Opinion
Nos. 03 Civ. 2937 (WHP), 03 Civ. 2938 (WHP), 03 Civ. 2939 (WHP), 03 Civ. 2940 (WHP), 03 Civ. 2941 (WHP), 03 Civ. 2942 (WHP), 03 Civ. 2943 (WHP), 03 Civ. 2944 (WHP), 03 Civ. 2945 (WHP), 03 Civ. 2946 (WHP), 03 Civ. 2947 (WHP), 03 Civ. 2948 (WHP), 04 Civ. 6909 (WHP), 04 Civ. 6910 (WHP).
March 15, 2005
ORDER
On February 28, 2005, this Court received a facsimile transmission from Sheila C. Bair, a member of the Board of Directors of the Investor Education Foundation (the "Board"). Referencing earlier communications with a Securities and Exchange Commission ("SEC") staff attorney, Ms. Bair submitted the following documents to the Court: (1) the "First Quarterly Report" of the "Board of Directors of the Investor Education Entity" dated February 25, 2005; (2) a list of expenses of the "Investor Education Entity" incurred and/or approved during 2004; (3) a letter application, dated February 25, 2005, from Rebecca W. Rimel, another member of the Board, requesting the appointment of Sheila C. Bair as the successor executive director of the Investor Education Foundation, on an interim basis; and (4) a short biographical sketch and curriculum vitae for Ms. Bair. These submissions purport to be on behalf of the Board. Ms. Rimel's letter application also informed the Court that the SEC does not object to Ms. Bair's appointment.
This Court will not consider applications from individual directors on behalf of the Foundation. According to the "First Quarterly Report," the Foundation is now incorporated. Corporations may not appear in federal court except through counsel. Rowland v. California Men's Colony, 506 U.S. 194, 201-02 (1993); Jacobs v. Patent Enforcement Fund, Inc., 230 F.3d 565, 568-69 (2d Cir. 2000) ("[I]t is settled law that a corporation cannot generally appear in federal court except through its lawyer."); SEC v. Research Automation Corp., 521 F.2d 585, 589 (2d Cir. 1975); see also 28 U.S.C. § 1654.
All applications to this Court must comply with the terms of the Investor Education Plan proposed by the SEC and approved by the Court, the Foundation's by-laws, the Federal Rules of Civil Procedure and the local rules and practices of this Court. From this time forward, the SEC is to review any Foundation report, motion, application or request before it is submitted to this Court. Further, the SEC must state its view concerning each such submission in a writing signed by an SEC staff attorney.
To address the concerns raised by the February 28, 2005 submissions, this Court directs authorized representatives of the Foundation and the SEC to appear in Courtroom 11D at the Daniel Patrick Moynihan United States Courthouse located at 500 Pearl Street, New York, New York for a status conference on the record on April 19, 2005 at 10:30 a.m.
The Clerk is directed to file copies of this Order and Ms. Bair's February 28, 2005 facsimile transmission with attachments in all of the captioned actions. The SEC is directed to serve this Order on all defendants, the Foundation and all of the officers and directors approved by the Order of this Court dated September 20, 2004, who appear to continue in office until successors have been "appointed" by this Court. See Investor Education Plan ¶ III.E.
SO ORDERED.
INVESTOR EDUCATION
DATE: FEBRUARY 28, 2005
TO: THE HONORABLE WILLIAM H. PAULEY III FAXED BY PERMISSION OF ARUN CHANDRA
FAX: 212-805-6390
FROM: PROFESSOR SHEILA BAIR ISENBERG SCHOOL OF MANAGEMENT UNIVERSITY OF MASSACHUSETTS-AMHERST 121 PRESIDENT'S DRIVE, #320 AMHERST, MA 01003
PHONE: 413-577-4377
E-MAIL: SBAIR@SOM.UMASS.EDU
NUMBER OF PAGES INCLUDING COVER SHEET: 12
Attached are documents referenced in earlier communications with Luis Mcjia:
— Investor Education Board of Directors Quarterly Report
— List of Expenses
— Director Rimel's Letter Requesting My Appointment as Interim Executive Director
— My Short Bio and CV
Please do not hesitate to contact me if you have any questions.
Sincerely,
Sheila C. Bair
INVESTOR EDUCATION BOARD OF DIRECTORS FIRST QUARTERLY REPORT
The Board of Directors of the Investor Education Entity respectfully submits this report pursuant to the Court's Order of March 25, 2004. The Order requires the Executive Director to submit quarterly reports providing information on the progress of the implementation of the Investor Education Plan (including a description of all grant applications received and all grants approved), fees and expenses incurred, and other matters relevant to the status of the Plan.While the responsibility for the submission of reports lies with the Executive Director, there is no current Executive Director. George Daly submitted his resignation to the Court on January 18, 2005. Thus, the Board is submitting this report on behalf of the Investor Education Entity. By separate letter, the Board has asked the Court to appoint Sheila C. Bair, a current Board member, as successor Executive Director on an interim basis. All subsequent reports for the Entity will be submitted by the Executive Director.
