“Investor Protection in the Age of Technology”

     Good afternoon.  I’m delighted to be here today, to
discuss a topic that is vital to our economy:  The challenge
of investor protection in an era of increasingly complex
technologies.  I’m especially pleased to join Senator
Bennett, who represents Utah so ably on Capitol Hill.  I’ve
had the pleasure of working with Senator Bennett in
Washington, and I value his guidance.  Together, we are
seeking better safeguards to strengthen our financial
system.

     Through our efforts to build confidence in our markets,
we will help fulfill the Commission’s mandate  -- to protect
investors. Our nation faces no higher economic priority than
to keep investors confident of the markets’ integrity.  It
certainly is fitting that your Senator is hosting this
conference on electronic commerce.  Senator Bennett is one
of the most far-sighted lawmakers in the United States
Senate on this issue.  His insights have been vital in
helping policy-makers weigh technology’s effect on the well-
being of our people.

     Technology can be a double-edged sword.  It can create
vast new opportunities -- yet it can also pose unforeseeable
risks.  Ready or not, we have become ever  more reliant on
the flawless, instant operation of complex technologies.  In
an interdependent global financial system, a small-scale
flaw in any computer anywhere can become an instant anxiety
for economies everywhere.

     That is precisely the danger raised by an issue that
you’ve been hearing a lot about here at this conference:
the Year 2000 Problem.  It’s a policy area where Senator
Bennett has shown true leadership.  So let me begin my
remarks today by adding the Commission’s perspective, as we
anticipate the final tick of the clock on December 31, 1999.
We’ve all heard the breakdown scenarios about sudden
computer failures and widespread corruption of computer
programs.  But I wonder whether most people truly grasp the
enormity of the risks.

     Any company that neglects this looming problem is
simply asking for trouble.  If a firm is eventually hit by a
Year 2000 breakdown, it will probably be put out of business
-- not by the authority of any regulator, but by the power
of the market itself.  Preventing any significant Year 2000
disruptions must be a top priority. The Commission has been
encouraging all the participants in our financial system to
take swift and aggressive action.

     And it’s not just the institutions that I’m concerned
about.  It’s the investors who do business with them.  A
Year 2000 breakdown could do incalculable damage to
investors’ finances, and could undermine their confidence in
our entire financial structure.  To spur every part of our
system into action, we have put America’s securities
industry on notice:  Every financial organization that we
regulate will be held accountable for preparing for the Year
2000.  There will be zero tolerance for inaction.

     Just yesterday, the Commission approved a release
proposing that large broker-dealers file two reports with
the Commission, outlining their strategies for dealing with
potential Year 2000 computer problems.  The proposal would
require the firms to engage independent public accountants
to give an opinion on whether there is a reasonable basis
for the broker-dealer’s statements about its Year 2000
preparations.  The goal of this proposal is not to second-
guess broker-dealers, but to ensure that they are putting
strategies in place to address the Year 2000 problem.

     We’re also reminding corporations of their disclosure
requirements, and we’re working with industry groups to
educate the public on the issue.  I’m grateful to Senator
Bennett for the time, attention, and perseverance that he
has brought to this issue. With his continuing leadership,
I’m hopeful that we can marshall the resources to forestall
any widespread problem as we enter the new millennium.

     Americans have onfronted such technological challenges
throughout our history -- and we have always risen to meet
them.  Our economy has thrived because we have been eager to
embrace new tools that increase economic efficiency.  The
citizens of Utah had a first-hand view of one of the pivotal
moments in America’s technological progress.

     In 1869, not far from here -- at Promontory Point --
railroad men drove the Golden Spike that united the
continent and opened it up for commerce.  The railroad
tracks, and the telegraph lines alongside them, allowed for
the migration of people, ideas, goods, and capital.  The
securities markets were riding the wave of technology, too.

     As early as 1846, the first telegraph lines at the New
York Stock Exchange started giving investors the latest
price quotes.  In 1866, the first trans-Atlantic telegraph
began to help reconcile imbalances between prices on the New
York and London markets.  As the Industrial Age advanced
toward the Information Age, new technologies were already
improving market efficiency.  So the trend toward advancing
technologies has been under way for a long, long time.
What’s different today, is the pace of change.

     Change is occurring so quickly that it can sometimes be
dizzying.  Today -- amid far-reaching and fast-paced
currents of  innovation -- we’ve come to realize that we
live in a truly global village of finance.  Silicon chips
and fiber-optic cables allow capital to move across borders
at lightning speed.  The expansion of our markets is driven
by ever-increasing computer power and automated trading
systems on our exchanges.  That’s true not just on Wall
Street, but around the world.  Globalization is making it
just as easy to execute a trade in New Delhi as it is in New
York.

