Congress Seeks Review of SEC’s Enforcement Division Staffing, Funding

April 2, 2008

Congressional investigators have been asked to review whether the U.S. Securities and Exchange Commission has enough enforcement staff and funding to properly police the markets amid the current credit crisis, Senator Jack Reed said Tuesday.

“There has been an almost 50 percent decrease in disgorgements by the SEC in 2007, which in my mind raises questions about whether changes have taken place in enforcement philosophy or scope of activity,” said Reed in prepared remarks to be delivered at a securities conference.

Reed and Christopher Dodd, the chairman of the Senate Banking Committee, have also asked the Government Accountability Office (GAO) to review whether there has been a fundamental change in the way the SEC’s enforcement division handles cases.

The GAO is the investigative arm of Congress.

Reed, chairman of the Senate’s subcommittee on securities, insurance and investment, said enforcement and adequate resources are critical components of strong oversight. Despite the current market turmoil, the SEC asked for less than a 1 percent increase in its budget for 2009, he said.

“This is a significant concern given that increased demands are being placed on staff and the agency during this critical time,” said Reed, a Democrat from Rhode Island.

Speaking at the same event, SEC Chairman Christopher Cox told reporters he had just learned of the investigation.

“I’m sure whatever the GAO examines, parts of our regulatory enforcement program will benefit from the experience,” Cox said.

The SEC has more than three dozen subprime lending-related investigations under way. It is investigating several areas, including the securitization process and how firms and individuals valued and disclosed complex mortgage-backed securities.

Morgan Stanley and Merrill Lynch have disclosed that government investigators are seeking information about their subprime activities.

(Reporting by Rachelle Younglai and Karey Wutkowski; Editing by Tim Dobbyn)

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