FY2012 Funding Request for the Securities and Exchange Commission

12/15/2011

Senate Committee on Appropriations - Subcommittee on Financial Services

For a decade now, the National Treasury Employees Union (NTEU) has represented the men and women who work at the Securities and Exchange Commission (SEC). When NTEU first began to represent the employees, we were able to help make great strides forward in improving the efficiency and effectiveness of the agency. The NTEU supported Investors and Capital Markets Relief Act gave SEC the authority to develop a personnel system best suited to the agency’s needs and curtailed the staff turnover crisis that vexed the agency. Employee morale and retention improved dramatically.

However, starting in FY2005, the SEC began to take a wrong turn. It suffered through three years of frozen or reduced budgets resulting in a 10% reduction in staff as well as a failure to fully fund merit pay and retirement benefits which both labor and management agreed were needed to attract a workforce with the desired skills and experience. Some employees wondered if the leadership really supported strong and meaningful action against those who would engage in fraud and deception towards consumers and investors.

Under Chairman Mary Shapiro, we believe there is a renewed commitment to rigorous protection of consumers. This protection is also enhanced by the Dodd-Frank Wall Street Reform and Consumer Protection Act which will help give the SEC the resources, tools and authority it needs so that the staff can effectively protect investors. NTEU had strongly supported passage of this legislation. We are also pleased that recent funding improvements at SEC have now restored staffing to the 2005 levels.

However, the job is far from done. During the recent period of almost flat funding for the SEC, trading volume more than doubled. Since 2003, the number of investment advisers has grown by roughly 50 percent, as have the number of funds they manage. A $33 trillion industry of 35,000 separate entities is policed for fraud and illegal activities by a mere 3,800 employees of the SEC.

With insufficient funding for even its historic duties, SEC now has significant new duties under the Dodd-Frank Consumer Protection legislation. NTEU believes that the President’s request of $1.4 billion dollars is the minimum needed to make sure that SEC is able to do its job effectively. We ask that the Senate fund SEC at an amount no less than the president’s request.

We understand these are difficult financial times both for the federal government and the American public. Therefore, several facts need to be understood. First, while the SEC is an appropriated agency, its funding is offset by fees collected from the securities industry. Because these fees offset the entire SEC budget, proper funding of the SEC does not contribute to the deficit. Second, as American families struggle in the current economic downturn, the SEC has returned billions of dollars to cheated investors. In 2010, SEC distributed double its budget ($2.2 billion) to these innocent victims. Congress should not be penny wise and pound foolish when it comes to protecting the investments of American consumers, only to see the victimized lose retirement investments or like time savings.

During the difficulties in passing the FY2011 budget, the public already saw the flaws of an underfunded SEC. Operating under the fiscal restrictions of the Continuing Resolution, it was not possible to pursue some quality tips and investigations of potential misconduct, while other investigations were slowed down or delayed. SEC suffered under a reduced ability to hire expert witnesses for trial and to take testimony of certain witnesses. Funding limitations lessened the number of exams that could be conducted of high-risk registrants, thus increasing the risk of undetected violations.

Rather than a hiring freeze, as was put into place at SEC during the Continuing Resolution, SEC should have funding to hire needed new personnel to implement the provisions of the Wall Street Reform and Consumer Protection Act, as well as to be able to offer a competitive compensation package which allows SEC to retain and attract staff with skill sets vital to keeping pace with rapidly changing markets and to identify systemic risks that may be created by entities subject to SEC regulation. SEC must have a budget that will fully fund its merit pay program as well as agreed upon retirement benefits.

NTEU remains ready to work with the Subcommittee and SEC management to help meet the goals needed so employees can do their job of protecting the American consumer and investor.