Former SEC head opposes restrictions on agency


Former SEC head Harvey L. Pitt said the proposed restructuring of the agency would be “too restrictive” and “would likely cause certain critical SEC functions to lose independence.” (DENNIS BRACK/BLOOMBERG NEWS)
September 15, 2011

As House Republicans showcased plans Thursday to restructure and tighten the reins on the Securities and Exchange Commission, they ran into opposition from a former high-ranking Republican appointee — Harvey L. Pitt, who led the SEC during the administration of George W. Bush.

The proposed restructuring would be “too restrictive” and “would likely cause certain critical SEC functions to lose independence,” Pitt said in written testimony for delivery at a hearing of the House Financial Services Committee.

Meanwhile, a bill that would call on the SEC to consider a variety of additional factors before issuing regulations is “imprudent,” “seems far too cumbersome” and would impose “onerous standards,” Pitt said.

Pitt also suggested that the proposal, dubbed “the SEC Regulatory Accountability Act,” would subject the SEC to standards that don’t apply to other agencies.

The bill, sponsored by Rep. Scott Garrett (R-N.J.), calls on the SEC to conduct a more elaborate cost-benefit analysis than currently required before issuing regulations or enforcement orders. It also calls on the SEC to weigh the impact on society, including businesses.

The agency is responsible for policing Wall Street and regulating the financial markets.

Garrett said the bill is needed to ensure that the SEC does not unduly burden companies that it regulates or impede the creation of jobs.

“These are really basically common-sense reforms that make a lot of sense, I think,” he said.

Criticizing the SEC’s performance, Rep. Randy Neugebauer (R-Tex.) said that in its posture toward the SEC, Congress should be careful about “rewarding bad behavior with more money and more regulations.”

Committee Chairman Spencer Bachus (R-Ala.) said his proposed restructuring of the agency was intended only as a starting point for discussion.

Although some Republicans have resisted increasing the SEC’s funding, Bachus said an increase was “probably necessary” as part of the process of reforming the agency.

Democrats focused on what they framed as costs of inadequate regulation: the loss of jobs and destruction of household wealth that have resulted from the financial crisis.

SEC Chairman Mary L. Schapiro, an appointee of President Obama, said in written testimony that the bill’s mandate to protect businesses could conflict with the SEC’s responsibility to protect investers from businesses.

Pitt said lawmakers should give the SEC more flexibility to solve its problems, and he questioned whether sponsors of the SEC Regulatory Accountability Act had conducted a cost-benefit analysis for their proposal.

In his testimony, the former SEC chairman went somewhat off the topic of the hearing to issue an impassioned denunciation of the SEC’s inspector general.

Without using his name, Pitt accused inspector general H. David Kotz of taking an “unprincipled approach.”

“Since this Committee is interested in improving SEC accountability, it should consider the activities of a single individual, and the office he heads, who seemingly operates on the assumption that he can effectively terrorize innocent employees under the guise of upholding the law but not follow the law himself,” Pitt wrote.

Pitt said he had represented people for free before the inspector general.

“I have found the process currently employed to be Kafka-esque, fraught with diatribes and bereft of professional integrity,” Pitt wrote.

Kotz, who is preparing to issue a series of reports on sensitive SEC issues, did not immediately respond to a request for comment.

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