Pathetic but eye opening:
Opinion: The SEC never reads 74% of filings, putting investors at risk
Published: Oct 28, 2015 9:59 a.m. ET
http://www.marketwatch.com/story/the-sec-neve...-28?page=2
Congressional negotiators are completing secretive work on a budget compromise. That means the Securities and Exchange Commission along with other federal agencies will soon begin receiving clearer signals about what resources they can count on. Even a best-case scenario doesn’t amount to much. But I’ll make an argument on behalf of the SEC, a government office everybody likes to kick around.
First, a reality check. Even if the SEC receives all of the $1.7 billion President Barack Obama requested, it will be only once in seven years that the agency gets around to examining every investment adviser it regulates. That’s as compared with once a decade now. Forty percent of the registered investment advisers have never been examined at all. And of 49,000 investment company filings a year, just 26% of them get read by regulators, according to the agency’s fiscal 2016 budget request.
So much for meaningful disclosure. So much for meaningful oversight.
Earlier this year, the International Monetary Fund issued the withering assessment that “the number of expert staff” at the SEC (and at the much-smaller Commodity Futures Trading Commission) “does not appear to be sufficient to ensure a robust level of hands-on supervision.” One look at the CFTC’s $322 million budget request makes that clear. “Historic underfunding of the surveillance function has dramatically and adversely impacted or compromised the commission’s ability to protect market integrity and to detect and deter manipulation,” it warns.
About 14.5% of U.S. publicly traded companies engage in fraud in any given year, with the incidence of undetected cheating about three times greater than what comes to light, according to research by finance professors Alexander Dyck, Adair Morse and Luigi Zingales. So it’s not difficult to lose heart at the idea of investor protections. Alternatively, there is much to be said for the IMF’s recommendation that the SEC and CFTC become self-funded, and subject to multi-year budgeting.
The U.S. Government Accountability Office itself says well-designed user fees—like charging for government examinations—“can reduce the burden on taxpayers.” The U.S. Mint, U.S. Patent and Trademark Office, and the Federal Communications Commission are each “fully fee-funded agencies,” according to the GAO. And the Federal Reserve System pays for its own operation, largely through income on its government securities portfolio.
Last week, the SEC reported that it had won $4.2 billion in financial disgorgements and penalties in the fiscal year ended in September, producing a nearly 3-to-1 return on the agency’s budgeted $1.5 billion. (It also collects transaction fees from the self-regulatory organizations it oversees.)
In other words, the SEC could be self-supporting, if it weren’t already turning back most of what it collects to the U.S. Treasury general fund.
The chronic underfunding of the government’s front-line securities regulators is a policy decision, rather than a fiscal one, reflecting suspicions of how much harm heavy-handed inspections, regulations and enforcement can cause to free markets. It’s another reminder that the investor is best served by being his or her own regulator, making careful, informed, self-protecting investment decisions.
Even so, a case can be made for the utility of the financial regulators.
Terrence Blackburne, a former program examiner at the White House Office of Management and Budget, obtained staffing data from the SEC’s Division of Corporation Finance, showing that when examination intensity increased in the agency’s disclosure-review office, publicly traded companies were less likely to engage in earnings management, and issued fewer financial restatements.
The calculations are complicated, and I’ll spare you the details. But Blackburne finds evidence of a “statistically significant and economically meaningful relation between SEC oversight” and the quality of corporate financial reporting.
An intriguing issue raised by Blackburne’s research—particularly in light of the inspection and examination gaps apparent in SEC oversight—is how the workload of the three-dozen disclosure specialists who oversee banks and other financial services firms is so much greater than for the other offices. (It is nearly double that of disclosure specialists devoted to natural resources, for example.)
[...]
more
http://www.marketwatch.com/story/the-sec-neve...-28?page=2
Opinion: The SEC never reads 74% of filings, putting investors at risk
Published: Oct 28, 2015 9:59 a.m. ET
http://www.marketwatch.com/story/the-sec-neve...-28?page=2
Congressional negotiators are completing secretive work on a budget compromise. That means the Securities and Exchange Commission along with other federal agencies will soon begin receiving clearer signals about what resources they can count on. Even a best-case scenario doesn’t amount to much. But I’ll make an argument on behalf of the SEC, a government office everybody likes to kick around.
First, a reality check. Even if the SEC receives all of the $1.7 billion President Barack Obama requested, it will be only once in seven years that the agency gets around to examining every investment adviser it regulates. That’s as compared with once a decade now. Forty percent of the registered investment advisers have never been examined at all. And of 49,000 investment company filings a year, just 26% of them get read by regulators, according to the agency’s fiscal 2016 budget request.
So much for meaningful disclosure. So much for meaningful oversight.
Earlier this year, the International Monetary Fund issued the withering assessment that “the number of expert staff” at the SEC (and at the much-smaller Commodity Futures Trading Commission) “does not appear to be sufficient to ensure a robust level of hands-on supervision.” One look at the CFTC’s $322 million budget request makes that clear. “Historic underfunding of the surveillance function has dramatically and adversely impacted or compromised the commission’s ability to protect market integrity and to detect and deter manipulation,” it warns.
About 14.5% of U.S. publicly traded companies engage in fraud in any given year, with the incidence of undetected cheating about three times greater than what comes to light, according to research by finance professors Alexander Dyck, Adair Morse and Luigi Zingales. So it’s not difficult to lose heart at the idea of investor protections. Alternatively, there is much to be said for the IMF’s recommendation that the SEC and CFTC become self-funded, and subject to multi-year budgeting.
The U.S. Government Accountability Office itself says well-designed user fees—like charging for government examinations—“can reduce the burden on taxpayers.” The U.S. Mint, U.S. Patent and Trademark Office, and the Federal Communications Commission are each “fully fee-funded agencies,” according to the GAO. And the Federal Reserve System pays for its own operation, largely through income on its government securities portfolio.
Last week, the SEC reported that it had won $4.2 billion in financial disgorgements and penalties in the fiscal year ended in September, producing a nearly 3-to-1 return on the agency’s budgeted $1.5 billion. (It also collects transaction fees from the self-regulatory organizations it oversees.)
In other words, the SEC could be self-supporting, if it weren’t already turning back most of what it collects to the U.S. Treasury general fund.
The chronic underfunding of the government’s front-line securities regulators is a policy decision, rather than a fiscal one, reflecting suspicions of how much harm heavy-handed inspections, regulations and enforcement can cause to free markets. It’s another reminder that the investor is best served by being his or her own regulator, making careful, informed, self-protecting investment decisions.
Even so, a case can be made for the utility of the financial regulators.
Terrence Blackburne, a former program examiner at the White House Office of Management and Budget, obtained staffing data from the SEC’s Division of Corporation Finance, showing that when examination intensity increased in the agency’s disclosure-review office, publicly traded companies were less likely to engage in earnings management, and issued fewer financial restatements.
The calculations are complicated, and I’ll spare you the details. But Blackburne finds evidence of a “statistically significant and economically meaningful relation between SEC oversight” and the quality of corporate financial reporting.
An intriguing issue raised by Blackburne’s research—particularly in light of the inspection and examination gaps apparent in SEC oversight—is how the workload of the three-dozen disclosure specialists who oversee banks and other financial services firms is so much greater than for the other offices. (It is nearly double that of disclosure specialists devoted to natural resources, for example.)
[...]
more
http://www.marketwatch.com/story/the-sec-neve...-28?page=2
