[Senate Hearing 110-924]
[From the U.S. Government Printing Office]
S. Hrg. 110-924
NOMINATIONS OF: BIJAN RAFIEKIAN,
DIANE FARRELL, WILLIAM S. JASIEN,
MARK S. SHELTON, AND WILLIAM H. HEYMAN
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
ON
nominations of:
Bijan Rafiekian, of California, to be a Member of the Board of
Directors, Export-Import Bank
__________
Diane Farrell, of Connecticut, to be a Member of the Board of
Directors, Export-Import Bank
__________
William S. Jasien, of Virginia, to be a Director, Securities Investor
Protection Corporation
__________
Mark S. Shelton, of New Jersey, to be a Director, Securities Investor
Protection Corporation
__________
William H. Heyman, of New York, to be a Director, Securities Investor
Protection Corporation
__________
WEDNESDAY, JULY 11, 2007
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
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----------
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
CHRISTOPHER J. DODD, Connecticut, Chairman
TIM JOHNSON, South Dakota RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York WAYNE ALLARD, Colorado
EVAN BAYH, Indiana MICHAEL B. ENZI, Wyoming
THOMAS R. CARPER, Delaware CHUCK HAGEL, Nebraska
ROBERT MENENDEZ, New Jersey JIM BUNNING, Kentucky
DANIEL K. AKAKA, Hawaii MIKE CRAPO, Idaho
SHERROD BROWN, Ohio JOHN E. SUNUNU, New Hampshire
ROBERT P. CASEY, Pennsylvania ELIZABETH DOLE, North Carolina
JON TESTER, Montana MEL MARTINEZ, Florida
Shawn Maher, Staff Director
William D. Duhnke, Republican Staff Director and Counsel
Dean V. Shahinian, Counsel
Joseph L. Hepp, Professional Staff Member
Justin Daly, Republican Counsel
Andrew Olmem, Republican Counsel
Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
George Whittle, Editor
C O N T E N T S
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WEDNESDAY, JULY 11, 2007
Page
Opening statement of Chairman Dodd............................... 1
Opening statements, comments, or prepared statements of:
Senator Allard............................................... 4
WITNESSES
Bijan Rafiekian, of California, to be a Member of the Board of
Directors, Export-Import Bank.................................. 6
Prepared statement........................................... 20
Biographical sketch of nominee............................... 21
Response to written questions of:
Senator Brown............................................ 66
Diane Farrell, of Connecticut, to be a Member of the Board of
Directors, Export-Import Bank.................................. 7
Prepared statement........................................... 33
Biographical sketch of nominee............................... 35
William S. Jasien, of Virginia, to be a Director, Securities
Investor Protection Corporation................................ 9
Prepared statement........................................... 43
Biographical sketch of nominee............................... 45
Mark S. Shelton, of New Jersey, to be a Director, Securities
Investor Protection Corporation................................ 10
Prepared statement........................................... 49
Biographical sketch of nominee............................... 51
William H. Heyman, of New York, to be a Director, Securities
Investor Protection Corporation................................ 11
Prepared statement........................................... 55
Biographical sketch of nominee............................... 58
Response to written questions of:
Senator Dodd............................................. 67
NOMINATIONS OF:
BIJAN RAFIEKIAN, OF CALIFORNIA, TO BE A MEMBER OF THE BOARD OF
DIRECTORS,
EXPORT-IMPORT BANK OF THE UNITED STATES;
DIANE FARRELL, OF CONNECTICUT,
TO BE A MEMBER OF THE BOARD OF DIRECTORS,
EXPORT-IMPORT BANK OF THE UNITED STATES;
WILLIAM S. JASIEN, OF VIRGINIA,
TO BE A DIRECTOR,
SECURITIES INVESTOR PROTECTION CORPORATION;
MARK S. SHELTON, OF NEW JERSEY,
TO BE A DIRECTOR,
SECURITIES INVESTOR PROTECTION CORPORATION;
WILLIAM H. HEYMAN, OF NEW YORK,
TO BE A DIRECTOR,
SECURITIES INVESTOR PROTECTION CORPORATION
----------
WEDNESDAY, JULY 11, 2007
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 9:05 a.m., in room SD-538, Dirksen
Senate Office Building, Hon. Christopher J. Dodd (Chairman of
the Committee) presiding.
OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD
Chairman Dodd. The Committee will come to order.
Good morning everyone and welcome to the Banking Committee.
I am going to ask the hearing will come to order.
I expect to maybe have one or two other members show up
here but I want to welcome you all here this morning and offer
my congratulations to you on your nominations.
We are meeting in open session to conduct a nomination
hearing that is a crucial part of this Committee's oversight
responsibilities and I would like to thank our witnesses for
their willingness to appear before the Committee, for their
service, and again congratulations on your nomination.
On our panel we have two nominees for the Board of
Directors at the Export-Import Bank of the United States and
three nominees for the Board of Securities Investor Protection
Corporation, SIPC.
The Eximbank is the official export credit agency of the
United States. Eximbank's mission is to assist U.S. companies
large and small and financing the export of U.S. goods and
services to international markets.
Our first witness is Bijan Rafiekian. Did I pronounce that
correctly?
Mr. Rafiekian. Yes, sir.
Chairman Dodd. Mr. Rafiekian has been serving on the Board
of Directors at the Eximbank since October of last year. He has
testified previously before this Committee and has been
renominated for a new 4-year term expiring in the year 2011.
Mr. Rafiekian was formerly the Director of the State of
California Office of Foreign Investment, which was that State's
leading office for attraction, retention, and expansion of
foreign direct investment. He also previously served on the
Board of the California Housing Finance Authority and as
President of Globetel, an international telecommunications
company based in San Diego. In addition, he was the principal
in Global Capital Markets, Inc.
Our next nominee for a 4-year term as Director of the
Eximbank is Diane Farrell. I have known Diane for many years
and I have been impressed, obviously, with her intelligence,
her tenacity and her overriding commitment on behalf of the
people that she has represented in Connecticut and the work she
has done.
As a former First Selectwoman of Westport, Connecticut,
Diane Farrell displayed her leadership skills by working with
business, government, and community leaders to solve a variety
of problems. After being elected with over 70 percent of the
vote--a stunning number, I might add, an enviable number for
all of us in public life--Diane began finding more solutions to
local issues by actively reaching out and working cooperatively
with business leaders and through organizations like the
Business Council and local Chamber of Commerce. Additionally,
she was able to hone her business and managerial skills by
serving on Westport's Board of Finance.
Her financial experience and desire to work in partnership
with businesses both large and small led her to work as Chair
of the Fairfield County Metropolitan Organization, as well as a
leadership role in the Connecticut Conference of
Municipalities.
Like Mr. Rafiekian, her experience and desire to work on a
national level with U.S. exporters as they pursue export
opportunities is commendable and exactly what we need on the
Board of Directors for the Export-Import Bank. I look forward
to hearing from her testimony this morning, as well.
Next we have the three nominees to serve as Directors of
the Board of the Securities Investor Protection Corporation,
better known as SIPC. SIPC was created by Congress in 1970 to
give investors certain protections against losses resulting
from the failure of their stock brokerage firms. SIPC requires
broker-dealers to contribute to the SIPC fund and helps
investors whose securities and cash are held by failed brokers
to recover those assets.