     Investors have benefited from the rapid introduction of
new technologies.  Markets are now functioning with an
efficiency that was unimaginable just a few years ago.
Transactions that were once time-consuming and tedious have
become instantaneous and inexpensive -- initiated and
executed at the touch of a button.

     We’ve come to see the Internet as a tool for providing
financial information in real time.  We’ve come to expect
share volumes of hundreds of millions a day, handled without
a hitch. As record numbers of investors have entered the
marketplace, our exchanges have had to brace themselves for
trading days with share volumes not in the millions, but in
the billions.  In the technological revolution, the big
winners are investors.  Information Age technology helps cut
costs and enhance services.

     All of the improvements in the information flow --
personal computers, desktop workstations, networking
connections, increasingly sophisticated software -- have
helped propel market efficiency.  Consumers can now evaluate
investment opportunities more wisely than ever before.
Modernization has altered the landscape of every aspect of
the securities business.

     When I started out as a young broker, the securities
industry still suffered from an enormous “back-office
problem” with paperwork.  Electronic trading screens were
just becoming widespread.  Investors still clung to
physical, paper certificates.  Advancing technologies have
changed a lot of that.

     Without computer-driven information flows, today’s
complex market operations would be impossible.  Just try to
imagine, for example, pricing large mutual funds daily.
Imagine tracking the constant inflow and outflow of
investors’ money from those funds.  Imagine handling daily
trading volumes of hundreds of millions -- sometimes
billions -- of shares.  Without the benefit of modern
computers, it would simply be impossible.
                              
     The structure of the securities industry is changing.
And the relationship between individual investors and the
marketplace is changing, too.  One of the tools that is
giving investors unprecedented opportunities is the
Internet.  Information and ideas are flowing constantly over
an affordable, accessible system -- giving individuals the
same access to market information as large institutions.

     The Internet is a supremely powerful force for the
democratization of our marketplace:  For anyone with a
computer and a modem, the Internet ensures timely access to
accurate data.  At the Commission, we’ve been at the
forefront of the drive to make financial data accessible to
the public.

     Years ago, we established our EDGAR database to give
investors the latest corporate financial information.  But
at one point, we confronted an important question, when the
private group that had been disseminating EDGAR’s data
notified us that it intended to stop.  We faced a decision:
Should we let private companies sell that data?

     Knowing the enormous value of that information to
investors,  we said “No.”  Today EDGAR is available for
free, to anyone, through the Commission’s  Web site.
It gets hundreds of thousands of “hits” a day.  Faster,
better service -- in all parts of our nation’s financial
system -- means wiser investment decision-making.

     For example, an increasing number of  issuers are
making their annual reports, press releases, and other types
of information available to investors on their web sites.
Many mutual funds now allow investors to download
prospectuses, sales material, and application forms from
their web sites.  Some funds allow their customers to access
their account statements, and to transact business over the
Internet.

     Full-service brokers are beginning to offer their
clients research and other services on the Web.  In
addition, some discount brokerages have entered into
relationships with underwriters and investment banks that
give their customers access to IPOs and other offerings that
they have never had before.  So technology is a powerful
tool in helping establish a “level playing field” for all
investors, large and small.
                              
     Investors have access to more tools than ever.  But so
do the swindlers who prey on those who are vulnerable.  A
lot of unsavory characters have been attracted to the
Internet, seeing it as a clever new medium for the same old
kinds of fraud.  Investors need to keep up their guard, and
remember:  If it sounds too good to be true, it probably
isn’t true.

     Internet fraud presents new challenges for the
Commission’s enforcement efforts.  We’re responding with a
growing program of investor education, market surveillance,
and prosecution.  We’ve moved aggressively to protect
investors by establishing a significant presence on the
Internet.  We’ve posted “Investor Alerts” on our Web site,
describing common scams.  We’ve placed warnings in
newsgroups and securities-related areas of commercial on-
line services. Our Web page contains a complaint form that
the public can use to submit information electronically
about potential securities-law violations.

     And we maintain an active program of cyberspace
surveillance.  One of the cases we discovered through our
Internet surveillance program was a $20 million Ponzi scheme
-- operated from right here in Salt Lake City.  Investors
were solicited through a network of sales agents, one of
whom posted the offering on the Internet.

     In that Salt Lake City Ponzi scheme, it was also the
Internet that was critical in cracking the case:  An alert
investor sent us an inquiry about it, through the complaint
form that’s included on the S.E.C. Web site.  Our
Enforcement Division took it from there.  The Salt Lake City
case is hardly unique.  Con artists are increasingly using
the Internet to try to lure gullible investors to send money
to fraudulent schemes.

     In the old days, swindlers used the U.S. Mail.  Then
they began using the telephone for cold calls. Now,
predictably, they’re using the Web.  When it comes to fraud
-- as the classic song says -- “it’s still the same old
story.”  Investors are promised astronomical rates of return
on investments described as “risk-free.”  Scam artists are
getting clever with technology, but they’re just exploiting
the same old human weakness:  the impulse to get rich quick.

