SEC cannot do more with less

What a time to be tightening the Securities and Exchange Commission's budget.
MAY 26, 2008
What a time to be tightening the Securities and Exchange Commission's budget. The agency's responsibilities have never been more important, nor its task more complex, and yet its budget request for fiscal 2009 is less than 1% above the fiscal-2008 figure. Normally, we would cheer a government agency's doing more with less, but not at the SEC and not at this time. A reduction would be justified if the agency had been doing a bang-up job and had clearly shown that it was on top of all of its tasks. That is not the case. The SEC has been criticized for not spotting fraud in corporations such as Enron Corp. of Houston and WorldCom Inc. of Clinton, Mass., in the late 1990s, and for being late to recognize the analyst conflicts of interest in the dot-com bubble, to discover the market-timing mutual fund scandal and to pick up on the backdating of options. Now the SEC is examining how the credit-rating agencies have been doing their jobs, and will soon be more closely examining the operations of investment banks, which have been given access to the Fed's discount window. Already, the agency is responsible for overseeing more than 12,000 public companies, more than 10,000 investment advisers, almost 1,000 fund companies, 6,000 broker-dealers and a number of exchanges. And the securities issued, distributed or invested in by all these entities are becoming ever more complex. Yet SEC Chairman Christopher Cox has submitted a bare-bones budget request that will reduce staff by 94 positions. He noted that the SEC lately has prioritized enforcement and put in motion a record number of enforcement actions in fiscal 2008. Mr. Cox justified the reduction by pointing to the transition from paper to electronic forms, which he said has freed up about 100 positions. That's because the SEC no longer needs to inspect paper documents physically. But surely, electronic documents must still be examined closely. Even if some of these positions can be dropped, the SEC should use some of them to hire the additional examiners who will be needed to monitor more closely the investment banks and the ratings agencies. There is no doubt that the SEC also can use additional resources so that it can be ahead of developments. Mr. Cox may wish to save taxpayers money, but his action may be penny-wise and pound-foolish. SEC failures to spot fraud or other misdeeds in the securities markets could cost investors, and hence taxpayers, far more than the few million dollars that could greatly enhance the agency's skills. Therefore, Congress, which froze the SEC budgets in fiscal 2006 and 2007, should now reverse course. The freezes of 2006 and 2007 must have harmed the agency's abilities, even with the boost in 2008. Now is the time to rebuild and invest in the SEC for the future.

Latest News

Federal judge dismisses Eltek manipulation lawsuit against Morgan Stanley Smith Barney
Federal judge dismisses Eltek manipulation lawsuit against Morgan Stanley Smith Barney

Nine-month electronic trading freeze and share lending program at the center of dismissed claim.

RIA wrap: Dynamic strikes South Carolina deal to reach $7B AUM milestone
RIA wrap: Dynamic strikes South Carolina deal to reach $7B AUM milestone

Meanwhile, Rossby Financial's leadership buildout rolls on with a new COO appointment as Balefire Wealth welcomes a distinguished retirement specialist to its national network.

Rethinking diversification amid a concentrated S&P 500
Rethinking diversification amid a concentrated S&P 500

With a smaller group of companies driving stock market performance, advisors must work more intentionally to manage concentration risks within client portfolios.

Merrill pays second settlement to former Miami Dolphins player, client of ex-broker
Merrill pays second settlement to former Miami Dolphins player, client of ex-broker

Professional athletes are often targets of scam artists and are particularly vulnerable to fraud.

Schwab touts AI as its biggest growth lever at investor day
Schwab touts AI as its biggest growth lever at investor day

The brokerage giant tells Wall Street it will use artificial intelligence to reach clients it has never been able to serve — and turn the technology's perceived threat into a competitive edge.

SPONSORED Beyond wealth management: Why the future of advice is becoming more human

As technical expertise becomes increasingly commoditized, advisors who can integrate strategy, relationships, and specialized expertise into a cohesive client experience will define the next era of wealth management

SPONSORED Durability over scale: What actually defines a great advisory firm

Growth may get the headlines, but in my experience, longevity is earned through structure, culture, and discipline