[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 2497 Introduced in Senate (IS)]







108th CONGRESS
  2d Session
                                S. 2497

   To amend the securities laws to provide for enhanced mutual fund 
             investor protections, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              June 3, 2004

 Mr. Lieberman introduced the following bill; which was read twice and 
    referred to the Committee on Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
   To amend the securities laws to provide for enhanced mutual fund 
             investor protections, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Investor Protection Act of 
2004''.

SEC. 2. DEFINITIONS.

    In this Act--
            (1) the term ``Chairman'' means the Chairman of the 
        Securities and Exchange Commission;
            (2) the terms ``broker'', ``dealer'', and ``securities'' 
        have the same meanings as in section 3 of the Securities 
        Exchange Act of 1934;
            (3) the term ``Commission'' means the Securities and 
        Exchange Commission; and
            (4) the term ``individual investors'' means 
        nonprofessional, noninstitutional investors, as a class, 
        including small investors.

SEC. 3. DIVISION OF THE INVESTOR.

    (a) Establishment.--There is established within the Commission the 
Division of the Investor.
    (b) Director.--
            (1) Appointment.--The Division of the Investor shall be 
        headed by a Director, who shall be appointed by the Commission 
        from among individuals who have--
                    (A) a demonstrated commitment to the rights and 
                interests of individual investors and to the public 
                interest;
                    (B) experience in advocating for, educating, or 
                otherwise assisting individual investors; and
                    (C) knowledge of the financial markets.
            (2) Report to chairman.--The Director of the Division of 
        the Investor shall report directly to the Chairman.
    (c) Duties of the Division.--The duties of the Division of the 
Investor shall be--
            (1) to serve as an advocate for individual investors by--
                    (A) assessing and advocating for the interests of 
                individual investors;
                    (B) providing views to the Commission and 
                Commission staff as to whether policy proposals and 
                proposed rules effectively serve, and, if appropriate, 
                how they can better serve, the interests of individual 
                investors;
                    (C) identifying areas of concern to individual 
                investors that may warrant or benefit from Commission 
                action;
                    (D) conducting qualitative and quantitative 
                research to determine the information and other needs 
                of individual investors; and
                    (E) serving as a liaison between investor advocacy 
                organizations and the Commission, and developing 
                processes to receive meaningful input from such 
                organizations and from individual investors;
            (2) to assist and educate individual investors by 
        performing the functions performed on the day before the 
        effective date of this Act by the Director of the Office of 
        Investor Education and Assistance (previously known as the 
        Office of Consumer Affairs), as set forth in section 200.24a of 
        title 17 of the Code of Federal Regulations, as in effect on 
        the effective date of this Act, including--
                    (A) developing and disseminating educational 
                materials to individual investors;
                    (B) receiving, tracking, and analyzing complaints 
                from individual investors about entities regulated by 
                the Commission, and transmitting to other offices and 
                divisions within the Commission and to the Commission 
                itself relevant information from such individual 
                investors; and
                    (C) providing information to individual investors 
                concerning entities regulated by the Commission, the 
                operation of the securities markets, and the functions 
                of the Commission; and
            (3) to perform other functions to promote the interests of 
        individual investors, as the Chairman determines appropriate.
    (d) Small Investors.--In carrying out this section, the Division of 
the Investor shall pay particular attention to the needs and interests 
of small investors.
    (e) Views on Proposed Rules.--Whenever the Commission proposes a 
new rule or an amendment to an existing rule, or otherwise solicits 
public comment on a matter of importance to individual investors, the 
Director of the Division of the Investor shall prepare a written 
summary of the Division's views on the proposed rule or other matter, 
and the Commission shall include the summary in its Notice of Proposed 
Rulemaking or other public solicitation of comments.

SEC. 4. OFFICE OF RISK ASSESSMENT.

