Mutual Funds Integrity and Fee Transparency Act of 2003

Mr. President, I rise today to introduce the ``Advancing Justice Through DNA Technology Act of 2003.'' This bill consists of the President's DNA initiative, which will expand and improve DNA databases used for criminal investigations and authorize additional funds to clear the backlog of untested DNA evidence in the nation's crime labs.

This bill offers several advantages over another version of the President's proposal that recently was introduced in the Senate. Today's bill gives States greater leeway in the use of DNA grants, removes arbitrary and unnecessary restrictions on the testing of criminal suspects' DNA samples, authorizes additional funds to clear the backlog of non-DNA forensics evidence, and--most importantly avoids tying this critical program to unrelated and highly controversial anti- death penalty legislation. I include in the record at the end of this statement a news story that describes the nature of the state counsel and other extraneous provisions that others have sought to attach to the President's proposal.

The bill that I introduce today is an unencumbered--and unabridged-- version of the President's DNA initiative: the DNA Sexual Assault Justice Act and the Rape Kits and DNA Evidence Backlog Elimination Act, which authorize the Debbie Smith DNA Backlog Grant Program and provide $755 million over five years to address the DNA backlog crisis in the nation's crime labs.

Today's bill includes the following improvements over other congressional versions of the President's proposal: First, this bill also expands funding for non-DNA forensics funding. Section 211 of the bill authorizes $100 million in new grant programs to eliminate ``the backlog in the analysis of any area of forensic science evidence, including firearms examination, latent prints, toxicology, controlled substances, forensic pathology, questionable documents, and trace evidence.''

Second, this bill increases the authorization for the Paul Coverdell grant program, in recognition of the fact that this program never has been funded at more than a small fraction of its authorization. Other congressional versions of the President's DNA initiative only authorize decreasing Coverdell funding in the coming years. This bill resets the clock on the Coverdell program, authorizing 2004 funding at the level for 2001, and subsequent years accordingly. This will allow sharp increases in Coverdell funding in the coming years.

Third, today's bill allows states to test DNA samples from convicts seeking exoneration against the national DNA database, in order to determine if the convict has committed other rapes or murders. The other congressional versions of the President's DNA initiative would bar such testing; they effectively would give convicts a free roll of the dice to challenge their current convictions while protecting them against the risk that they will be linked to other crimes. There is no reason why states should be prevented from solving such other crimes. If DNA evidence is good enough to test a prisoner's conviction for the crimes that we do know that he committed, it also is good enough to establish the prisoner's involvement in crimes that we do not yet know that he committed.

Fourth, this bill includes all Federal felony arrestees in the federal DNA database. Other versions of this bill exclude arrestees and place other unnecessary and arbitrary limits on the federal DNA index. The federal government already maintains fingerprints for all federal felony arrestees--there is no reason to treat DNA evidence differently. Nor is there any reason to prevent states and the federal government from solving other crimes committed by suspects arrested for a federal felony offense.

The Department of Justice has expressly informed Congress of the benefits of casting a wide net when including criminal suspects in the federal DNA database. During a July 17 hearing on the President's DNA initiative before the Crime Subcommittee of the House Judiciary Committee, Sarah Hart, the Director of the National Institute of Justice, testified that:

The efficacy of the DNA identification system depends

entirely on the profiles entered into it. Experience

demonstrates that broad collection and indexing of DNA

samples is critical to the effective use of the DNA

technology to solve rapes, murders, and other serious crimes.

The DNA sample that enables law enforcement to identify the

perpetrator of a rape, for example, often was not collected

in connection with an earlier rape. Rather, in a large

proportion of such cases, the sample was taken as a result of

the perpetrator's prior conviction for a non-violent crime

(such as a burglary, theft, or drug offense).

For example, in Virginia, which has authorized the

collection of DNA samples from all felons since 1991, a

review of cases in which offenders were linked to sex crimes

through DNA matching found that almost 40% of the offenders

had no prior convictions for sexual or violent offenses. Most

serious offenders do not confine themselves to violent

crimes. The experience of States with broad DNA collection

regimes demonstrates that DNA databases that include all

felons dramatically increase law enforcement's ability to

solve serious crimes.

Fifth, today's bill tolls the statute of limitations when a perpetrator has been identified through DNA--including in rape cases. Other congressional versions of the President's initiative inexplicably exclude sexual-assault crimes from the initiative's DNA tolling provision. There is no reason to do so. Indeed, it is in sexual-assault cases that DNA evidence is most likely to identify a perpetrator. At the July 17 hearing before the House Judiciary Committee's Crime Subcommittee, the Department of Justice testified in favor of tolling the statute of limitations to the full extent permitted by the Constitution.

Sixth, this bill allows grants for DNA training and research to be made to prosecutors' organizations, universities, and other private entities. Competing bill versions limit such grants to state and local governments, which is inconsistent with the President's DNA initiative.

Finally, the bill that I introduce today does not include the so- called ``Innocence Protection Act'' (IPA), a controversial anti-death penalty bill. The other congressional versions of the President's initiative have incorporated the IPA as a third title to the President's bill. At the July 17 hearing on the President's initiative, the Department of Justice made very clear that it ``do[es] not believe that legislation embodying the important proposals in the President's DNA initiative should be joined to these controversial [IPA] measures, which intrinsically are unrelated to DNA.''

In an October 27 letter to several members of Congress, the National District Attorneys Association also voiced strong objections to the capital-counsel provisions included in the IPA titles of the other bills. The NDAA's letter stated:

Section 321 [of these bills] attempts to re-establish the

old 'death penalty resource centers.' As you no doubt recall,

Congress abolished funding for such centers because they

devolved into organizations dedicated solely to the abolition

of the death penalty and were staffed and controlled by those

dedicated to the disruption of the criminal justice system by

whatever means available, ethical or otherwise. Section 321

would cause a return to such tactics by removing the ability

for the state judiciary to appoint counsel in death penalty

cases and giving that authority to a self-appointed group of

anti-death penalty attorneys.

. . . NDAA strongly urges deletion of Section 321 from this

bill . . . .

Elimination of Section 321 . . . keeps the appointment and

control of capital defense counsel in the hands of state

court judges who are responsible for insuring that defendants

receive quality representation. With Section 321 there is no

oversight of those individuals selected to develop state

standards for capital defense counsel.

The IPA titles included in the other congressional versions of the President's DNA initiative would authorize $500 million in Federal funding for State public defenders in State capital cases. There is no reason for Congress to finance the States' public-defender systems. The States adequately fund these programs themselves--indeed, many have enacted reforms and substantially increased funding for public defenders in recent years. When the IPA originally was introduced in 2000, it was targeted at the State of Texas. In 2001, the Texas legislature enacted reforms that completely overhauled the State's public-defender system. Yet the IPA provisions of the other Senate bill would declare Texas's reforms ``ineffective,'' and would force the State to again replace its indigent-defense system. Such a mandate makes no sense.

