House Appropriations Committee Slashes Funding For SEC, Precluding  Desperately Needed Technology Upgrades and Hiring of Additional Investigators

Republican Plan to Roll Back Consumer Protections and Return to Lax Oversight of Financial Firms Could Jeopardize U.S. Taxpayers and Our Economic Future

 

WASHINGTON, DC – United States Senators Jack Reed (D-RI), Charles E. Schumer (D-NY), Dick Durbin (D-IL) and Robert Menendez (D-NJ) today urged the House Republican leadership to give the U.S. Securities and Exchange Commission (SEC) the resources it needs to prevent another financial crisis and fight financial crime across the country.  In a letter to House Appropriators, the Senators criticized the Republican plan to hamstring the SEC as unacceptable and counterproductive.  They urged House leaders to work with the Senate to provide full funding in the final appropriations bill.  The SEC is tasked with investigating financial crime and catching the next Bernie Madoff-style fraud, yet it has been chronically underfunded. 

The Senators wrote: “With our markets and economy still struggling to recover from the worst financial crisis in 80 years, this is hardly the time to handcuff the primary cop on the beat in our financial markets.  Safe, orderly markets are a key ingredient in our economic recovery.  Ever since the reforms instituted during the Great Depression, unparalleled transparency, investor protection and integrity have been hallmarks of the U.S. capital markets.”

The Senators also noted that the SEC is entirely funded by fees it collects from the industry, so fully funding the SEC would not add a dime to the deficit.

Over the years the SEC has become out-gunned and out-manned by the financial sector.  The agency’s chronic budget shortfalls have hurt its ability to stay one step ahead of bad actors in the marketplace.  For example, according to a summary of a report completed by the agency’s Inspector General, the SEC had enough evidence against Bernie Madoff to merit an investigation into the dealings of his investment firm, but the agency simply didn’t see what was happening right in front of them. The report repeatedly cites the lack of experience and expertise of the SEC personnel assigned to investigate Madoff, finding that they “failed to appreciate the significance of the analysis” in the complaints about Madoff and “failed to follow up on inconsistencies.”  The agency’s ability to retain experienced personnel is an ongoing problem since financial firms are increasingly able to lure the agency’s experts with higher salaries.

Last week the House Financial Services Appropriations Committee voted to fund the SEC for FY2012 at $222.5 million below the President’s budget request, despite the significant new responsibilities given to the SEC by Congress.  The House Appropriations Committee also eliminated a $50 million reserve fund designed to allow the SEC to respond to emergencies or fund technology upgrades in a timely manner.  Such a cut would prevent the agency from hiring more experienced investigators and implementing technology upgrades.