and rescue teams to find survivors. there is no more important two-country alliance than that of japan and the united states. the former majority leader and ambassador mike mansfield used to teach that to all of us younger governors in the 1980's and 1990's, and we will stand with the people of japan until they recover from this disaster. there is a special relationship between the japanese and tennesseans because of the location of so many japanese industries in our state over the last 30 years, so as a result, tennessee have been reaching out to our friends and their families in japan. we should also commend the we should also commend the we should also commend the japanese for their coverage that they've shown in dealing with the death of a nation and particularly with their levelheaded response and damage of nuclear fears that fukushima daiichi.aiichi. in this age, went instante, w communication can sometimes

create misinformation and even e hinic, the japanese leadership s in nuclear scientists are working with organizations around the world was eyeing to t the danger in keeping the rest of the world informed.gest earth this is the largest earthquake in japan's recorded history, 30 frcisco times more forceful than the same as cisco or quake of 1996, 700 times stronger than the 2010 earthquake of 80. so while this gives no meansvens over and the events in japan continuedo to evolve, to react o safety systems so far appear ton have done their job in withstanding the earthquake tsunami power loss explosions in another react or containment breached in thisse worst-case lo conditions. the lessons that americans can take away from this tragedy is this, learn all we can from thee japanese experience to make thes

chapter he should have safe as possible. mr. president, it asks for an mt additional nine minutes. navy hs >> mr. president, since the 1950s, the united states navy has safely traveled more than 176 million miles in nuclear power. today, 104 civilian react to ams produce 20% of america'sy and electricity in 20% of our clean electricity. witut that is about software, without major chain, without carpet. no one has ever died from a nuclear accident in any of our commercial for navy react yours. i'll say that again. dd no one has ever died from a react to her accident that whenever any of your commercialo react to. hard to imagine how the united

states could produce enough cheap, reliable, clean j electricity to keep our economy moving, keep our jobs from goine overseas. veo of here's what we know about what has happened in japan. at we've all seen the video of the building and daiichi unit 11 and now unit three. uni i'm sure manyt of us have thougr those were reactors exploding. fortunately, that's not what isr happening. a buildup of nitrogen gas leaddd to explosions, which destroyed the buildings themselves with py the primary containment pear structures inside appeared not to have been compromised.e to reduce the resulting increase containment pressure, or rather small amount of regular paper has been dispersed into the atmosphere. comny tokyo electric power co. haslevf told us that the highest level of radiation detected on site today is 155.7 milligrams per hour in that level has since been reduced to 4.4 milligramsas

per hour. what does that mean in regard ta

world's history, with the aftershocks, multiple disasters compounded one on top of another, the primary containment reactors near the epicenter appear not to have been breached and the radioactive release appears to have been controlled and minimal. this experience has brought back memories of the 1979 accident at three mile island in pennsylvania. although we remember three mile island as the worst nuclear accident in u.s. history, it's also important to remember that no one was hurt at three mile island. as i said before, there has never been a death resulting from a commercial nuclear accident in american history.

what happened at three mile island was basically an operator failure, a valve failed, and when the automatic safety mechanism kicked in, the operators overrode it because they became confused by the number of alarms. three mile island completely changed the american nuclear industry. the kennedy commission appointed by president carter analyzed the problems, made many recommendations, almost all of which have been put into practice. the valve that started the whole thing had failed nine times before in other reactors but the manufacturer tried to keep it a secret. people in the nuclear industry then just didn't talk to each other. now safety is a top priority of the nuclear industry. the institute of nuclear power operations collectively shares best practices to achieve the highest levels of safety as well as reliability. nuclear operators train for five years before they could take over in the control room. they spend one week out of every five to six weeks in a simulator honing their skills.