Moreover, there is no reason why States cannot or should not fund their own indigent-defender systems. Basic principles of federalism dictate that each level of government should finance its own operations. Once States become accustomed to and budget for Federal funds, they never are able to reject the money (or its conditions) in the future. And Federal funding inevitably comes with increasing Federal strings. In the long run, the States risk losing control over their own public-defender programs. There is no reason to start down this path.

The IPA proposals in the other congressional versions of the President's initiative begin by placing a number of conditions on the states' receipt of federal funds. Among these conditions is that states transfer control over capital defense to an ``entity'' composed of persons with ``demonstrated knowledge and expertise in capital representation.'' (This means private defense lawyers; public prosecutors likely would be barred by their jobs from serving or would be conflicted out.) This new ``entity'' would be charged with: (1) setting standards for capital-defense counsel; (2) deciding which lawyers meet those standards; and (3) appointing lawyers from the roster of qualifying attorneys to represent defendants in particular cases.

Essentially, the bill's new ``entity'' would completely control staffing of the defense in capital cases. From past experience with the ``capital resource centers,'' which were defunded by Congress in 1996, we know that hard-core death penalty opponents tend to gravitate toward these jobs, and will engage in litigation abuse when not supervised. Congress should not require the states to repeat its own past mistakes. It should not place anti-death penalty partisans in charge of public representation of capital defendants.

The other congressional versions of the President's proposal also include these additional highly problematic provisions:

They allow free DNA testing under very low standards. The competing bills provide that DNA tests shall be available to any prisoners if a negative test match would ``raise a reasonable probability that the applicant did not commit the offense.'' This standard is too low. Not all DNA evidence clearly came from the perpetrator of the crime or had anything to do with the crime--for example, a blood spot near the crime scene may or may not have come from the perpetrator. The ``reasonable probability'' standard means a prisoner could secure a test even if, despite a negative match, the other evidence would still show that the prisoner more likely than not committed the crime.

The bill requires only a chance that the prisoner did not commit the crime. Almost every prisoner with material to test will be able to meet this standard. Reopening old cases forces victims and their families to relive the ordeal of the crime. They should not be put through this unless a negative test result could at least show more likely than not that the prisoner did not commit the crime.

During the July 17 hearing before the House Crime Subcommittee, NIJ Director Sarah Hart expressly warned congress of the consequences of applying unduly low DNA testing standards. Director Hart testified:

[W]hile post-conviction DNA testing is necessary to correct

erroneous convictions imposed prior to the ready availability

of DNA technology, experience also points to the need to

ensure that postconviction DNA testing is appropriately

designed so as to benefit actually innocent persons, rather

than actually guilty criminals who wish to game the system or

retaliate against the victims of their crimes. Frequently,

the results of postconviction DNA testing sought by prisoners

confirm guilt, rather than establishing innocence. In such

cases, justice system resources are squandered and the system

has been misused to inflict further harm on the crime victim.

The recent experience of a local jurisdiction is instructive:

``Twice last month, DNA tests at the police crime lab in

St. Louis confirmed the guilt of convicted rapists. Two other

tests, last year and in 2001, also showed the right men were

behind bars for brutal rapes committed a decade or more

earlier.

`` [The St. Louis circuit attorney's] staff spent scores of

hours and thousands of dollars on those tests. She personally

counseled shaking, sobbing victims who were distraught to

learn that their traumas were being aired again.

`` One victim, she said, became suicidal and then vanished;

her family has not heard from her for months. Another, a deaf

elderly woman, grew so despondent that her son has not been

able to tell her the results of the DNA tests. Every time he

raises the issue, she squeezes her eyes shut so that she will

not be able to read his lips.

`` `She finally seemed to have some peace about the rape,

and now she's gone back to being angry,' the woman's son

said.

`` DNA tests confirmed that she was raped by Kenneth

Charron in 1985, when she was 59. To get that confirmation,

however, investigators had to collect a swab of saliva from

her so that they could analyze her DNA. They also had to

inquire about her sexual past, so they could be sure the

semen found in her home was not that of a consensual partner.

`` The questioning sent the woman into such depression that

she's now on medication. `None of this needed to happen,' her

son said. ''

Post-conviction DNA testing is not without its costs. It should be allowed only in carefully measured circumstances.

Another problematic provision in the other congressional versions of the President's DNA initiative would employ an unduly low standard to authorize new trials for very old cases. This provision of these bills is designed to allow new trials for prisoners who may have been convicted 20 or more years ago. But it is very often impossible to retry a case this old--key witnesses die or disappear or their memories simply fade, and other evidence deteriorates or is lost. For many such cases, ordering a new trial effectively means that the prisoner walks free.

Congress should make sure that there is compelling evidence of innocence before ordering new trials in old cases. Unfortunately, these other bills would allow a new trial if test results simply ``establish by a preponderance of the evidence that a new trial would result in an acquittal.'' The key language here is ``result in acquittal.'' It means a test result would not even have to indicate actual innocence; it need only conflict with other evidence of guilt so as to undermine the jury's ability to convict beyond a reasonable doubt. Prisoners could win new trials--and go free--even if, despite the negative DNA match, other evidence still shows the prisoner very likely committed the crime. Current law, Federal Rule 33, uses the liberal ``result in acquittal'' standard to allow new trials based on new evidence, but only within three years of trial. It usually is not difficult to retry a case within three years. But for older cases, Congress should insist on a showing of actual innocence before ordering an often-impossible new trial.

There are other problems with the IPA titles in the various congressional versions of the President's DNA initiative. These titles would vastly expand DNA testing by authorizing tests even for prisoners who pleaded guilty. According to the Department of Justice, 90 percent of Federal prisoners pleaded guilty. Extending free tests to these prisoners literally expands the pool of potential test seekers by an order of magnitude. A guilty plea also means that there is no trial record, which makes it much more difficult to assess the potential relevance of DNA-test evidence.

These other bills also impose broad and potentially costly new evidence-retention requirements on the States--requirements that appear to require States to preserve all potential DNA evidence in all cases, indefinitely. And these bills also would give the newly created capital-counsel ``entities'' an unwarranted degree of control over defense attorneys' budgets. States traditionally have charged courts and other responsible agencies with monitoring budgets for capital representation. Prosecutors do not have unlimited budgets. There is no reason to allow the capital-counsel entity to draw a blank check on State treasuries.

There are other problems with the IPA titles of the competing bills. Suffice it to say that these titles are unrelated to the President's DNA initiative and both the Department of Justice and the NDAA oppose adding them to the President's bill. We should not weigh down the President's DNA initiative with the IPA. For this reason, my colleagues and I today introduce the President's proposal--important, consensus legislation that should be enacted by Congress without delay.