In order to maintain investor confidence in the securities
markets and their brokerage firms, SIPC must operate in a
manner that is effective, efficient and fair. This involves
maintaining fund balances that are adequate and liquid so that
SIPC can pay out investor claims equitably and quickly. This
requires appropriate corporate governance practices so that
SIPC has adequate internal financial controls, transparent
contracting protocols and appropriate executive compensation
practices, and its board members avoid conflicts of interest.
It also requires educating investors broadly about the role
of SIPC and the extent of SIPC's coverage so they will know
what it will and will not cover. In addition, it entails
working cooperatively with the Securities and Exchange
Commission and with the self-regulatory organizations.
The first of the nominees is Mark Shelton, who has been
nominated for a term expiring December 31, 2008. Mr. Shelton is
General Counsel for UBS Financial Services, a securities firm
where he had worked since 2003. Previously he was a partner in
the firm of Wilmer, Cutler and Pickering where he worked from
1997 to 2003 and taught as an adjunct professor of law at
Georgetown University Law Center.
From 1995 to 1996 he served as Deputy Counsel, General
Counsel, for the Dole-Kemp 1996 Presidential campaign. Prior to
this position he served at the Securities and Exchange
Commission and clerked for the U.S. Court of Appeals for the
Eighth Circuit.
Next on our panel we have William Stephen Jasien, who has
been nominated for the term expiring December 31, 2009. Mr.
Jasien is a Senior Vice President for the Distribution and
Administration of Public Pension Plans at ING Financial
Advisors, a broker-dealer where he has worked since 1993.
Previously, from 1991 to 1993, he served in the United
States Department of Treasury as Deputy Assistant Secretary,
Budget Procurement and Human Resource Administration. From 1989
to 1991 Mr. Jasien served at the Resolution Trust Corporation
Oversight Board as a Director of Public and Industry Affairs.
He also worked as Deputy Campaign Controller for the George
Bush for President Campaign from 1987 to 1989 and for the
United States Senator Paula Hawkins from 1985 to 1987.
Our final nominee for the Board is William Heyman who has
been nominated for two terms, the first expiring at the end of
this year and the second expiring on December 31, 2010.
Mr. Heyman is currently serving as Vice Chairman and Chief
Investment Officer for the Travelers Companies, Inc. From 1995
to 2002 he worked for Citigroup and its predecessor, Travelers
Group, Inc., in various positions including Chairman of
Citigroup Investments. Prior to that position he worked from
1993 to 1995 for Salomon Brothers, Inc. as Managing Director
and head of the Private Investment Department. From 1991 to
1993 at the Securities and Exchange Commission, as Director of
the Division of Market Regulation.
He has also worked for brokerage firms and private law
firms. He's a member of the Board of Governors for the National
Association of Securities Dealers. Mr. Heyman, I thank you for
being here.
I look forward to the testimony of all of our witnesses
here this morning.
Let me, first of all, do what we normally do here. Let me
ask each of you if you have family here in the room, and I know
some of you do. And why don't you recognize them and introduce
them for the purposes of the record so they can actually say
they were here. So some day when they say you did not show up
for my confirmation, you can say in the record I was here. Mr.
Rafiekian.
Mr. Rafiekian. Thank you, Mr. Chairman.
I have my wife of 25 years, Gissou, who is a banker. Also
here with me, my daughter Christine, who is a sophomore at
American University studying international studies and law and
society, and my daughter Alexandria, who will be a freshman at
Winston Churchill High School.
Chairman Dodd. Terrific. That is very good. Thank you.
Thanks for joining us this morning.
Diane.
Ms. Farrell. Mr. Chairman, I am most honored to introduce
to you my husband, some would say long-suffering, of 29 years,
Win Farrell, who has really and truly made all of this possible
for me. And I am going to publicly say thank you, for the
record.
Chairman Dodd. Thank you very much. Win, nice to see you.
Good to have you with us this morning.
Mr. Jasien.
Mr. Jasien. Mr. Chairman, I am pleased to introduce my
family: my wife Kathy, our daughter Ally, our son Hunter, and
other son Chapman. Our oldest son could not be here. He is off
at wrestling camp.
Chairman Dodd. Very good. We will note where he is in the
record.
Mr. Jasien. And they are thrilled to be here.
Chairman Dodd. Thanks for coming here this morning.
Mr. Shelton.
Mr. Shelton. Mr. Chairman, my family could not be here
today but I still would like to recognize my wife April and my
sons, Spencer and Hewitt.
Chairman Dodd. Absolutely, very good.
Mr. Heyman.
Mr. Heyman. My family could not be here either, but I would
like to recognize my wife Wendy and my stepson Jack.
Chairman Dodd. Terrific, very, very good.
Since we are recognizing family, I should recognize my wife
is here, Jackie. For the record, for truth in advertising here,
Jackie was a member of the Board and Vice Chairman of the Board
at the Eximbank for a number of years and Chief of Staff down
there, as well. She has a strong interest and knows Diane well,
obviously. But in addition to that, she has some pretty good
knowledge about Eximbank and wanted to come by this morning and
hear the testimony.
Let me turn to my colleague, Senator Allard.
STATEMENT OF SENATOR WAYNE ALLARD
Senator Allard. Mr. Chairman, I would like to thank you for
convening the Banking Committee this morning to consider the
pending nominations. I appreciate the opportunity to learn more
about the nominees' background as well as their intentions for
their agencies.
First, I would like to welcome Mr. Rafiekian, who is
nominated to the Board of the Export-Import Bank. It is
important to have strong leadership in place and his prior
leadership on the board, I think, will be very, very helpful.
I would also like to welcome Diane Farrell. I am sure her
background, especially in advertising, will be helpful to the
Export-Import Bank.
Next, I would like to welcome William Herbert Heyman,
William Jasien, and Mark Shelton, all of whom are nominated to
the Board of Directors of the Securities Investor Protection
Corporation.
The Securities Investor Protection Corporation has
recovered $15.7 billion in assets for 626,000 investors when
brokerage firms closed to bankruptcy or other financial
problems. SIPC estimates that no fewer than 99 percent of
persons who are eligible have been made whole in the failed
brokerage firm cases it has handled to date.
Our nominees bring outstanding private sector credentials
to their positions and I appreciate their willingness to enter
or remain in public service. I encouraged them to remain
focused on results and outcomes rather than processes. One of
the best ways to do this is through familiarity and compliance
with the Government Performance and Results Act and the
Administration's PART analysis.
Thank you for being here today and I look forward to your
testimony.
Thank you, Mr. Chairman.
Chairman Dodd. With that let me, if I can, ask our
witnesses to please stand and raise your right hand, if you
would.
Do you swear or affirm that the testimony that you are
about to give is the truth, the whole truth, and nothing but
the truth, so help you God?
Mr. Rafiekian. I do.
Ms. Farrell. I do.
Mr. Heyman. I do.
Mr. Jasien. I do.
Mr. Shelton. I do.
Chairman Dodd. And do you agree to appear and testify
before any duly constituted Committee of the United States?
Mr. Rafiekian. I do.
Ms. Farrell. I do.
Mr. Heyman. I do.
Mr. Jasien. I do.
Mr. Shelton. I do.
Chairman Dodd. I thank you very much. Please be seated.
Before you begin, let me assure all of you here that your
written testimony will be included in the record in full, and
any other supporting documents you may want the Committee to
have for purposes of the nomination.
