The Securities and Exchange Commission — which, among other things, is tasked with policing the country’s financial markets — has been forced to cut back on some of its enforcement activities due to a budget impasse in Congress. The continuing resolution passed in March did not include new funding for the SEC to implement the Dodd-Frank financial reform law or to ramp up enforcement activities of money managers partially designed as a response to the Bernie Madoff ponzi scheme scandal.
The SEC has already curtailed investigations, allowed complaints from investors to go unaddressed, and even left important positions unfilled. As the Financial Times reported, “The [SEC’s] New York office, a hub with oversight of hedge fund managers and Wall Street firms, has been operating without a head of information technology.” And it looks like the Republican majority in the House is disinclined to rectify the SEC’s funding situation any time soon:
Scott Garrett, a Republican from New Jersey who chairs the subcommittee overseeing the SEC and also sits on the budget committee, said that he was not in favour of granting the regulator the big budget increase that it — and leading Democrats — say is necessary to fulfil its expanded duties and to invest in extra staff and on new technology. “We’re going to say the federal budget is under a time of constraint … so everybody is being asked to cut back,” he told the Financial Times. “The whole House has been asked to cut back by 5 per cent.”
This is the sort of budget prioritizing that fits nicely with conservative ideology, but doesn’t work in practice if that budget cut Garret envisions results in the next big financial scam being missed by regulators. And the GOP, by preventing the SEC from expanding its enforcement division, is simply doing the bidding of some of its biggest patrons. As the Center for Public Integrity and NBC jointly found, “a small network of hedge fund executives pumped at least $10 million into Republican campaign committees and allied groups before November’s elections.” And look who’s leading the pack:
As it became increasingly clear late last summer that Republicans were likely to capture the House, the partners at Elliott Management Corp., a $17 billion Wall Street hedge fund that specializes in distressed foreign debt, mobilized to boost Garrett’s political fortunes…Elliott executives — one of whom wrote a check for $35,000 — ended up providing about 96 percent of all the funds raised by the Garrett committee, according to the review of campaign records by CPI and NBC.
Garrett and his fellow Republicans on the House Financial Services Committee were already inclined toward carrying Wall Street’s water and throwing sticks into the SEC’s spokes, but these last-minute checks from some of the Street’s big players likely added to that resolve.