Mr. President, I ask unanimous consent that the text of the bill, the following letter, and the following article all be printed in the Record.

Mr. President, we have 17 dead astronauts on our plate--3 from Apollo I, all preventable; 7 from the Challenger, all preventable; and 7 from the Columbia, all preventable.

What we are trying to do on behalf of myself and these several other Senators is get to a good healthy debate on the future of space in the United States and, more particularly, on correcting the safety features. There is a culture there that prevents safety from being adhered to, and, more than anything else, NASA is broke.

What is not understood is that at the present time we are going in all directions. It is like the Navy during World War II: When in danger, when in doubt, run in circles, scream and shout.

We here are saying we ought to take the orbital space station and accelerate it. Others on the other side say no, that is should be abolished. Some say we ought to go to Mars, and others say what we really need is to hire more expert personnel and bring them in. No one is going to leave their job and come work for the NASA endeavor at this particular time until we get a mixture and a program and a policy. That has to come from the President of the United States.

I introduce the National Space Commission Act to address the range of issues that the Columbia Accident Investigation Board--CAIB--identified with the National Aeronautics and Space Administration--NASA--and our space program in general, following the tragic loss of the Columbia Space Shuttle and its crew of seven astronauts. This bill authorizes the creation of a National Space Commission appointed by the President, to ensure that the safety reforms and recommendations of the Columbia investigation board are fully implemented by NASA. The commission will review and make recommendations regarding NASA's return-to-flight proposals and institutional changes that NASA will need to make to improve safety in the agency and to improve safety of the space shuttle, and other actions to assure future safe transportation to space and to the International Space Station. The commission will also look at the broader question of how the United States is organized for the safety of space flight across civilian, military and commercial sectors. It will begin to build a consensus on a future vision of space exploration that I hope will rekindle enthusiasm for our space program and generate the necessary support in the Congress and the administration for these endeavors.

The Columbia Accident Investigation Board shone a laser-sharp spotlight upon NASA and its program of human space exploration. Their pain-staking work to determine the cause of the loss of the Space Shuttle Columbia provides the context and justification for a new national agenda for space, a turning point in the history of space. Though the board stopped short of laying out this new future, its clear expectation is that the President and Congress should take up where the board left off.

The U.S. civilian space effort has moved forward for more

than 30 years without a guiding vision, and none seems

imminent . . . Recommending the content of this debate goes

well beyond the Board's mandate, but we believe that the

White House, Congress, and NASA should honor the memory of

Columbia's crew by reflecting on the nation's future in space

and the role of new space transportation capabilities in

enabling whatever space goals the nation chooses to pursue.

Columbia Accident Investigation Board Report, Volume I,

August 2003, p. 210

The legislation I am introducing today, the National Space Commission Act, is designed to respond to this challenge. It is a complex challenge, and a complex undertaking, that now lies before the Congress and the Nation. My bill is not intended to supplant, nor substitute for, the President's desire to set a new goal in place for the Human Space Flight Program. But as we have seen in the board's report, merely setting a far-reaching goal into place for

NASA and for the Nation is not enough. It will not resolve the many complex issues raised by Admiral Harold Gehman and the Columbia Accident Investigation Board. No, this report, and these challenges, run deeper than a rousing call for future missions to Mars on the Earth's Moon can resolve. As Admiral Gehman said last week in testimony before the Senate Commerce, Science, and Transportation Committee:

In the course of (our) study, we became convinced how

difficult it is to get into and out of low Earth orbit. It is

extraordinarily dangerous and very difficult to do . . . We

have to do it more safely than 49 out of 50 times, that's not

good enough . . . No matter what your vision is for human

space flight, whether it's Mars or the L2 or the Moon or

whatever it is, it starts in low Earth orbit . . . We need

some leadership to say, ``Just getting into and out of low

Earth orbit is a goal worthy of itself, without killing a lot

of people.'' And that's hard to argue, because it isn't very

jazzy.

Hearing on NASA's Future, October 29, 2003

Since the inception of the human space flight program, seventeen astronauts have lost their lives and all were avoidable. In its investigative work, the Columbia Accident Investigation Board reached several fundamental conclusions that went beyond the specific technical and physical causes of the loss of Columbia. The Columbia Board found basic flaws in how NASA managers behaved, the belief system that lay behind NASA attitudes and behavior, and NASA's understanding of basic technical and organizational requirements of safety.

The attitudes and decision-making of Shuttle Program

managers and engineers during the events leading up to this

accident were clearly overconfident and often bureaucratic in

nature.

Columbia Accident Investigation Board Report, Volume I,

August 2003, p. 177

NASA's bureaucratic culture kept important information from

reaching engineers and managers alike. The same NASA whose

engineers showed initiative and a solid working knowledge of

how to get things done fast had a managerial culture with an

allegiance to bureaucracy and cost-efficiency that squelched

the engineers' efforts. When it came to NASA managers' own

actions, however, a different set of rules prevailed. The

Board found that Mission Management Team decision-making

operated outside the rules even as it held its engineers to a

stifling protocol . . .

Each decision, taken by itself, seemed correct, routine,

and indeed, insignificant and unremarkable. Yet, in

retrospect, the cumulative effect was stunning.

Ibid, p. 202-203

Most troubling to the Board was the fact that these NASA tendencies were not new but existed in full force at the time of both the Challenger and the Columbia Shuttle accidents.

The (Rogers) Commission found that NASA's safety system had

been silent . . . (denoted by) a lack of problem reporting

requirements, inadequate trend analysis, misrepresentation of

criticality, and lack of involvement in critical discussions

. . .

By the eve of the Columbia accident, institutional

practices that were in effect at the time of the Challenger

accident--such as inadequate concern over deviations from

expected performance, a silent safety program, and schedule

pressure--had returned to NASA.

Ibid, p. 100-101

This ``echo'' between the events eighteen years ago and the present made the loss of Columbia and its explanation all the more confounding, because so many who reviewed the agency, its practices, and its culture had sounded an alarm. The fact that these NASA behaviors and beliefs were so enduring that they persisted beyond the stunning loss of the Challenger and her crew was all the more startling to the Columbia Board. So startling, that the Board found it necessary to offer a blunt and chilling assessment.

If these persistent, systemic flaws are not resolved, the

scene is set for another accident.

Ibid, p. 195

The Columbia Accident Investigation Board also found that it was not only NASA that was at fault for the loss of Columbia. Rather, the Board found that the weaknesses at NASA were just as much a result of the Nation's neglect of its human space flight program.

Post-Challenger policy decisions made by the White House,

Congress, and NASA leadership resulted in the agency

reproducing many of the failings identified by the Rogers

Commission. Policy constraints affected the Shuttle Program's

organization culture, its structure, and the structure of its

safety system.

