[Congressional Record Volume 148, Number 86 (Tuesday, June 25, 2002)]
[House]
[Pages H3905-H3909]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SECURITIES AND EXCHANGE COMMISSION AUTHORIZATION ACT OF 2002
Mr. OXLEY. Mr. Speaker, I move to suspend the rules and pass the bill
(H.R. 3764) to authorize appropriations for the Securities and Exchange
Commission, as amended.
The Clerk read as follows:
H.R. 3764
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Securities and Exchange
Commission Authorization Act of 2002''.
SEC. 2. AUTHORIZATION OF APPROPRIATIONS OF THE SECURITIES AND
EXCHANGE COMMISSION.
In addition to any other funds authorized to be
appropriated to the Securities and Exchange Commission, there
are authorized to be appropriated to carry out the functions,
powers, and duties of the Commission, $776,000,000 for fiscal
year 2003, of which--
(1) not less than $134,000,000 shall be available for the
Division of Corporate Finance and for the Office of Chief
Accountant;
(2) not less than $326,000,000 shall be available for the
Division of Enforcement; and
(3) not less than $76,000,000 shall be available to
implement section 8 of the Investor and Capital Markets Fee
Relief Act, relating to pay comparability.
SEC. 3. SENSE OF THE CONGRESS.
It is the sense of the Congress that the Securities and
Exchange Commission should conduct a thorough annual review
of the annual financial statements contained in the most
recent periodic disclosures filed with the Commission by the
largest 500 reporting issuers, as determined by market
capitalization and by other factors as the Commission shall
determine.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Ohio (Mr. Oxley) and the gentleman from New York (Mr. LaFalce) each
will control 20 minutes.
The Chair recognizes the gentleman from Ohio (Mr. Oxley).
General Leave
Mr. OXLEY. Mr. Speaker, I ask unanimous consent that all Members may
have 5 legislative days within which to revise and extend their remarks
on this legislation, and to include extraneous material on the bill.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Ohio?
There was no objection.
Mr. OXLEY. Mr. Speaker, I yield myself 5 minutes.
Mr. Speaker, the Securities and Exchange Commission Authorization Act
of 2002 authorizes important new resources for the Securities and
Exchange Commission for fiscal year 2003.
I would like to commend the ranking member of the Committee on
Financial Services, the gentleman from New York (Mr. LaFalce), and the
chairman of the Subcommittee on Capital Markets, Insurance, and
Government Sponsored Enterprises, the gentleman from Louisiana (Mr.
Baker), for their leadership on this very important and timely issue.
As we know, the SEC is statutorily charged with supervising the
Nation's securities markets. This legislation is necessary to
reauthorize the work of the SEC to enable it to continue its mission of
protecting investors and promoting efficiency, competition, and capital
formation.
For quite some time, the U.S. securities markets have been widely
regarded as the deepest, most liquid, and fairest markets in the world,
in large part due to the fine work of the SEC. Today, however, it is
abundantly clear that our markets are in need of reform. Too many
people have abused the public trust. In the wake of recent scandals,
many have noted a crisis of public confidence in the integrity of our
system.
That is why the Committee on Financial Services was first out of the
block in analyzing analysts, corporate reporting, and accountants.
The committee drafted comprehensive legislation that overwhelmingly
passed the House, and has directed the self-regulatory organizations to
promulgate new rules on analysts and corporate governance. Much has
been done, with still more to do, in order to ensure investors are
protected through full and timely disclosure of financial information.
The bill before us today authorizes the SEC at a level of $776
million for fiscal year 2003, with $134 billion earmarked for the
division of corporate finance and the office of the chief accountant,
and $326 million earmarked for the division of enforcement.
The bill identifies these particular divisions for increased funding
because it is vital that the commission have sufficient resources to
review public filings and bring enforcement cases against those who
violate the securities laws.
