This is a partial transcript from Your World with Neil Cavuto, November 18, 2003, that was edited for clarity.

Watch Your World w/Cavuto weekdays at 4 p.m. and 1 a.m. ET.

(BEGIN VIDEO CLIP)

WILLIAM DONALDSON, SEC CHAIRMAN: Despite its merits, the settlement has provoked considerable discussion and some criticism. Unfortunately, in my view, the criticism is misguided and misinformed, and it obscures the settlement’s fundamental significance.

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NEIL CAVUTO, HOST: Well, is it time to stop the bickering already? Securities and Exchange Commission (search) Chairman William Donaldson defending his agency’s actions today. That’s because folks like New York State Attorney General Eliot Spitzer are accusing him and his staff of rushing these mutual fund settlements through just to win some quick publicity.

Meanwhile, investors are still out of their money. Former SEC Chairman Richard Breeden says, come on boys, let’s work together. But former California state Attorney General Dan Lungren says these state AGs have every right to speak up.

Gentlemen welcome to both of you.

RICHARD BREEDEN, FMR. SEC CHAIRMAN: Thanks, Neil, good to be here.

DAN LUNGREN, FMR. CALIFORNIA ATTORNEY GENERAL: Thank you.

CAVUTO: Richard Breeden, to you first. What do you make of this angst between the AGs and the SEC?

BREEDEN: Well, I hope it is something that we can get past here. The fact of the matter is that Attorney General Spitzer and others have -- in the state sector -- uncovered some very important evidence of wrongdoing that needs to be taken seriously. And likewise, the SEC, which has oversight responsibilities, is working hard in this area. And, frankly, the nation’s mutual fund investors are going to need all the resources we can find to get to the bottom of what has really been happening and make sure that we can assure people that this industry functions in a lawful and proper manner.

CAVUTO: Dan Lungren, do you think that we should be airing dirty laundry in public?

LUNGREN: Well, look, I mean, if you are afraid of airing dirty laundry in public, you never get some of these things out. The fact of the matter is, a lot of the actions that have been taken over the last year- and-a-half with respect to some of the corruption unfortunately that we are finding in the business community, has come from the state AGs or state enforcement officers.

The concern I have is that there is not the lines of communication that there ought to be between the federal authorities and the state authorities. And I’ll tell you, I’ve been on both sides. I was a member of Congress, I’ve been an attorney general of a state. And I find, frankly, too often that federal authorities think they have the whole play in the field, and frankly look down as sort of like little brothers or little sisters to the states.

CAVUTO: But Dan, couldn’t you turn it around?

LUNGREN: The states are sovereign governments.

CAVUTO: Couldn’t you turn it around, Dan, and just say, all right, these differences that you are stating -- and they might be very legitimate -- let’s air them in private? It’s sort of like the FBI and the CIA arguing about what their respective roles are.

BREEDEN: You know, Neil, let me just jump in here.

LUNGREN: Oh, I agree with you on that.

BREEDEN: Well, I agree and disagree, Neil. I mean, I think some -- certainly there ought to be a very high level of private dialogue and cooperation working together here. Both the states and the federal regulators have a role to play here.

I think it is legitimate if people have a disagreement to be able to say so. I don’t think we should feel that public commentary should be out of bounds. It’s just people need to be sensitive to, let’s don’t overreact and don’t criticize too harshly, particularly when, you know, you’ve only seen the first chapter of the book, and not read the entire book.

CAVUTO: Dan, what do you make of the fact that obviously, there is such bad blood between either Spitzer’s office and the SEC or even beyond to other state attorneys general and federal authorities, that no good is going to come of it? In other words, the odds of everyone Kumbaya-ing and looking out for the investor together are such that it’s not going to happen.

LUNGREN: Well, I think they are both looking out for the investor, but they’re coming from different perspectives. And I think you have to look at a little bit of the background here.

I think the states are still hurting a little bit from what they thought was a lack of appreciation for their legitimate concerns in the MCI-WorldCom matter, for instance, on the side of both the SEC and the U.S. Department of Justice. So there is a background there. And I would hope they would move beyond that and say, let’s open lines of communications, let’s share information, where possible, and let’s not be fighting in public. But, if you can’t get that area of agreement, then, frankly, the state AGs have every right to do what they are doing.

BREEDEN: Well, I think that state AGs can cause serious problems for federal law enforcement. And even Attorney General Spitzer was critical of the action of Oklahoma in the MCI case.

But I would like to focus back on mutual funds, if I may, and just say, look, I’m very concerned. I think we have an underlying crisis of character, if you will, among the managers and management of mutual fund sponsor organizations and what appears to be a pretty serious lack of vigilance and action by mutual fund independent boards or what are supposed to be independent boards. And I hope that as a country and the regulatory community can keep our eye on the ball here, which is to find out how deep this lack of character that we are seeing on a widespread basis is and find out the best way to fix it.

CAVUTO: OK. Former SEC Chairman Richard Breeden, thank you very much. Dan Lungren, former California attorney general, thank you, guys, very, very much.

LUNGREN: Thank you.

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