Ibid, p. 197

The impact of this neglect extended beyond NASA's organizational responses, encompassing broad aspects of planning for NASA's future missions and the development of its technology.

There (has been a) lack, over the past three decades, of

any national mandate providing NASA a compelling mission

requiring human presence in space . . . (and a) lack of

sustained government commitment over the past decade to

improving U.S. access to space by developing a second-

generation space transportation system.

Ibid, p. 209

It is the view of the Board that previous attempts to

develop a replacement vehicle for the aging Shuttle represent

a failure of national leadership.

Ibid, p. 211

The bill I am introducing today establishes a permanent National Space Commission to oversee the nation's current and future development and use of space. The commission is established with 12 members, appointed by the President and confirmed by the Senate. Commission members will be leaders chosen from industry, academia, and other professions who have a profound expertise in space flight and safety and have worn the mantle of responsibility and challenge in the development and use of space.

The Commission will be independent of NASA and is authorized to hire a staff to develop the engineering and technical expertise to carry out its work. It will begin its work looking at some of our most vexing current problems raised by the Columbia Board's report and provide the necessary oversight to ensure that the Board's recommendations are implemented in the following areas: (1) the return-to-flight of the Space Shuttle and return to assembling the International Space Station, (2) replacement of the Space Shuttle, and (3) changes to the culture of NASA. We specify a number of detailed questions, criteria, and concerns that the Commission should take up in laying out a near-term path forward for NASA's Human Space Flight program. In making its recommendations, the Commission is directed to consider the safety and dignity of human life as its highest priority.

This specific aspect of the bill is a special clause in my mind, one that is not subject redaction--the United States space flight program must, above all, be an American approach to the future of space flight and, as such, must place the dignity and preservation of human life above all other considerations. This assertion is not meant as an accusation or indictment of NASA--Admiral Gehman made it clear that the fault for the loss of Columbia rests with us all, impressed as we all were with space flight and our accomplishments, and naive about its risks and challenges.

If Shuttle operations came to be viewed as routine, it was,

at least in part, thanks to the skill and dedication of those

involved in the program. They have made it look easy, though

in fact it never was. The Board urges NASA leadership, the

architects of U.S. space policy, and the American people to

adopt a realistic understanding of the risks and rewards of

venturing into space.

Ibid, p.208

For never again should we have to read in a formal accident report of the United States space program:

Managers failed to fulfill the implicit contract to do

whatever is possible to ensure the safety of the crew.

Ibid, p.170

Never again.

In each of these assessments of current issues in NASA's Human Space Flight Program, we intend the commission to provide the President, the Congress, and NASA its informed judgment and advice, so that we can expeditiously return the program to a condition of stability and adopt a NASA culture of safety as soon as possible.

The second aspect of the bill is to set a long-range view of our Nation's participation in and development of space.

Concurrent with the work on current issues at NASA, but due by late 2005, are two ground-breaking studies. These studies are intended to go beyond defining a destination for humans in space and to address broader questions about the goals and methods we use, with a specific concern for public and private utilization and investment in space. Though we have learned that the economics of space flight should never again take precedence over its safety, we also know that, in the past, its cost has driven us down pathways that have not resulted in success.

In all three (Shuttle replacement) projects--National

Aerospace Plane, X-33,

and X-34--national leaders had set ambitious goals in

response to NASA's ambitious proposals. The programs relied

on the invention of revolutionary technology, had run into

major technical problems, and had been denied the funds

needed to overcome these problems--assuming they could be

solved. NASA had spent nearly 15 years and several billion

dollars, and yet had made no meaningful progress toward a

Space Shuttle replacement.

Ibid, p. 111

Continued U.S. leadership in space is an important national

objective. That leadership depends on a willingness to pay

the costs of achieving it.

Ibid, p. 211

First, the commission is chartered to provide a sweeping assessment of the future of space. Included in that assessment is a review of United States capabilities, goals, and uses for space, including the state of our Nation's investment in launch capabilities, how space could benefit State and local governments and regions, and the role of non-governmental, private organizations in the promotion of our space endeavors. The review will also take up the difficult issues related to public and private investment: the role of private institutions in the development and use of space and the business conditions they must meet; how Federal Government programs in space science, exploration, national security, and public safety support or limit the commercial development of space; and how space contributes to the terrestrial economy of the United States.

Given the high cost of space, and the even higher costs of space that the Nation is certain to experience in the near and long-term future, resolution of these questions of private versus public participation and promotion of the development of space is a necessary part of the examination of possible technological and economic futures for the space sector of the economy.

Second, and most importantly, the National Space Commission Act is directed to perform a comprehensive assessment and inventorying of the Nation's programs and practices related to the conduct and safety of space flight. This study will assess the state of the Nation's acceptance, approval, and commercial licensing practices as they relate to the conduct of civil, commercial, and military space flight and explore how space launch and high-risk space operations are conducted across each of these sectors. This study is intended to result in a series of recommendations about the future management of space launch and high-risk orbital and sub-orbital space operations in order to achieve the highest level of safety and management of these risks. To those who question the importance of establishing an authority independent of NASA to assess these provisions, the Columbia Accident Investigation board stated the case most convincingly:

(NASA) cultural norms tend to be fairly resilient . . . The

norms bounce back into shape after being stretched or bent.

Beliefs held in common throughout the organization resist

alteration.

Ibid, p. 101

Within NASA, the cultural impediments to safe and effective

Shuttle operations are real and substantial . . . Leadership

will have to rid the system of practices and patterns that

have been validated simply because they have been around so

long . . . These recommendations will be difficult to

initiate, and they will encounter some degree of

institutional resistance.

Ibid. p. 209

NASA's blind spot is it believes it has a strong safety

culture . . . Twice in NASA history, the agency embarked on a

slippery slope that resulted in catastrophe . . . A safety

team must have equal and independent representation so that

managers are not again lulled into complacency by shifting

definitions of risk.

Ibid, p. 203

Since NASA is an independent agency answerable only to the

White House and Congress, the ultimate responsibility for

enforcement of the recommended corrective actions must reside

with those governmental authorities.

Ibid, p. 209

The National Space Commission is established on a permanent basis to maintain oversight of the implementation of space flight across all sectors of industry and government and vigilance in the management of safety in all United States high-risk space operations.

Let me reiterate. Merely announcing a bold new plan to travel to the Earth's Moon or to Mars is not sufficient. If the loss of the Space Shuttle Columbia merely results in that proposal, we will have failed the memory of our brave astronauts who lost their lives aboard both Challenger and Columbia. And we will have failed our own future. Unfortunately, our current charge is more difficult. We must challenge our assumptions, question our decisions and designs, revisit our approaches, and rethink our Nation's ambitions and goals for space. We must submit ourselves to the discipline to begin anew. The future of space and our Nation's reputation that we carry into history rests in the balance.