One of the primary findings of our hearings was the need for the
commission to pursue wrongdoers in real time. This bill provides the
commission with the resources it needs to do exactly that.
The bill also fully funds the pay parity provisions of the Investor
and Capital Markets Fee Relief Act enacted into law this past January.
This $76 million in funding would grant SEC employees pay parity with
the banking regulators and help the commission attract and retain the
first-rate attorneys, accountants, and economists needed to protect
investors.
With modest staff and limited resources, the SEC currently oversees
an estimated 8,000 brokerage firms employing nearly 700,000 brokers;
7,500 investment advisors with approximately $20 trillion in assets
under management; 34,000 investment company portfolios; and over 17,000
reporting companies.
The commission also has oversight responsibilities for nine
registered securities exchanges, the National Association of Securities
Dealers, the National Futures Association, 13 registered clearing
agencies, and the Municipal Securities Rulemaking Board.
The funding level authorized in this legislation is significantly
higher than the fiscal year 2002 level, but there is ample
justification. Much has changed since last year.
The commission needs funding for its e-government and information
technology initiatives, telecommunications systems, and security
enhancement. The commission has not received a staffing increase in the
last 2 years, despite the additional responsibilities put upon it by
the enactment of the Commodity Futures Modernization Act and the Gramm-
Leach-Bliley Financial Services Modernization Act.
{time} 1615
Now, with the tragic events of September 11 in which the SEC's
Northeast regional office was destroyed and the deep crisis in
confidence facing the markets, the challenges facing the SEC have never
been greater. For the U.S. markets to remain the envy of the world, it
is absolutely vital for the SEC to have the necessary resources to
protect investors and promote capital formation. I urge all of my
colleagues to support this important legislation.
Mr. Speaker, I reserve the balance of my time.
Mr. LaFALCE. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I rise in support of the adoption of the bill. Mr.
Speaker, I am pleased to join with the gentleman from Ohio (Mr. Oxley)
in strongly supporting this legislation. Authorizing the resources that
the SEC needs to provide meaningful market oversight is one of the most
important steps we can take to restore the integrity of our markets, to
restore confidence on the part of the public in the integrity of our
markets.
Unfortunately, as our securities markets and public companies have
skyrocketed in size and complexity, we
[[Page H3906]]
have done little to ensure that the SEC had the means to keep up. The
SEC has fought a losing battle to keep up with the immense growth of
corporate filings.
Transactional filings alone grew by almost 40 percent over the last
half of the 1990s, but the resources available for reviewing those
filings did not grow. Despite this increase in activity, staffing
levels at the SEC remained flat over the same period and, in fact,
declined during fiscal year 2002.
While the drop-off in IPOs last year enabled the SEC to review more
of the annual financial statements filed by public companies than it
had for many years, it was still able to review only 16 percent of
those statements. That is grossly inadequate.
We are clearly now reaping the results of this historic neglect, with
the number and size of restated financial reports due to financial
misstatements and fraudulent accounting practices growing each year.
The failure of Enron and the many issues for investors, employees,
accountants, auditors and analysts raised by that failure and numerous
other failures has further taxed the ability of the SEC to oversee the
markets.
If we are to restore the quality and integrity of our financial
reporting system, it is crucial that the SEC receive the funding
necessary to increase the staff available to perform its market
oversight functions, particularly regular reviews of corporate
financial statements. Moreover, the SEC must have the additional
enforcement staff necessary to bring enforcement actions swiftly when
companies misrepresented their financial condition in their financial
statements.
H.R. 3764 is a step to providing both authorizing funding for pay
parity and doubling the staff of the Division of Corporate Finance, the
Office of the Chief Accountant and the Division of Enforcement.
At a time when Americans have become more reliant on the performance
of their stock investments for their savings and retirement, we cannot
afford to allow the practices we have seen over the last few years
continue to taint our markets. I was very disappointed that in the wake
of the collapse of Enron and the successive waves of accounting
scandals the President did not include a substantial increase in
funding for the SEC in his budget request to Congress. The SEC plays a
crucial role in the sound functioning of our markets and our economy
and that crucial role cannot be ignored.
