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In the letter, Sens. Jack Reed, D-R.I.; Charles Schumer, D-N.Y.; Dick Durbin, D-Ill; and Robert Menendez, D-N.J., 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,” according to a release that accompanied the letter.
“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,” the senators wrote. “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 SEC’s chronic budget shortfalls have hurt its ability to stay one step ahead of bad actors in the marketplace, they argue. The senators note a report completed by the agency’s inspector general that found 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,” according to the release. “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.”
The release also noted that SEC's entire budget comes from fees it collects from the industry, so fully funding the SEC would “not add a dime to the deficit.”
Last week, the House Financial Services Appropriations Committee voted to fund the SEC for the 2012 fiscal year at a level $222.5 million below the President’s budget request, despite what the senators called “the significant new responsibilities given to the SEC by Congress.”
The full text of the letter is below:
June 28, 2011
The Honorable Harold Rogers
Chairman, U.S. House of Representatives Committee on Appropriations
H-307 United States Capitol
Washington, DC 20515
Dear Chairman Rogers:
We are writing to urge you to fully fund the Securities and Exchange Commission (SEC) at a level that will allow it to carry out its core mission and fully implement its expanded responsibilities under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
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 US capital markets.
However, the House Appropriations Committee recently voted to cut $222 million from the amount requested for the SEC by the President. The Committee also voted to cut off the SEC’s access to the $50 million reserve fund established in the Dodd-Frank Act. This reserve fund was created to allow the SEC to respond to emergencies or fund technology upgrades in a timely manner that would not require it to sacrifice other priorities.
In the wake of the financial crisis, and in light of the proliferation of high speed electronic trading, the SEC’s core mission has grown far in excess of the funds appropriated to the SEC to carry out that mission. Now Dodd-Frank requires the SEC to increase its oversight of credit rating agencies, hedge funds and other private investment advisors. The SEC is also tasked under the Dodd-Frank Act with overseeing large portions of the over-the-counter derivatives markets, which have never been subject to regulation before and played a large role in the 2008 financial crisis.
We urge you to provide the SEC with the resources it needs to bring its technology into the 21st century, capable of monitoring and analyzing the activity of high-frequency traders, to police the security-based swaps market, and to take on the examination of investment advisers, hedge funds and credit rating agencies as required under the Dodd-Frank Act.
We should also point out that the SEC is fully funded by fees it collects from the industry, so fully funding the SEC would not hinder the efforts underway to balance our budget.
Thank you for your consideration of this matter, which is vital to restoring investor confidence and integrity to the marketplace.
Senator Jack Reed
Senator Charles E. Schumer
Senator Richard Durbin
Senator Robert Menendez