The SEC regulates Wall Street and companies that trade on the stock markets, and it polices offenses such as accounting fraud and insider trading. It also investigates allegations that Wall Street companies dumped toxic housing investments on unwitting investors as the real estate market collapsed.
In a report with its funding bill, the committee rebuked the agency, saying that it “remains troubled with the SEC’s management of its operating budget.”
Accusing the agency of shortcomings in its handling of information technology contracts, a major office lease and the preparation of its own financial statements, the panel said it was reluctant to provide more funding until the SEC achieves efficiencies recommended by an outside consultant. “The Committee believes that these lapses demonstrate a concerning lack of ability to manage funds,” the report said.
The report also faulted the SEC’s handling of Ponzi schemes. The agency failed to stop Bernard Madoff’s fraud, despite repeated warnings over the years.
The committee made a point of guaranteeing a minimum level of funding — almost $6.8 million — for the office of the SEC inspector general, whose probes have criticized the agency and given its critics ammunition.
The SEC has said it needs more money to handle its increased responsibilities under the Dodd-Frank Act, enacted last year in response to the financial crisis.
Those tasks include overseeing hedge funds and complex financial instruments known as derivatives. In addition, the SEC is gearing up to field more tips under a new program that entitles whistleblowers to a share of fines they help the agency collect.
Defenders of the agency, chiefly Democrats, have argued that depriving the agency of funds could make it easier for financial companies to commit the kinds of abuses that fueled the housing bubble and helped drive the country into a deep recession.
The SEC has argued that its budget won’t directly affect the federal budget deficit. Although Congress controls the amount it can raise and spend, the SEC has said, the money comes from fees the agency collects from industry.
SEC spokesman John Nester declined to comment on Thursday’s vote. “The funds we seek will help us to police Wall Street and protect investors without adding to the deficit,” he said.
The amount the committee approved “flies in the face of the agency’s new and complex responsibilities,” Colleen M. Kelley, president of the National Treasury Employees Union, said in a statement. “As it stands, the fee-funded SEC is unable to improve its technology to keep up with highly sophisticated market participants who trade virtually at the speed of light,” said Kelley, whose union represents SEC employees.
Although the vote in the Appropriations Committee is an important milestone in the federal budget’s journey through Congress, other steps lie ahead.