We in Congress must send a strong signal to the administration and to
the world of the importance of a strong and fully functional SEC to
restoring confidence in our markets. This bill is an important step
towards creating that strong legislative response that might restore
confidence in our financial reporting system and our securities
markets.
If our capital markets are to retain their position as the most
efficient and the most transparent in the world, it is critical that we
ensure that our markets are subject to the best possible oversight; and
only then will investors both at home and abroad regain their
confidence that our markets are indeed the best in the world. Mr.
Speaker, I urge the adoption of the bill.
Mr. Speaker, I reserve the balance of my time.
Mr. OXLEY. Mr. Speaker, I reserve the balance of my time.
Mr. LaFALCE. Mr. Speaker, how much time do I have remaining?
The SPEAKER pro tempore (Mr. Linder). The gentleman from New York
(Mr. LaFalce) has 15 minutes remaining.
Mr. LaFALCE. Mr. Speaker, I yield 3 minutes to the gentlewoman from
New York (Mrs. Maloney).
Mrs. MALONEY of New York. Mr. Speaker, I rise in support of H.R.
3764, the SEC Reauthorization Act. The past year will go down in
history as one of the most scandal ridden in the history of our
Nation's capital markets. Enron, Global Crossing, TYCO, and ImClone all
raise the clouds of insider corruption, massive financial restatements,
and outright fraud on investors.
This bill takes an important step in assigning these episodes to
history and ensuring that the SEC has the resources to prevent future
problems. This legislation commits significant new resources to the
SEC, which I can attest are truly needed based on what we have learned
from hearings in the Committee on Financial Services.
The bill authorizes $776 million for the SEC in fiscal year 2003,
$338 million more than the fiscal year appropriations 2002 level and
$233 million, 43 percent more than the administration requested. At
least $134 million will go to SEC's chief accountant and corporation
finance division, $326 million to the enforcement division, and $76
million to pay parity.
While these sums are significant and necessary, my colleagues are
well aware that the agency is funded through transaction fees and not
traditional tax revenue. This pay parity money is especially important
given the staff crisis the agency has experienced in recent years.
Having recently visited the SEC field office in the Woolworth
Building in lower Manhattan, a facility that was formerly located in
the World Trade Center complex, I can tell you that pay parity is
truly, truly needed. Pay parity will bring SEC employees up to the pay
levels of their colleagues at the Federal banking regulators. I believe
the securities regulators should not be treated as a second-class
citizen behind the bank regulators. It is bad for investors and
industry, and this is a truly worthy investment.
I have already sent a bipartisan letter along with 27 of my
colleagues on the Committee on Financial Services requesting funding
for pay parity; and I want to thank the ranking member, the gentleman
from New York (Mr. LaFalce), for pushing for this provision and the
gentleman from Ohio (Mr. Oxley) for holding to his commitment in last
year's fee reduction legislation to win pay parity.
Passage of this legislation today is yet another step on the road to
winning back public confidence in our financial markets and rebuilding
the trust of individual investors in financial reporting. It is my hope
we build on it by passing real reform of the accounting industry with
this Congress. To that end, I congratulate Senator Sarbanes for his
overwhelming bipartisan victory by a 17-4 vote for his accounting
legislation in the Senate Banking Committee. I look forward to working
on this legislation in the conference committee, and I urge passage of
this bill.
Mr. OXLEY. Mr. Speaker, I yield 5 minutes to the gentleman from
Virginia (Mr. Wolf).
Mr. LaFALCE. Mr. Speaker, I yield 1 minute to the gentleman from
Virginia (Mr. Wolf).
Mr. WOLF. Mr. Speaker, I rise in support of H.R. 3764 and strongly
support the additional funding for the Securities and Exchange
Commission. However, I would like to point out a concern I have with
some of the language in the bill.
