Yesterday, 41 members of the Federal Bar Association's Securities Law Committee Executive Council signed their names to a letter asking leaders in Congress to take prompt action to adequately fund the SEC. The members of the Executive Council described the SEC's current budget situation as "critical," observing that "the regulator of our capital markets is running almost on empty."

The SEC's Enforcement Division's "core activities" are being compromised, they wrote, as it is now being forced to:

cut back on its investigations;

let vacancies in important agency programs go unfilled; and

cancel technology upgrades needed to process the terabytes of data it gets each month.

In short, they argue, Wall Street's "cop-on-the-beat" is on the verge of turning into more of a "cop-on-furlough" if action is not taken. The letter then states that the obvious answer--to substantially increase the SEC's appropriation--would require no tax dollars whatsoever, would add nothing to the deficit, and would need no offset because the SEC is already required under Section 31(a) of the Securities Exchange Act to fund its own operations through the registration and filing fees it charges. This includes all enforcement activities, policy and rulemaking activities, administration, legal services, and international regulatory activities.

Alternatively, the letter states, Congress should permit the SEC to set its own budget, as the federal banking agencies do. The letter argues that such "self-budgeting" (also sometimes referred to as "self-funding") would allow the agency to avoid the complexities of the annual appropriations process, and let it be nimble in times of crisis. Self-budgeting would not mean the SEC was no longer subject to Congressional oversight, however, as Congress could still call hearings to demand information, take legislative action to correct problems, or even choose to end the self-budgeting altogether.

To the authors of this letter, I simply state that I wholeheartedly agree with you. As I wrote here over a year ago,

Whether it comes from a dramatic increase in the SEC's budget or a move to self-funding, it is well past time for the SEC's Enforcement Division to receive the manpower, technology, and support needed to do its job. Only after Congress has carried out its own responsibility for properly supporting the SEC will it be fair to start pointing fingers on the question of protecting investors.

Until then, the biggest losers in this mess will likely be investors.

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