I ask unanimous consent that the text of the bill and an article from the New York Times be printed in the Record.

Mr. Speaker, I thank the chairman, not just for yielding to me, but for the great work that he and the gentleman from Louisiana (Mr. Baker) have done on this and also the gentleman from Pennsylvania (Mr. Kanjorski) and the gentleman from Massachusetts (Mr. Frank). I think it truly has been a team effort for both parties getting together to try to address the problem. Maybe we are not as far as I would like to be, as perhaps some others would like to be, but I think we started to move in the right direction. For that I am very pleased.

Mr. Speaker, I will submit a statement here that supports H.R. 2420 and goes through the details of some of the reasons for that. But I would like to take my time before us today just to discuss what I consider to be the breadth and extent of this problem and what we have to do.

It is very interesting because 2 decades ago only 6 percent of American households had mutual funds, and the total was supposedly $134 billion. Today one-half of all American families are involved in mutual funds in some way or another, probably do not even know they are. They are in their 401(k) plans or another retirement plan or something of that nature. It involves $7 trillion of money.

This, of all these issues we have talked about, probably involves more Americans in a financial sense than anything else we ever had before our committee or before the Congress of the United States of America. It represents 10 percent of all the financial assets of the United States of America. To suggest that this is not overwhelmingly important, in my judgment, would be wrong.

It is amazing to me that just 6 months ago the mutual fund industry was making statements as they were looking at the banking industry and the corporate problems and everything else that they are the only ones with an unblemished record. Nobody knew. Nobody at the State level, nobody at the Federal level knew what was going on. And while we can talk about the SEC now, I would like to know where the SEC was a year ago, 3 years ago, 5 years ago, 10 years ago, or whatever it may be, why was somebody not looking at some of these problems, which are relatively self-evident when you really examine it closely if you understand the details of how mutual funds work.

I would hope that those kinds of people have been working at the SEC under Republicans and Democrats. And I am afraid to say that has not been the case so far. And, frankly, I think we all need to be critical of that.

Should we move quickly on this? And I understand what Mr. Greenspan and Secretary Snow and others have said about, well, we need to take our time. Well, I do not disagree completely because you want to do it correctly; but on the other hand I think we need to move as quickly as possible. There has been a recognized problem, and we need to do something about it. And quite frankly, I am delighted that this bill is on the floor today and our leaders have come forward and said we need to move forward. Maybe they will do something somewhat differently in the Senate, but hopefully they will do something and hopefully we will have something which we can hold out to the American public as evidence that we are moving in the right direction as far as mutual funds are concerned.

On the old issue of who should regulate, where we should be, I give credit to the States. I think they have done a wonderful job, particularly in New York and Massachusetts, and perhaps other States in coming forward and revealing some the problems. Frankly, I am not sure where the SEC would be today, I am not sure where we would be today if that had not happened. Yes, there are jurisdictional issues, but for the most part I think they deserve a great deal of credit as far as all of that is concerned.

The SEC, according to Stephen Cutler, has examined the records of 88 of these mutual funds, and they found problems with a great percentage of them. And they have found in the case of 30 percent of them that they have had market-timing problems. Virtually half of these funds have had problems one way or another in the area in which we are trying to deal. That just shows me how rapidly we have to move and what we have to do.

So I give credit to everybody for the hearings, for the legislation, and what we are doing today because, frankly, I think you are going to start to see some changes. I think a lot of it is going to be because of this legislation which we are considering today and all that has led up to it.

Mr. Speaker, I rise today in support of H.R. 2420, the ``Mutual Funds Integrity and Fee Transparency Act of 2003.'' I commend Chairman Oxley and Subcommittee Chairman Baker for continuing your work in protecting American investors and I am proud to play a role in addressing the problems in the mutual fund industry. Hearings in the Financial Services Committee have enabled us to address a number of ongoing reforms that are necessary for the mutual fund industry to increase transparency for investors. From these hearings we have also learned of additional problems within the mutual fund industry that have only recently come to light such as improper trading practices. We have improved this legislation by incorporating all of the issues and I am proud of the legislation we passed out of committee with strong bipartisan support.

The average American family chooses to invest in mutual funds. I want to make clear what is at stake. Two decades ago, only 6 percent of American households had mutual fund shares valued at $134 billion. Today, half of all American families have $7 trillion at stake. Mutual funds represent about 10 percent of the total financial assets of the U.S. population. The number of funds have grown from less than 500 mutual funds in 1980 to approximately 8,000 mutual funds today.

Just 6 months ago the mutual fund industry was boasting of its unblemished record. It concerns me that the scandals we have learned of in recent weeks may only be the tip of the

iceberg. This should be a wake-up call to both the Securities and Exchange Commission (SEC) and the industry that change is needed. Mutual funds are a $7 trillion industry, and with more than 50 percent of the American public invested in mutual funds there is the potential for investors to be hurt more so by these recent revelations than even the WorldCom and Enron scandals. I am not downplaying the problems that were in play there, but I feel this issue is further-reaching and could impact a greater number of investors in the long run. Some in the industry have stated market timing was an open practice; furthermore, some funds have even stated they participated in market timing on a limited level with clients to allow controversial trading as a way to control the improper practice. This bothers me. Favoritism to big investors and violating ethical and legal codes rob the average investor who depends on their investments for costs such as education and retirement. There is a lot at stake, and the reforms addressed in this legislation will help prevent future investor betrayals. This bill addresses the recent market scandals and makes additional necessary reforms to the mutual fund industry, and I would like to highlight just a few.

First, to address recent scandals in the mutual fund industry, the manager's amendment will explicitly ban short-term trading by fund insiders and permit funds to charge more than the current maximum 2 percent redemption fee to discourage all market timers. Second, to prevent market timing trades, made possible by stale pricing, the manager's amendment directs the SEC to clarify rules regarding mutual funds' obligation to apply fair value pricing. Third, the manager' amendment also addresses late trading. Late trading is not only an improper advantage for large fund investors, it is illegal. Late trading has allowed some big fund investors to take advantage of the current day's price on orders to buy or sell shares placed after the close of the New York markets, when proper procedure would be to carry out the orders at the following day's price. Some have likened this practice to ``betting today on yesterday's horse race.'' The manager's amendment directs the SEC to issue rules to prevent late trading without disadvantaging those investors who use financial intermediaries such as broker-dealers and 401(k) and pension plan administrators to purchase fund shares.

Fourth, this legislation rightly increases the requirement of independent board members from one-half to two-thirds of total board membership and strengthens independence qualifications. A greater number of independent directors will increase protections of investors' interests against those of directors whose interests are tied to the success of their funds' advisers. Fifth, the bill requires disclosure of brokers' conflicts of interest where they are paid incentives to promote particular funds, so that investors can weigh sales incentives.