This bill requires not less than $134 million for the Division of
Corporate Finance and the Office of Chief Accountant and not less than
$326 million for the Division of Enforcement. These amounts are double
the level of funding requested by the President for these activities in
fiscal year 2003. Enacting this legislation will require other programs
to be cut by $231 million.
Our allocation of this bill, which has the FBI, DEA, INS, State
Department, embassy security, the Karachi bombing last week and all of
these other programs, is now down $393 million below, our allocation
right now, $393 million below what the administration requested. So you
add $393 million and $231 million, and I think you get a disaster for
the Commerce Department, for the State Department, for the Justice
Department, for the FBI, for the DEA, for the Bureau of Prisons.
So the Subcommittee on Commerce, Justice, State and Judiciary of the
Committee on Appropriations, which has jurisdiction of the SEC, will
have to reduce the funding requested for other agencies funded by the
committee.
I hope, particularly in this war against terrorism, we really cannot
cut the FBI. If you have a loved one working at an embassy around the
world, we really cannot cut back embassy security. Anyone who thinks we
can cut INS really has not been following the paper.
I would hope we could work on revising this bill language before the
bill is conferenced with the Senate, or else I think we will have a
major substantive defeat for the war against terrorism.
[[Page H3907]]
The administration I think has to do more with regard to the SEC. Pay
parity is very important. But as you take these numbers with the
allocation we will have a disaster.
Mr. OXLEY. Mr. Speaker, will the gentleman yield?
Mr. WOLF. I yield to the gentleman from Ohio.
Mr. OXLEY. Mr. Speaker, I want to thank my friend from Virginia for
yielding.
I point out that since the mid-1990s, as the gentleman knows, the SEC
has been funded through section 31 fees and other fee operations.
During our debate on the legislation that reduced the fees, we came
to understand that, clearly, those fees in this case would cover the
operation of the SEC. As a matter of fact, history would suggest that
the fees generate six times currently what it takes to run the SEC.
Mr. WOLF. Reclaiming my time, I know he is a good fellow and a
classmate, that 54 group that came in 1980 changed America, but Customs
brings in much more money than it costs to run Customs. The INS brings
in much more money. I think this has always been a bookkeeping matter,
and it does come out of the allocation. If this were to hold true, in
addition to the allocation we would have to cut the FBI dramatically in
addition to INS and the others.
Mr. OXLEY. Mr. Speaker, will the gentleman yield?
Mr. WOLF. I yield to the gentleman from Ohio.
Mr. OXLEY. Mr. Speaker, I simply point out that I do not think at the
end of the day that this is going to be an appropriations issue. It
will be an issue that those fees will generate the amount of money
necessary to run the SEC. That is what the legislation that passed in
1996 says. I have no reason to think that that will be any different
and that the effect on the appropriations process will be minimal if
any.
Mr. LaFALCE. Mr. Speaker, will the gentleman yield?
Mr. WOLF. I yield to the gentleman from New York.
Mr. LaFALCE. Mr. Speaker, one of the difficulties I had with the
reduction of the securities fees bill were that people were just
interested in reducing the fees, whether it was section 31, section 6,
13, 14, et cetera. They were not interested in beefing up the
authorization of the SEC. They were not interested, unfortunately, in
the earnings manipulations that were taking place.
Most of these fees do go into general revenues, and, therefore, are
dependent on both authorization and appropriations; and the gentleman
from Virginia (Mr. Wolf) is correct in that respect.
Mr. WOLF. Reclaiming my time, I want to thank the gentleman for his
comments, too; and I want to thank both of the gentlemen for the pay
parity. I have written the administration, written Mitch Daniels and
asked him to send up a supplemental or something with regard to pay
parity.
Mr. LaFALCE. The position of the administration on this issue is
outrageous.
Mr. WOLF. Mr. Speaker, I agree.
