As reported by New York Times’ James Stewart, the economy is still suffering from the worst financial crisis since the Depression, and widespread anger persists that financial institutions that caused it received bailouts of billions of taxpayer dollars and haven’t been held accountable for any wrongdoing. Yet the House Appropriations Committee has responded by starving the agency responsible for bringing financial wrongdoers to justice — while putting over $200 million that could otherwise have been spent on investigations and enforcement actions back into the pockets of Wall Street.
A few weeks ago, the Republican-controlled appropriations committee cut the Securities and Exchange Commission’s fiscal 2012 budget request by $222.5 million, to $1.19 billion (the same as this year’s), even though the SEC’s responsibilities were vastly expanded under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Charged with protecting investors and policing markets, the SEC is the nation’s front-line defense against financial fraud. The committee’s accompanying report referred to the agency’s “troubled past” and “lack of ability to manage funds,” and said the committee “remains concerned with the SEC’s track record in dealing with Ponzi schemes.” The report stressed, “With the federal debt exceeding $14 trillion, the committee is committed to reducing the cost and size of government.”
But cutting the SEC’s budget will have no effect on the budget deficit, won’t save taxpayers a dime and could cost the Treasury millions in lost fees and penalties. That’s because the SEC isn’t financed by tax revenue, but rather by fees levied on those it regulates, which include all the big securities firms.
A little-noticed provision in Dodd-Frank mandates that those fees can’t exceed the SEC’s budget. So cutting its requested budget by $222.5 million saves Wall Street the same amount, and means regulated firms will pay $136 million less in fiscal 2012 than they did the previous year, the SEC projects.
Moreover, enforcement actions generate billions of dollars in revenue in the form of fines, disgorgements and other penalties. Last year the SEC turned over $2.2 billion to victims of financial wrongdoing and paid hundreds of millions more to the Treasury, helping to reduce the deficit.
Robert Khuzami, the SEC’s head of enforcement, told me his division was underfunded even before Dodd-Frank expanded its responsibilities and that the proposed appropriation would leave his division in dire straits. The SEC oversees more than 35,000 publicly traded companies and regulated institutions, not counting the hedge fund advisers that would be added under the new legislation. While he wouldn’t comment on Tyson, he noted that with fixed costs like salaries accounting for nearly 70 percent of the agency’s budget, “you have to squeeze the savings out of what’s left, like travel, and especially foreign travel, at a time we see more globalization, more insider trading through offshore accounts. It’s highly cost-intensive.”
An SEC memo on the committee’s proposed budget warns: “We may be forced to decline to prosecute certain persons who violate the law; settle cases on terms we might otherwise not prefer; name fewer defendants in a given action; restrict the types of investigative techniques employed; or conclude investigations earlier than we otherwise would.”