SEC chief missed the boat at budget hearing

SEC Chairman Christopher Cox needs to remember the old saying, “the squeaky wheel gets the grease.”
The Bush administration is planning a 2.7% budget increase for the Securities and Exchange Commission for fiscal 2008.
During testimony at a House Appropriations subcommittee hearing last week, Mr. Cox said he is confident that the $905.3 million budget proposal would be enough to allow the SEC to “solidly execute its mission of protecting investors.”
However, Rep. Jose Serrano,
D-N.Y., who heads the subcommittee that oversees the SEC budget, questioned whether the administration’s proposed spending will be enough to fight abuses and assorted market manipulations. Mr. Cox said that the proposed budget will “suffice” for fiscal 2008, which begins Oct. 1.
Since the SEC has fewer staff members now than it did in 2005, Mr. Cox should have used that opportunity to jump up and down and ask for more funding.
The SEC is responsible for promoting investor protection and education as well as for overseeing the integrity of capital markets. It’s a people-intensive agency, and about 66% of its total budget goes toward paying its 3,600 staff members. Therefore, in an effort to retain highly qualified people, it’s obvious that a majority of the 2008 budget increase will be devoted simply to maintaining its existing staff level, not adding to it.
The fiscal 2008 budget allows for increases related to promotions and pay raises, therefore “we want to make sure that you have enough people to accomplish your mission,” Mr. Serrano said to Mr. Cox.
“I [am] interested in your comments on the staffing of the commission,” Mr. Serrano said. “The challenges facing the commission are expanding as more Americans participate in the stock market.”
Opportunity was knocking at this point of the hearing for Mr. Cox. He needed to go into specific detail and outline a solid game plan, and tell the subcommittee that more money indeed was needed to add staff for specific enforcement action against corporate scandals.
Mr. Cox was given an opening by Mr. Serrano at the hearing but
didn’t grab it.
Despite the small proposed budget increase, Mr. Cox told the subcommittee that the 2008 budget was “adequate” to address the SEC’s primary concerns.
Getting into some specifics, Mr. Cox said that in fiscal 2008 the SEC was going to take a closer look at accounting and disclosure by subprime lenders.
If investors in mortgage pools backed by riskier loans to subprime borrowers were defrauded, the SEC wants to be there as an enforcer, he said.
New congressionally mandated oversight of credit rating agencies by the SEC and combating abusive naked short selling are other hot-button areas where the SEC is focusing, Mr. Cox said.
It’s obvious that he would rightfully place an emphasis on investor protection.
However, what was alarming in Mr. Cox’s testimony to the subcommittee was that he made no mention of any enforcement plans of action for corporate wrongdoing.
Shareholders recently have witnessed a variety of major corp-
orate scandals in this country. It’s obvious that many of the corporate-governance protections companies had in place did not prevent large-scale fraud.
The SEC needs to continue to fight corporate abuse, and it’s going to take more manpower at the agency to do so. Mr. Cox needs to ask for more funding for more staffing.
To continue to protect investors and maintain fair, orderly and efficient markets, Mr. Cox needs to be that squeaky wheel.