Also, I will tell you, we are getting a little bit off the issue, but
what concerns me is this money will come out of the FBI. The FBI today
is underfunded.
{time} 1630
Mr. LaFALCE. Mr. Speaker, in Buffalo, New York, they have computers
that are worse than my laptop at home, and yet they are involved in
anti- and counterterrorism with absolutely outdated computers.
Mr. WOLF. The gentleman is exactly right. That is why I am committed
to bringing a bill and making sure that we give the FBI, and I know the
gentleman from Ohio was a former FBI agent, to give them the resources,
because quite frankly the gentleman from New York is right, outdated.
That is why I was so concerned that we are in essence taking this away
from the other categories in the bill which would be a defeat for the
war on terrorism. I know the gentleman from Ohio (Mr. Oxley) will work
this out.
Mr. OXLEY. Mr. Speaker, will the gentleman yield?
Mr. WOLF. I yield to the gentleman from Ohio.
Mr. OXLEY. Mr. Speaker, I would literally be the last person in this
Congress to cut FBI funding. In my estimation this does not do that.
Those fees, the cost to the SEC comes out of those fees; and I want to
make certain that that is the case.
Mr. WOLF. Mr. Speaker, I thank the gentleman for his response.
Mr. LaFALCE. Mr. Speaker, I yield 3 minutes to the distinguished
gentleman from Texas (Mr. Bentsen).
(Mr. BENTSEN asked and was given permission to revise and extend his
remarks.)
Mr. BENTSEN. Mr. Speaker, I thank the gentleman for yielding me the
time, and I rise in strong support of the bill. I had not intended to
talk about the budget aspects; but since our friend from Virginia
brought up the issue of the budget, one, I want to concur with the
comments of the chairman and the ranking member of the Committee on
Financial Services. And I might say to the gentleman from Virginia,
since the capital markets operate on confidence and the fact that there
is a malaise over the capital markets now and a great deal of lack of
confidence, were we not to provide the Securities and Exchange
Commission with the resources that they need to rebuild confidence in
the marketplace, I think the chairman of the Subcommittee on Commerce,
Justice, State and Judiciary's concern about 302(b) allocations would
be far greater in the future because he is going to see a continued
deterioration of the general economy, a continued degeneration of our
general revenues, and he is going to have a lot bigger problems to deal
with than trying to fund the FBI and fund other agencies than worrying
about whether or not we are going to provide the SEC with the resources
that it needs.
Furthermore, as the gentleman from New York raised and our chairman
from Ohio raised, the fact is that for too long the SEC fees have been
a way to fund other portions of the government; and at a time when we
need to put more resources, particularly in the accounting division,
the corporate finance division, the enforcement division of the
Securities and Exchange Commission, this is when we need those fees
back, and that is what this bill is doing, in addition to the parity
issue, in authorizing the funding for it.
So while we can feel the pain of the chairman of the Subcommittee on
Commerce, Justice, State and Judiciary's allocation problem, that has
nothing to do with the origin of this bill. It has nothing to do with
the needs of the Securities and Exchange Commission because they have
raised the funds from the investors and the participants in the
marketplace. That marketplace is under a cloud right now. Were we not
to provide those resources to ensure that there is efficient,
sufficient enforcement of the rules of the marketplace, or the rules of
the field, then we would suffer across our entire budget; but more
importantly, we would be suffering across our general economy. And not
a day goes by that there is not another story in the financial press
about another earnings restatement, about new indictments of
individuals who have been cooking the books of public companies; and
now in this last week we have seen the markets go down because foreign
investors who heretofore had seen value in investing in U.S. markets
had decided that that value may no longer exist and so they are pulling
their money out and putting it back in Europe and Asia, exacerbating
our current account balance, which again could have profound
macroeconomic effects on our general economies.
So I commend the chairman and the ranking member for bringing this
bill up. I hope the House will pass it and let us not worry about the
budget debates when concerned with this bill.
