Federal Bar Association
Securities Law Committee
Executive Council
January 26, 2011
Hon. Harry Reid, Majority Leader, United States Senate
Hon. Mitch McConnell, Minority Leader, United States Senate
Hon. Richard Durbin, Assistant Majority Leader, United States Senate
Hon. Jon Kyl, Assistant Minority Leader, United States Senate
Hon. Tim Johnson, Chairman, Committee on Banking, Housing and Urban Affairs
Hon. Richard C. Shelby, Ranking Member, Committee on Banking, Housing and Urban Affairs
Hon. Jack Reed, Chairman, Subcommittee on Securities, Insurance and Investment
Hon. Jim Bunning, Ranking Member, Subcommittee on Securities, Insurance and Investment
Hon. John Boehner, Speaker of the House of Representatives
Hon. Eric Cantor, Majority Leader of the House of Representatives
Hon. Nancy Pelosi, Democratic Leader of the House of Representatives
Hon. Kevin McCarthy, Majority Whip
Hon. Steny Hoyer, Democratic Whip
Hon. Spencer Bachus, Chairman, Committee on Financial Services
Hon. Barney Frank, Ranking Member, Committee on Financial Services
Hon. Scott Garrett, Chairman, Subcommittee on Capital Markets
Hon. Maxine Waters, Ranking Member, Subcommittee on Capital Markets
RE: Funding for the Securities and Exchange Commission
Members of Congress:
We the undersigned are senior securities law practitioners, academics and officers of
financial services and other organizations with decades of experience supporting the Securities
and Exchange Commission s efforts to provide investor protection and honest markets. Many of
us are former SEC senior officers, and many of us now represent or have represented substantial
private sector clients in sophisticated matters before the SEC. We are all members of the
Executive Council of the Securities Law Committee of the Federal Bar Association.
We write in our personal capacities in support of (i) a substantially increased
appropriation for the SEC-paid for entirely through the SEC s longstanding registration fee
mechanism, at no expense to the American taxpayers and with absolutely no deficit impact, or
preferably (ii) the adoption for the SEC of the same funding model that Congress has used
successfully for decades for the nation’s banking regulators.
Let us acknowledge at the outset that we know there are many different views in
Congress concerning Dodd-Frank and how it should be implemented. But protecting America s
investors (large and small) from investment fraud, restoring integrity to the markets, and
encouraging capital formation for America s businesses by drawing investors back into the
markets are priorities too important to sacrifice. For America s capital markets to maintain their
dominance on the world financial stage, they need a strong, smart and effective regulator, and
this requires adequate funding.
1. The SEC s Situation Is Critical. In an economy desperately needing investor
confidence to promote capital formation and economic growth, the regulator of our capital
markets is running almost on empty. The SEC s Enforcement Division is cutting back on its
investigations, letting vacancies in important agency programs go unfilled, and cancelling
technology upgrades needed to process the terabytes of data it gets each month. In the wake of
Madoff, its Inspections Office is being forced to cut the number and frequency of its
examinations of financial firms, which were already very infrequent due to historic underfunding
of the agency. Its acclaimed plan to bring in Wall Street trading experts with the sophistication
to understand and appropriately respond to today s complex trading and markets, including the
new technologies and strategies that may have had a role in last year s flash crash, cannot
achieve its promise without funding.
This is not about funding Dodd-Frank. This is instead about maintaining at acceptable
levels the core activities that have been at the heart of the SEC s Congressional mandate for
many decades. The current SEC budget freeze has hit not only during the worst crisis our
markets have faced in 80 years but also after years of effectively flat or declining SEC budgets
(after adjusting for escalating fixed costs). And all the while, over a short period, trading volume
has more than doubled, the number of investment advisers and the funds they manage have
grown over 50%, investment products have become bafflingly complex, and split-second
computer-driven trading has come to dominate our markets.
Investors sidelined with decimated 401(k) s will be unwilling to again risk their capital if
Wall Street s cop-on-the-beat increasingly comes to be seen by the public as a cop-on-furlough.
Investor perceptions are critical, and without the return of individual investors and the
conservative investment funds that hold much of their remaining wealth, America s road to
economic recovery will be far longer and more difficult. Regardless of differing views about
certain Dodd-Frank provisions, America s businesses, which now more than ever need to
aggressively draw investment capital, will surely be hurt by any investor perception that lack of
funding is sharply curtailing the SEC s ability to protect investors and maintain market integrity.
