The past three years have been a period of enormous change and challenge for the SEC. The aftermath of the financial crisis, the passage of legislation that imposes extensive new responsibilities on the agency, and the growth in the size and complexity of the financial markets have demanded that the SEC become more efficient, creative and productive to achieve its mission. While we have made significant progress in many areas, much work remains to be done. My testimony today will highlight a number of the actions we have taken over the past three years to reform and improve SEC operations. In addition, I will describe our progress on implementation of financial reform legislation, upcoming challenges, and the agency’s FY13 appropriations request.

Operational Improvements and Recent Accomplishments

As you know, the SEC has responsibility for approximately 35,000 entities, including direct oversight of about 12,600 investment advisers, 9,900 mutual funds and exchange traded funds (ETFs), and over 4,500 broker-dealers with more than 160,000 branch offices. We have responsibility for reviewing the disclosures and financial statements of more than 9,100 reporting companies and also oversee approximately 450 transfer agents, 15 national securities exchanges, eight active clearing agencies, and nine nationally recognized statistical rating organizations (NRSROs), as well as the Public Company Accounting Oversight Board (PCAOB), Financial Industry Regulatory Authority (FINRA), Municipal Securities Rulemaking Board (MSRB), and the Securities Investor Protection Corporation (SIPC). Due to recent changes in the law, smaller investment advisers will transition from SEC to state oversight during 2012, but with the corresponding addition of advisers to private funds, we estimate that the agency will still oversee approximately 10,000 investment advisers with about $48 trillion in assets under management. During FY 2012 and FY 2013, we also expect to fully implement our new oversight responsibilities with respect to municipal advisors and entities registering with us in connection with the security-based swap regulatory regime.

…continue reading: Changes and Challenges at the SEC

The Commission has authorized that a Study be sent to Congress expressing the views of the Staff on the cross-border scope of the private right of action under Section 10(b) of the Securities Exchange Act of 1934. However, my conscience compels me to write separately to record my views on the Study. I write to convey my strong disappointment that the Study fails to satisfactorily answer the Congressional request, contains no specific recommendations, and does not portray a complete picture of the immense and irreparable investor harm that has resulted, and will continue to result, due to Morrison v. National Australia Bank, Ltd.

In the United States we have a strong belief that, whether rich or poor, we are all entitled to our day in court. Sadly, for many American investors this is no longer true.

If American investors are defrauded by a company that they have invested in – and that company is listed on a foreign exchange – investors may be unable to have their day in court and seek redress against this company for its lies and misrepresentations. Thus, investors have been stripped of a traditional American right.

This was not always the case. For decades, federal courts applied the same standard to determine whether U.S. federal securities law applied to frauds that took place, in whole or in part, outside of the United States. Under that standard, Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and other antifraud provisions applied “when there was ‘significant U.S. fraudulent conduct that directly caused the plaintiffs losses’ (the conduct test) or when there were ‘significant effects’ on the U.S. securities markets (the effects test).”

…continue reading: Defrauded Investors Deserve Their Day in Court

In autumn 2008 the developed world’s banking system suffered a severe crisis. In response the world’s regulators and central banks have focused on building a more stable banking system for the future: less leveraged, more liquid, better supervised and with even the largest banks able to be resolved without taxpayer’s support. The implementation of that bank-focused regulatory agenda is still unfinished, but much progress has been made.

Looking back to the year 2007/08, however, it’s striking that the crisis did not at first look like a traditional banking crisis, but rather one related to a new phenomenon: shadow banking. Initially the problems seemed concentrated in the US, where the development of non-bank credit intermediation was most advanced, and many of the events which marked the developing crisis related to non-bank institutions and markets.

…continue reading: Shadow Banking and Financial Instability

Recently, the House of Representatives passed H.R. 3606, the “Jumpstart Our Business Startups Act.” It is clear to me that H.R. 3606 in its current form weakens or eliminates many regulations designed to safeguard investors. I must voice my concerns because as an SEC Commissioner, I cannot sit idly by when I see potential legislation that could harm investors. This bill seems to impose tremendous costs and potential harm on investors with little to no corresponding benefit.

H.R. 3606 concerns me for two important reasons. First, the bill would seriously hurt investors by reducing transparency and investor protection and, in turn, make securities law enforcement more difficult. That is bad for ordinary Americans and bad for the American economy. Investors are the source of capital needed to create jobs and expand businesses. True capital formation and economic growth require investors to have both confidence in the capital markets and access to the information needed to make good investment decisions.

…continue reading: Investor Protection is Needed for True Capital Formation

The Commission’s core mission is to protect investors. William O. Douglas, a former chairman of the Securities and Exchange Commission, who went on to serve as a Supreme Court Justice, described the SEC’s role by contrasting it with a well-represented industry. Chairman Douglas said: “We’ve got broker’s advocates, we’ve got exchange advocates, we’ve got investment banker advocates, and we [the SEC] are the investor’s advocate.”

