Defanging a Vital Watchdog : Securities and Exchange Commission has some enemies in Congress
The new Republican Congress has made it known that the Securities and Exchange Commission is one of the U.S. government agencies that it is targeting for budget cuts and curbs on litigation. With more money than ever pouring into stocks, bonds, mutual funds and other investments, this is not the time to scale back on the watchdog agency assigned to oversee the securities business and look out for consumer interests. This is especially true now that the SEC is investigating the possibility of influence peddling in the Orange County bankruptcy debacle. Back in April, the SEC found the county’s investment strategies risky but not illegal based, the agency says today, on the information available then.
The SEC should be spared cuts that will impair its operations and that have an adverse impact on the public interest. The agency has already been unable to maintain adequate inspection programs to keep up with the phenomenal growth in mutual funds and investment advisory businesses. The unexpected bankruptcy of Orange County is presenting a host of securities questions that need illumination and exploration. Newly popular investments such as derivatives, for example, need more stringent investor-capital requirements and disclosure requirements.
The SEC, under Chairman Arthur Levitt Jr., has pushed investor awareness programs and clamped down on so-called rogue brokers, those who are known to abuse client accounts yet always seem to find another job in the business. Levitt has also managed to coax the securities industry to take corrective actions voluntarily on some questionable practices.
In looking for ways to secure more funds, Levitt has suggested that the SEC be allowed to keep the fees and fines it generates and now turns over to the Treasury. But Sen. Phil Gramm, the Texas Republican in line to head the Banking Committee’s securities subcommittee, objects on the grounds the agency would become too independent and intrusive.
Many investments by their very nature are risky. The decisions are ultimately the investor’s. But a measure of protection from unscrupulous operators, less-than-adequate disclosures, unfair and fraudulent brokers and other such practices is justified. The SEC’s mission is to do just that. It must have the funds and personnel to get the job done. Whether the money comes from the Treasury or the fees and fines collected by the SEC itself, the investment would be profitable in terms of protecting the American investor.
