3/18/11: As a key House subcommittee begins its examination of the proposed fiscal 2012 budget for the Securities and Exchange Commission (SEC), the leader of the union representing the SEC workforce this week emphasized the critical importance to the nation’s economic health of adequate funding for this vital agency.

“The SEC currently oversees more than 10,000 public companies and thousands of other entities, and now has important new responsibilities flowing from much-needed financial regulatory reform,” said NTEU National President Colleen Kelley.

She made these comments as the House Appropriations Subcommittee on Financial Services and General Government held a hearing on the SEC’s proposed fiscal 2012 budget.

“Underfunding and understaffing the SEC was, in part, responsible for the problems we have seen where consumers lost millions through fraud and wrongdoing,” Kelley said. “To shortchange the SEC would be misguided in the extreme.”

The White House’s proposal for SEC funding for fiscal 2012, which begins on Oct. 1, is $1.4 billion, an increase of $300 million over the amount enacted in fiscal 2010. Meanwhile, congressional Republicans have proposed to reduce SEC funding by $188 million through the remaining months of the current fiscal year.

President Kelley has been sharply critical of the idea of cutting SEC funding over the rest of fiscal 2011. “After experiencing one of the most severe financial crises in our nation’s history just two years ago,” she said, “SEC staffing levels are only this year returning to the level of 2005. And now the agency is facing renewed cuts.”

Those cuts—as well as a failure to provide sufficient funding moving ahead—are not an abstraction, Kelley said. Among the real-world consequences impacting investors, and the public overall, are these: an inability by the SEC to pursue all quality tips and investigations of potential misconduct; a delay in ongoing fraud investigations; a reduced ability to hire expert witnesses for trial; a serious decline in its ability to conduct examinations of high-risk entities, thus increasing the chances of undetected fraud; an inability to hire sufficient staff with specialized knowledge in such esoteric subjects as hedge funds, financial derivatives, high-frequency trading strategies, economic analysis, algorithmic trading; credit rating agencies; and an inability to improve technology and data management, as well as other problems.

Kelley said a study for Congress by an independent consulting firm supports the need for additional SEC staffing. The study calls for between 375 and 425 additional employees, and said that if the economy continues to grow—and with it, the number of firms the SEC would have to oversee, as expected—then even more employees would be needed.