the nuclear companies have special emergency teams that can be dispatched anywhere in the country at a moment's notice. a nuclear regulatory commission inspector practically lives on site. what's more, every reactor in the country is on the hook for more than $100 million if something goes wrong at another reactor. as you can imagine, they watch each other very carefully. i have talked with any number of navy veterans who had experience with nuclear commands, and one reason i am confident that there haven't been any nuclear reactor accidents in the nuclear navy that have killed anyone over the last half century is because the responsibility for the safety of that reactor goes right up to the captain of the vessel. all this wasn't the same at chernobyl, the infamous 1986 soviet accident. chernobyl involved 60 immediate deaths and radiation exposures that according to the world

health organization may health organization may may result in 4000 cancels, but schnabel is a completely different kind of accident and the results of different technologies. ructur more than not from the soviets had to build a containment s structure. the containment structures rea patsies japanese reactors withed the concrete and skill appear ae we speak this afternoon to havea withstood an 8.9 magnitude earthquake, tsunami power failure and explosion. an. president, tear gas and oilp fires raging in japan. the possibility of disease and starvation or unless. there are a great many things tt worry about in addition to the or spirit ere tens of thousands of people still unaccounted for. right now the effort needs to be

helping those who need help,apab containing further damage a risk in getting japan back up and running again. then we can take the lessonstsua learned from this earthquakend s tsunami and apply them to make s her nuclear plants as safely as possible and hope the world did the same. the one under for nuclear yours provide, 20% of our electricity, 70% of our annoyed to city. japan has safety for react totyo various against 30% of its electricity from nuclear. france gets 80% of its electricity from nuclear power.c the united states inventedissued nuclear power, but the nuclear regulatory commission is not issued a construction license

after a tragic airplane crash.

we cannot stop drilling after a tragic oil spill unless we want to rely more on foreign oil, one up our prices, turn our oil drilling over to a few big oil companies, and all our oil hauling over to more leaky tankers. 34,000 people die in motor vehicle accidents every year, but we don't stop driving because we have to get our children to work and our children to school and ourselves to work. in all of these cases, when there are accidents, we do our best to examine the tragedies and make our continued operation and our lives as safe as possible. that's what we need to do here. our reactors in the united states are built to the highest standards in the world. the chairman of the nuclear regulatory commission said in a regulatory commission said in a the chairman of the nuclear regulatory commission said in a press briefing todayry

of the operation of a commercial american reactor nor in our nuclear navy, which has been using reactors in its ships and submarines since the 1950's, our goal should be to continue every effort to try to make certain that the operation of our existing and new nuclear power plants are as safe as possible. for example, some have suggested that so-called passive cooling systems that operate on natural convection currents and don't need pumping would prevent the problems that arose in japan when the backup power to pump water was lost. mr. president, nuclear power is a demanding but manageable technology. as we move forward, let us learn the proper lessons from this

japanese experience to make sure that in the united states and in the world we are even better prepared for the unexpected events of the future. i thank the president and i

[speaking chinese] [speaking chinese] [speaking chinese] [speaking chinese] >> translator: we have followed closely the turbulence in the political situation inside north african countries. at the same time, we take the view that it is not right to draw an analogy between china and those relevant countries.

[speaking chinese] [speaking chinese] [speaking chinese] [speaking chinese] [speaking chinese] [speaking chinese] [speaking chinese] [speaking chinese] [speaking chinese]

[speaking chinese] [speaking chinese] [speaking chinese] [speaking chinese] [speaking chinese] >> translator: with over 30 years of reform, china has achieved rapid development and its economic and social fields. the lives of the chinese people have been markedly improved. these achievements have been widely recognized.

i believe the chinese people have also seen that the chinese government is taking serious steps to address the challenges and problems in china's economic and social development. it is true that recent years have witnessed major changes in china's economy. now the chinese economy has become the second largest in the world, but at the same time, we rlc fully aware that china remains an evolving country with a large population, weak economic foundation and uneven involvement. [speaking chinese] [speaking chinese] [speaking chinese] [speaking chinese]

[speaking chinese] [speaking chinese] [speaking chinese] [speaking chinese] [speaking chinese] [speaking chinese] [speaking chinese] [speaking chinese]

[speaking chinese] >> translator: we have embarked on the involvement past that fits china's national conditions. the main features of this development are as follows: first, we will focus on economic construction and vigorously promote economic development and

at the same time we take the view t countries can learn from each other in terms of development

[speaking chinese]

and that has caused drastic fluctuations in exchange rates, some major currencies and the global commodity prices. this has not only affected one place or region and the world. actually we have seen around 2% inflation rate in european countries. in the past few months, the global grain prices have risen

by 15% and the situation in some north african and west asian countries has driven up global oil prices and that price has hit over $100 a barrel. the important inflation has had a big impact on china and it is a factor that is not easy to control. at the same time, we have also witnessed structural inflation in china due to rising labor costs and rising prices of binary goods. we must pay very close attention to this problem and take strong steps to address it. i have often said that inflatiog consumer and housing prices affects the immediate interests of the people. that is why the government has given top priority to curbing

inflation for its macroeconomic control this year. [speaking in chinese] [speaking in chinese] [speaking in chinese]