Mr. OXLEY. Madam Speaker, I am pleased to yield 3 minutes to the
gentleman from Louisiana (Mr. Baker), the chairman of the Subcommittee
on Capital Markets, Insurance and Government Sponsored Enterprises.
Mr. BAKER. Madam Speaker, I thank the chairman for yielding me this
time, and I rise to support the adoption of the resolution which he has
brought to the House this afternoon and wish to speak to the issues
raised by the gentleman from Virginia earlier in the afternoon.
The House did act last year to reduce the fees on transactions
relating to stock transfers, and secondly, in the content of this
resolution, does make provision for pay parity, both of which do bring
about expenditure of Federal
[[Page H3908]]
resources. Even after the consideration of both those effects, the
adoption of pay parity and the reduction in the fees collected for SEC
transactions, the projected budget receipts next year for the SEC from
all fees will exceed $1.5 billion. Even with the pay parity provisions
contained in this resolution, the expenditures for the agency, once
enhanced at this new operational level, will only equal $776 million.
The difference is still an $800 million surplus in fees received versus
expenditures made.
Obviously, it is the 302(b) allocations which are causing the
difficulty for the Subcommittee on Commerce, Justice, State and
Judiciary's Chair; but it has nothing to do with there being a lack of
revenue coming from SEC activities. I think it was perfectly
appropriate through the Congress to reduce fees and certainly essential
that we adopt the pay parity provisions which will enable the SEC to
keep qualified, professional regulators on the level of compensation of
all other financial regulators.
So to that end, I think it is extremely important for the House to
act to adopt this resolution and provide the SEC with the important
needed resources; and we will address those appropriations concerns as
we move into the fall, and hopefully our chairman will be able to
reconcile these differences with the Committee on Appropriations
members so that the provisions made available to the SEC today will
enable them to act appropriately on any and all complaints.
If there is anything significant and important this Congress can do
with regard to the current market instability, it is to provide closure
with regard to the investigatory capability to get to the bottom of
wrongdoing, to hold those accountable responsible; and I think this
action today, enabling the SEC to have all the adequate supervisory
staff they need, is an essential step in helping bring back confidence
and customer confidence in making investments in our capital markets,
which are the strongest, deepest, broadest of any in the world; and I
think this action is extraordinarily important to bring about that
resolution.
I thank the Chair for yielding me the time.
Mr. LaFALCE. Madam Speaker, I yield 4 minutes to the distinguished
gentleman from California.
(Mr. SHERMAN asked and was given permission to revise and extend his
remarks, and include extraneous material.)
Mr. SHERMAN. Madam Speaker, I want to join the last speaker in his
analysis, showing that the fees paid by individual investors is more
than enough to provide for beefed-up SEC enforcement. But what the
other party does is they use those fees collected from individual
investors as a profit center to then fund tax cuts for the wealthiest 1
percent of Americans, and when we suggest that the fees paid by
individual investors should be used to protect those investors, we are
told that takes money away from the war against terrorism. Shame. We
ought to be collecting adequate revenues to keep our country safe from
terrorism, and the fees paid by individual investors are more than
enough to provide every penny this bill authorizes and, frankly, more.
I come to the floor to bring to the Congress' attention one section
of this bill, section 3, that says it is the sense of Congress that the
SEC should conduct an annual review of the annual financial statements
of the 500 largest issuers. Why is this provision necessary? The SEC
has two approaches to reviewing financial statements.
If one is a small company trying for the first time to raise 10 or
$20 million, then they file their red herring, their first draft. The
SEC reviews it carefully; they issue a comment letter. If there is
anything confusing, misleading or incomplete, they have to bring their
filing up to specifications and only then do they go to the public; but
if they are one of the biggest and richest companies in America, if
they are already a publicly traded corporation, if they are raising or
responsible on the market for 60 or 80 or $100 billion in
capitalization, if they are Enron, then the SEC just does not read what
they file, as they did not read Enron's financial statements for 1997,
1998, 1999. They did not read those statements until the collapse.
