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SEC Funding Flap and Whistleblowers

It may seem strange in an era of cutting budgets to be advocating for more money for government regulators.  Indeed, according to reports both the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodities Future Trading Commission (CFTC) have actually obtained increases in their budgets in the latest budget passed by the Senate.  It is not as much as the Obama Administration or these agencies asked for, but it is an increase.  The LA Times reports it this way:

“The Securities and Exchange Commission would get $1.35 billion for the rest of the fiscal year, a $29-million increase from 2013 but $324 million less than President Obama proposed in his budget.

“The Commodity Futures Trading Commission would get $215 million in funding for 2014, about a $9-million increase from 2013 but $100 million less than Obama requested.”

We ask these agencies to regulate huge and ever expanding financial markets. The only thing anybody knows for sure about these markets is that they have grown in size and the trading now occurs so much faster and has become so much more complicated in the last five years that the early 2000’s may as well be the telegraph ticker age of Wall Street.  Yes, a billion is still a billion. However, regulating Wall Street — where a billion is traded faster than the eye can blink — can take a lot of money and the need for upgrades in technology seems obviously necessary.

As the L.A. Times reports: “Both agencies have complained in recent years of not having enough money to do their jobs properly in the face of technological changes, such as high-speed trading, that have reshaped financial markets.”

Spending more money on the SEC and the CFTC may in fact be cost-effective. If these agencies have the person power and the resources to investigate the thousands of whistleblower tips now pouring in through their websites, we are likely to get that money back and even more from increased prosecution of people who would take advantage of high speed trading to commit fraud in the financial market place.

While the budget does increase total funding one provision seems silly. It requires the SEC to return $25 million:

“The SEC typically collects more in fees from companies than it spends each year. The Dodd-Frank law requires the SEC to put up to $50 million a year in fees into a reserve fund that can grow to $100 million.

“The SEC can tap the fund without congressional approval but must tell lawmakers what it is spending the money on. In 2014, the SEC planned to spend $50 million to update agency information technology, including the SEC website and the EDGAR electronic filing system.

“The budget deal would remove $25 million from the fund, which House Republicans have called a ‘slush fund.’”

Seriously? A slush fund? The SEC wants to use money to regulate a hugely expanding market and ensure trading is on the level and people want to call that a slush fund? Technology has improved so quickly that most people can now handle major financial transactions on smart phones–devices which did not exist ten years ago — but the SEC using this fund to update its technology is a slush fund?

I’d be happy with increased whistleblower prosecutions, but of course if the SEC and CFTC could also avert a major securities fraud — or stop the next speculative bubble and thereby protect the pensions, savings, and investments of millions of Americans — maybe a few million extra to upgrade the computers would be a bargain.

In theory, nobody likes regulators and everybody wants an unfettered financial market. The financial markets, however, have proven that they cannot completely police themselves. To be sure there is confidence in the financial markets and to be sure investors are still willing to risk their money in U.S. capital systems we need strong agencies that we can trust are on the level.

While there may be an argument about the appropriate level of funding for such agencies, calling money designated to upgrade the technology at these agencies a “slush fund” is a ridiculous attempt to prevent them from doing their job. One can only hope that the congressional members saying such things have their own money in the market and have to worry about it like everybody else.