SEC runs into GOP wall while seeking money

Mar 13, 2011 @ 12:01 am

By Mark Schoeff Jr.

If two House hearings last Thursday were any indication, the Securities and Exchange Commission faces an uphill battle in winning approval for its $1.4 billion budget request — including the $300 million increase it says it needs to fulfill its core mission and its Dodd-Frank obligations.

At the House Government Reform and Oversight Committee session, Republicans battered SEC Chairman Mary Schapiro over the commission'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 SEC last month 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 commission.

“On matters like these, I have to look around the next corner, looking beyond the horizon and thinking above and beyond what may be appropriate advice from ethics counsel to make sure nothing occurs that raises questions about the commission's mission or process,” she said. Ms. Schapiro said that she has asked the SEC's inspector general to do a “top to bottom” review of the commission'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 allows SEC divisions to collaborate better, increasing the commission's efficiency and effectiveness.

MORE WORK TO DO

A review of the SEC's operations released last Thursday by The Boston Consulting Group Inc. indicates that the SEC has more work to do to optimize its resources (see story on Page 27). But the report also states that the SEC 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,” she said. “I believe that investors need an SEC with added staff and better technology to properly police Wall Street.”

In her testimony, Ms. Schapiro said that the SEC 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 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.

TWO BANNERS

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

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 Capital Markets Subcommittee, noting during Thursday's hearing that the SEC had 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,” he 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 of Massachusetts, ranking Democrat on the House Financial Services Committee, countered that Republicans are hiding behind the budget issue.

He said their intention is to neuter the SEC and keep it from implementing Dodd-Frank.

“You have an ideological opposition to the SEC's taking on new responsibilities,” Mr. Frank said.

E-mail Mark Schoeff Jr. at mschoeff@investmentnews.com.

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