Finally, I am concerned about fees that mutual fund investors face. I understand that mutual fund companies feel there is a need for certain fees, but these fees must be transparent to investors. In many cases investors choose ``no-load'' funds for their no-fee structure, but hidden fees such as 12-(b)-1 fees are often charged. I am pleased this legislation would prohibit a fund from advertising as a ``no-load'' fund if in fact the 12-(b)-1 fee is charged. Furthermore, in an effort to enhance transparency of fees, the bill requires that mutual funds disclose fees, in dollar amounts, on a hypothetical $1,000 investment, and further requires that this information not be buried in a prospectus.

Mr. Speaker, the House Financial Services Committee and Congress acted in the wake of the Enron and WorldCom scandals to protect investors. Today we are again being called on to protect the average American investor, and I urge my colleagues on both sides of the aisle to join me in supporting this important and very necessary legislation.

Mr. Speaker, I rise today in support of H.R. 2420, the ``Mutual Funds Integrity and Fee Transparency Act of 2003.'' I commend Chairman Oxley and Subcommittee Chairman Baker for continuing your work in protecting American investors and I am proud to play a role in addressing the problems in the mutual fund industry. Hearings in the Financial Services Committee have enabled us to address a number of ongoing reforms that are necessary for the mutual fund industry to increase transparency for investors. From these hearings we have also learned of additional problems within the mutual fund industry that have only recently come to light such as improper trading practices. We have improved this legislation by incorporating all of the issues and I am proud of the legislation we passed out of committee with strong bipartisan support.

The average American family chooses to invest in mutual funds. I want to make clear what is at stake. Two decades ago, only 6 percent of American households had mutual fund shares valued at $134 billion. Today, half of all American families have $7 trillion at stake. Mutual funds represent about 10 percent of the total financial assets of the U.S. population. The number of funds have grown from less than 500 mutual funds in 1980 to approximately 8,000 mutual funds today.

It concerns me that the scandals we have learned of in recent weeks may only be the tip of the iceberg. This should be a wake up call to both the Securities and Exchange Commission (SEC) and the industry that change is needed. Mutual funds are a $7 trillion industry and with more than 50 percent of the American public invested in mutual funds there is the potential for investors to be hurt more so by these recent revelations than even the World Com and Enron scandals. I am not downplaying the problems that were in play there but I feel this issue is further reaching and could impact a greater number of investors in the long run. Some in the industry have stated market timing was an open practice, furthermore, some funds have even stated they participated in market timing on a limited level with clients to allow controversial trading as a way to control the improper practice. This bothers me. Favoritism to big investors and violating ethical and legal codes rob the average investor who depends on their investments for costs such as education and retirement. There is a lot at stake and the reforms addressed in this legislation will help prevent future investor betrayals. This bill addresses the recent market scandals and makes additional necessary reforms to the mutual fund industry, and I would like to highlight just a few.

First, to address recent scandals in the mutual fund industry, the manager's amendment will explicitly ban sort term trading by fund insiders and permit funds to charge more than the current maximum 2 percent redemption fee to discourage all market timers. Second, to prevent market timing trades, made possible by stale pricing, the manager's amendment directs the SEC to clarify rules regarding mutual funds' obligation to apply fair value pricing. Third, the manager's amendment also addresses late trading. Late trading is not only an improper advantage for large fund investors, it is illegal. Late trading has allowed some big fund investors to take advantage of the current day's price on orders to buy or sell shares placed after the close of the New York markets, when proper procedure would be to carry out the orders at the following day's price. Some have likened this practice to ``betting today on yesterday's horse race.'' The manager's amendment directs the SEC to issue rules to prevent late trading without disadvantaging those investors who use financial intermediaries such as broker-dealers and 401(k) and pension plan administrators to purchase fund shares.

Fourth, this legislation rightly increases the requirement of independent board members from one-half to two-thirds of total board membership and strengthens independence qualifications. A greater number of independent directors will increase protections of investors' interest against those of directors whose interests are tied to the success of their funds' advisers. Fifth, the bill requires disclosure of brokers' conflicts of interest where they are paid incentives to promote particular funds so that investors can weigh sales incentives.

Finally, I am concerned about fees that mutual fund investors face. I understand that mutual fund companies feel there is a need for certain fees, but these fees must be transparent to investors. In many cases investors choose ``no-load'' funds for their no fee structure, but hidden fees such as 12-(b)-1 fees are often charged. I am pleased this legislation would prohibit a fund from advertising as a ``no-load'' fund if in fact the 12-(b)-1 fee is charged. Furthermore, in an effort to enhance transparency of fees, the bill requires that mutual funds disclose fees, in dollar amounts, on a hypothetical $1,000 investment, and further requires that this information not be buried in a prospectus.

Mr. Speaker, the House Financial Services Committee and Congress acted in the wake of the Enron and World Com scandals to protect investors. Today we are again being called on to protect the average American investor and I urge my colleagues on both sides of the aisle to join me in supporting this important and very necessary legislation.

Mr. President, I rise today to introduce legislation intended to restore public trust in mutual funds, the Mutual Fund Transparency Act of 2003. I thank Senator Fitzgerald and Senator Lieberman for cosponsoring my bill. I greatly appreciate the efforts of Senator Fitzgerald to address this issue. Our Financial Management, Budget, and International Security Subcommittee held a very thorough hearing on mutual fund trading abuses on Monday. I applaud the efforts of Representative Richard Baker for his leadership and his efforts to improve mutual fund governance. I also commend the efforts of New York Attorney General Eliot Spitzer and the Secretary of Massachusetts William Galvin for their efforts to pursue individuals that have harmed mutual fund investors.

Mr. President, 95 million people have placed a significant portion of their future financial security into mutual funds. Mutual funds provide middle-income Americans, blue and white collar workers and their families, with an investment vehicle that offers diversification and professional money management. Mutual funds are what average investors rely on for retirement, savings for children's college education, or other financial goals and dreams.

My legislation will bring about structural reform of mutual fund governance and increase disclosures in order to provide useful and relevant information to mutual fund investors. I ask unanimous consent that a letter of support for my bill from the Consumer Federation of America, Fund Democracy, Consumer Action, U.S. Public Interest Research Group, and Consumers Union be printed in the Record.

I also ask unanimous consent that a letter of support for the legislation from AARP be printed in the Record.

Mr. President, recent revelations of widespread market- timing and late-trading abuses demonstrate the failures of mutual fund boards of directors to fulfill their fiduciary obligations to shareholders. The activities of Canary Capital Partners and Putnam Investments are two deeply troubling examples. However, it is likely that the trading abuses are much more routine. At our hearing, Mr. Stephen Cutler, Director, Division of Enforcement, Securities and Exchange Commission, SEC, testified that preliminary results of an SEC survey show that about ``50 percent of responding fund groups appear to have one or more arrangements with certain shareholders that allow these shareholders to engage in market timing.'' This statistic is just one example of mutual funds having different sets of rules for large and small investors. These differing rules allow the larger investors to profit at the expense of average, ordinary investors who are working toward their long-term financial goals.

