Obama Budget Would Beef Up Ineffective SEC

Econintersect:  The 2013 proposed budget from the Obama administration calls for an increase in the appropriation for the SEC (Securities and Exchange Commission) of 18.55% to $1.566 billion.  One significant area of activity would increase the number of examiners who inspect investment advisors, private-equity and hedge funds.  Another area of increased emphasis would involve the activities of ETFs (exchange trade funds) and of money market funds.  The increase in funding is required to carry out the implementation of activities mandated under the Dodd-Frank act, according to the White House.  Any increase in funding for the SEC is expected to face strong opposition from Republicans in Congress who have been critical of the lack of effectiveness of the agency.From Investment News:

While Democrats are generally sympathetic toward the SEC and its greatly expanded workload in the wake of Dodd-Frank, Republicans are skeptical about the agency’s performance. They routinely criticize it, for instance, for failing to stop Bernie Madoff’s Ponzi scheme before he bilked investors of some $50 billion.

Even though there are partisan differences over the SEC, the agency achieved a $136 million funding increase in its fiscal 2012 budget. That was $86 million short of the Obama administration’s request — but more than many observers were expecting.

Data for the enforcement actions initiated in and the appropriations for the SEC have been tabulated by Econintersect where available and have been used to create the following two graphics:

The funding has risen much faster than the number of first enforcement actions.  The funding doubled between 2000 and 2004 and tripled from 2000 to 2010.  During the first four year interval when the appropriation was increasing by 100% the CPI was increasing by 10%.  For the ten year interval where the appropriation increased by 200% the CPI increased by 26%.  Inflation clearly had little to do with the disproportionate increase in appropriations compared to SEC activity.

There was a tendency for the number of first enforcement action filings to increase with increasing appropriations but the correlation is very poor.

It remains to be seen if the increases in appropriations for 2012 (fiscal year ends 31 March 2012) and 2013 (proposed) see a more proportionate increase in new enforcement actions by the SEC.

Sources and References:

• White House wants closer scrutiny of investment advisors (Mark Schoeff Jr., Investment News, 13 February 2012)

• Debt, Taxes and Politics:  The President’s Budget for 2013 (Doug Short, GEI Analysis, 14 February 2012)

• As a Watchdog Starves, Wall Street is Tossed a Bone (James B. Stewart, New York Times, 15 July 2011)

• The SEC Makes Wall Street More Fraudulent (Robert P. Murphy, Ludwig von Mises Institute, 05 January 2009)

• Budget History – BA vs. Actual Obligations (SEC Website, 06 June 2009)

• SEC Enforcement Division has most productive year in its history (Paul Hastings, Los Angeles Daily Journal, 19 December 2011)

• SEC 2009 Annual Report (SEC Website)

• SEC 2004 Annual Report (SEC Website)

• SEC 2003 Annual Report (SEC Website)

• SEC 2001 Annual Report (SEC Website)

• Consumer Price Index for All Urban Consumers:  All Items (St. Louis Fed Fred Data Base)