[speaking in chinese] [speaking in chinese] [speaking in chinese]

[speaking in chinese] [speaking in chinese] [speaking in chinese]

[speaking in chinese] [speaking in chinese] [speaking in chinese]

[speaking in chinese] [speaking chinese]

[speaking chinese] [speaking chinese] >> translator: i have explained the measures that we will adopt to control inflation and manage inflation expectations and my government work report in great detail, so i will not repeat the measures here. i just want to emphasize that the government has the confidence that it will be able to anchor inflation expectations. in november last year, china's consumer price index rose by 5.1%.

with their hard efforts, we managed to wring it down to 4.6% next month. that is december of last year. we still face difficult situation in the first half of this year. i am sure that you are well aware update carryover effects on the cpi. in january of this year, the cpi rose 4.9% and stayed at the same level in february, but we have a strong carryover effect standing at 3.7%. therefore we must not take this issue lately. we have taken the following measures to manage inflation expectations. first, we will continue to develop production, in particular agricultural production to ensure sufficient supply.

second, we improve the distribution center and in particular enhance the weak links and agricultural products distribution. and third, we will mainly make use of economic and legal instruments to manage the market and maintain good market order take herll continue to system efforts to manage the inflation expectations. our measures to bring down the rising housing crisis are threefold. first, we must -- excess liquidity. that is actually important for those controlling the housing prices and the consumer prices because that will help us eliminate the monetary conditions for surging consumer and housing prices. second, we will make use of a fiscal taxation and financial

instruments to adjust to market demand and third, we must intensify the responsibility of local governments in these aspects. a local governments must assume their two responsibilities for controlling consumer and housing prices. that includes the governors of provinces will take responsibility for the supplied of staple foods and they mayors will be responsible for the supply of vegetables and in terms of ringing down surging housing prices, it is the local governments that will assume the general responsibility. [speaking chinese]

[speaking chinese] [speaking chinese] [speaking chinese] [speaking chinese]

[speaking chinese] >> translator: you have a keen interest in the appreciation of chinese r&d. i would like to say that we will continue to pursue our reform of the chinese r&d exchange rate regime. actually we have taken three major steps in pushing forward this reform since 1994 and since 1994, the real effective exchange rate of the chinese yin has appreciated a 57.9% against the dollar. our practice has been to deepak

the chinese u.n. from the u.s. dollar and we pursue a managed and floating exchange rate, r&d exchange rate regime on the basis of market supply and demand and with reference to a basket of currencies. we will continue to make the r&d exchange rate more flexible in line with the changes in market supply and demand. at the same time the appreciation of the chinese currency should be a gradual process because we must bear in mind it's impact on the chinese businesses and our employment situation. we must ensure overall social stability in this process. thank you. >> i am from cnn. premier wen, you have served as premier for eight years now and

maybe you will step down in the year 2013. what kind of legacy do you wish to leave behind? what performed you advocate so that you and the government can better address the problems, concerns and grievances of the chinese people. at du for example support the ide -- idea of competitive elections on various levels of government? thank you. [speaking chinese]

[speaking chinese] [speaking chinese] [speaking chinese] >> translator: your first question came a bit prematurely. [speaking chinese]

[speaking chinese] [speaking chinese] >> translator: there are two years left in my current office and i still have a heavy agenda of my work. i think i should continue to do my job diligently on this position. like as devoted as a soldier. i always have the interest of the country in my mind and i

pursue no personal gains. i will continue to perform my duties conscientiously. [speaking chinese] [speaking chinese] [speaking chinese]

[speaking chinese] >> translator: i believe reform is an eternal theme of history. political restructuring and economic restructuring should he advance in a coordinated way. nothing in this world stays immutable. and it is only with reform that we can ensure continuous existence and growth. it is only with reform that our party and the country will enjoy

continuous vigor and vitality. [speaking chinese] [speaking chinese] >> translator: second, political restructuring offers a guarantee for our economic restructuring endeavor. without political restructuring, the economic restructuring would not succeed and the achievements

we have made in economic restructuring may be lost. [speaking chinese] [speaking chinese] [speaking chinese] [speaking chinese]

