Pamela A. MacLean
RedwoodAge.com

Senators from both political parties used a budget hearing to back tougher regulation of exotic financial products like those that shattered the retirement nest eggs of millions of Americans.

A stinging series of market frauds coupled with a financial market meltdown and loss of several investment banks left little room for disagreement between Democrats and Republicans over increasing funding for tougher enforcement during an appropriations subcommittee hearing with Securities and Exchange Commission Chairwoman Mary Shapiro.

"The SEC has been woefully underfunded the last four years," said  Sen. Susan Collins, R-Maine.  Collins noted that although the $1 billion funding request is up 9 percent over fiscal year 2007, it remains below the peak levels in 2005, just as former Chairman Christopher Cox took over.

The SEC has a staff of 3,700 to oversee 35,000 regulated entities.  Shapiro told the senators that since January the SEC has issued three times as many temporary restraining orders against improper conduct as a year earlier. It opened 358 investigations in that time, up over the 292 from the same period last year.

But it was the attention on the losses by small investors and the protection of retirees investments against fraud that brought much of the attention from the Senators.

Collins called on Shapiro to "reach out" to investors, seniors and retirees by reviving educational programs and investor forums it has held in the past "as a means of increasing confidence."

"I am passionate about the investor forums," Shapiro said. She promised to increase use of the forums.  "I am concerned that investors will be trying to make back market losses using riskier investments and being drawn into scams," she said. 

The Committee's chairman, Sen. Dick Durbin, D-Illinois, focused on executive compensation reforms and the drop in the number of SEC lawyers focused on enforcement in recent years.

"The number of attorneys has dropped 11 percent.  Does that undermine the quality of resources available for enforcement?," he asked.

Shapiro responded that she has rolled back procedures during the Cox tenure that blocked the discretion of staff to seek penalties for corporate wrongdoing and has allowed for faster approval of enforcement actions.

As for corporate compensation issues, Shapiro said she has made it a priority and the board will focus on the issue during its session in June.

More Accountable
She also is backing a proposal to allow shareholders to nominate potential board members to corporate boards of directors.

"I know it will be controversial but I think it will be an important benefit," she said.

She also deplored what she called "credit rate shopping" among companies that seek credit ratings from a variety of rating firms and pick the one they like.  "It is like saying to a teacher, 'if you give me an A, I'll take your class,'" she said.

Certain practices by credit rating agencies are not regulated at all.  She coupled the need for change in that arena with proposed regulation of hedge funds, credit default swaps and changes to short-selling of stock, which is the practice of borrowing a stock to sell in expectation of a price drop by the time the seller must repay the shares.