By James Hamilton, J.D., LL.M.
In the wake of the Madoff scandal and as the financial crisis deepens, Senators Charles Schumer and Richard Shelby introduced bipartisan legislation to enhance SEC enforcement capabilities, as well as overall federal enforcement ability. The Supplemental Anti-Fraud Enforcement (“SAFE”) Markets Act would dedicate an additional $110 million annually for these new hires. The senators, who are members of the Banking Committee, said they would seek to pass the additional funding at the earliest possible opportunity. Senator Shelby is the committee’s Ranking Member.
The measure would add hundreds of new investigators and prosecutors to the financial fraud units at the nation’s top law enforcement agencies in order to expose and punish white-collar crimes that have contributed to the ongoing fiscal crisis. The SEC would receive funds to hire 100 new enforcement division employees, while the Justice Department would be able to hire 50 new Assistant United States Attorneys. Congress expects that an increase in fines levied by the SEC and the collection of orders of restitution in criminal cases could be far greater than the cost of increasing enforcement personnel.
Since Congress views the current economic crisis as one of confidence, which underpins the entire financial system, the legislation should restore confidence in the markets by helping bring those who perpetrate fraudulent acts to justice. The legislation will help ensure that federal enforcement agencies have the resources they need to investigate and prosecute these crimes.
In recent months, amid the financial crisis, a rising number of securities and accounting fraud cases have surfaced, accounting for billions of dollars in losses for investors. But the agencies on the front lines of policing the financial institutions and investment managers have been hamstrung by a lack of resources. For example, from 2000-2007 the number of prosecutions of frauds against financial institutions plummeted by 48 percent. This measure aims to provide extra resources to meet the added strain put on these enforcement agencies.
In comments at the confirmation hearings of new SEC Chair-designate Mary Schapiro, Sen. Schumer said that the SEC needs a stronger emphasis on finding and preventing fraud by bolstering its inspection and examination process. He also advised the Commission to adopt former Chair Donaldson's proposal to have an office of risk assessment.