A key senator wants to change how the Securities and Exchange Commission is funded, saying the agency needs more resources to prevent future disasters like its failure to detect Bernard Madoff’s multibillion-dollar fraud.
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Sen. Charles Schumer, D-N.Y., a member of the Senate Banking Committee, plans to propose legislation next week that would dedicate all the annual revenue collected by the SEC to its budget. Now a large portion of the fees paid by public companies and other entities that register stock with the agency go to the Treasury Department for the government’s coffers.
Schumer’s proposal would give the SEC a similar funding structure to the Federal Reserve and the Federal Deposit Insurance Corp., which are able to use all the revenue they collect from banks to fund their operations.
The Obama administration has proposed $1.03 billion for the agency for the fiscal year starting Oct. 1, the first time it would top $1 billion, up from $960 million in the current year. The House approved a $1.04 billion budget and a Senate panel approved $1.1 billion; the full Senate hasn’t yet voted on it.
If the new proposal for funding the SEC had been in effect in 2007, the agency would have had $650 million atop its $881.5 million budget, based on what it collected in revenues that year, Schumer said.
“The SEC has been starved for resources. It’s a shadow of its former self,” Schumer told reporters Thursday.
His announcement came a day after the release of a scathing report by the SEC inspector general that found the agency bungled its investigations of Madoff’s business over 16 years, ignoring abundant red flags raised by outside whistleblowers. The report by inspector general David Kotz says the SEC was hobbled by incompetence and the inexperience of many staff members who conducted the investigations of Madoff’s operations.
Schumer said his proposal was supported by SEC Chairman Mary Schapiro.
“We look forward to reviewing Sen. Schumer’s legislative proposal and to considering how it would build upon the many reforms we are already undertaking to revitalize the agency,” SEC spokesman John Nester said in a statement.
Schapiro has cited the potential benefits of changing the funding system for the SEC, including “helping to provide stable and sufficient resources to carry out the agency’s mission, and enabling better long-term planning in critical areas such as technology and staffing,” Nester said. The SEC is ready to work with Congress on the issue, he said.
There could be opposition to the idea from within the Obama administration; budget officials usually want to be able to channel the revenue collected by the SEC into other federal programs.
Schapiro and other officials have said the 3,650-person agency needs increased funding to bolster staff in order to police burgeoning and sophisticated markets, as well as some 35,000 registered public companies, investment funds and other entities.
The perception is that the 75-year-old SEC can barely keep up with fast-changing markets and trading developments. Besides its failure in the Madoff fiasco, the SEC also has been criticized for its oversight of the Wall Street investment houses in the period before the financial crisis struck last fall.
A proposal by Schumer and Sen. Richard Shelby of Alabama, the senior Republican on the Banking Committee, enacted last spring, provides $10 million over the next two years to hire 100 new SEC enforcement attorneys and investigators.