[speaking chinese] [speaking chinese] >> translator: third, i take the view that at present corruption poses the biggest danger to eliminate the breeding ground of corruption, we should ers new institutional reform. the hearts of the people are the life of the country. if we are to address the people's grievances and meet

their wishes, we must create conditions for the people to criticize and supervise the government. [speaking chinese] [speaking chinese] [speaking chinese]

[speaking chinese] [speaking chinese] >> translator: for fairness and justice are the defining features of socialism that form the foundation of social stability. we must promote fairness and income distribution and gradually narrow the widening income gap.

at the same time we should also promote fairness in the distribution of educational, medical and health services so that all people will be able to share in the fruits of china's reform and opening up. if we are to achieve all of these above-mentioned goals, we must pursue economic restructuring and political restructuring. [speaking chinese] [speaking chinese] [speaking chinese]

[speaking chinese] >> translator: fifth, we must ensure that each and every one will have an equal opportunity at receiving education, and we must give full play to the people's independent thinking and creativity. it is only clan the people feel that they are fully motivated that we will be able to put our reform and development endeavors on solid footing. in a sense, this captures the essence of democracy. [speaking chinese]

[speaking chinese] [speaking chinese] [speaking chinese]

[speaking chinese] [speaking chinese] >> translator: people's deputies are now directly elected at the county level and in cities without districts. the villagers can now exercise self administration and villagee indirect elections at our city level and at the central authorities level. moreover, we have the

multicandidate elections for members of the central committees in the central authorities. i believe we must pursue a step-by-step approach in this process. we also should relieve back when the people are capable of running the village affairs well, they will also be capable to move from running a village affairs to running the affairs of the township and a county and that will be a gradual process. [speaking chinese] [speaking chinese]

>> translator: it is by no means easy to pursue political restructuring in such a big country with 1.3 billion people. it requires a stable and harmonious social environment and it needs to be taken forward in an orderly way under the leadership of the party. thank you. i am with interfax of russia. i have worked in china for 18 years. i like this country very much and hope to continue to live here. more recently we have seen a much changed in the consumer prices in china. i would like to ask what is the cause for inflation? many russian media organizations have spoken highly of the measures taken by the central government and countering the international financial crisis. they say that it is because of those measures that china has been one of the least affected

countries during the financial crisis. do you agree with this view? [speaking chinese] [speaking chinese] [speaking chinese]

[speaking chinese] [speaking chinese] [speaking chinese] [speaking chinese]

[speaking chinese] [speaking chinese] [speaking chinese]

[speaking chinese] [speaking chinese] [speaking chinese]

[speaking chinese] [speaking chinese] [speaking chinese]

[speaking chinese] [speaking chinese] [speaking chinese]

[speaking chinese] [speaking chinese] [speaking chinese]

[speaking chinese] >> translator: as a matter of fact the international financial crisis has exerted a huge impact on china. it has exerted a big impact on the real economy. we may recall that between the end of 2008 and the first half of 2009, global trade tumbled by 26%. and chinese exports also fell substantially. the baltic sea crude oil index once dropped to zero. when i paid an inspection trip

to a containment poured in shane jen, the local manager told me that not a single order was received. at a certain point the chinese gdp health -- gdp fell to 2.8% in its growth. a large number of businesses had to close and a large number of broommack migrant workers have to go back to their home villages. it is under such tough circumstances that we adopted a stimulus package that has four key components. they include we massively increased government investment and conducted structural tax cuts so as to return the businesses to growth. second, we improve the social security system in order to stabilize and improve the people's livelihood. third, we vigorously promoted

science and technology advances to sustain the momentum of china's economic development and forth, we carried out massive structural adjustments and chinese businesses and in particular encourage the growth of strategic emerging industries. all the stimulus measures are designed to not only address immediate problems but also ensure china's long-term development. the government introduced an investment plan and as to the proportion of the expenditure under this plan on the part of the government, i have already given a detailed explanation and my government work report. i think the very crux of your question is about the impact of the financial crisis on the chinese economy, whether the impact is a small one. well, i would like to say that a

