I once knew a slightly free-spirited ex-boxer turned street brawler who, despite his fearsome exploits against mortal men both in and out of the ring, once found himself in a seedy watering hole facing no less than seven angry men wielding baseball bats.

In a moment of amazing calm that would have made any front line infantryman envious, he turned to the bartender and almost chuckling said, "I sure hope that's the softball team."

You can probably guess what transpired soon afterward. Nor would many of you require a formal lecture on how badly it sucks to be overmatched.

The folks at the Securities and Exchange Commission apparently feel like they've been going bare fisted against 40-ounce Louisville sluggers in their enforcement battles.

The regulator has taken more than its share of lumps over the past two years for, among other things, doing their best impression of Ray Charles as a security guard in the Madoff and later, R. Allen Stanford, Ponzi schemes. They were found lacking in their efforts in the 2008 fraud at Lehman Brothers and even more humiliating was a report that revealed more of its employees were surfing for porn than pursuing white-collar crime.

And it only gets worse.

Recently, SEC chair Mary Schapiro spoke at a legal seminar in Washington and bemoaned the fact that the agency's budget strains were hampering its enforcement efforts and a funding shortage had forced the agency to use antiquated technologies to monitor "speed of light trading."

With the President's planned budget freeze and lawmakers scouring for cuts basically anywhere, the possibility that the regulator will get its requested budget increase of $160 million is somewhat bleak, thereby keeping its annual funding at a flat $1.1 billion.

Ms. Schapiro said that a flat budget would more than curtail the planned hiring of some 800 employees, a necessary boost of human capital, particularly in the wake of the passage of Dodd-Frank, which toughens and revamps financial oversight.

Adding to that malaise is that over the last decade, the number of new investment advisors coming onto the scene has risen roughly 50 percent, while trading volume has increased exponentially.

Budget woes are nothing new at the SEC, but they worsened during 11th hour negotiations on Dodd-Frank, when a provision was eliminated that would have allowed the SEC to self-budget, like other agencies such as the FDIC are able to. Citing the SEC's recent gaffes and missteps, Republican lawmakers were reluctant to cede budget control over to the agency.

Schapiro told attendees that the SEC's data management systems and a digital forensics lab were likely candidates for elimination or cuts unless the larger budget is forthcoming.

In somewhat of a surprise, more than 40 securities lawyers - many of whom launched their careers at the SEC before moving to the private sector - petitioned lawmakers to support the regulator's request for additional monies.

I'm of two minds here.

Yes, I do think that the regulator should be in line for a much-needed budget increase, considering the added regulatory burden. But its underwhelming record of recent enforcement actions to me means that the agency will need more than just money to be anywhere near as effective as it needs to be.

Because it's been overmatched for too long.


Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access