In her testimony yesterday before the House Subcommittee on Financial Services, SEC Chairman Mary Schapiro told Congress that President Obama's increased budget request of $1.026 billion for the agency in FY 2010, a 9 percent increase over the FY 2009 appropriation, will be critical to allowing the SEC to properly function. She said that she has learned since coming to the agency several weeks ago that the 2009 appropriation of $943 million will actually require the agency to make significant cuts in its current operations.

With the additional funds, Schapiro said the SEC plans to add staff to its Enforcement program; add new positions to its Examination program to expand its inspections of credit rating agencies, strengthen risk-based surveillance and examination oversight of investment advisers; and increase the number of staff in its Office of Risk Assessment specifically dedicated to deepening our understanding of risk, and incorporating risk assessment into all aspects of operations. Schapiro said that she has submitted a "reprogramming request" to Congress to use $17 million in the SEC’s unspent prior year funds in fiscal year 2009 so that these staff increases can occur in 2009 rather than 2010.

Schapiro also addressed several other key points in her responses to questions, including her belief that the SEC should have authority to fully inspect and regulate hedge funds. She also testified that the SEC is now considering offering cash bounties for the first time to private sector whistleblowers who help expose financial wrongdoing. The SEC's current "bounty" program applies only to insider trading cases, not financial fraud. "Right now, the main reward for being a [financial fraud] whistleblower is the good feeling you get of having done something important, because we don't have the authority to pay," she said. Schapiro stated that the SEC might be able to return to Congress within a month with a more specific proposal for a new incentive structure to encourage such tips.

Schapiro further testified that the SEC is now arranging for its examiners to improve their skills by taking classes to become certified fraud examiners. SEC staff may now take a 40-hour course with the Association of Certified Fraud Examiners, she said. "It's a very good credential. It teaches about forensic accounting issues and fraud spotting," Schapiro said. "It's something we could do very quickly to help jump-start the skill set issue."