2. An Appropriation With No Taxpayer Dollars and No Deficit Impact. What is
often forgotten in discussions about SEC funding is that the American taxpayers pay absolutely
nothing to run the SEC each year. Over a decade ago, Congress wisely put the SEC on an
entirely self-funded program. Under this program, the SEC carefully calibrates its various
securities registration and filing fees several times a year to assure that these user fees will
always pay for 100% of the SEC’s annual budget in the amount appropriated. Under Section
31(a) of the Securities Exchange Act, as amended in 1996 (Pub. L. 104-290, §405(a)), the SEC
must collect transaction fees and assessments that are designed to recover the costs to the
Government of the supervision and regulation of securities markets and securities professionals,
and costs related to such supervision and regulation, including enforcement activities, policy and
rulemaking activities, administration, legal services, and international regulatory activities.
There has been no serious objection over the years to this 1996 Congressional
determination to have the SEC fund its budget entirely through registration and filing fees, and
the amounts assessed have been miniscule relative to the transactions involved. And while a
slight increase in these very small fees to cover needed SEC funding will in no way hinder
capital formation, the alternative of a perception of inadequately regulated securities markets will
surely deter investors from risking their capital and thereby stall economic growth. A
substantially increased SEC appropriation paid for with the successful and decade-old SEC selffunding
mechanism would require no tax dollars whatsoever, would add nothing to the deficit,
and would need no offset.
3. Alternative of Adopting the Banking Agency Model for the SEC. Over the years,
many have suggested putting the SEC on the same footing as the federal banking agencies by
adding to the SEC s existing self-funding something new
the ability to self-budget. Selfbudgeting,
which the self-funded federal banking agencies have done for many years, lets the
banking agencies set their own budgets on a timely and adequate basis, and without getting lost
in the inevitable complexities of the annual appropriations process. This lets the banking
agencies in times of crisis respond quickly to changes in staffing and other program needs and to
engage in long-range (multi-budget-year) planning by setting their own budget levels (selfbudgeting),
and then paying their own way through user fees (self-funding).
Of course, while benefiting from a self-budgeting process, the SEC will always remain
subject to Congressional oversight. If Congress is concerned, it can call hearings to demand
explanations, and if still not satisfied Congress can legislate to correct any perceived problems.
The banking agencies remain keenly aware that they must use their self-budgeting power
prudently, or Congress will modify it or take it away entirely, and the SEC would be just as
mindful of this reality. Congress determination to put the banking agencies on this funding
basis has proven to be a success story over many years, and it would be just as successful a
means for funding the SEC.
The situation presently confronting the SEC is indeed serious with frozen funding
levels forcing curtailment of inspections, enforcement and other vital activities, and all at a time
of globalized capital markets, more complex and opaque instruments than ever before, and
electronic trading techniques that require expertise and intensive broad-based monitoring and
evaluation. The present dilemma underscores vividly why continuing to involve the SEC in the
uncertainties and inevitable delays necessarily inherent in the annual appropriations process is
not in the best interest of American business or investors. Congress has long recognized that the
SEC is woefully underfunded, and it has already explicitly authorized a doubling of the SEC s
budget over five years. With the SEC already funding itself through miniscule user fees and not
through tax dollars, it makes sense to simply adopt for the SEC the self-budgeting approach that
1 This 1996 statute requires the SEC to cover its budget solely through registration and filing fees. The amounts the
SEC s enforcement staff collects in disgorgement of illegal profits and penalties are paid to harmed investors when
they can be located and otherwise to the Treasury. Thus, the SEC s law enforcement determinations are made
independent of any consideration of its budgetary needs.
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has worked so efficiently and for so long for the banking agencies for the good of investors, the
health of our trading markets, and the encouragement of capital formation at a time when it is so
seriously needed.
Thank you for your consideration of our views on this critically important subject. If we
may be of further assistance, please contact us through our chairman Stephen Crimmins at
202.778.9440 or at stephen.crimmins@klgates.com.
