SEC Seeks Greater Resources for Enforcement Cases

The Securities and Exchange Commission, demoralized by budget constraints imposed by Congress and the Bush and Clinton administrations, says it will be unable to handle a record number of enforcement cases spawned by the collapse of Enron Corp.

Armed with a new General Accounting Office study that backs the SEC’s need for more resources, agency officials are taking their case to Congress this week.

“We’re stretched to the limit,” SEC Enforcement Director Stephen Cutler said. “There are some lower-priority cases we just have to devote less time to than we’d like.”

The SEC brought 112 enforcement actions in 2001, up 42% from 1998. During the same period, departures reduced the agency’s staff by about 5%.

Chairman Harvey Pitt said in January the SEC couldn’t afford to replace the 140 people who left last year.

Meanwhile, demands by lawmakers for more scrutiny of accounting practices since Enron collapsed prompted the SEC to double the number of new investigations into financial reporting this year.

Though some lawmakers accuse the SEC of overstating its need for resources, the new GAO report provides the agency with more firepower for its battle.

The GAO, Congress’ investigative arm, said Tuesday that the decline in staffing, combined with an increase in new probes of companies such as Global Crossing Ltd. and Computer Associates International Inc., are creating substantial delays and may force the SEC to forgo some investigations.

“They’re going to have to quietly drop a number of cases unless they get additional resources,” said William McLucas, who led SEC enforcement from 1989 to 1998 and is now a partner at the law firm Wilmer, Cutler & Pickering.

Pitt, the agency’s head since August, is slated Thursday to present a budget proposal to Congress. President Bush’s budget plan for the next fiscal year contains no money for additional staff jobs at the SEC. Filling the current vacancies would cost $11 million, according to SEC data.

“Our enforcement division is working at a pace that is exponentially above what it has been in previous years,” Pitt said at an SEC conference in New York on Monday.

The surge in new cases is being fueled in part by demands from investors that the SEC reexamine accounting practices and standards since the collapse of Enron. Since then, the SEC has initiated investigations into Hanover Compressor Co. and Enterasys Networks Inc., among others.

Some Republicans and Democrats in Congress have called for allocating more money so the SEC can beef up enforcement and raise pay. One House bill would boost the agency’s budget nearly 50%.

By contrast, Bush’s budget request for fiscal 2003, starting in October, would give the SEC $467million, a 6.6% increase over this year’s budget. Most of the increase is for keeping up with inflation, computer improvements and security, not for adding staff or boosting pay, officials have said.

Rep. John J. LaFalce, a New York Democrat, said Bush’s failure to add money to raise SEC staff pay to parity levels with other federal regulatory agencies means that “with respect to the war to defend American investors he hasn’t even come to the plate.”

Pitt, who came into office seeking to be more attentive to companies’ needs and issues with the SEC, now is emphasizing the need to hold corporate wrongdoers accountable. Pitt said the agency will take the lead in restoring investors’ confidence in the financial system.

“My first priority is to see if we can’t persuade the administration to fund pay parity,” he said Monday. “My second priority is to finish my assessment of what our personnel needs are and attempt to make a presentation for additional resources.”

Pitt reviewed the budgets for fiscal 2001 and 2002 and decided around Jan. 1 that the SEC didn’t have enough money to fill 140 vacancies authorized by federal law, a spokeswoman said.

SEC department heads were told in January they wouldn’t be able to fill the empty job slots, further stretching resources that had failed to keep pace with explosive growth in agency cases in the last decade.

From 1991 to 2000, the number of open cases increased 65% while enforcement staff rose 16%, according to the GAO.

The 2-1 vote by the agency’s non-management lawyers, accountants and support workers to be represented by the National Treasury Employees Union in July 2000 “was a big signal” of an unhappy staff, said David M. Walker, comptroller general of the GAO.

“That’s the first professional services organization that I’m familiar with that unionized,” he said.

After surveying SEC employees, the GAO concluded that pay was the first reason cited for quitting and a lack of opportunities for advancement was the second.