What would have happened if they read those statements? They would
have seen a number of footnotes in the financial statements that are
utter gobbledy gook. I know to the average layperson all of the
footnotes are gobbledy gook, but these were incomprehensible to an
analyst, the CPAs. If the SEC had bothered to read these footnotes,
they would have demanded clarification. Instead, they did not read them
at all.
The SEC, however, at least its chairman, is hostile, believe it or
not, to the idea of reading the financial statements of the 500 largest
companies. That is because there is an element at the SEC that believes
that investors need to be protected from Joe Inventor who is trying to
raise 5 or $10 million, but that we do not need any protection from
Kenneth Lay because, after all, those in the tallest buildings of the
biggest companies are inherently so honest that the SEC does not need
to review what they file.
This approach to the SEC's work is wrong, and that is why I am glad
that this section is in the bill; but when I asked the SEC to tell us
what it would cost so that the appropriators could provide the
resources, the response of Chairman Pitt was to say that he was going
to refuse to provide that information because he disagreed with the
proposal. Now the proposal will be included in legislation passed by
the House. The Congress will adopt language saying that it is our sense
that the SEC do this work.
The SEC will then probably continue to refuse to tell Congress what
it would cost to actually read the most important documents filed with
the SEC, to comment on them and to demand clarification.
I would like to enter into the Record the letter sent to me on May 21
by Chairman Pitt, in which he refuses to provide information as to what
it would cost to read the financial statements of the 500 or 1,000
largest companies, and I would hope that this provision will remain in
the bill in conference and that Congress will not allow an SEC chairman
to refuse to provide us with even an estimate of what it would cost to
do something that we in the House are about to declare ought to be
done, but that instead we have an SEC that takes its responsibility to
protect those who invest in the biggest companies, takes that
responsibility as seriously as they do their responsibility to protect
those who invest in the smallest.
The letter referred to follows:
U.S. Securities and Exchange
Commission,
Washington, DC, May 21, 2002.
Hon. Brad Sherman,
Committee on Financial Services, House of Representatives,
Longworth House Office Building, Washington, DC.
Dear Congressman Sherman: During my testimony before the
House Financial Services Committee on March 20, 2002, you
requested that I submit for the record an estimate of the
increase in reviews. You asked that a cost estimate be
provided for annual reviews at three levels of effort
covering the top 500, 1000 and 2000 firms. As I noted during
the hearings, it is impractical for Congress to attempt to
provide the Commission with sufficient resources to do a
comprehensive review of the top 500, 1000 or 2000 companies.
Apart from the enormous cost of such a process, there is
ultimately no assurance that the additional expenditures
would ensure the quality of audits or financial reporting.
As I noted in my testimony, the Administration's request
for fiscal year 2002 supplemental funding includes $20
million to finance 100 new positions for the Commission. Our
plan would be to allocate 30 positions to the Division of
Corporation Finance to expand, improve and expedite our
review of periodic filings. Our Division of Corporation
Finance has undertaken to monitor the annual reports
submitted by all Fortune 500 companies that file periodic
reports with the Commission in 2002. This new initiative,
which we announced in December, significantly expands the
Division's review of financial and non-financial disclosures
made by public companies. The additional funds would allow
the Division to perform full reviews of more public
companies' annual filings.
Thank you for your support of the Commission's programs.
Should you have additional questions, I would be pleased to
be of assistance.
Your truly,
Harvey L. Pitt.
Mr. LaFALCE. Madam Speaker, I yield myself such time as I may
consume.
Let me simply make a few comments. I think that we should have been
much more aware of the problems in our financial markets before the
revelation of Enron. There had been
[[Page H3909]]
countless earnings restatements that were mandated by the SEC, and this
was just on the few cases they were able to review. We should have been
clamoring for an increase in the budget of the SEC long before now.