The abuses that have been brought to our attention make it clear that the boards of mutual fund companies are not providing sufficient oversight. To be more effective, the boards must be strengthened and more independent. Investment company boards should be required to have an independent chairman, and independent directors must have a dominant presence on the board. My bill strengthens the definition of who is considered to be an independent director. It also requires that mutual fund company boards have 75 percent of their members considered to be independent. To be considered independent, shareholders would have to approve them. My legislation also prohibits the board from making decisions that require a vote of a non-independent director. In addition, a committee of independent members would be responsible for nominating members and adopting qualification standards for board membership. These steps are necessary to add much needed protections to strengthen the ability of mutual fund boards to detect and prevent abuses of the trust of shareholders.

In addition, this bill requires the SEC to develop rules to disclose the compensation of individuals employed by the investment advisor of the company to manage the portfolio of the company and their ownership interest in the company. Consumers deserve to know relevant information about the portfolio manager's incentives and whether they are properly aligned with those of their shareholders. Again, I am referring to ordinary American families patiently working toward their long-term financial goals.

The strengthening of boards to protect shareholders is only one important aspect of my bill. My bill will also increase the transparency of often complex financial relationships between brokers and mutual funds in ways that are meaningful and easy to understand for investors.

Shelf-space payments and revenue-sharing agreements between mutual fund companies and brokers present conflicts of interest that must be addressed. Brokers also compile preferred lists which highlight certain funds, which typically generate more investment than those left off the list. It is not clear to investors that the mutual fund company also may pay a percentage of sales and/or an annual fee on the fund assets held by the broker to obtain a place on the preferred list or to have their shares sold by the broker.

Shelf-space and revenue sharing agreements present risk to investors. Brokers have conflicts of interest, some of which are unavoidable, but these need to be disclosed to investors. Without such disclosure, investors cannot make informed financial decisions. Investors may believe that brokers are recommending funds based on the expectation for solid returns or low volatility, but the broker's recommendation may be influenced by hidden payments.

The SEC has exempted mutual funds from Rule 10b-10, which requires that confirmation notices of securities transactions be sent to customers to indicate how the broker was compensated in the trade. Mutual funds should be subject to this confirmation notice requirement. My legislation will require brokers to disclose in writing, to those who purchase mutual fund company shares, the amount of compensation the broker will receive due to the transaction, instead of simply providing a prospectus. The prospectus fails to include the detailed relevant information that investors need to make informed decisions. Mutual fund investors deserve to know how their broker is being paid.

My bill also will inject a measure of reality into the expenses of mutual funds. In order to increase the transparency of the actual costs of the fund, brokerage commissions must be counted as an expense in filings with the SEC and included in the calculation of the expense ratio, so that investors will have a more realistic view of the expenses of their fund. Consumers often compare the expense ratios of funds when making investment decisions. However, the expense ratios fail to take into account the costs of commissions in the purchase and sale of securities. Therefore, investors are not provided with an accurate idea of the expenses involved. Currently, brokerage commissions have to be disclosed to the SEC, but not to individual investors. Brokerage commissions are only disclosed to the investor upon request. My bill puts teeth into brokerage commission disclosure provisions and ensures that commissions will be included in a document that investors actually have access to and utilize.

This bill also creates a powerful incentive to reduce the use of soft dollars. Soft dollars refer to the bundling of services or products into commissions. Mutual fund companies often pay higher commissions in order to obtain other products and services, typically research on stocks. Soft dollars can be used to lower their expenses by having services and products paid for by soft dollars. Purchases using soft dollars do not count as expenses and are not calculated into the expense ratio. The SEC released a study in September 1998 concluding that soft dollars were used to pay for research, salaries, office rent, telephone services, legal expenses, and entertainment, among other expenses.

At the hearing, Secretary Galvin called for a prohibition of soft dollars. This is a recommendation that needs to be examined. However, my bill provides an immediate alternative, which is to provide an incentive for funds to limit their use of soft dollars by calculating them as expenses. If commissions are disclosed in this manner, the use of soft dollars will be reflected in the higher commission fees and overall expenses. This will make it easier for investors to see the true cost of the fund and compare the expense ratios of funds.

Some may argue that this gives an incomplete picture and fails to account for spreads, market impact, and opportunity costs. However, the SEC has the authority to address the issue further if it can determine an effective way to quantify these additional factors. This bill does not impose an additional reporting requirement that would be burdensome to brokers. It merely uses what is already reported and presents this information in a manner meaningful to investors.

My legislation also directs the SEC to conduct a study to assess financial literacy among mutual fund investors. The SEC will identify the most useful and relevant information that investors need prior to purchasing shares, methods to increase the transparency of expenses and potential conflicts of interest in mutual fund transactions, and a strategy to increase the financial literacy of investors that results in positive change in investor behavior. None of our disclosure provisions will truly work unless investors are effectively given the tools they need to make smart investment decisions.

Finally, my bill requires the General Accounting Office, GAO, to study the current marketing practices for the sale of shares of mutual funds. GAO will provide recommendations to improve investor protections in mutual fund advertising to ensure that investors are able make informed financial decisions when purchasing shares.

Public confidence in mutual funds will not recover if funds continue to employ different sets of rules for large and small investors, engage in ethical misconduct, and enrich themselves at the expense of shareholders. The transgressions brought to light underscore the absence of effective oversight by the boards of mutual funds companies. This legislation will strengthen board independence and enhance the transparency of financial relationships. The American investing public deserves nothing less.

Mr. President, I look forward to working with my colleagues in enacting meaningful reform of the troubled mutual fund industry. We must act to restore trust in this critical investment vehicle that people rely on for their financial future and goals. I ask unanimous consent that the text of the Mutual Fund Transparency Act of 2003 be printed in the Record.

Mr. President, I rise today to join with my colleagues Senator Daniel Akaka and Senator Peter Fitzgerald and cosponsor legislation that would begin the crucial process of reforming the mutual fund industry. In the wake of shocking revelations of abusive trading and self-dealing in some of America's largest funds, it is imperative that we act quickly, and I commend my friend Senator Akaka for his leadership. We must

do two things in order to reassure the 95 million Americans who invest in mutual funds that they have not misplaced their trust. We must find out how this was allowed to happen, and we must put safeguards in place to prevent these widespread abuses from poisoning our markets again.

As the deceptions and conflicts of the Wall Street analysts were uncovered last year in the wake of the Enron scandal, the oft-heard advice to the average investor was to invest in mutual funds. Investors took this advice in droves. Half of all American households own shares in mutual funds, and of the $7 trillion invested in mutual funds, $2.1 trillion of it is invested for retirement.

