SEC chairman says agency has revamped; ready to write rules for new financial overhaul

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SEC chief says enforcement has increased

WASHINGTON — The head of the Securities and Exchange Commission said Tuesday that the agency has been revamped and has stepped up enforcement since the financial crisis. Agency officials are also ready to write new rules for companies affected by the sweeping legislation that is about to become law, she told House lawmakers.

SEC Chairman Mary Schapiro appeared at a House subcommittee hearing, in her first public testimony since passage of the financial overhaul legislation that gives the agency new powers. Her comments also came after the agency agreed to let Wall Street giant Goldman Sachs Group Inc. pay $550 million to settle civil fraud charges.

Lawmakers voiced approval for changes Schapiro has made at the SEC in response to the agency’s failure to detect the massive Madoff fraud and other schemes. Some Republicans, however, chafed at the expanded authority the SEC will gain over hedge funds, derivatives and other areas.

It “increases the threat that the SEC will create more uncertainty in our capital markets through the exercise of new powers to reform practices which in no way contributed to the financial crisis,” said Rep. Spencer Bachus, R-Ala.

Rep. Edward Royce, R-Calif., said “time will tell whether real reform can come from within” the SEC.

President Barack Obama is signing the legislation into law on Wednesday.

The SEC is charged with writing nearly 100 new rules. Schapiro said “we will be very sensitive” in crafting the rules, taking into account for example that oversight and inspection of small hedge funds and other investment businesses should differ from that for large entities that could pose a risk to the financial system.

Also under the legislation, Schapiro will be a member of the new Financial Stability Oversight Council, a powerful assembly of regulators headed by the Treasury secretary to keep watch over the entire system.

Schapiro said the SEC has made fundamental changes, strengthening enforcement efforts and taking measures to protect investors in the wake of the financial crisis and past agency failures.

“We brought in new leaders across the agency. We streamlined our procedures. We worked to reform the ways we operate. We began modernizing our systems,” she said.

Rep. Paul Kanjorski, D-Pa., chairman of the Financial Services subcommittee, said Schapiro “has pursued an ambitious, results-oriented agenda aimed at protecting investors and restoring market confidence.”

It was Schapiro’s first public appearance since the $550 million settlement announced Thursday with finance powerhouse Goldman Sachs. The deal, the largest settlement with a Wall Street firm in SEC history, involved allegations that the firm misled buyers of mortgage-related investments.

The SEC has held out the settlement as a show of enforcement muscle in the wake of the financial crisis. For Goldman Sachs, it was a financial blip as the firm earned that much in about two weeks last year. But Goldman announced Tuesday that its second-quarter net income dropped 83 percent, to $453 million, as trading revenue fell and it booked a charge for the settlement.

More cases could come. The SEC has under way a wide-ranging investigation of Wall Street firms’ mortgage securities dealings in the years running up to the financial crisis.

“We have investigations in the pipeline, across products, across institutions,” Schapiro told reporters after the hearing.

The $550 million Goldman is paying also represents nearly half the White House’s budget request of $1.2 billion for the SEC for the fiscal year starting Oct. 1. That would bring the agency staff to about 4,200 people, to police burgeoning and sophisticated markets, and some 35,000 registered companies, investment funds and other entities.