At the very beginning of 2001, when our committee obtained
jurisdiction for the first time over securities, I began calling not
for a 2 or a 3 or a 4 percent increase in the budget but for a 200, a
300, a 400 percent increase in the budget. I did this in our committee.
I did this before the Committee on Rules. I did it on the floor of the
House.
After Enron, I was at least hopeful that the President of the United
States in his State of the Union address would recognize the gravity of
the problem, and he barely mentioned Enron, not by name, but he barely
mentioned the nature of the problem. I was then hopeful that in his
budget submission to the Congress he would call for a huge significant
increase in the resources. He did not. He called for but a 6 percent
increase in the resources of the SEC.
That is woefully inadequate, as virtually everyone has come to
realize. Certainly the gentleman from Ohio (Mr. Oxley), the chairman of
the Committee on Financial Services, realizes that is woefully
inadequate; and that is why he has been promoting this bill.
A few weeks or so ago, I had the pleasure of having dinner with the
chief economic adviser to the President of the United States, Mr.
Lindsay, and the gentleman from Ohio (Mr. Oxley), the chairman of the
Committee on Financial Services, was present; and I questioned him
about the adequacy of that 6 percent increase that the President had
called for and he defended it. He defended it.
The position of the administration is absolutely outrageous. They
still have their heads in the sand on this issue.
{time} 1645
It is time for them to get their head out of the sand, and maybe
unanimous passage of this bipartisan bill will help do that. I urge
everyone to support it.
Madam Speaker, I yield back the balance of my time.
Mr. OXLEY. Madam Speaker, I yield myself such time as I may consume;
and, in conclusion, let me just point out something to the gentleman
from California.
The 16 percent figure of review of the top 500 companies is nothing
new. I cannot remember ever, in the history of this country, any SEC
ever viewing all 500 companies; and I think it is important to point
that out for the record. It was not this particular SEC but many
previous SECs that were in that same category.
Mr. GILMAN. Madam Speaker, I rise today in support of H.R. 3764 and
would like to thank the gentleman from Ohio, my friend and colleague
Congressman Oxley, for introducing this initiative. I urge my
colleagues to support this worthy legislation.
This act will appropriate the necessary funds to the Securities and
Exchange Commissions, in both its Division of Corporate Finance and
Division of Enforcement. Moreover, it will allocate the necessary funds
to implement sections of past legislation. It will also work to
establish an annual review of the annual financial statements filed
with the Commission by the largest 500 reporting issuers. This
legislation will no doubt work toward increasing the transparency in
the business practices of our nation's largest companies.
It is obvious that today our nation's financial regulators must be
given the appropriate resources to properly monitor our nation's
corporate sector. The Enron saga and more recently the Imclone fiasco
have demonstrated the grave situation existing within our financial
world. This act is undoubtedly a step in the right direction in our
battle against unethical business practices driven by the vices of
greed and dishonesty.
It is imperative that we take these steps to further fund the
Securities and Exchange Commission. It is clear that these provisions
are essential given the recent developments regarding several large
American companies and the unethical business practices which have
taken place. Accordingly, I urge my colleagues to support these
measures.
Mr. OXLEY. Madam Speaker, I yield back the balance of my time.
The SPEAKER pro tempore (Mrs. Biggert). The question is on the motion
offered by the gentleman from Ohio (Mr. Oxley) that the House suspend
the rules and pass the bill, H.R. 3764, as amended.
The question was taken.
The SPEAKER pro tempore. In the opinion of the Chair, two-thirds of
those present have voted in the affirmative.
Mr. LaFALCE. Madam Speaker, on that, I demand the yeas and nays.
The yeas and nays were ordered.
The SPEAKER pro tempore. Pursuant to clause 8 of rule XX and the
Chair's prior announcement, further proceedings on this motion will be
postponed.
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