    (a) Establishment.--There is established within the Commission the 
Office of Risk Assessment.
    (b) Director.--
            (1) Appointment.--The Office of Risk Assessment shall be 
        headed by a Director, who shall be appointed by the Commission 
        from among individuals who have--
                    (A) demonstrated experience in public and private 
                risk analysis or in uncovering and investigating 
                financial fraud or other financial misconduct, or both;
                    (B) knowledge of the financial markets; and
                    (C) demonstrated commitment to the public interest.
            (2) Report to chairman.--The Director of the Office of Risk 
        Assessment shall report directly to the Chairman.
    (c) Duties of the Office.--The duties of the Office of Risk 
Assessment shall be--
            (1) to assess industry practices within the jurisdiction of 
        the Commission to identify any risks associated with those 
        practices that could most likely harm investors and the public;
            (2) to develop strategies to address and mitigate any such 
        risks, and prevent or lessen the potential harm to investors 
        and the public;
            (3) to coordinate risk assessment and risk management 
        activities throughout the Commission; and
            (4) to prepare annual reports to the Commission assessing 
        areas that potentially pose the most significant risks to 
        investors during the 3-year period following submission of each 
        such report.
    (d) Use of Information.--In performing its duties under this 
section, the Office of Risk Assessment shall seek and make use of 
information from a wide range of sources, both within and outside of 
the Commission, including securities filings, information gathered in 
compliance inspections and examinations, consumer complaints, tips from 
individuals working within publicly traded corporations or the 
securities industry, academic research, and relevant information from 
industry and other sources, consistent with applicable privacy and 
other laws.

SEC. 5. CONSUMER RESEARCH.

    (a) In General.--Whenever it considers requiring significant 
disclosures to investors, whether in advertising, on web sites, or in 
documents required by law or regulation, the Commission shall consider 
and give weight to empirical evidence as to whether the proposed 
disclosure as a whole, including its wording, its format, the context 
and location in which it appears, and the timing and manner of its 
dissemination, is likely to meaningfully improve understanding by 
individual investors to assist them in making wise financial decisions, 
and whether alternative disclosures would be more effective in 
improving investor understanding.
    (b) Types of Evidence.--Empirical evidence referred to in 
subsection (a)--
            (1) may be qualitative or quantitative;
            (2) should be of a type that relevant experts would 
        consider competent and reliable evidence of the understanding 
        of average investors; and
            (3) may include evidence developed by the Commission or by 
        others.

SEC. 6. FUND SUMMARIES.

    (a) Summaries Required.--
            (1) In general.--Section 12 of the Investment Company Act 
        of 1940 (15 U.S.C. 80a-12) is amended by adding at the end the 
        following:
    ``(h) Summaries Required for Open-End Companies.--It shall be 
unlawful for an open-end registered investment company to offer its 
securities for sale, unless, prior to completion of the sale, it 
provides to investors a summary of relevant characteristics of the 
investment, including information on expenses, risk, and 
diversification, and any other information that the Commission 
determines will assist investors in making wise financial decisions.''.
            (2) Effective date.--Section 12(h) of the Investment 
        Company Act of 1940, as added by paragraph (1) of this 
        subsection, shall become effective on the earlier of--
                    (A) the effective date of regulations issued under 
                subsection (c); or
                    (B) 1 year after the date of enactment of this Act.
    (b) Study.--The Commission shall conduct a study, including 
usability testing where appropriate, to determine--
            (1) the information most likely to assist average mutual 
        fund investors in making wise financial decisions; and
            (2) the best media and format in which to present such 
        information so as to ensure that it is readily accessible and 
        understandable to average investors.
    (c) Implementing Regulations.--Not later than 1 year after the date 
of enactment of this Act, the Commission shall issue final regulations 
implementing the requirements of section 12(h) of the Investment 
Company Act of 1940, as added by subsection (a), and specifying the 
content and format of the summary required under that section 12(h), 
consistent with the findings of the Commission in the study conducted 
under subsection (b), except that such summary shall not exceed in 
length the equivalent of 4 printed pages of text.
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