I say that and also, as my colleague knows, we will leave
the record open here for any statements other members of the
Committee want to make regarding the nominees or any questions
they may have for you, which I will ask that they produce
promptly so that you can respond promptly so that we can try
and get this confirmation done, barring any other unforeseen
circumstance, before the August break. That is my attention
anyway, to try and get you out of here. We have got some
markups for this Committee planned for this month here and I
would like to be able to include your nominations as part of
that.
So again, as custom would have it, members are not all
here. They may want some questions to be raised with you and I
want to give them the opportunity to do that. But I will insist
that they do it promptly and that you respond promptly, as
well. Any delay in that obviously runs the risk of delaying
your nomination going forward. So we will try and make that as
quick as we can.
With that, let me begin with you, Mr. Rafiekian, and any
opening statement you have. I will just work down the line here
with you and then I have some questions for you.
STATEMENT OF BIJAN RAFIEKIAN, MEMBER OF THE BOARD OF DIRECTORS-
DESIGNATE, EXPORT-IMPORT BANK OF THE UNITED STATES
Mr. Rafiekian. Thank you, Chairman Dodd, Senator Allard.
I am most grateful to President Bush for renominating me
and granting me the greatest honor of my life, with the
opportunity to serve my country, the United States of America,
as a member of the Board of Directors of the Export-Import Bank
of the United States.
With 9 months of service in this capacity, I have developed
an understanding of the Bank's operations and mission. I have
been fortunate to work closely with the most talented dedicated
professional staff at the Eximbank. I would like to express my
appreciation for their hard work in support of American
exporters and their contribution to maintaining and expanding
U.S. jobs through exports.
Serving together with my distinguished colleagues on the
Board of Directors in carrying out the policies articulated in
by the Congress of the United States has been a privilege and a
point of personal pride for me.
Mr. Chairman, when I came before this honorable committee
in September of 2006, I testified that if confirmed I would do
my very best to carry out the prudential and fiduciary
responsibilities of the office I was nominated to serve. It is
with humility and a great sense of appreciation for the trust
and confidence you placed in me, and it is with personal pride
that I am here today to present to you that I have kept my
promise in my capacity as a member of the Board of Directors of
Eximbank. I applied my experience with diligence to make
certain that as we eagerly and aggressively fulfill our mission
to support American exporters and U.S. jobs, the interest of
U.S. taxpayers are protected.
In addition to carrying out the duties of the office I
serve on the Board of Directors, I have also served as the
Chairman of the Audit Committee of the Board, together with my
colleagues, members of the Audit Committee, overseeing the work
of independent internal and external auditors. I have made
certain that we provide continuous examination and scrutiny of
the adequacy of safeguards and systems of internal control to
ensure the continuity of safety and soundness of the operation
of the Bank in an independent fashion.
In addition to my work on the Board of Directors and my
responsibility as Chairman of the Audit Committee, I also serve
as an ex-officio member of the Credit Committee of the Bank,
representing the Board. My work on this Committee has afforded
me the opportunity to observe the competence and dedication of
professional staff members and the opportunity to apply my
experience and contribute to work of this Committee.
I have worked closely with our Small Business Division to
expand our reach and support for small businesses and have
actively participated in expanding our city state partnerships
in support of small business. I have also worked with my
colleagues at the Department of Commerce and Trade Development
Agency to do more for the services sector within the frame of
our charter and authorizations.
Mr. Chairman, Senator Allard, I am here today to testify
that if confirmed I shall continue my work in carrying out the
responsibilities of the office I am designated to serve with
the same degree of diligence, care, and dedication and with the
same vigor as I have in the past 9 months.
I am here to testify that if confirmed I shall uphold the
highest standards of integrity and prudence consistent with the
honor and responsibility of the office I am designated to
serve. I am grateful to you, sir, for giving me this great
honor to come before you today. In respect for your time, I
keep my remarks brief and I welcome the opportunity to answer
your questions. Thank you.
Chairman Dodd. Thank you very much, Mr. Rafiekian.
Ms. Farrell.
STATEMENT OF DIANE G. FARRELL, MEMBER OF THE BOARD OF
DIRECTORS-DESIGNATE, EXPORT-IMPORT BANK OF THE UNITED STATES
Ms. Farrell. Mr. Chairman, Mr. Allard, and individuals here
to witness the hearing this morning, it is a great honor to
appear before you as a nominee to the Board of the Export-
Import Bank of the United States.
I am grateful to President Bush for this nomination, to
Senator Harry Reid for his support, and most especially to my
great friend, Chairman Dodd, for convening this hearing. Chris,
you have represented our State and led the Nation on so many
issues vital to our citizenry.
It is equally an honor to have my friend, Jackie Clegg
Dodd, here in attendance. As former Vice Chair of the Export-
Import Bank, her knowledge of international trade and export
finance has been an invaluable resource.
As important as all who are in this room are important, the
most to me is my husband of 25 years whom I have introduced. I
should also say, since everyone has mentioned their children
and I do not want to catch grief at home, we do miss our two
daughters, Hillary and Margaret. I have to tell you that
without my family's support this would never have happened and
I cannot say thank you enough.
When the opportunity to serve as Director of the Export-
Import Bank was first raised, I was instantly excited. The
principle of partnership and a personal philosophy that
government should act in an assisting role to the marketplace
whenever possible helped to guide my years as the chief elected
official of my community. In 8 years in office, I worked
closely in a supportive role with commercial interests of all
sizes.
Fairfield County, Connecticut is home to numerous Fortune
500 companies as well as small business. The Business Council
of Fairfield County and the Chambers of Commerce in the cities
and towns in our area are proactive organizations that eagerly
reached out to area elected officials as a means to
multidimensionally strengthen the region. Cooperative efforts
including transportation, housing, homeland security, and
infrastructure improvement are some of the more prominent
initiatives that I was involved in during my tenure in office.
Should I be confirmed to the Board of Directors at the
Eximbank, I would intend to carry forward the public-private
partnership philosophy as part of the Eximbank's leadership.
I had the opportunity to attend the Eximbank's annual
meeting this past April and was very impressed to see the
cooperative spirit between government and the private sector.
Having come from the account management side of advertising
prior to my years in public service, I was pleased to see such
strong efforts on behalf of the Bank to actively market its
products to lending institutions and their clients.
I would expect to employ the skills I honed in the
advertising industry as a Director of the Bank on behalf of the
Eximbank where I can be helpful. Acknowledging the emphasis
that Congress has asked the Eximbank to place on small business
support, I would hope to play a leadership role in that effort.
Having managed a municipality for 8 years well suits me to
understand the complexities and unique nature of government
institutions. Prior to becoming the First Selectwoman, I served
on the Board of Finance. These two experiences in combination
give me both the perspectives of management and oversight.
As one of the non-managing members of the Board, I will be
serving as part of the Audit Committee. This is a very familiar
role for me, as it was a function of our Board of Finance. I
take special note the Bank will, for the first time--thank you,
Senator--have an inspector general. Independent internal audit
functions can be extremely helpful to management and I would
lend my support to assist and support the additional oversight
sought by Congress.
What perhaps attracts me most to the Eximbank is its
mission to promote U.S. commercial interests in the global
marketplace with the priority of retaining jobs here at home.
