By Silla Brush - 03/11/09 06:29 PM EDT
The money, coming from unspent funds from a previous year, would prevent the agency from having to make “significant cuts in its current operations,” Schapiro said at a subcommittee hearing of the House Appropriations Committee during her first testimony since her confirmation.
“I am not asking for new funds,” Schapiro said. “We are seeking authority to spend money that was unspent in prior years.”
President Obama, in his budget overview released in February, included a 9 percent increase in funds for the SEC to pay for new technology and 50 additional staffers to go after potential fraud.
Schapiro is taking the helm of an agency roundly criticized in the financial crisis for failing to prevent fraudulent activities and not effectively regulating the securities market. As lawmakers look first to rewrite financial regulations by creating a “systemic risk regulator” with an eye on the entire financial system, Schapiro encouraged them not to forget the role government plays in protecting investors in financial transactions.
“While I think the focus on systemic risk is important,” Schapiro said, “we absolutely cannot lose sight of” the role of an investor advocate.
Lawmakers and investors have slammed the SEC for its failure to prevent the Bernard Madoff securities fraud that cost investors roughly $65 billion in an alleged Ponzi scheme that went on for more than a decade.
“Clearly, the SEC missed Madoff and had multiple opportunities to put an end to the fraud,” Schapiro said.
“We have to get back to basics,” she said.
Schapiro said that the agency is considering new efforts to protect whistleblowers and encourage that their tips are reviewed in the agency. The only incentive people have to come forward with tips is a “good feeling,” Schapiro said. And the only tips that have any financial incentive are those concerning insider trading.
Schapiro said that the agency might be able to return to Congress within a month to discuss a new incentive structure to encourage investor tips about potential problems in financial markets.
“We are considering asking Congress whether to expand our capability in that area,” Schapiro said.
In addition, Schapiro said that she intended in April to bring to agency commissioners a proposal to reinstate the “uptick” rule, which was repealed in 2007. The rule said that investors could only short-sell a stock — essentially, wager against it — when the previous trade had resulted in an increase in price. Lawmakers and analysts have criticized the repeal for allowing investors to pile on stocks declining in price.
“We are scheduling for early next month, assuming we have the votes on the commission, to propose reinstating the uptick rule and perhaps looking at other alternatives,” Schapiro said.
House Financial Services Committee Chairman Barney Frank (D-Mass.) on Tuesday was circulating a letter to his committee members urging Schapiro to reinstate the rule.
“We understand commission staff is working on a range of options in this area that include reinstatement of the old uptick rule, a new form of price or bid test and the possibility of establishing a circuit breaker or trading freeze to curb short-selling in specific stocks under certain conditions,” Frank said, according to a draft of the letter.
Schapiro also indicated that in the second quarter of this year there would be “guidance” on mark-to-market accounting rules that industry trade groups argue continue to exacerbate the financial crisis by driving down the price of illiquid assets.
“It is not our intention that these assets be written down to zero,” she said, “or to fire-sale prices.”
Schapiro suggested that the agency might consider seeking broader authority over credit rating agencies. The SEC is holding a roundtable discussion on April 15 on credit ratings, and Schapiro said she thought more competition in the industry would be beneficial