     We recently brought a case against some Internet scam
artists who were peddling securities in a fictitious bank.
The bank -- of course -- wasn’t registered with any banking
authority or securities regulator.  But it promoted itself
as the first global  Web-based bank. That claim suckered in
some gullible investors.  I have here, with me, a few
examples of the scams you see on the Internet.

     Some of their claims are so extravagant that you’d
think everybody would know they’re phony.  Here’s one --
“300 percent rate of return over three years! Tax-deferred!”
It claims to invest in new software technologies.  Here’s
another -- “Guaranteed!  61 percent return on your
investment!  No risks!  We make the money, and we give you
your cut -- plain and simple!”  It claims to invest in real
estate.

     And another --  “Guaranteed by contract to give you in
excess of 51 percent return per annum!  This is a unique
guarantee -- the best we have ever seen!”  This one says the
money will be deposited in a bank in Switzerland.  Sure:
That’s your deposit -- but they’ll be the ones making the
withdrawal.  In most cases like these, the businesses seldom
exist as more than “shell” operations -- and the fraudsters
simply pocket the cash.

     Unless investors are diligent in getting the facts
about offerings on the Web, they’re vulnerable to the same
kind of swindlers we’ve always seen.  The Commission can
help police the marketplace.  But a well-informed investor
remains the “first line of defense” against fraud.  Investor
protection remains at the core of the Commission’s mandate.

     Our mission has not changed -- but our methods must.
Through an evolving approach to regulation, the Commission
has actively encouraged our markets to take advantage of
technology’s benefits.  For example, the Commission has
published two interpretive releases on the electronic
delivery of information.

     The benefits of electronic delivery are obvious --
reduced costs and faster delivery.  The Commission’s
releases set forth guidelines that allow issuers, broker-
dealers, investment companies, and others to use new
technologies.  Nonetheless, the interests of investor
protection remain paramount in our thinking.  Those same
guidelines seek to ensure that information sent to investors
in electronic form meets standards similar to those required
for traditional paper delivery.

     And we recognize that not everyone is able, or willing,
to use high-tech equipment.  Companies must continue to
offer information on paper to those who prefer it.  We have
to be sensitive to privacy concerns, too.  In order to
protect the confidentiality of certain financial
information, the Commission also required brokers and
advisers to obtain a customer’s consent before delivering
personal financial information electronically.

     At the Commission, we’re also searching for
technological solutions to regulatory problems.  For
example, American shareholders of foreign securities
frequently don’t receive proxies:  Under American law, we
cannot force foreign issuers to send them to our citizens.
One intriguing way of dealing with this issue may be to get
the information onto the Internet.  It’s a fast, cost-
effective way to disseminate the proxy information.  In
cases like this, we may find opportunities to solve
regulatory problems through technological means.

     As companies adapt their practices to new technologies,
the Commission remains receptive to the continuing
innovation in the marketplace.  Yet we realize that there
will be much more to do.  In order to create a forward-
looking structure, we need to enlist the best thinking of
all the participants in the market.  With that in mind,  I
intend to convene a roundtable on technology policy -- later
this spring -- where regulators and representatives from the
securities industry can gather to talk about critical
issues.

     One area for discussion is the opportunity that
technology offers for improving communication with
investors.  Advances in communications technology also raise
supervisory and security questions for brokers and
investment advisers.  For example, automation makes it
possible to collect, retain, and transmit information for
supervisory purposes.  I would like to listen to ideas about
how this potential could be used to better protect investors
and oversee markets without overburdening regulated firms.

     Finally, automation raises the possibility of faster
settlement of trades and greater clarity in pricing
securities.  This is another area that merits serious
discussion from all areas of industry, regulatory bodies,
and the investing community.  The roundtable on technology
policy will help us adapt our approach to the evolving
marketplace.

     Modern markets require agile regulation.  At the
S.E.C., our challenge is to create a flexible framework.  It
must allow us to accommodate the changes that are occurring
today, and also to anticipate the changes that will occur
tomorrow.  Sometimes, adapting to change will mean adjusting
our methods of regulation.  Even more often, that will mean
adjusting our way of thinking.

     We live in an era when, paradoxically, the only
constant is change.  The process of change can be
disruptive.  The pace of change can be disorienting.  But
the ability to change has always been the hallmark of our
markets.  We have succeeded by recognizing the need for
change, and by responding to it.

     Yet, amid all the changes being wrought by technology,
there’s one thing at the Commission that certainly will not
change:  our dedication to investor protection.  Keeping our
markets responsive to the needs of investors is the surest
way to keep our economy strong.

     Thank you very much.