The issue of losing jobs overseas is ever present in the minds
of our country's citizens and leadership. To be able to
actively help companies compete to retain jobs and promote new
industries will be a most rewarding and satisfying endeavor.
There is a wonderful motto that I learned in Girl Scouts
many years ago: ``A Girl Scout leaves a place better than she
found it.'' It may sound a bit too folksy here in such August
surroundings but it speaks volumes to the kind of person I have
always tried to be--to make a difference.
Should I be confirmed, I look forward to putting my
experience, training, and energy to work on behalf of the
Export-Import Bank. I am eager to make a positive contribution.
It would be a great honor to serve my country in this capacity.
Mr. Chairman, Mr. Allard, thank you again for the
opportunity to seek your support of my nomination. I look
forward to any questions you may have for me.
Thank you.
Chairman Dodd. Thank you very much. Mr. Jasien.
STATEMENT OF WILLIAM S. JASIEN, DIRECTOR-DESIGNATE, SECURITIES
INVESTOR PROTECTION CORPORATION
Mr. Jasien. Good morning, Mr. Chairman, Senator Allard, my
name is Bill Jasien and I am honored to be nominated by
President Bush to serve on the SIPC Board of Directors.
I want to re-emphasize how pleased I am to have my family
here with me today supporting me for this great honor.
I believe I am well-qualified to serve on the SIPC Board
based on my financial expertise and background in the
securities and wealth management industries. I am a Certified
Retirement Plan Administrator and currently head of Business
Development for ING Financial Advisors. This division of ING is
focused on the defined contribution retirement planning
marketplace.
I take great pride in my affiliation with ING and its
global focus on serving the needs of savers and investors
through our banking, investments, insurance and asset
management business lines.
Beyond ING, I am active in various charitable
organizations, including INFRE, the International Foundation
for Investor Education, the Washington Chapter of the American
Red Cross, and the United States State Department Overseas
Scholastic Advisory Council.
I am the former Vice Rector of the Board for my alma mater,
James Madison University, and have participated in a variety of
private sector boards and commissions throughout my career.
I am honored to have served in various capacities in the
Government. Here as a staffer on Capitol Hill, as Director of
Public Affairs for the Oversight Board of the Resolution Trust
Corporation, and as Deputy Assistant Secretary at the U.S.
Department of Treasury.
As a registered NASD principal with a SIPC member broker-
dealer, I very much appreciate the important role SIPC plays in
the securities industry. Although the securities industry is
quite complex, it can be distilled down to a few key
principles: education, risk, and confidence. Throughout its
history, SIPC has had a meaningful influence on each of these
components, Components which ensure market transparency,
investor protection, and ultimately a thriving capital markets
industry.
SIPC's efforts in educating and protecting the rights of
investors have resulted in an unparalleled record of success.
The work of SIPC alongside of that of the SEC, self-regulatory
organizations, and State regulators is critical in maintaining
investor confidence.
As you know, SIPC was established back in 1970 to help
restore public confidence in the securities markets. This was a
turbulent time in our financial history with hundreds of
broker-dealers merging or going out of business. Since its
formation it has effectively executed on its mission of
restoring funds to investors with assets in the hands of
bankrupt or otherwise financially troubled brokerage firms.
Over this period, they have protected no fewer than 99 percent
of eligible persons and have advanced $505 million in order to
recover $15.7 billion for an estimated 626,000 investors.
In conclusion, the brokerage business is a highly
competitive environment with increasingly tough regulatory
requirements. These dynamics will require firms to invest in
their infrastructure in order to realize required efficiencies
and a sound operating model.
Should I be fortunate enough to be confirmed by the Senate,
I am committed to diligently working with this Committee, the
Board, and the professional staff at SIPC to closely monitor
and anticipate the challenges in the securities industry and
secure sufficient but responsible funding to perpetuate the
important mission of the corporation. There should be no
question in investors' minds that SIPC is well run, operating
with a stable financial structure, and prepared to execute on
its legislative mandates.
Mr. Chairman and Senator Allard, that concludes my remarks
and I look forward to answering any questions you may have.
Thank you for your attention and your consideration.
Chairman Dodd. Thank you very much. Mr. Shelton.
STATEMENT OF MARK S. SHELTON, DIRECTOR-DESIGNATE, SECURITIES
INVESTOR PROTECTION CORPORATION
Mr. Shelton. Good morning, Mr. Chairman, Senator Allard.
I am honored to come before you today to seek your consent
as the President's nominee to serve as a Director of the
Securities Investor Protection Corporation. In private practice
at Wilmer, Cutler and Pickering, I provided legal advice to
broker-dealers regarding compliance with financial responsible
rules designed to prevent customer securities and cash balances
from being put at risk if a broker-dealer were to fail.
I presently serve as General Counsel of the U.S. Wealth
Management Business for UBS. UBS is a leading global wealth
manager, top tier investment bank, and one of the largest
global asset managers. Wealth Management U.S. provides
brokerage, advisory, banking, and trust services to its
clients.
At UBS, I have had the opportunity to help investors
understand how our securities markets work and to prepare
employees to speak about the rights and protections available
to investors when they advise clients. I believe my background
and the relevant legal framework and focus on investor
education and protection will be helpful if I am confirmed.
SIPC plays an important role for investors. Every investor
should understand that rewards from investing in securities are
only possible with market risk. But investors should be able to
expect that their funds and securities will be there if their
brokerage firm fails. SIPC gives investors confidence that if a
firm were to fail and securities were stolen, misplaced, or put
at risk for other reasons, help is available to them.
If confirmed as a Director of SIPC, I promise the
President, this Committee, and the investing public that I will
use my knowledge, experience, and skills combined with
commitment and enthusiasm to maintain and strengthen SIPC's
effectiveness for investors.
Thank you for your time and consideration and I will be
happy to answer any questions you may have.
Chairman Dodd. Thanks, Mr. Shelton. Mr. Heyman.
STATEMENT OF WILLIAM HERBERT HEYMAN, DIRECTOR-DESIGNATE,
SECURITIES INVESTOR PROTECTION CORPORATION
Mr. Heyman. Good morning, Mr. Chairman, Senator Allard. My
name is William Heyman and I am Vice Chairman and Chief
Investment Officer of the Travelers Companies, a major U.S.
property and casualty insurer. I am also a member of the Board
of Governors and of the Executive Committee of the NASD.
I am honored to have been nominated by President Bush to be
a Director of the Securities Investor Protection Corporation.
From 1991 to 1993, when I served as Director of the
Division of Market Regulation of the Securities and Exchange
Commission, I was the SEC's observer on the SIPC Board. So I am
especially pleased at the prospect of renewing that
association.
Since the creation of SIPC in 1970, industry consolidation
and the advancement of back-office technology have largely
eliminated the paperwork problems from which SIPC was born,
with the result that some very large brokerage firms have
failed without requiring SIPC involvement. The incidence of
broker-dealer failures has been further limited by vigorous
enforcement of two SEC rules. The Net Capital Rule provides
early warnings of broker-dealers' financial distress. The
Customer Protection Rule requires firms to reduce the
possession and control fully paid or excess margin customer
securities and to segregate cash in a reserve account roughly
equal to net amount owed customers.
The number of ongoing SEC liquidation proceedings is now at
a record low of 21 firms and the customers in those proceedings
have, with very few exceptions, been satisfied. Most of the
work in open cases relates to recovery of residual assets of
failed firms.
