There is an article in the New York Times today about how Republicans have cut the budget for the SEC by $229 million to last years $1.19 billion even though the responsibilities of the SEC have been significantly expanded under the Dodd-Frank Wall Street reforms. Republicans defend the cuts on the basis that the deficit must be tackled, even though Wall Street funds the SEC budget and will actually pay less next year.
The cuts will significantly undermine the ability of the SEC to regulate Chinese companies listed in the U.S. The SEC has been cracking down on Chinese companies due to the many scandals of the past year, but that may have to come to a close. An S.E.C. memo on the committee’s proposed budget warns: “We may be forced to decline to prosecute certain persons who violate the law; settle cases on terms we might otherwise not prefer; name fewer defendants in a given action; restrict the types of investigative techniques employed; or conclude investigations earlier than we otherwise would.” Robert Khuzami, the SEC’s head of enforcement said “you have to squeeze the savings out of what’s left, like travel, and especially foreign travel, at a time we see more globalization, more insider trading through offshore accounts. It’s highly cost-intensive.”
This could not come at a worse time. Just last week the SEC sat down with CSRC officials to negotiate better cooperation on cross-border regulation. It appears the SEC will not be able to do much for its part. The PCAOB is separately funded through fees on public companies and is not subject to the Republican budget cutting processes.
Republicans are making a serious mistake here. This action does nothing to reduce the federal budget deficit and is simply a gift to Wall Street and to the fraudsters – including Chinese companies that are taking advantage of U.S. investors.