A representative of the Board would be pleased to meet with the Court to address any matter discussed in this report at the Court's convenience.
Progress of the Implementation of the Plan
The Court appointed Charles D. Ellis as the Chairman of the Entity on March 22, 2004, and George G. Daly as the Executive Director on March 24, 2004. The Court approved the Investor Education Plan by Order dated March 25, 2004. Mr. Daly formally began working on Entity issues in July, 2004.
In April 2004 the Chairman and Executive Director engaged the law firm of Willkie, Farr Gallagher to incorporate the Entity as a non-profit corporation and secure the Entity's tax exempt status. The law firm prepared the Certificate of Incorporation and By-Laws. On July 23, 2004, the Chairman submitted these documents to the Court for approval in a letter dated July 23, 2004. At the same time, the Chairman asked the Court to appoint board members and approve an agreement to retain Foundation Source Philanthropic Services, Inc. as the Entity's administrator.
Messrs. Ellis and Daly formed two advisory committees composed of volunteers to advise the Entity on matters relating to the creation and delivery of effective financial education messages. The committees are the Advisory Committee on Investing and the Advisory Committee on Communications. Each of the advisory committees had one meeting in New York during the Fall of 2004. Both committees provided constructive and useful information to the Entity. The formation of the committees was part of a larger effort in the Entity's initial stages to gather information on the most effective way to educate investors. This effort included consultations with professionals involved in investor education and a leading academician in the field of behavioral finance.
In addition, Messrs. Ellis and Daly contracted with a strategic planning consultant to advise the Entity about management issues, and an executive search firm to find potential candidates for the position of Program Manager. The search firm identified two potential candidates, one of whom the Board authorized hiring on an hourly basis. Messrs. Ellis and Daly also engaged a communications strategist to advise the Entity on media issues.
On September 20, 2004 the Court entered an Order approving the appointment of Mr. Ellis, Mr. Daly, and six others to serve on the Board: Bair, Joseph L. Dionne, Carol J. Loomis, Lionel L. Nowell, III, Rebecca W. Rimel and Jay Vivian. The Court also approved the Certificate of Incorporation and the By-Laws for the Entity, and approved the retention of Foundation Source Philanthropic Services, Inc. as the administrator. The Entity has been incorporated in Delaware. The Entity is in the process of obtaining tax exempt status.
In late October 2004, Mr. Daly sent a proposal for incurring expenses to the Court. The Board did not learn of this request to the Court until January 2005. The Court sent the proposal to the SEC for comment. On November 10, 2004, after consulting with the SEC, Mr. Daly withdrew the proposal from the Court because it contained no expenditure limits.
The Board had its first meeting on November 1, 2004. This meeting was informational in nature and as a result the Board took no formal action. At the end of the meeting and in subsequent correspondence, a number of board members requested development of a budget and detailed business plan. When a plan was proposed in late December, a number of board members expressed concern that the plan lacked well-defined objectives and quantifiable means to achieve those objectives. A meeting was held between Board members and SEC Chairman William H. Donaldson on January 7, 2005. The Board subsequently had a series of telephone conversations to discuss management issues. On January 18, 2005, Mr. Daly resigned his position as Executive Director.
The SEC also had concerns regarding the progress of the Entity. Messrs. Ellis and Daly were not present for the meeting with Chairman Donaldson on January 7, 2005 (at the SEC's request) but Mr. Ellis met separately with Chairman Donaldson at a later date.
The Board is grateful to Mr. Daly for the contributions he has made to the start up phase of the Entity. The Board is hoping to successfully recruit an individual of great ability to fill the position of Executive Director.
By separate letter the Board has asked the Court to appoint Sheila C. Bair the successor Executive Director on an interim basis. The Board contemplates that Ms. Bair will serve as Executive Director until a permanent Executive Director can be found and appointed. The Board is in the process of initiating a search for such an Executive Director.
The Court has the authority to appoint a successor Executive Director recommended by the Board after notice to the SEC. Proposed Plan § III.E. The Board has provided the requisite notice to the SEC and the SEC has no objections to Ms. Bair's appointment.
Board member Joseph Dionne resigned in January 2005, citing time constraints. Board member Lionel Nowell resigned in February 2005, also as a result of time constraints.