Still, small numbers of broker-dealers regularly fail under
conditions requiring SIPC involvement. These failures generally
result not from adverse market conditions but rather from
failure to operate competently or honestly. About half are so-
called introducing firms, which should not have been handling
customer assets in the first place.
So SIPC still has an important role as a limited safety net
for the individual investor whose protection is at the heart of
our securities laws. If confirmed as a Director, I pledged to
use my experience in both the securities and insurance
industries to ensure that SIPC continues to meet its
responsibilities as expeditiously, professionally, and fairly
as possible and without recourse to the taxpayers.
I thank you for your consideration and I will be pleased to
answer any questions.
Chairman Dodd. Thank you very much. Thank all of you for
that. Congratulations to all of you, again, for your
nomination. I will just take a couple of minutes and then I
will turn to my colleague for any questions he may have as well
here.
Some of these are just pretty straightforward questions.
Ms. Farrell, let me just begin with you, and I thank you
for your opening comments and your focus of attention here.
One of the key things over the years in my experience here,
beginning when I first arrived in the Senate, is that the
Export-Import Bank was almost the exclusive domain of several
large corporations that used the Export-Import Bank to expand
their opportunities overseas.
Over the years, under various administrations and various
directors, the Export-Import Bank has expanded that to include
a lot of smaller businesses, as well. And I think we have all
benefited from that.
In fact, I think it has become the backbone of our economy.
Obviously, in many ways, small businesses is most important, 80
percent I think is the number of their jobs are small
businesses. I wonder if you might just share with us some
thoughts you have on what role you can play in maintaining this
focus on smaller businesses and any ideas you might have to
share with us about how you expand those?
Ms. Farrell. I think that is a wonderful question and I
actually look at my qualifications as being particularly strong
in that area, simply because having worked at the local level
these have been the individuals that I have been worrying
about, caring for, and advocating on behalf of at every level,
whether it is locally, whether it has been regionally, or
statewide or federally.
As I mentioned in my opening remarks, I was very pleased to
see the marketing efforts that were taking place, as evidenced
by the Bank's annual meeting back in April.
I was also very pleased to read in the annual report this
year that there has been a greater effort at improving the
Bank's online capabilities, because there is no question in
this world of Internet immediacy, the more the Bank can do to
streamline the process and make it available online, it is
going to be that much easier for smaller groups who just do not
have staff resources or have the ability to have a direct
contact with the Bank to access.
One of the other things that I like about the whole notion
of focusing on small business, and I do think it was
appropriate that in the reauthorization there were certain
specific levels set by the Congress in order to assure that it
remains a focus of the Bank, including requiring that there be
a separate division that reports directly to the Chairman, is
to make sure that we are providing the kinds of tools that are
easy to understand and that we are reaching out.
So toward that end, I certainly intend to provide the kind
of oversight but also the kind of advice that I can give in
terms of how I think we can best communicate and reach out.
So I am very excited about that. And you are 100 percent
correct, when you look a growth factors in terms of U.S.
business, small business is extremely important, especially as
it relates to women-owned businesses and minority business, as
well.
Chairman Dodd. Good. I look forward to working with you on
that.
Mr. Rafiekian let me ask you, you have been at the Bank
obviously and an ongoing issue is always how we compete more
effectively in these emerging markets. And it is a challenge
all the time. Let me raise, if I can, a couple of questions
with you in the context of that and ask you to comment on how
you think we can more aggressively level the playing field that
we have to compete in in these emerging markets.
I particularly want to raise the issue of China, if I can,
with you here. The Bank focuses obviously on doing business in
emerging markets, including China. The Banking Committee has
conducted, this Committee, several hearings on our trade policy
with China.
Senator Shelby and I have introduced some legislation on
the issue pertaining to China's currency manipulation and
denial of access to its markets by U.S. financial service
firms. I am sure you are aware of all of this. What do you
think the Eximbank can do to expand opportunities for U.S.
exporters in China?
Mr. Rafiekian. Thank you, Mr. Chairman. That is a very
important question, sir, and I certainly understand the
interest and the focus on emerging markets and the significance
of emerging markets.
When it comes to the particular market of China there are
realities that we must consider in providing financing for
exporters to China. We had the Chairman of China Eximbank as a
speaker at our annual conference to directly learn the views
and he had an opportunity, Chairman Li, to express his views.
As we look at China, we see the opportunities for American
exporters there. We also see the challenges that we might
consider in making these difficult decisions. At all times the
portion of the responsibility that deals with the financing
part, which is really our mission, is going to remain our
focus.
I would like to borrow a few words from my good colleague,
who is the Chairman of the Bank, that said we do whatever we
can in what makes the most sense to help the exporters in all
markets. We are active in 91 markets and our portfolio reflects
150 countries, and we continue that support for the exporters
with an eye of caution on what is also taxpayers' interest.
Chairman Dodd. Let me, in a related matter, you are
familiar with the tied aid issue. I know my colleague from
Colorado does as well here, the question. We have a war chest,
I want to call it that, I guess, at the Bank here to provide an
opportunity for the United States to compete. A number of
nations who compete with us in these markets, of course,
provide grant assistance for various projects. And we have
allowed, at least when that occurs, for us to be able to
compete on a level playing field.
I gather it has been some time since that war chest has
been used at all, the tied aid program. I wonder if you might
share with us what is your knowledge about that? Is there any
reason why there is a reluctance and hesitancy?
Obviously, we would all like--we would like the playing
field to be leveled to the point where you did not have to have
grant aid coming in. But as you and I both know, there are
nations out there who play by a different set of rules when it
comes to competing in these emerging markets.
So the tied aid idea was to give us the opportunity to
respond when those nations used grant aid as a way of winning
some of these contracts over our businesses who had a vested
interest obviously in winning those contracts.
Why has there been such a reluctance to use the war chest?
I gather it has been some time since we used the tied aid
package to assist U.S. businesses.
Mr. Rafiekian. Thank you, Mr. Chairman. That is a very
important question. When it comes to tied aid among the
difficult situations that we face, the decisions that we have
to make as members of the Board of Directors, tied aid
questions are amongst those questions.
I must express to you, sir, that my first sensitivity is to
the exporter. I see my role as being assigned the duty of
supporting the exporter in any way we can in what makes the
most sense. And when it comes to tied aid, my sympathies are
with the exporter. I would like to do whatever we can and I
would like to see whatever Eximbank can to make that export
possible so American jobs are protected and American jobs are
maintained.
Having said that, we work very close with the Department of
Treasury on this issue to make sure that within all the rules
within OECD, which we do have a membership, and there are
product rules, there are country rules, there are
concessionality rules that have to be followed. This is a very
important issue when it comes to tied aid, as you said, in
leveling the playing field not all players in this marketplace
of global market play by the rules. We realize that outside of
the sandbox that we operate in there is a world and there are
those who have other systems that do not always play by the
rules.
Chairman Dodd. Do you know when the last time was we used
the war chest? Do you have any idea when the last time was?
Mr. Rafiekian. I do not have that information, Mr.
Chairman, right now but I am aware that the tied aid is not
used regularly.
Chairman Dodd. Would you let the Committee know? For my
purpose, I would like to know when the last time it was used.
It would be helpful to us to get some idea.
And if there is some reluctance beyond the hesitancy that
we all have, but beyond that, I would like to know whether or
not there is something broader going on in terms of the use of
that fund, if you could do that for me.
