By Zachary A. Goldfarb
Washington Post Staff Writer
Wednesday, April 28, 2010; 8:16 PM
Invoking her agency's fraud suit against Goldman Sachs, Securities and Exchange Commission Chairman Mary Schapiro on Wednesday called on Congress to provide a 12 percent boost to the regulator's budget next year.
The SEC lawsuit and the stinging accusations made this week by a Senate investigative panel about the bank's conduct in the financial crisis have put Goldman on the defensive.
Schapiro's testimony before a Senate appropriations committee made clear that the agency's case against Goldman is also a big test for the SEC's credibility as it seeks $1.26 billion for next year.
In her prepared testimony, Schapiro cited the Goldman case as evidence that the agency's "enforcement activity increased significantly" during her tenure.
But she immediately faced a question from Sen. Susan Collins (R-Maine) about whether politics played a role in the decision to file a suit.
Several Republicans have raised the possibility that the agency, which is seeking more powers under regulatory overhaul legislation before Congress, filed the suit at the time it did to support Democratic efforts to pass reforms.
Schapiro said that was "absolutely not" the case. "We bring our cases when we have the law and the facts that we believe support bringing our cases," she said.
Schapiro also called for a change in the law to make sure that investment advisers and brokers, such as Goldman, have the same responsibility to ensure that what they're selling clients is in their clients' best interest. That responsibility now applies only to investment advisers. The financial overhaul legislation before Congress currently would not impose such a fiduciary duty on brokers.
Schapiro said the budget request would allow the agency to hire 374 officials, bringing the regulator's staff to 4,200, and expand investments in surveillance and other technology.
The budget includes $24 million for the SEC if Congress gives the SEC and a sister agency, the Commodity Futures Trading Commission, the power to police derivatives.
Schapiro said the money would allow the agency to open more than 100 additional investigations and file charges in 70 more cases. The enforcement division could also hire more trial lawyers and build a technologically advanced financial forensics lab.
"While we will never match the technology available to the financial institutions we regulate and the big law firms we face, the ability to search and use the vast mountains of data they collect will make our team much more competitive," Schapiro said "New technology will be accompanied by comprehensive training, allowing staff to navigate the constantly evolving financial environment they monitor."
Although she has argued for a boost in agency funding, Schapiro is also calling to stop the annual budget process and allow the agency to make its own funding decisions by using fees assessed to the financial industry to pay for its operations.
"Self-funding ensures independence, facilitates long-term planning and closes the resource gap between the agency and the entities we regulate," she said recently. "It would enhance our long-term planning process, allowing the SEC to address the increasingly sophisticated technologies, products and trading strategies adopted by the financial services industry."
Schapiro's efforts to increase the SEC's power and budget have been challenged by lawmakers critical of the agency's conduct.
After the SEC filed the Goldman suit, Republicans, led by Rep. Darrell Issa (Calif.), pushed for an investigation into whether the agency gave advance notice to any political office.
SEC Inspector General H. David Kotz said recently that at Issa's request, "we need to understand what led to the decision to announce or bring the case on that day. See if there was any undue influence involved, and so we'll look very carefully to investigate that and see what we determine."
The ranking Republican on the House Financial Services Committee also recently questioned whether the SEC should get new powers or the money that comes with them.
He was responding to a review of the SEC's failures in its oversight of Lehman Brothers in the months before the company's collapse.
"Lehman is gone, but the failures of . . . SEC are still with us and should not be rewarded with new regulatory powers," Rep. Spencer Bachus (R-Ala.) said.