Compensation Disclosures. Fact Sheet states this section of the legislation would require a non-binding annual shareholder vote on compensation for all public companies.  All public companies will be required to include a non-binding shareholder vote on executive compensation as disclosed in the proxy for any annual meeting held after December 15, 2009. The disclosures that would be subject to the say-on-pay vote include tables summarizing salary, bonuses, stock and option awards and total compensation for senior executive officers, as well as summaries of golden parachute and pension compensation and a narrative explanation of the board's compensation decisions.
SEC. 942. Compensation Committee Independence. Fact Sheet states this section of the legislation would require (1) members of compensation committees to meet exacting new standards for independence, just as Sarbanes-Oxley did for members of audit committees (2) compensation consultants and legal counsel hired by the compensation committee must be independent from management , and (3) compensation committees will be given the authority and funding to hire independent compensation consultants, outside counsel, and other advisers who can help ensure that the committee bargains for pay packages in the best interests of shareholders. If the compensation committee decides not to use its own compensation consultant, it will be required to explain that decision to shareholders.  
Title IV - Private Fund Investment Advisers Registration Act of 2009 (draft legislation). Fact Sheet states this section of the legislation would require (1) advisers to private investment funds to register with the SEC, (2)all investment funds advised by an SEC-registered investment adviser be subject to recordkeeping requirements; requirements with respect to disclosures to investors, creditors, and counterparties; and regulatory reporting requirements - including substantial regulatory reporting requirements with respect to the assets, leverage, and off-balance sheet exposure of their advised private funds (3) the SEC to conduct regular examinations of such funds to monitor compliance with these requirements and assess potential risk. In addition, the SEC would share the disclosure reports received from funds with the Federal Reserve and the Financial Services Oversight Council. This information would help determine whether systemic risk is building up among hedge funds and other private pools of capital, and could be used if any of the funds or fund families are so large, highly leveraged, and interconnected that they pose a threat to our overall financial stability and should therefore be supervised and regulated as Tier 1 Financial Holding Companies.

This blog

FEI Financial Reporting Blog provides highlights from SEC, PCAOB, FASB, IASB, and other regulatory news, including reporting under Sarbanes-Oxley Sect 404. It is written by Edith Orenstein, Director of Technical Policy Analysis at FEI

More from this blog

Bloggers crew

Steve Knowles has spent 25 years in business and practice in the UK, but he also worked in the states and the years haven't dulled his way of seeing an alternative view to everyone else, and every day is a new adventure.


Joel M. Ungar, CPA is a lifelong resident of the Detroit area and a graduate of The University of Michigan. He is a principal with Silberstein Ungar, PLLC, a Top 15 auditor of SEC public reporting companies.


Allan Boress, CPA, with over 25 years as a practitioner and consultant to the accounting profession. Mr. Boress is the author of 12 published books in 6 different languages, including a best-seller, The "I-Hate-Selling" Book.


Larry Perry, CPA, CPA Firm Support Services, LLC, is the author of accounting and auditing manuals, author and presenter of live staff training seminars, and author of webcast and self-study CPE programs. He blogs about small audits, reviews, and compilations.

Sandra Wiley, COO and Shareholder, is ranked by Accounting Today as one of the 100 Most Influential People in Accounting as a result of her prominent role as an industry expert on HR and training as well as influence as a management and planning consultant. She is also a founding member of The CPA Consultant's Alliance. Sandra is a certified Kolbe™ trainer who advises firms on building balanced teams, managing employee conflict and hiring staff.

Maria Calabrese, CIR, Human Resources manager for Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC in Cranford, New Jersey, Maria's topics revolve around the world of: Mentoring, Performance management, and The "Y Generation," a.k.a. "The whY generation".


William Brighenti is a CPA, Certified QuickBooks ProAdvisor, and Certified [Business] Valuation Analyst, operating an accounting, tax, and QuickBooks consulting firm in Hartford, Connecticut, Accountants CPA Hartford.


Ken Garen, CPA, is the co-founder and President of Universal Business Computing Company (, a software development firm of high-volume, high-productivity accounting and payroll technology.


Eva Rosenberg, MBA, EA, is the publisher of, and author of the weekly syndicated Ask TaxMama column. She provides answers to tax questions from taxpayers and tax professionals worldwide.


Amy Vetter, CPA, CITP is the CPA Programs Leader for Intacct Corporation responsible for leading the CPA/BPO Partners nationally.

Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State tax Notes entitled, "The SALT Effect." For more info, visit his website:
Scott H. Cytron, ABC, is president of Cytron and Company, known for helping companies and organizations improve their bottom line through a hybrid of strategic public relations, communications, marketing programs and top-notch client service. An accredited consultant, Scott works with companies, organizations and individuals in professional services (accounting, finance, medical, legal, engineering), high-tech and B2B/B2C product/service sales.

Rita Keller is a nationally known CPA firm management consultant, speaker, author, mentor and blogger. She has over 30 years hands-on experience in CPA firm management, marketing, technology and administrative operations.

Stacy Kildal is the mom of two fantastic kids, an Advanced Certified QuickBooks ProAdvisor, Certified Enterprise Solutions ProAdvisor, Sleeter Group Certified Consultant, a nationally recognized member of the Intuit Trainer and Writer Network, and co-host of RadioFree QuickBooks.
Michael Alter's blog specializes in providing practical advice to those who seek greater profitability and practice management tactics that enhance deeper client relationships.

Sally Glick, CMO, Principal, Marketer of the Year in 2003 and AAM Hall of Famer in 2007, leads a lively discussion of the constantly expanding roles of marketing and the professional marketers that drive this initiative in accounting firms of all sizes.


The IMA Young Professionals Blog features the insights of IMA’s Young Professionals Committee. Committee members share advice and experiences on careers, continuing education, work/life balance, and other issues affecting young accounting and finance professionals.


FEI Financial Reporting Blog provides highlights from SEC, PCAOB, FASB, IASB, and other regulatory news, including reporting under Sarbanes-Oxley Sect 404. It is written by Edith Orenstein, Director of Technical Policy Analysis at FEI.


Sue Anderson has 30 years of experience in continuing education for accountants. Currently she is the program director for online CPE provider CPE Link.


Jim Fahey is COO of Apple Growth Partners, a regional CPA firm in Ohio. His focus is on the effective and efficient use of technology within the firm by all team members.

Caleb Newquist is the Editor-in-Chief of Sift Media US, overseeing content for both AccountingWEB and Going Concern.

Leita Hart-Fanta, CPA, CGFM, and CGAP is the author of "The Yellow Book Interpreted" and owner of a website devoted to training for governmental auditors.


AccountingWEB is more than just a U.S. team of journalists and financial and technology experts - we have an international side, too! Members of our British team who publish share their ideas, insights, and perspectives from across the pond.