Mr. Rafiekian. Mr. Chairman, if I may, I will return to
your office with that information. I will be happy to get that
detail.
Chairman Dodd. I appreciate that.
Let me turn to my colleague and then I will have a few
questions for our SIPC nominees.
Senator Allard. Thank you, Mr. Chairman. I just have a few
questions myself that I want to follow up with.
Both Mr. Rafiekian and Ms. Farrell, I want to thank you for
wanting to serve on the Export-Import Bank. We have worked hard
to try and get an inspector general in place and I would like
to hear both your comments as to how you feel you may be able
to work with the new inspector general. I know that Ms. Farrell
made some comments in that regard in her opening statement. But
particularly I would like to hear what you have to say, Mr.
Rafiekian.
Mr. Rafiekian. Thank you, Senator Allard.
Senator, when I came before you in September 2006, I
particularly appreciated the emphasis that was placed on the
presence of an inspector general at the agency I serve. I am
very pleased, sir, and I would like to thank you for your
efforts and now we have an inspector general. And I look
forward to the arrival of the inspector general. I look forward
to working closely with the inspector general.
I have had a brief conversation with him and as it turns
out, Senator Allard, upon arrival I was asked to take on the
responsibility to work on the Audit Committee as the Chairman
of the Audit Committee. We have been, together with my
colleagues on this Committee, very diligent on the issues that
I know are very important to you, sir, and to the members of
this Committee.
I value very much the presence of the inspector general at
the agency and I can speak on behalf of my colleagues on the
Audit Committee and my colleagues on the Board of Directors.
They are all welcoming this opportunity, sir, and thank you for
your efforts in helping to get the inspector general to our
agency.
Senator Allard. Ms. Farrell.
Ms. Farrell. I am a big believer in internal audits. When I
was the First Selectwoman of Westport we were constantly
auditing because we were doing major construction projects that
required certain audits, et cetera. But there is no question
that I think there is a benefit to management, even if they
initially resist the idea that there is someone else looking
over the shoulder.
There is an assurance to the taxpayer that things are being
properly monitored. I think there are benefits, as I mentioned,
to management, because I think there are opportunities to point
out, anomalies, difficulties, challenges, whatever they happen
to be. And I think that the autonomy of the individual is very,
very important.
So I certainly supported, as I was reading through the
legislation that was proposed and ultimately passed by the
Congress, the notion of doing this.
And as I mentioned, having been on both sides, having
served on the Board of Finance and having to have the auditors
directly report to me, but having that distance or independence
from management. And then going over to management, I felt it
was extremely important to have understood both sides.
So I think in my role as a non-management member of the
Board, I will have that sensitivity and empathy for both sides
and certainly will be supportive of both. But in the name of
the taxpayer, I think it was a very important step for the
Congress to initiate and for the Bank to adopt.
Senator Allard. The next question I just pose to the entire
panel. The Congress, in the early 1994-1995 passed what we call
the Government Performance and Results Act. The Clinton
administration would begin to put that in place. The current
administration, Bush, has continued to work it. He has called
it the PART program. You can access the PART program on the
Internet if you go to ExpectMore.gov.
I will look at that from time to time to see how the
various agencies are performing. They will rate the agencies
according to whether they are effective, somewhat effective,
ineffective or are not trying to measure--there is no result
available.
The Export-Import Bank is rated as moderately effective, so
there is room for improvement. I suspect that the shortfall or
most of that moderately effective comes because they are
looking at the small business goals. The Chairman mentioned the
importance of small business, you have looked at that.
So I just hope that you look at that very closely. And I
just wonder if you have any ideas on what we can do on the
small business side to make those goals achievable?
Mr. Rafiekian. Senator Allard, I recognize how important
small businesses are. As a former small business owner, I know
the challenges of a small business first-hand. I lived that
life and tried to create jobs and tried to maintain them and
explore new markets. It is very difficult for a small
businessperson because the small businessperson is always faced
with challenges of scarcity of resources in a different scale
than I mentioned that would be comprehended by those with
bigger resources.
When it comes to small business authorizations, I am very
pleased to report, as it has been reported before, that last
year 26 percent of our total authorizations were comprised of
support for exporters and small businesses. When it came to
numbers, 84 percent of our authorizations were dedicated to
small business.
Today the small business portfolio, under the direction of
my colleague Director Conlin, who is also the Vice Chair of the
Bank, is placing ever greater focus on this issue with reaching
out to small businesses, conferences, seminars, working with
other agencies to reach out.
I am very pleased to say, Senator, that I got a chance to
participate in support of the portfolio for small business and
traveled to other States to meet with the small businesses to
understand their needs and do what we can to expand our city-
state partnerships, which plays an important role as a conduit
to small businesses for us. And that emphasis and focus is
continuing in importance.
I would like to thank you and members of the Committee for
focusing our attention on this issue.
Senator Allard. Thank you.
On the SIPC Corporation, your efforts and what you are
doing is obviously very, very important. And when we looked at
your listing on the PART, they do not list you. I think it will
be just a matter of time before you will be reviewed by OMB.
That is the independent agency that will review all these as to
whether you are compliant.
I assume that you are setting goals and objectives that are
measurable and, if not, perhaps maybe encourage you to, as
being responsible for the oversight on that, to encourage the
Corporation to go ahead and set up measurable goals and
objectives so you can determine how your outcomes are coming
and everything else.
You seem to have a very good record right now. I think that
is good. That is perhaps maybe why somebody has not taken a
closer look at you at this particular point.
But I do think that, again, an important part of that is
the relationship between the Securities Investors Protection
Corporation and the State regulators. The States play a key
role in regulation of the security brokers.
I would like to have you talk a little bit about how you
see that relationship and how you might build that into
measurable goals and objectives.
Mr. Heyman. If you look at the menu of SIPC liquidations,
many of the firms in recent years have been small firms with
highly localized businesses. And the result is that, in many
cases, they are repeat offenders with whom State regulators are
much more familiar than SIPC could be. And SIPC has cooperated
vigorously with State regulators in sorting out the firms,
recovering customer assets and, in several cases, in State
enforcement actions.
My guess is going forward firms in liquidation will
continue to be mostly firms of that character.
Senator Allard. Any other comments?
Mr. Shelton. I think the State regulators play a very
important role in prosecuting fraud. I think the Federal
regulation is also very important for the books and records.
And the cooperation with the SEC and with the SROs, to be able
to have the books and records available to prove that customer
funds and securities, where they are, and that they have not
been used improperly in the business has been a very important
part of SIPC's protections.
Senator Allard. Mr. Jasien.
Mr. Jasien. Senator, in your opening comments you talked
about results over process and that is done through familiarity
and compliance. I could not agree more. Also with your comments
around setting milestones.
As a board, I eagerly look forward to engaging with the
issues of the Board, looking at some of the milestones that we
could set for the Board. One of the things I am most impressed
with in talking to staff at the SIPC is their focus on
education. I think that is a gap right now in the general
public's understanding of SIPC and brokerage firms'
understanding the role of SIPC. So I look forward to working
with the Board and this Committee in setting those milestones,
particularly around education.
Senator Allard. Mr. Chairman, my time has run over a little
bit here by 3 minutes. I have one more question.
Chairman Dodd. Go ahead.
