FOR IMMEDIATE RELEASE: April 19, 2010
SCHUMER, SCHAPIRO & FIVE FORMER SEC CHAIRS URGE SENATE TO PASS REFORM TO PERMANENTLY BOOST AGENCY'S BUDGET—MEASURE WOULD HELP EMPOWER SEC TO CATCH NEXT MADOFF
WASHINGTON, DC—U.S. Senator Charles E. Schumer (D-NY) and Securities and Exchange Commission (SEC) Chairman Mary Schapiro—joined by five former heads of the SEC—urged the Senate on Thursday to approve important legislation that would allow the agency to fund itself by retaining the fees it collects. The measure, if passed, would provide a permanent boost to the agency’s annual budget and put the SEC on a stronger footing in order to be able to catch the next major fraud.
The measure was approved by the Senate Banking Committee last month as part of the financial reform bill, but it is not contained in the House version of that bill. Besides Schapiro, five former SEC chairmen have endorsed the reform, including four who served during Republican administrations: David Ruder (who served from 1987-1989), Richard Breeden (1989-1993), Arthur Levitt (1993-2001), Harvey Pitt (2001-2003), and William Donaldson (2003-2005).
“The SEC was once a proud agency, but over the years it has become out-gunned and out-manned by Wall Street. The agency’s chronic budget shortfalls have hurt its ability to stay one step ahead of bad actors in the marketplace. In the aftermath of the Madoff scandal, Wall Street needs a strong sheriff now more than ever,” Schumer said.
Schapiro announced Thursday that she was sending a letter to Senate leaders urging them to keep SEC self-funding reform in the financial reform bill as it moves through the chamber.
“Congress has long recognized the important role that independent funding plays in the effectiveness and impartiality of financial regulators. Yet the SEC, unlike its bank regulator counterparts, is subject to the appropriations process,” Schapiro wrote. “To provide the world-class industry supervision and investor protection American investors deserve, the SEC must have the resources to properly supervise a growing number of markets and market participants trading immense volumes at almost the speed of light, and the independence to deploy those resources where they are needed most.”
Schumer first floated his self-funding proposal after a damning report by the agency’s Inspector General in September showed that the SEC missed several opportunities to catch convicted fraudster Bernie Madoff. According to a summary of the report, the SEC had enough evidence against 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.”
Schumer said the agency’s ability to retain experienced personnel is an ongoing problem since Wall Street firms are increasingly able to lure the agency’s experts with higher salaries. Schumer said the SEC’s chronic under-funding must be addressed in a comprehensive way. Currently, the SEC raises millions more dollars every year in registration and transaction fees than it is allocated through the appropriations process, but its budget is limited to the amount approved by Congress. From 2005 through 2009, the SEC collected approximately $7.4 billion in transaction and registration fees but Congress only gave it only around $4.5 billion. If the SEC had been allowed to keep all the fees it collected, it would have had an increased budget of 64% to fix its shortfalls in staffing and information-technology resources.
The SEC is one of only two financial regulators in the U.S. that must go through the annual Congressional appropriations process. U.S. banking regulators such as the Federal Reserve and the FDIC, on the other hand, can use what they collect in fees, deposit insurance and interest income to fund their operations. Under Schumer’s proposal, the SEC will fund its own operations by using the transaction and registration fees it collects in place of a Congressionally-mandated budget. Self-funding will give the SEC access to millions more than is allocated through the Congressional appropriations process.
A copy of Schapiro’s letter—which was sent to Majority Leader Harry Reid, Republican Leader Mitch McConnell, Senate Banking Chairman Christopher Dodd and Senator Richard Shelby—is attached.
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