Very truly yours,
Stephen J. Crimmins (Council Chairman)
K&L Gates LLP
(former Deputy Chief Litigation Counsel,
SEC Enforcement Division)
Diane E. Ambler
K&L Gates LLP
William R. Baker III
Latham & Watkins LLP
(former Associate Director, SEC Enforcement Division)
Jeffrey D. Bauman
Professor of Law
Georgetown University Law Center
Brandon Becker
Executive Vice President and
Chief Legal Officer, TIAA-CREF
(former Director, SEC Market Regulation Division)
Alan L. Beller
Cleary Gottlieb Steen & Hamilton LLP
(former Director SEC Corporation Finance Division)
Paul R. Berger
Debevoise & Plimpton LLP
(former Associate Director, SEC Enforcement Division)
Alan J. Berkeley
K&L Gates LLP
Nancy Boswell
President & Chief Executive Officer
Transparency International USA
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Gregory S. Bruch
Willkie Farr & Gallagher LLP
(former Assistant Director, SEC Enforcement Division)
Martha Cochran
Arnold & Porter LLP
(former Chief Counsel and Staff Director,
U.S. Senate Subcommittee on Securities)
Robert L.D. Colby
Davis Polk & Wardwell LLP
(former Deputy Director,
SEC Trading and Markets Division)
Andrew J. Donohue
(former Director, SEC Investment Management Division)
James R. Doty
Baker Botts LLP
(former SEC General Counsel)
Martin Dunn
O Melveney & Myers LLP
(former Deputy Director and Acting Director,
SEC Corporation Finance Division)
Meyer Eisenberg
Senior Research Scholar and Lecturer-in-Law,
Columbia University School of Law
(former SEC Deputy General Counsel,
Acting Director of Investment Management Division
and Executive Assistant to the Chairman)
Matthew P. Fink
Independent Director, Oppenheimer Funds
(former President, Investment Company Institute)
Robert J. Haft
Professor, Georgetown University Law Center
(former SEC Special Counsel)
Michael Halloran
Haynes and Boone, LLP
(former Counsellor to the SEC Chairman)
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John J. Huber
Latham & Watkins LLP
former Director, SEC Corporation Finance Division)
Dixie L. Johnson
Fried, Frank, Harris, Shriver & Jacobson LLP
Dennis J. Lehr
Hogan Lovells LLP
Michael D. Mann
Richards Kibbe & Orbe LLP
(former Director, SEC Office of International Affairs)
David B.H. Martin
Covington & Burling LLP
(former Director, SEC Corporation Finance Division)
Paul Mason
(former Assistant Director,
SEC Trading and Markets Division)
William R. McLucas
Wilmer Cutler Pickering Hale and Dorr LLP
(former Director, SEC Enforcement Division)
Herbert E. Milstein
Cohen Milstein Sellers & Toll PLLC
(former Chief Enforcement Attorney,
SEC Investment Management Division)
Allan S. Mostoff
Dechert LLP
President, Mutual Fund Directors Forum
(former Director, SEC Investment Management Division)
Annette L. Nazareth
Davis Polk & Wardwell LLP
(former SEC Commissioner and former Director,
SEC Trading and Markets Division)
John F. Olson
Gibson, Dunn & Crutcher LLP
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Richard M. Phillips
K&L Gates LLP
(former Assistant to the SEC Chairman,
Assistant General Counsel, and Staff Director of SEC
Corporate Disclosure and Investment Company Studies)
Irving M. Pollack
Fulbright & Jaworski LLP
(former SEC Commissioner and
former Director, SEC Enforcement Division
and Trading and Markets Division)
Giovanni P. Prezioso
Cleary Gottlieb Steen & Hamilton LLP
(former SEC General Counsel)
Paul F. Roye
Senior Vice President,
Capital Research and Management Company
(former Director, Investment Management Division)
David Silver
(former President, Investment Company Institute)
Marianne K. Smythe
(former Director, SEC Investment Management Division)
Linda Chatman Thomsen
Davis Polk & Wardwell LLP
(former Director, SEC Enforcement Division)
Consuela Washington
(former Chief Counsel for Commerce, Trade, and
Consumer Protection, U.S. House Committee on
Energy and Commerce, and Special Counsel,
SEC Corporation Finance Division)
Harry J. Weiss
Wilmer Cutler Pickering Hale and Dorr LLP
(former Associate Director, SEC Enforcement Division)
John W. White
Cravath, Swaine & Moore LLP
(former Director, SEC Corporation Finance Division)
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Susan Ferris Wyderko
Executive Director, Mutual Fund Directors Forum
(former Director, SEC Office of Investor Education and
Assistance, and Acting Director, SEC Investment
Management Division)