person who has not experienced the difficulty will not be able to fully appreciate the gravity of the difficulty of self. it is with very hard efforts that we managed to make the chinese economy one of the first in the world to achieve a recovery and rebound and avoid serious set backs in china's economic development. i think these achievements of china on this front have been widely recognized. with respect to the inflation issue that you raised, as i said before, inflation now is a global issue. some emerging economies experienced 8% or even 10% of cpi rise and i have far hard explained our views on what are the causes for such inflation. i would like to an particular

stress that in managing inflation expectation and fighting inflation, we will really manage the currency environment in particular to mop up excess liquidity because that way we will be able to root out the fundamental cause for inflation. thank you. ..

securities exchange commission his mother had invested with

convicted ponzi scheme of bernard madoff and he advised the sec on the case. the house oversight subcommittee looked into the matter. you'll hear remarks from the sec chairwoman mary schapiro and the agency's human-resources director. this is a little over two hours. >> the committee will come to order. i will start by reading the oversight committee [inaudible] primm of the principles first americans had the right to know the money washington takes from them as well spent. and second, americans deserve an efficient and effective government that works for them. our duty on the oversight and government reform committee is to protect these rights. our solemn responsibility as a whole government accountable to tax payers because taxpayers have a right to know what they get from their government.

we will work tirelessly in partnership with citizen watchdogs to deliver the facts to the american people and bring them genuine reform to the federal bureaucracy and he. this is the mission of oversight current reform committee. today we are here for a hearing titled a joint hearing different financial management workforce, but in the financial service subcommittee of t.a.r.p., and starred on the oversight government reform committee on the t.a.r.p. financial services and bailout private programs in a joint hearing with financial management work force and operations subcommittee. and this hearing is entitled sec, who's watching wall street's watchdog. when we call this hearing originally we were concerned about capital formation and accountability at the sec. a number of management practices that come to light at that point that we thought it would be important to discuss.

but a lot has changed just in the last two weeks in terms of disclosures of what's happening in the sec and the larger issues of concern with management and strike the agency's credibility. and so there will be a lot of questions to the regard at today's hearing. i welcome the panel and thank you for being here and with that on a yield of the chair of the full committee, my customary five minutes as subcommittee chair for his opening statement. >> i thank the chairman for the opening statement. i, too, of this hearing would be about slightly different matters. but in the recent days the committee has become aware what could be the greatest challenge to the sec's credibility since bernie madoff managed to do so many americans and steal money antiskid the proper scrutiny of the sec for so long.

as we have learned in 2009, the former general counsel mr. becker came to the sec and informed the chairman of that he had a potential conflict of interest. we hope to learn exactly how that was expressed but in fact he had received along with his siblings $2 million that came from the liquidation of bernie madoff fund in 2005. it would be serious enough that anyone who would normally consider he should be recused from any activity related to the madoff after action. notwithstanding mr. becker feeling that this was as we have understood a to eminem this amount relative to his estate in fact merely continued to be involved but was instrumental in having the sec inserted into the

process of trying to change the determination of how much money would in fact be considered to be eligible home and retained by those who got their money out before the collapse versus how much will be called back for the greater good of all of those involved and victimized by the ponzi scheme. had mr. becker's suggestions been taken, in fact, mr. becker's mother's estate of $2 million would have benefited all those who were there until the end and lost so much would have been victimized. the problem we are going to be probing into in this hearing in addition to others is can we trust and the sec where the process allows an individual to inform the chair when to inform the ethics individual who actually reports to the general counsel and get effectively clean bill of health not to

disclose and not to recuse even to be involved in an action that haven't been accepted as ever understanding is by the trustee would have led to the distortion process in favor of mr. becker's family. now we take mr. becker at his word that in fact she intended no wrong. we are willing to take actually the 25 minutes the efiks one individual with that the sec made the determination there was no problem and stuck by it. we are willing to hear the chairman today. we are not willing to do as a committee that deals and waste fraud and abuse and as a committee of congress all of us being concerned great deal about the confidence in what the sec represents in its oversight and its fairness and its contents we are not willing to accept what we this can never happen again. mr. chairman who, i am not going to presume any facts not yet in