Not much has changed since Chairman Douglas spoke those words at his first press conference as SEC Chairman in 1937. The industry, with its lobbyists and spokespeople, remains the loudest voice – in fact, one could say that things have gotten much worse. As a result, investors need an advocate today more than ever.

…continue reading: Shining a Light on Expenditures of Shareholder Money

The Commission has failed to fulfill its legal obligation. It has appointed a member to the Public Company Accounting Oversight Board (“PCAOB”) who has no demonstrable record of investor advocacy. Thus, the Commission has failed to satisfy its basic statutory mandate to appoint an individual who, among other factors, has “a demonstrated commitment to the interests of investors.” [1] Accordingly, I do not support and must respectfully dissent for the reasons outlined below.

Congress established the PCAOB in response to scandalous audit failures, like Enron and WorldCom, that cost investors billions. In doing so, Congress entrusted this Commission with the significant responsibility of appointing the members of the PCAOB. In exercising this responsibility, the Commission is required to abide by the statutory criteria to appoint individuals “who have a demonstrated commitment to the interests of investors.” [2]

…continue reading: PCAOB Board Appointment Disregards Investor Interests

Last November, the FDIC, jointly with the Federal Reserve Board of Governors (FRB), the Office of the Comptroller of the Currency (OCC), and the Securities and Exchange Commission (SEC), published a notice of proposed rulemaking (NPR) requesting public comment on a proposed regulation implementing the Volcker Rule requirements of the Dodd-Frank Act. On December 23, the four agencies extended the comment period for an additional 30 days until February 13, 2012. The comment period was extended as part of a coordinated interagency effort to allow interested persons more time to analyze the issues and prepare their comments, and to facilitate coordination of the rulemaking among the responsible agencies. In addition, on January 11, 2012, the Commodity Futures Trading Commission (CFTC) approved the issuance of its NPR to implement the Volcker Rule, with a substantially identical proposed rule text as the interagency NPR. We look forward to receiving comments on the NPR.

In recognition of the potential impacts that may arise from the proposed rule and its implementation, the Agencies have requested comments on whether the rule represents a balanced and effective approach in implementing the Volcker Rule or whether alternative approaches exist that would provide greater benefits or implement the statutory requirements with fewer costs. The FDIC is committed to developing a final rule that meets the objectives of the statute while preserving the ability of banking entities to perform important underwriting and market-making functions, including the ability to effectively carry out these functions in less-liquid markets.

…continue reading: Implementing the Volcker Rule

I will discuss some common themes pervading the regulation of audits, regardless of what country you are in. Certain structural challenges threaten the relevance of auditing. These threats rise at a time when confidence in business reporting is more important than ever. We are also affected by geopolitical forces that threaten both the regulation of audits as well as the audits themselves.

I do not believe any of these challenges, or the threats accompanying them, are insurmountable. But they must be confronted. I do believe overcoming them will require concerted, collective commitment and action.

I. Auditor Skepticism is the Foundation for Investor Confidence in Financial Reporting.

I want to begin with the motivating idea for this conference. A prolonged global financial crisis continues to jeopardize economies everywhere: in the Americas, in Europe, in Australia and Asia. Our people have a shared agenda to restore hope in their futures. Our families have shared agendas to be assured they have the resources to maintain their homes, rear their children with confidence in their ability to prosper, and provide for elders with dignity and respect for the achievements of their generations.

…continue reading: Auditing in the Decade Ahead: Challenge and Change

Executive compensation has long been an area of intense interest for shareholders, corporate boards, CEOs, senior executives – and to the SEC.

But, at the SEC, our interest is different from that of other stakeholders. It’s not rooted in any opinion regarding the level of compensation a corporate executive might receive. That is for companies and shareholders to discuss.

Rather, our interest is in ensuring that in this matter – as in other areas of corporate governance – the shareholders who own a company receive the information they need to make an informed judgment, and that they have a vehicle through which they can express that judgment to the board.

I believe that effective communication between shareholders and boards is a cornerstone of good governance.

…continue reading: Say on Pay Leading to Better Communication About Compensation

It should be a fairly non-controversial first principle that a statute is merely a suggestion, rather than a mandate, if it cannot be enforced. Thus, for the federal securities laws to be effective, they need to be enforceable. I am referring to enforcement both by public and quasi-public action, such as that taken by the Securities and Exchange Commission, criminal authorities, state authorities, and self-regulatory organizations like FINRA, and action taken privately by investors in class actions and other litigation.

I believe that both the public and private aspects of securities enforcement are critical, that they complement each other, and that they are interrelated. The Commission as an institution has taken this view for quite a long time—in fact, I wrote more than a few Commission amicus briefs expressing it during my first tour of duty at the agency. Recent court decisions have led me to revisit this topic and to focus anew on the implications of the interrelationship between private and public rights of action.

…continue reading: The Interrelationship Between Public and Private Securities Enforcement