Senator Allard. This has to do with the financial markets
moving more to global issues and how they are faced. More and
more of our national trade and everything is becoming more
global. So I see that this is going to create some perhaps
problems as the SIPC protection is concerned.
Do you see SIPC protection--obviously, it does not apply in
all cases--but do you believe that their mission and coverage
should be re-examined in light of the expanded global nature of
our financial markets? Or do you believe it is appropriate as
they are currently structured?
Mr. Heyman. I think that the mission of SIPC as it is
currently defined is capable of being carried out in an
environment in which the investments of U.S. individuals are
increasingly global in nature. SIPC applies to identifiable
customer assets in certificated form which can be U.S. or non-
U.S. issuers.
And I think the statute and the function of the
organization are pretty robust.
Senator Allard. Anyone want to add to that? Mr. Shelton or
Mr. Jasien.
Mr. Shelton. I agree that so long as SIPC's protections are
limited to the assets that are readily identifiable that are
with a U.S. broker-dealer, I think that it is perfectly
adequate and that it is not significant that some of those
assets may be foreign assets.
Mr. Jasien. I agree that we certainly have the proper
infrastructure today. But as I stated in my opening comments, I
think it is important for us to make sure we monitor the
outlook of the securities industry. There is certainly an
exciting global evolution going on that we need to keep a very
close eye on to see if that does impact funding needs for SIPC
and other matters that are just not on the radar screen at this
time.
Senator Allard. Mr. Chairman, that concludes my questions.
Thank you.
Chairman Dodd. Thank you very much, Senator. Let me thank
you for the questions.
I want to just raise a couple of issues if I can for you,
and these are pretty fundamental but I would like to have you
on record for them.
This is a part-time appointment and I understand that all
of you will probably be continuing in your day jobs here as you
fulfill this obligation and responsibility. What I am asking is
whether or not you have had discussions with SIPC on how to
handle possible conflicts of interest in this regard that might
arise because of your current employment or board memberships,
including circumstances which may require your recusal because
of those conflicts?
Previous SIPC directors have signed conflict of interest
agreements with SIPC. Is it your intention, I would ask all
three of you, to do so as well?
Mr. Heyman. Yes.
Mr. Jasien. Yes.
Mr. Shelton. Yes.
Chairman Dodd. You are all nodding affirmatively.
A key issue to the effectiveness of SIPC is maintaining the
adequacy of the SIPC fund reserve. As of December 31st, the
reserves were almost $1.4 billion for securities firms that
hold some $3 trillion in investor securities. Now that is a
wide gap obviously here.
But there have been very few failures in recent years. And
even in those cases most of the securities and cash have been
recovered. So while the gap seems large, I think many assume
that that number has actually been fairly adequate given recent
past history. But I think it is important to monitor the
adequacy of SIPC fund reserves in light of the contemporary
market conditions.
From time to time SIPC has commissioned studies analyze the
adequacy of the fund reserves. Let me ask all three of you
whether or not you would undertake to have SIPC continue to
review the adequacy of the fund periodically? I presume you
would.
Mr. Heyman. Yes.
Mr. Jasien. Yes.
Mr. Shelton. Yes.
Chairman Dodd. You are nodding affirmatively on that, as
well.
We have also--these internal financial controls at SIPC,
there were some issues that GAO reported on. I do not know if
you brought this up or not. But the GAO in 2004 raised some
issues concerning SIPC and stated that the SEC found that SIPC
had inadequate internal controls over the fees and expenses
awarded to trustees and their counsel.
Now since then SIPC has done a good job of cleaning that
up. I just point that out. That was the report back in 2004.
four.
As directors here, I am going to ask you whether or not you
would seek to maintain strong internal financial controls at
SIPC? Many organizations have voluntarily taken additional
steps and I am asking you, if confirmed, would you consider
whether it would be beneficial to have SIPC management annually
prepare a report assessing the effectiveness of SIPC's internal
control procedures and to have the auditor attest to the
adequacy of internal controls and to publish those in SIPC's
annual report? Would you be willing to do that?
Mr. Heyman. Yes.
Mr. Jasien. Yes.
Mr. Shelton. Yes.
Chairman Dodd. Thanks very much for that.
We have raised the education issue here, as well. And
again, I would just take it from your answers that you support
the importance to inform investors about the scope of SIPC
coverage and enforcement efforts to protect investors from
misleading advertisements. There have been several here.
I think I have a pretty good idea in here what qualifies as
the kind of thing you want to avoid and things that do not fall
under your jurisdiction. Making a bad bet is making a bad bet.
That is not what we are talking about here. We are talking
about the kind of activities that can draw people in under
false pretenses.
So I presume you will continue to work at that and look at
that, as well?
Mr. Heyman. Yes.
Mr. Jasien. Certainly.
Mr. Shelton. Yes.
Chairman Dodd. Thank you very much.
And again, I will heave the record open for a few days here
so our colleagues may have some additional questions. But
again, I congratulate all of you on your nominations. It is
very nice to have your families here with us on a day like
this, as well.
These are high honors to receive a Presidential nomination
and confirmation by the Senate. And again, we will try and get
this done as quickly as we can for you. My hope is to have you
confirmed by--I think in your case, Mr. Rafiekian, you have got
an August 1----
Mr. Rafiekian. Mr. Chairman, my commission expires on July
20th.
Chairman Dodd. July 20. We have got to get moving here so
we do not have to have you show up as a volunteer down there at
the Bank. So we will try and move quickly on this to get it
done.
But again, I thank you for being here. I thank you for your
comments. We will leave the record open for, I think, a couple
of days anyway, two or 3 days here for any additional questions
that will come in.
The Committee stands adjourned.
[Whereupon, at 10:01 a.m., the hearing was adjourned.]
[Prepared statements, biographical sketches of the nominee,
and responses to written questions supplied for the record
follow:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN FROM BIJAN
RAFIEKIAN
Q.1. Could you please explain the rationale for why the Bank
would agree to put forward an application to finance a project
that would export machines to China which would be used to
manufacture products that would directly compete with a U.S.
industry already under pressure from Chinese import
competition?
A.1. Ex-Im Bank is a demand driven institution, In this case,
the Bank is simply responding to an application for financing
submitted by a U.S. exporter seeking help in making a sale of
metal-stamping machines into China.
As part of the Bank's legislative mandate, whenever the
Bank receives a case over $10 million involving potential
economic impact, the Bank is required to notify Congress and
the public of the existence of such an application and to
request any comments. That notification is part of an inclusive
search for information which could contribute to the most
knowledgeable decision possible.
Ex-Im Bank staff has not yet completed its evaluation of
this application. This transaction is subject to a detailed
economic impact analysis which will assess the likely net
impact of this transaction on the U.S. economy,
Q.2. What factors does the Bank take into consideration in its
economic impact assessments for proposed projects?
A.2. The economic impact procedures put transactions through a
series of screens to determine the extent of analysis required.
The relevant factors that Bank takes into consideration
include:
Trade Measures--All transactions are screened to
determine the applicability of trade measures.
Substantial Injury--For transactions valued
greater than $10 million, Ex-Im Bank determines if the new
foreign production meets the Congressionally-defined threshold
for substantial injury. The substantial injury threshold is met
if the new foreign production capacity is 1% or more of current
U.S. production of the same, similar, or competing good.
Transactions that meet the substantial injury threshold are
subject to a detailed economic impact analysis. This analysis
considers:
A. Global oversupply--an evaluation of the
current global supply/demand balance of the new foreign
production.
