Starving the SEC

Bush is suddenly calling for a stronger SEC -- but his previous actions make a mockery of his words.

By Eric Boehlert

Jul 10, 2002 | Fielding questions at his Monday press conference about the growing epidemic of Wall Street fraud, President George W. Bush several times pointed to the crucial role played by the U.S. Securities and Exchange Commission in rooting out corporate corruption. Touting the agency's watchdog and investigative capabilities, Bush insisted that to uncover fraud, "we need a strong, vibrant SEC."

But even earlier this year, Bush was pursuing a markedly different strategy, catering to a pro-business lobby and rejecting pleas from within the SEC to strengthen the commission.

In the first two budgets his administration submitted to Congress, funding for the SEC was essentially frozen at a time when the commission was reeling from an exodus of employees.

Salaries for SEC employees are notoriously low, even by government standards. On average, commission lawyers and accountants earn 30 percent less than examiners at other federal financial regulatory agencies. Not surprisingly, turnover among SEC professionals is more than twice the rate for comparable positions elsewhere in the government, according to a recent report by the U.S. General Accounting Office. In the last three years, the SEC has lost 30 percent of its employees to the private sector, half of them lawyers. And nearly 300 positions -- roughly 10 percent of the commission's workforce -- went unfilled last year.

In Bush's first budget, for fiscal year 2002, the SEC's budget was increased a meager 3.5 percent, to $437 million, barely more than the rate of inflation. In fact, the Bush budget forced the commission to eliminate 57 staff jobs, 13 of which were related to preventing fraud.

Even after the Enron scandal had broken, and at a time when Bush's own SEC chairman, Harvey Pitt, was beseeching White House budget director Mitch Daniels for more money to pay for fraud investigations, the White House unveiled its $2.1 trillion 2003 budget and stiffed the SEC with just a 6.6 percent increase in funding, to $467 million. Since most of that new money is targeted for computer improvement and security, and to offset inflation, keeping up with inflation, the commission's budget would remain effectively frozen for the second straight year with no additional funds to hire more employees. If approved by Congress, the budget goes into effect Oct. 1.

By comparison, as part of President Clinton's final budget for the 2001 fiscal year, the SEC's budget was increased 12 percent, from $377 million to $428 million. (Over the course of the 1990s the commission's budget increased 73 percent; the number of initial public offerings, which the SEC reviews, grew by 242 percent.) And that was before the high-profile accounting scandals of Enron, WorldCom and others burst onto the front page and stretched the SEC to its breaking point.

For instance, in the first eight weeks of 2002, the SEC's Enforcement Division launched inquiries into 45 companies for questionable accounting practices, a 165 percent jump over the previous year. Between 1998 and 2001, total SEC enforcement cases were up 42 percent.

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