SEC head outlines enforcement, other changes
WASHINGTON -- House lawmakers voiced approval Tuesday for recent changes at the Securities and Exchange Commission in the wake of the Madoff scandal, though some Republicans chafed at new proposed regulations.
SEC Chairman Mary Schapiro said the agency has been revamping itself, buttressing enforcement efforts and taking initiatives to protect investors in the wake of the financial crisis and the agency's failure to uncover the massive Madoff fraud despite red flags.
The agency has undergone fundamental changes in recent months "that will reinforce our focus on investor protection and market integrity," Schapiro told the House Financial Services subcommittee on capital markets.
A series of regulatory proposals made by the SEC have included restricting short-selling in down markets, strengthening oversight of mutual funds, tightening scrutiny of investment advisers and making it easier for shareholders to seat directors on company boards. The SEC also is working to identify emerging risks to investors, including so-called "dark pools," or automated trading systems that don't publicly provide price quotes, Schapiro said.
The agency may extend its work on tightening oversight of Wall Street's credit rating agencies by looking to prevent companies from "shopping" for favorable ratings of their securities -- possibly by requiring companies to disclose all the preliminary assessments they receive.
It's a "great start," said Rep. Paul Kanjorski, D-Pa., the subcommittee's chairman, but the SEC "must continue to take bold and assertive action." The rule proposals must be made final and "the hard work ... lies ahead," he said.
The fraud run for decades by money manager Bernard Madoff, believed to be the largest Ponzi scheme in history, echoed through the hearing. Even as Schapiro testified, the disgraced money manager arrived at a federal prison in Butner, N.C., to begin serving a 150-year sentence. Madoff pleaded guilty in March to charges that his investment business was a multibillion-dollar scheme that wiped out thousands of investors and wrecked charitable foundations.
Three of the five high-ranking SEC officials who were lambasted at a hearing by the same panel in February over the Madoff affair -- including the enforcement director and the head of the inspections office -- have since left the agency.
Several Republicans expressed concern over recent SEC initiatives.
Legislation proposed last week by the Obama administration, for example, would empower the SEC to ban compensation schemes for brokers and investment advisers it deemed contrary to investors' interests.
Rep. Jeb Hensarling, R-Texas, warned against "regulatory overkill" by the SEC in the wake of the Madoff scandal. It wasn't a lack of regulation that caused problems, he said, "It was dumb regulation."
Appointed by President Barack Obama, Schapiro took the helm in January of an agency demoralized and widely assailed over its failure to detect Madoff's fraud and its oversight of Wall Street investment banks in the period leading up to the financial crisis that erupted last year.
"We have to hold people accountable at all levels of the agency," Schapiro testified. "We've tried to pull all the lessons we can from those failings."
The lawmakers seemed willing to increase funding for the SEC's budget, which Schapiro said was needed for the 3,600-person agency to have sufficient staff to police burgeoning and sophisticated markets, and some 35,000 registered companies, investment funds and other entities.
The House is considering an increase of 8 percent in the SEC's proposed $1.03 billion budget for the fiscal year starting in October -- the first time it would ever top $1 billion. Kanjorski said Congress also must seriously consider the SEC's request to boost its $1.2 billion budget for fiscal 2011 by an additional 20 percent.