SEC chairman says agency has stepped up enforcement in wake of crisis, past failures

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SEC chief points to stepped-up enforcement

WASHINGTON — The head of the Securities and Exchange Commission said Tuesday the agency has revamped itself and stepped up enforcement in the wake of the financial crisis. It is also ready to write numerous new rules for the sweeping financial 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.

Schapiro said the agency 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.

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

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

The SEC has held out the settlement as a serious show of enforcement muscle in the wake of the mortgage meltdown. For Goldman Sachs, it was a financial blip as the firm earned that much in about two weeks last year. However, 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.

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.”

Schapiro said the coming months for the SEC will be dominated by rule-writing for the new legislation. The agency is charged with writing nearly 100 new rules.

The SEC chief also discussed the agency’s response to the May 6 “flash crash,” a panicked disruption that saw the Dow Jones industrials lose nearly 1,000 points in less than a half-hour. Under a new system of “circuit breakers” for individual stocks put in last month by the SEC, U.S. stock exchanges must briefly halt trading of major stocks that mark big swings. Trading of any Standard & Poor’s 500 index stock that rises or falls 10 percent or more in a five-minute span must be halted for an additional five minutes.

Schapiro said the coming months for the SEC will be dominated by rule-writing for the new legislation. The agency is charged with writing nearly 100 new rules.