Fees and Expenses Incurred
On February 10, 2005, the Board voted to approve the attached list of expenditures incurred in 2004, totaling $202,273. The largest line item is Mr. Daly's salary. The Board has not approved the payment of several expenditures.
The Board understands that the payment of fees and expenses from the Investor Education Fund is subject to review by the SEC and Court approval. Pursuant to the Proposed Plan (Section V), the Board will file with the Court a separate application at a later date for payment of Board-approved fees and expenses, and will provide the application to the SEC at least 30 days before filing with the Court.
Grant Applications
For this reporting period, no grant applications have been received or approved. February 25, 2005.
Respectfully submitted,
By: Sheila C. Bair 413-577-4377 For the Board of Directors Investor Education Entity cc: Charles D. Ellis George C. Daly Carol J. Loomis Rebecca W. Rimel Jay Vivian
Susan F. Wyderko Office of Investor Education Assistance Securities and Exchange CommissionExpense Item Amount Incurred Board Approved TOTALS $316,409 $205,273 Investor Education Entity Expenses Incurred/Approved Inception through 12/2004 President's Salary $113,600 $113,600 President's Expenses $5,560 Additional President's Expenses Chairman's Expenses $4,132 $4,132 Communications Strategy Development $41,873 $41,873 Legal Services $83,882 Strategic Planning Consulting $11,099 $11,099 Foundation Source (back office services) $3,000 $3,000 Cromwell Partners (executive search) $20,000 $20,000 Cromwell Partners (additional billings) Administrative Services $5,130 $5,130 Meeting Expenses $4,341 $4,341 Director and Advisor Expenses $2,098 $2,098 All Learn Invoice $21,693.86
February 25, 2005
Honorable William H. Pauley III United States District Judge United States District Court 500 Pearl Street, Room 2210 New York, NY 10007
Re: The Investor Education Foundation
Dear Judge Pauley:
On January 18, 2005, George C. Daly resigned his position as Executive Director of the Investor Education Foundation. Pursuant to the terms of the Investor Education Plan, the Board of Directors respectfully requests that the Court appoint Sheila C. Bair, a current Board member, as successor Executive Director on an interim basis. Ms. Bair's CV is attached. The SEC does not object to the appointment of Ms. Bair.
The Court's authority to appoint a successor Executive Director is set forth in Section III.E. of the Proposed Plan approved by the Court on March 25, 2004. The Board contemplates that Ms. Bair will serve as Executive Director on an interim basis while the Board conducts a search for a permanent Executive Director. Ms. Bair's immediate appointment is necessary at this time for the Entity to conduct its day to day affairs.
If you have any questions or comments regarding this request, please do not hesitate to contact me at 215-575-4700.
Sincerely,
Rebecca W. Rimel For the Board of Directors
cc: Charles D. Ellis Sheila C. Bair George C. Daly Carol J. Loomis Jay Vivjan Susan F. Wyderko, SEC, Office of Investor Education Assistance Sheila Bair is the Dean's Professor of Financial Regulatory Policy at the University of Massachusetts Isenberg School of Management. She has previously held positions as the Assistant Secretary for Financial Institutions in the U.S. Department of the Treasury, Senior Vice President of Government Relations for the New York Stock Exchange, Commissioner and Acting Chair of the Commodity Futures Trading Commission, and Research Director and Counsel to Senate Majority Leader Robert Dole She has a J.D. and B.A. from the University of Kansas. She serves on the FDIC's Banking Policy Advisory Committee and the boards of the Investor Education Fund, the Center for Responsible Lending, and the Insurance Marketplace Standards Association. She has published several articles in the field of financial regulation and has testified before Congress on numerous occasions.
Bair also writes for children, particularly in the areas of money and finance. She has published several articles in Highlights magazine and has received that publication's Author of the Month and Annual Public Service Awards.
Sheila C. Bair Isenberg School of Management 121 President's Drive, #320 University of Massachusetts Amherst, MA 01003 413-577-4377 (O) 413-253-3728 (H) sbair@som.umass.eduEmployment History
University of Massachusetts-Amherst Dean's Professor of Financial Regulatory Policy Isenberg School of Management March 2003 — Present Associate Professor Center for Public Policy and Administration September, 2002 — Present
Teach insurance and financial regulation. Conduct research and analysis in the areas of financial services, with emphasis on regulatory structure (including oversight of insurance and government sponsored enterprises) and expanding access to financial services among low and moderate income Americans. Recently published major papers on the Federal Home Loan Bank System and optional federal regulation for life insurers. Have testified before Congress on numerous occasions. Research sponsors include Mass Mutual, the American Council of Life Insurers, and the Annie E. Casey Foundation.
