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Budget Would Add More Than 330 Slots At SEC

For more than a year, the SEC has been saying it wants to recruit people with hard-core market experience to oversee an ever more complex industry. The agency may soon get the money to put where its mouth is.

Under President Obama's budget released Monday proposes an 11 percent raise in the SEC budget to $1.23 billion, which would allow the agency to add 334 full-time positions. Enforcement division staff would grow by about 130, a 10.6 percent increase, according to Bloomberg News.

If Congress approves proposed legislation giving the SEC authority over hedge funds and over-the-counter derivatives (shared with the Commodity Futures Trading Commission), the budget would provide an additional $24 million and 38 more full-time positions.

Enforcement Priorities Spelled Out

The budget document says the enforcement division plans to focus on "adequately staffing crucial enforcement functions to address increasingly complex financial products and transactions." In technology, the division's priorities are redesigning the system for requesting trade data and creating a new IT forensics lab and a system for tracking complaints, tips, and referrals.

Most SEC investigators are lawyers with at least a couple of years' experience in securities law. The enforcement division also employs accountants who help the lawyers gather facts and assemble cases. Its director, Robert Khuzami, last year initiated specialty units focused on asset management, structured and new products, market abuse, municipal securities and public pensions, and the Foreign Corrupt Practices Act.

The SEC's Office of Compliance Inspections and Examinations would likely add slots as well. Its new chief, Carlo V. di Florio, said when his appointment was announced last month that the office seeks to hire professionals with knowledge of trading strategies, risk management and quantitative analytics.

Reversing Prior Administration's Neglect of Regulation

The agency came under fire in recent years for failing to notice Bernard Madoff's long-running Ponzi scheme and doing little to prevent banks and credit rating agencies from packaging sub-prime mortgage into supposedly low-risk products that eventually collapsed.

Last decade, the Bush administration's minimalist attitude toward regulation crimped SEC staffing and enforcement. For instance, the commission employed 10 percent fewer enforcement attorneys in 2008 than in 2005 and staff turnover in the division hit a five-year high in 2006, Commissioner Luis Aguilar said in a January 2009 speech.

The agency actually generates a profit for the Treasury through fees collected from companies that issue stocks and bonds. SEC Chairman Mary Schapiro has called for funding the agency directly out of those fees, eliminating the need to seek appropriations from Congress each year. Such a change would also enable the SEC to set its own staffing levels.

The CFTC, an independent agency that oversees exchange-traded futures and options whose mandate would be enlarged under proposed derivatives legislation, would get $261 million under the president's budget, a 55 percent increase over last year. Almost half that increase is contingent on Congress approving the regulatory overhaul.

AUTHORJon Jacobs Insider Comment

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