Two New York congressmen today urged the Securities and Exchange Commission to protect the Securities Investor Protection Corp. fund from insolvency due to excessive trustee fees.
Two New York congressmen today urged the Securities and Exchange Commission to protect the Securities Investor Protection Corp. fund from insolvency due to excessive trustee fees.
In a letter today to the SEC Chairman Mary Schapiro and other top officials, Rep. Gary Ackerman, D-N.Y., and Rep. Peter King, R-N.Y., urged the agency to improve oversight of the SIPC by implementing recommendations made last month by the SEC's inspector general.
“It is particularly apparent that there has not been proper SEC oversight of the fees SIPC pays to independent court-appointed trustees,” the congressmen wrote.
“As members of Congress whose constituencies have been disproportionately affected by the Madoff Ponzi scheme, we are concerned that the trustee may be driven by profit rather than the goal of ensuring that the defrauded investors are made whole,” they said.
In the Madoff case, the cost of the trustee's firm, accountants and consultants is expected to reach $1.1 billion in the next few years, the letter said.
“Additional payments could result in SIPC being forced to draw down on their $2.5 billion emergency line of credit and would also result in the necessity of higher fee assessments on brokerage firms,” Mr. Ackerman and Mr. King wrote.
Nonsense, said Stephen Harbeck, SIPC's chief executive, in an interview. The estimated $1.1 billion in costs will be “over a long period of time,” he said.
So far, SIPC has spent $150 million out of its reserve fund to recover $10 billion for Madoff victims, Mr. Harbeck said, adding “you can't talk fees without talking results.”
The SEC inspector general's warning about the SIPC fund was “alarmist,” said Mr. Harbeck. It “ignores the [broker-dealer] assessment mechanism that we've kicked into gear, which could be kicked into higher gear.”
In 2009, SIPC increased assessments on brokerage firms. Those assessments are bringing in $400 million to $450 million a year, Mr. Harbeck said. The SIPC fund now has $1.3 billion, even after paying $800 million to Madoff customers.
The congressmen also asked for specifics about how the SEC will implement better oversight of SIPC trustee fees, and an explanation “as to why no action was taken in light of previous recommendations [in 2003] to reform the SIPC fee structure.”
The inspector general's report did say that SIPC attorneys performed detailed reviews of the trustee billings, but urged the SIPC to push for bigger discounts.
The inspector general also recommended that the SEC work with Congress to change current law, which does not now allow courts to reject fee requests approved by SIPC.
Mr. King and Mr. Ackerman said they support such a legislative fix.
SEC spokesman John Nester declined to comment.