U.S. Department of the Treasury Assistant Secretary for Financial Institutions 2001-2002
First wave presidential appointment requiring Senate confirmation. Responsible for development and implementation of Administration policies related to financial services. Specific issue areas included; bank regulatory policy (e.g., safety and soundness, deposit insurance, bank powers); insurance; government sponsored enterprises; securities regulation; critical infrastructure protection; consumer protection; and financial education. Administration lead on terrorism risk insurance legislation. Also integrally involved in Department's work on retirement security reforms and Patriot Act implementation. Program oversight responsibilities included the Community Development Financial Institutions (CDFI) Fund; the First Accounts Program; and the Office of Sallie Mae Oversight (OSMO). Worked extensively with OCC, OTS, FDIC and the Federal Reserve Board. Managed a staff of over 100.
New York Stock Exchange 2000-2001 Consultant to the Chairman 1995-2000 Senior Vice President, Government Relations 1988-1990 Legislative Counsel
Began service to the NYSE in 1988 as legislative counsel with emphasis on derivatives regulation and inter-market coordination following the 1987 market break. Returned to the NYSE in 1995 following my tenure at the CFTC to become Senior Vice President in charge of Government Relations. Government Relations division was responsible for representing the NYSE on federal, state and local matters. Conducted extensive liaison work with Congress, the Securities and Exchange Commission, and on select issues, the Treasury Department and Federal Reserve Board. Also operated a public affairs program designed to educate government policy makers about the NYSE and its role in capital formation. For family reasons (we were adopting a child) stepped down to assume a part-time consulting position to the NYSE Chairman on policy and strategic matters.
Commodity Futures Trading Commission 1991-1995 Commissioner 1993 Acting Chairman
Presidential appointment requiring Senate confirmation (PAS). Appointed in 1991 by President George Bush; re-appointed by President Bill Clinton in 1994. (To my knowledge, I am the only individual to receive successive PAS' from Presidents George Bush, Bill Clinton, and George W. Bush.) Chaired the CFTC's Financial Products Advisory Committee throughout my tenure. As Acting Chairman from August — December 1993, oversaw the completion of a major study on the growth of off-exchange derivatives instruments. Spoke and published extensively in the field of financial derivatives oversight.
Senator Robert Dole (RKS) 1987-1988 Research Director, Dole for President 1985-1986 Deputy Counsel to the Senate Majority Leader 1981-1985 Counsel to the Courts Subcommittee, Senate Judiciary Committee
Began service to Senator Dole as counsel when he served as Chairman of the Courts Subcommittee of the Senate Judiciary Committee, handling issues such as civil and constitutional rights, intellectual property, judicial reform, and criminal law. Moved with him to the Majority Leader's office when he was elected to that post in 1985, handling Judiciary Committee, Justice Department, and international human rights issues. Also served as Research Director for his 1988 presidential campaign.
Kutak Rock and Campbell 1987
Served as counsel for this Omaha-based firm that specialized in municipal bond financing.
Department of Health, Education and Welfare/Education 1978-1979 Attorney Advisor
Specialized in civil rights administrative investigations and reviews.
Education Background
University of Kansas, BA, 1975
University of Kansas School of Law, 1978
University of Arkansas School of Law, Teaching Fellow 1978-1979 (Paid fellowship, awarded on the basis of a national competition.)
Political/Campaign Activities
2004 Surrogate Speaker's Program, Bush/Cheney.
1992 National Steering Committee of Women for Bush/Quayle, '92.
1990 Congressional Candidate, Kansas 5th District — ran for the GOP nomination in my Kansas home district. Lost the nomination by less that 1% (760 votes).
1988 Research Director, Dole for President.
Selected Board/Committee Memberships
Member of the following Boards; the Investor Education Fund, a $55 million fund set up by the Honorable Judge Pauley III as part of the $1.4 billion securities settlement; the Insurance Marketplace Standards Association (IMSA), a "best practices" group for life insurers; and the Center for Responsible Lending, a Durham based anti-predatory lending organization. Also serve as a member of the Banking Advisory Committee to the Federal Deposit Insurance Corporation (FDIC). At Treasury, served as Secretary O'Neill's representative on the Pension Benefit Guaranty Corporation (PBGC) Board and as Chairman of the Banking and Financial Information Infrastructure Committee created under Presidential Executive Order 13231; at NYSE, served as Chairman's representative on the Public Policy Committee of the Technology Network (TechNet) and the Federal City Council. Former member of the Kansas University School of Law Board of Governors; former Board member and GOP Co-Chair of the Women's Campaign Fund; former Board member of the National Women's Law Center.
References
Available upon request.