7.14.2009 SEC Chairman Mary Schapiro testified before the U.S. House of Representatives Committee on Financial Services on the current state of the economy and the steps the SEC is taking to improve investor protection and restore confidence in the U.S. markets. The Chairman stated that the SEC has begun implementing many changes, including working to fill regulatory gaps exposed by the economic crisis; seeking to strengthen standards governing broker-dealers and investment advisers; enhancing disclosure provided to investors; streamlining enforcement procedures and focusing on cases that will have the greatest impact; revamping the system for handling the approximately one million tips and complaints received annually; improving the SEC’s risk assessment capabilities; bolstering internal training; and bringing on new leadership and new skill sets throughout the agency.

The Chairman touched on how she has been working with the Enforcement staff to reinvigorate the Enforcement Division by

  • Ending the two-year “penalty pilot” program, which required Enforcement staff to obtain majority SEC approval before the staff could begin negotiating penalties against public company defendants;
  • Providing for more rapid approval of formal orders of investigation, which grant SEC staff subpoena power to compel witness testimony and the production of documents;
  • Hiring a new Director of Enforcement, Robert Khuzami, a former federal prosecutor who served as Chief of the Southern District of New York’s Securities and Commodities Fraud Task Force; and
  • Completing an extensive evaluation of the Enforcement processes to improve the way the Division operates.

The Chairman spoke about some of the Division’s achievements in the last year and how the SEC is upgrading its ability to obtains tips and complaints. The SEC has retained the Center for Enterprise Modernization, a federally funded research and development center operated by The MITRE Corporation, to help the SEC establish a centralized system to more effectively identify valuable leads for potential enforcement actions as well as areas of high risk for compliance examinations. The MITRE Corporation has made recommendations to the SEC regarding how it can begin immediately to improve the quality and efficiency of the agency’s current procedures, and to recommend potential technology solutions that can assist the SEC staff in more effectively tracking, managing and utilizing tips, complaints and referrals.  

The Chairman also testified about the ways the SEC is strengthening examination and oversight, improving transparency and investor protection, combating abusive short-selling, enhancing regulation of credit rating agencies, strengthening shareholder rights, improving money market and mutual fund regulation, and filling regulatory gaps.

The Chairman concluded by stating that the SEC has been underfunded in recent years and needs sufficient budgetary resources to enhance its effectiveness. The Chairman stated that she is pleased the President requested that $1.026 billion be allocated to the SEC for its fiscal year 2010 budget because this is a key step in expanding the staff and resources available to the SEC. For 2011, the SEC submitted to Congress a request of more than $1.2 billion to support more than 375 additional full-time equivalents and $30 million in new technology investments.

Click http://www.sec.gov/news/testimony/2009/ts071409mls.htm to access Chairman Schapiro’s testimony.