Cut Proposed for SEC Budget

Congressional budget negotiators cut about $30 million from the Securities and Exchange Commission’s proposed $841.5-million budget because the agency hadn’t hired new employees as quickly as it had projected.

The spending bill, to be voted on by Congress next week, would appropriate $811 million for the SEC in fiscal 2004, which began Oct. 1, according to a summary of the bill from the House Appropriations Committee.

Even with the cut, the SEC’s spending would be $66 million more than its $745-million budget last fiscal year, the summary said.

The budget changes come as the SEC faces new regulatory demands after allegations of trading abuses in the $7-trillion mutual fund industry.

Some lawmakers have asked why state regulators -- and not the SEC -- first uncovered evidence of the violations three months ago.

“The SEC is squandering a golden opportunity to help restore investor confidence by not bringing the agency up to speed,” Maryland Sen. Paul S. Sarbanes, the Senate Banking Committee’s ranking Democrat, said in a statement.

After accounting scandals at Enron Corp. and WorldCom Inc., Congress increased the SEC’s budget about 70% in fiscal year 2003 from fiscal 2002 so the agency could hire more accountants, examiners and other staff.

SEC officials said congressional delays in approving the fiscal 2003 budget and in waiving some hiring rules prevented the full staff expansion.

Because of the hiring delays, the SEC was unable to spend $120 million from its fiscal 2003 budget and that money was being returned to the Treasury.

The SEC still isn’t at planned staff levels, which is the reason for the reduction in this year’s budget proposal, said Melanie Alvord, Senate Appropriations Committee spokeswoman.

As of Monday, the SEC had hired 70% of the 850 people that it projected to hire last fiscal year, said Laura Cox, a spokeswoman for SEC Chairman William H. Donaldson.

The agency probably will complete the hiring in the next few months, Cox said.

In congressional hearings, senior lawmakers have assured the SEC that it would get the resources needed to handle its growing caseloads. Last month, Sen. Richard C. Shelby (R-Ala.), the Senate Banking Committee chairman, solicited Donaldson’s opinion about whether he had had adequate resources.

“Did you have the authority, and did you have the manpower -- did you have all the tools to do the job?” asked Shelby at a Nov. 18 hearing about mutual fund trading abuses.

Donaldson responded that the SEC had made “substantial progress in adding to our staff,” increasing the number of people overseeing mutual funds and investment advisors to 500 from 350.

“We’re in the process of really ramping up,” SEC Director of Enforcement Stephen Cutler told the House Financial Services Committee on Nov. 4. “We obviously couldn’t do that the day the money came in the door.”

Rep. Barney Frank of Massachusetts, the senior Democrat on the House Financial Services Committee, said at the Nov. 4 hearing that he hoped the SEC’s return of unspent money wouldn’t mean permanent cuts in its appropriations.

“I couldn’t agree with you more,” Cutler replied. “No one wanted the agency to spend the money in a way that was unwise. That doesn’t mean we didn’t want the money or need the money.”

Sarbanes, who co-sponsored last year’s Sarbanes-Oxley corporate-governance law after the Enron and WorldCom scandals eroded confidence in Wall Street, said Monday that he was “distressed at hearing of the proposed cutbacks in the SEC budget.”

Since the start of the fiscal year on Oct. 1, the SEC and other federal agencies have been operating under stopgap funding that is set to expire Jan. 31.