Perhaps these working families felt comfortable entrusting their precious savings with mutual funds because these funds offer one of the most highly regulated investments available. Mutual funds, their directors and their managers owe their investors a statutory fiduciary duty. Mutual funds are overseen by the SEC through a prescribed registration and reporting process as well as a regular examination and audit process, pursuant to the Investment Company Act of 1940.

Unfortunately, the trust of these American families has been abused. According to a just-released survey conducted by the Securities and Exchange Commission, half of the largest 88 mutual funds have permitted a practice called ``market-timing,'' which allows some investors to trade quickly in and out of the funds, even though many of those funds had explicit policies against such trading because of its detrimental impact on other investors in the fund. Many fund companies admitted providing portfolio information, unavailable publicly, to certain large investors to help them make trading decisions. Also, a full one-quarter of the brokerage firms surveyed indicated that they had allowed certain customers to engage in late-trading, an illegal practice that allows favored investors to execute trades based on that day's price, but after the market close, when new information has come to light. Perhaps most shocking, Stephen Cutler, Director of the SEC's Enforcement Division, has said that there is evidence that officials at fund companies profited personally at the expense of their customers by market-timing their own funds.

The SEC didn't discover these abuses on its own initiative, however. It acted only after the New York State Attorney General and the Massachusetts Secretary of the Commonwealth took steps to investigate and stop this conduct. The SEC didn't discover the abuses through the extensive reporting process mutual funds go through; the SEC didn't discover the abuses through the broad and regular examinations the SEC does of these mutual funds; the SEC didn't even discover the abuses after it received a tip from an insider, who went to the SEC with his attorney, evidence in hand.

Yesterday, I sent a ten-page letter to SEC Chairman William Donaldson, demanding to know how the SEC could have failed to uncover such a sweeping problem in the mutual fund industry. I asked how the SEC planned to change its practices in order to ensure that it is never again caught so unaware. Congress gave the SEC the responsibility to monitor the mutual fund industry, and we must ensure that the SEC does its job.

This is not the first time the SEC has been caught off guard with a scandal on Wall Street. In October 2002, the staff of the Senate Governmental Affairs Committee, of which I was then the Chairman, released a report, Financial Oversight of Enron: The SEC and Private- Sector Watchdogs, detailing the ignored red flags and the missed opportunities that kept the SEC from detecting the problems at Enron before that company collapsed, taking with it the jobs and retirement savings of thousands of Americans. Again, despite being fully aware of the troubling conflicts faced by Wall Street analysts, the SEC turned a blind eye to that problem until this Committee and others held hearings on the issue and New York State Attorney General Eliot Spitzer exposed how deeply deceptive many analyst recommendations truly were. I hope this mutual fund scandal represents the last time the SEC is playing regulatory catch-up.

In addition to holding the SEC accountable, Congress must also act to protect investors by fixing the holes in the statutory scheme for mutual funds. That's why I'm pleased to cosponsor the Mutual Fund Transparency Act of 2003, which enjoys widespread support from consumer groups. It contains many of the policy changes I urged the SEC to consider in my letter to Chairman Donaldson. It would strengthen the independence of mutual fund boards of directors by tightening the definition of independence and by requiring that 75 percent of the directors be independent. The bill would also require that mutual fund boards have nominating committees comprised solely of independent directors, so that directors are not chosen by management.

In my letter to the SEC, I also criticized the opaque or, in some cases, lack of, disclosure to investors about mutual fund fees. The Mutual Fund Transparency Act would significantly improve such disclosure to investors, by including in the fees disclosed to investors the costs the fund incurs when it executes trades of its holdings. Currently, such costs are not included among these more visible fees, which are disclosed in documents provided directly to mutual fund shareholders. Trading costs are currently only disclosed in filings with the SEC, but if this bill became law, trading costs would be included among the fees provided directly to investors. Such information is useful because it can give investors a sense of how often their funds are buying and selling assets and at what expense. The bill would also require funds to tell shareholders how fund advisers are compensated. Public companies are required to tell their shareholders how their managers are paid; mutual fund shareholders should have the same information. Finally, the bill would require that brokers offering mutual funds to investors inform those investors of any fees or incentives those brokers are receiving for making those sales in a sale confirmation.

The bill also mandates that the SEC study three initiatives to improve mutual fund oversight and transparency. The first two ask the SEC and the Comptroller General, respectively, to look at financial literacy among mutual fund investors and at mutual fund advertising, to determine how relevant information can be made clearer and more readily understandable to the average investor. In my letter to the SEC, I suggested the agency consider using consumer research methods in order to achieve such a result. The third study required by the bill relates to the formation of a Mutual Fund Oversight Board to take over the frontline efforts of mutual fund regulation from the SEC, while remaining under that agency's oversight. This may be a good approach, but I have concerns about the costs of such a board being borne by mutual fund investors, which is one of the areas suggested for study. I hope other options would be explored.

The Mutual Fund Transparency Act is clearly an important first step in closing some of the gaps in the laws governing these important investment vehicles. But there is more work to do, and I look forward to working with Senator Akaka and the other cosponsors of this bill in making further necessary improvements. For example, we should consider strengthening the fiduciary duties owed by mutual fund directors and managers to their shareholders. In addition, as I indicated in my letter to the SEC, guidelines must be developed to prevent mutual fund directors from serving on more boards of funds than they can effectively oversee; at some of the major funds, directors serve on a hundred or more boards. Compliance officers at the funds must be elevated to emphasize their role. I suggested in my letter to the SEC that such a compliance officer should be active at each fund and should report directly to an independent committee of the board.

Moreover, as I pointed out to the SEC in my letter to Chairman Donaldson, we must close the loophole that allowed so many brokers and mutual funds to circumvent the law on late trading. Imposing a hard deadline of a time at which trades must be into the mutual fund may be the solution to this problem. We also must provide even more, clearer information to investors about the fees they are actually paying to participate in mutual funds. In my letter the SEC, I asked

the agency why investors should not receive on their monthly statements detail about the fees they actually paid to the fund during that time period, similar to the finance charge information that credit card consumers get. I also suggested that funds be required to provide comparative fee information. This would help people make better investment decisions, and might also encourage more competition among funds to reduce expenses.

Mutual funds hold the nest eggs, the retirement savings, and the college funds for many of America's working families. Through those investments in their own futures, those families are also feeding capital into today's economy, fueling the engine that creates and maintains American jobs. In a very real sense, these mutual fund investments are investments in the American dream. We must act now to protect them, and to restore the integrity to the mutual fund industry.

Once again, I thank Senator Akaka for his leadership on this issue, and I urge my colleagues to support this important and timely legislation.