SEC runs into GOP wall while seeking more scratch

Lawmakers slam Mary Schapiro for her handling of David Becker hiring, among other things

Mar 10, 2011 @ 4:21 pm

By Mark Schoeff Jr.

If two House hearings Thursday were any indication, the Securities and Exchange Commission faces an uphill battle in winning approval for its $1.407 billion budget request — including the $300 million increase it says it needs to fulfill its Dodd-Frank obligations.

At the House Government Reform and Oversight Committee, Republicans battered SEC Chairman Mary Schapiro over the agency's allowing former general counsel David Becker to work on issues related to the Bernard Madoff affair even though his late mother had held accounts with Mr. Madoff's investment company, whose proceeds contributed to her estate.

The Becker situation is “the greatest challenge to the SEC's credibility since Bernie Madoff managed to dupe the American public with his Ponzi scheme,” said Rep. Darrell Issa, R-Calif., chairman of the committee.

Ms. Schapiro told Mr. Issa and his colleagues that she didn't see a conflict of interest for Mr. Becker over his mother's account, which was closed years before Mr. Madoff's rip-off came to light. Mr. Becker, who left the agency in February after two years as general counsel in a planned departure, has been named in a “claw-back” suit by the trustee in the Madoff case.

Although she endorsed the SEC ethics counsel's determination that Mr. Becker didn't have a conflict of interest, Ms. Schapiro told lawmakers that she should have considered how the situation would appear to people outside the agency.

“On matters like these, I have to look around the next corner,” Ms. Schapiro said. She said she has asked the SEC's inspector general to do a “top to bottom” review of the SEC's ethics program.

“We will learn from this experience,” Ms. Schapiro said. “We will take the steps necessary to earn the trust … the American people place in us.”

Ms. Schapiro emphasized that two years ago, she inherited an agency that was “reeling from a variety of economic events and mission failures.” She said that she has installed new senior leadership and instituted a reform program that enables SEC divisions to collaborate better, increasing the agency's efficiency and effectiveness.

A review of the SEC's operations released Thursday by The Boston Consulting Group (sec.gov/news/studies/2011/967study.pdf ) indicates that the SEC has more work to do optimize its current resources. But the report also states that the agency is underfunded.

“As the report notes, despite the growth of our responsibilities and market complexities, the SEC's resources have not kept pace,” Ms. Schapiro said in a statement. “This capacity gap places our markets and America's investors at risk. I believe that investors need an SEC with added staff and better technology to properly police Wall Street.”

Ms. Schapiro reiterated in her testimony that the agency needs more funding in order to hire people with the background and knowledge to keep up with rapid market changes. In addition, she said that the SEC has enough staff to write the rules mandated by the Dodd Frank financial reform law, but not enough to “operationalize” them.

The SEC is currently operating on its fiscal 2010 budget of $1.1 billion — less than Citibank NA's marketing budget, according to one Democrat — while Congress haggles over the fiscal 2011 budget.

The Obama administration has released a fiscal 2012 budget, which was the subject of the House Financial Services subcommittee hearing.

At that meeting, Republicans demonstrated that they are in no mood to boost the SEC budget. At the afternoon hearing of the government reform committee, Republican leaders hung two banners. One read: “Can American taxpayers trust today's SEC to manage itself and do its job?” The other said: “Is Wall Street's watchdog competent and impartial?”

Rep. Scott Garrett, R.-N.J., chairman of the House Financial Services Committee's Capital Markets Subcommittee, said in Thursday morning's hearing that the SEC received 10% yearly budget increases from 2000 through 2010.

“Especially in this day and age, when we're running deficits of $1.6 trillion, I don't think it's fair to say the agency has been starved,” Mr. Garrett said. “Before we can even think about giving the agency yet another funding increase, at a minimum, the agency will need to show major progress in implementing recommended reforms.”

Rep. Barney Frank, D.-Mass., ranking member of the House Financial Services Committee, countered that Republicans are hiding behind the budget issue.

What they really want to do is neuter the SEC and keep it from implementing Dodd Frank, Mr. Frank said. “You have an ideological opposition to the SEC taking on new responsibilities.”

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