(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

SEC Chairman Donaldson Calls for High Ethical Standards

In the view of new SEC Chairman William H. Donaldson, "it is time to get serious" about pursuing corporate reform. Mr. Donaldson addressed the Practising Law Institute's annual "SEC Speaks" conference in Washington, D.C. "In my opinion, we are in the midst of one of the most challenging times for the corporate and financial community since the events that led to the bust of 1929, which gave way to the reforms of 1933 and 1934 and the very establishment of the agency," stated the SEC chairman.

According to the chairman, the agency and American business experienced unprecedented events recently, from the terrorist attacks in September 2001 to the collapse of Enron and other corporate scandals. The failures leading to the scandals, he said, involved both willing fraud and the weaknesses of the corporate disclosure system.

Mr. Donaldson said he has been "alternately very sad and very angry" at what he has seen develop over the past decade and the consequences that have emerged in the past two years, as confidence in the U.S. corporate and financial industries has been seriously eroded. Restoring investor confidence, which is an important intangible, is everyone's responsibility of us all, in his view. "We are moving in the right direction with a combination of thoughtful legislation and careful rulemaking," he said.

Chairman Donaldson described his mission as having two parts, the internal and the external. One of the greatest challenges of his internal mission in his view will be to use the SEC's resources wisely, as recent legislation has significantly increased the agency's budget has almost doubled. Comparing the SEC with the U.S. military, which has had to evolve into a quicker, more agile and proactive force, he expressed hope that the Commission can be more proactive and anticipate the problems it will face. "I believe the efficient functioning of the SEC is as much a part of investor protection as ushering in new rules and regulations," explained Mr. Donaldson.

The external half of his mission will be "to challenge corporate America to look beyond rules, regulations and laws and look to the principles upon which sound business is based." He said that it is not enough for the agency or for business to "imitate existing methods." To restore the trust of American investors, he said that "there must be a new respect for honesty, integrity, transparency, and accountability, with the goal being the good of shareholders rather than an obsession with the bottom line at any cost." To accomplish that goal, corporate leaders must make a conscious decision to set a tone in which ethics and integrity are at the heart of every business decision.

"In effect," said the SEC chairman, "every layer of a company and its advisors must hold the others to this high standard." He added that the "limits of the law do not determine what is right or wrong" and emphasized that "each individual will have to make this decision to go beyond the law on his or her own as we cannot legislate it or promulgate rules to enforce it." He called on the "many good, honest people in American business " to "join the call for reinvigoration of ethics and integrity in the business world."