Connecticut Senator Richard Blumenthal has written to SEC Chair White urging that the SEC label so-called “fee-shifting” bylaws major risk factors and require companies to disclose them before any initial public offering.  Moreover, Blumenthal believes the SEC should take the position that fee-shifting provisions are inconsistent with the federal securities laws and should refuse to permit registration statements to move forward for any company that has adopted these provisions.

I believe that Senator Blumenthal is a good and decent man, and I base this in part on some indirect personal knowledge of him.  I also think that there are legitimate concerns with fee-shifting bylaws and that a debate on those and other provisions is perfectly appropriate.  However, I find it seriously troubling that our legislators feel obliged to tell the SEC how to do its job, particularly at such a granular level.  Are they trying to do away with the SEC?  Do our senators and congressmen believe that they can do a better job regulating our capital markets and disclosure directly rather than through the SEC?

I happen to think that, in general, the SEC has done a superlative job in both areas.  Of course, there have been errors of commission (no puns intended) and omission (e.g., can you say “Madoff”?), but over the 80+ years of its existence, the SEC has generally been an apolitical beacon of serious and legitimate regulation.  And I suspect there’s a strong correlation between the SEC’s screw-ups and congressional interference (or lack of funding).

I don’t think for a nanosecond that Senator Blumenthal wants to do away with the SEC.  So why is he trying to do so by more subtle means?

What do you think?