B. Trade flow impact--a determination as to
whether the new foreign production would compete in the
same markets where U.S. producers sell their
production.
C. Public comments in response to a Federal
Register notice which is posted to inform the public of
a proposed transaction under consideration by the Bank.
D. Comments from other U.S. government
agencies.
Q.3. Does the Bank consider potential job loss as a result of
the project?
A.3. I consider potential job loss in all decisions brought to
the Board and, moreover, I believe it would be irresponsible
not to have said consideration for U.S. jobs. The economic
impact process of the Bank is built around the issue of
identifying whether a transaction involves a net job loss to
the country. As case information available to the Bank is all
in monetary or output terms, the Bank uses analysis of such
variables as proxy measurements for the net employment impact
of the transaction.
Q.4. Does the Bank consider the effect that the goods produced
as a result of the financing may have on sensitive U.S.
industries?
A.4. Yes. Pursuant to its Charter, Ex-Im Bank developed
procedures to recognize industries that have particular trade
sensitivities. Specifically:
(1) The Bank established in April 2007 a ``Sensitive
Commercial Sectors and Product List'' which consists of a
combination of sectors/products and transaction characteristics
that reflect recent Ex-Im Bank experience with economic impact
analyses where economic impact considerations were relevant and
Ex-Im Bank financing did not materialize. Transactions that
will establish or expand production of items included on this
list are subject to significant scrutiny. While Ex-Im Bank
support is not prohibited, applicable transactions have a lower
likelihood of receiving Ex-Im Bank support and the case
processing time is likely to be prolonged.
(2) As referenced above, the Bank takes trade measures into
account For example, transactions that support the production
of a product subject to an anti-dumping and/or countervailing
duty orders are likely to be denied Ex-Im Bank financing.
Q.5. When do you expect to make a final ruling on this proposed
project?
A.5. As Ex-Im Bank staff is still involved in gathering and
evaluating information on this case, no date has been set for
when the transaction will be put before the Ex-Im Bank Board of
Directors for a decision. Board action is not imminent.
You have every assurance that I am most sensitive to the
issues you have raised and that the mission of the Bank is to
help sustain and grow U.S. jobs. Moreover, I am aware that not
all countries in the global economy strictly observe the rules,
making leveling the playing field all the more difficult. This
along with the mission of the Bank focuses my attention to make
certain that the process is conducted based on transparency,
consistency and fairness at all times.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR DODD FROM WILLIAM
HEYMAN
As part of your testimony under oath, please respond in
writing to each of the following numbered questions:
In 2003, the SEC brought major enforcement actions against
Citigroup and against Citigroup stock analyst Jack Grubman for
violating Federal securities laws. The SEC's complaints
recounted misconduct that involved, in part, the issuance of
misleading stock recommendations, including a very positive
recommendation of AT&T stock. The Complaint recounted that AT&T
objected to the CEO of Citigroup, Mr. Weill, about Mr.
Grubman's ratings of AT&T and that Mr. Weill some time
thereafter asked Mr. Grubman to take a ``fresh look'' at the
rating. Mr. Grubman told Mr. Weill that he wanted his children
admitted to a prestigious preschool. According to the
Complaint, after further communications between the two, Mr.
Grubman upgraded his recommendation on AT&T stock from a 3
(Neutral) to a 1 (Buy) rating, Mr. Weill made contact with the
preschool and approved a charitable donation by Citigroup for
$1,000,000 to the preschool, and Mr. Grubman's children were
admitted. The Complaint stated ``After issuing the report,
Grubman told an analyst who reported to him and an
institutional investor, in separate conversations, that he
upgraded AT&T to help get his children into the 92nd St. Y
preschool.'' The Complaint added that Mr. Grubman sent an e-
mail saying that Mr. Weill ``needed [the AT&T CEO's] vote on
our board to nuke [John] Reed in showdown.''
The SEC Complaint cited part of an e-mail entitled ``AT&T
and the 92nd Street Y'' dated November 5, 1999 from Mr. Grubman
to Mr. Weill in which he ``outlined the future steps he would
take to reexamine the company . . . [and] sought Weill's
assistance in getting his children admitted to the 92nd Street
Y preschool.'' The original e-mail included the following
statements:
``Attached is the list of the Board of Directors from the
92nd Street Y . . . if you feel comfortable and know some of
these board members well enough, I would greatly appreciate it
if you could ask them to use any influence they feel
comfortable in using to help us as well. I noticed Bill Heyman
is on the board and I think he works somewhere in the Citigroup
corporate structure but I don't really know Bill.
``Anyway, anything you could do Sandy would be greatly
appreciated. As I mentioned, I will keep you posted on the
progress with AT&T which I think is going well.''
Q.1. During this period, did you serve on the Board of
Directors of the 92nd Street Y?
A.1. Technically, no. I was at that time and am currently
listed on the 92nd Street Y's letterhead, to which I assume Mr.
Grubman's memorandum referred, as an ``Honorary Director'', a
designation given to a handful of former directors who had
served as directors for long periods of time (decades).
Honorary directors may attend board meetings (I did not), but
do not vote.
Q.2. Did anyone contact you regarding Mr. Grubman's desire to
have his children admitted to the 92nd Street Y? If so, please
describe the people involved, the nature of the contact, your
response, and any subsequent actions.
A.2. I was never contacted by anyone regarding this matter.
Q.3. Please describe any efforts you made with respect to the
admission of Mr. Grubman's children to the 92nd Street Y.
A.3. I made no efforts on the behalf of Mr. Grubman's children
regarding their admission to the 92nd Street Y.
Q.4. Were you aware or informed that Mr. Grubman might raise
his rating on AT&T if his children were admitted to the 92nd
Street Y?
A.4. No.
Q.5. A letter dated September 14, 2000 on the letterhead of the
Citigroup Foundation, under the signature of Stephanie Hochman,
to Mr. Sol Adler, Executive Director of the 92nd Street Y,
states that it is transmitting the first installment of a
$1,000,000 pledge to the 92nd Street Y. The letter notes that a
copy was sent to ``William Heyman.''
Did you receive a copy of this letter?
A.5. I was recently shown a copy of this letter. While, almost
7 years later, I do not specifically recall it, I certainly
cannot say that I did not see it.
Q.6. At what time did you become aware of the contribution?
A.6. Assuming that in fact I did receive the letter, I would
have become aware upon seeing it. I received no other
communication, from anyone at Citigroup, on this subject,
either before or later. (For that matter, I recall no
communication from the 92nd Street Y, either.)
I believe it was customary for the Citigroup Foundation, in
transmitting any grant (large or small) to any organization, to
copy, as a courtesy, any Citigroup employee known to be
involved with the organization.
Q.7. In what ways, if any, did you participate in the
solicitation or transmission of the $1,000,000 Citigroup
contribution to the 92nd Street Y or of its use by the 92nd
Street Y?
A.7. I did not participate in any way whatsoever in this
matter.
Q.8. If you participated in soliciting or transmitting this
contribution, were you aware or under the impression that the
donation was being given in return for admitting Mr. Grubman's
children for which he might publish or had published a research
report that raised the rating on AT&T stock or would violate
the Federal securities?
A.8. As I did not participate in either the solicitation or the
transmission of the contribution, I was not under any such
impression.