evidence. so far, we only have a limited amount of reports, i clawback procedure against mr. becker and mr. becker's allin interview here with some of our investigators. today we have an opportunity to listen to the chairwoman will, to realize in fact he inherited an organization that had no false, that her independent agency has in fact been what the subject of the president's attention and that we have not yet high confidence, but i hope that in fact the sec will let live up to its mandate not to just of having a complex web of rules that tell public companies that if their own child works for a company they can't really be of sight or independent officers or directors of the company, or for example but a conflict is to people who oversee who can be on the

compensation committee. it's a complex business. but it relies on the belief that the rules are necessary and implemented in a sensible way, uniformly and therefore he purpose. i believe as we look further into the becker matter, we are going to find the sec field to have the highest level of care to the public confidence to be maintained. i can find no way out of this. i hope today we at least understand how this mistake came to happen. chairman, once again, thank you for holding this important hearing and i yield back. >> thank you, mr. chairman and for your opening statement. i recognize the distinguished member from illinois, the subcommittee chair of t.a.r.p. financial services a lot of committee -- unsury a permit to use the chairman. ranking member. >> soon-to-be chairman. [laughter] >> if you want to scoot over i am good with that. [laughter] >> thank you so much,

mr. chairman. and i will be joined by german platts as well but i would like to think the witnesses for their time today and the contributions. as we all know in december of 2008 bernard was arrested for running the largest time in american history. it was estimated $18 million devastating the savings of many americans. we all know the sec made office by being tipped off on several locations. although no regulatory agency should be expected to be perfect, the failure of this magnitude is clearly unacceptable. how did this happen? many lamb the fcc outdated technology which is woefully behind the financial firms are using. many blame the problem which prevents coordination among the sec and the offices and other that has been cited as the sec workforce which some margin includes too many lawyers and not enough industry veterans. and we've all heard about the sec employees union pornography instead of doing their job.

these are reasonable concerns and merit oversight from these two subcommittees. we've also heard about the potential conflict of interest from david becker, senior counsel with the fcc -- sec is my understanding that david copps is investigating the matter and i look forward to his report. just from the financial crisis since the great depression, we view the sec to do its job and do it well. the sec has watched its policeman and established by the 1934 securities exchange act to prevent fraud and abuse in the securities market, creating the sec was essential to restoring investor trusten the country's economic system. if the economic system is going to work so was the nobel laureate joseph stieglitz, and we have to make sure that what people gain when the sheet is offset by a system of penalties.

they bring the cases against firms that sold fraudulent financial products. in 2010 for a simple the sec brought 681 enforcement cases against 1800 defendant's. just as all of us feel more comfortable in the neighborhoods when they are well policed, investors feel more comfortable buying in financial products when the sec is doing its job and prosecuting white-collar crime and the sec is more important today than ever before. trust in the financial system and its lack of trust is impeding our economic recovery. the financial regulatory reform law we passed was listed in the right direction. but it alone is insufficient. the laws have to be in force and the sec has to be a strong enforcer. unfortunately the house passed a budget would reduce the sec funding from its current $1.1 billion. for comparison's sake, citibank spent 1.6 billion on marketing

alone in 2010. how is the sec expected to police will street with the entire budget less than the marketing budget of one of wall street bank. in may 2010 report, the minority staff of the oversight committee found that the commission's security discussion is technologically backward. yet under the house passed the sec wouldn't people to continue any improvement of its i.t. system and the budget is reduced to 2008 levels as some have proposed the sec would have to lay off 600 workers. my point is this, just a few years after the madoff worst financial crisis in recent history should we be the be talking about taking 600 cops off wall street? let's strengthen the sec, not weaken it. and let's also ensure the sec undertakes common sense reform to avoid past mistakes. put another way, after 9/11 despite intelligence failures were we didn't cut the

intelligence budget. we doubled it. it's my understanding the sec has already reorganized and brought in the design of the tips referral system due to the commendable steps. in the end, our country will be safer from another financial crisis if the sec is well-organized and is well founded. i look forward to hearing from our witnesses who weigel will provide some instructive ideas on how to improve the sec's oversight financial markets. thank you and i yield back. >> i thank the ranking member, and with agreement on our side the doctor from arizona will have five minutes for an opening statement. thank you, mr. chairman. let me preface my comments with the following nei heat. i'm not a financial analyst by not in accountant. i'm not a lawyer but i do have scan in the game as do most americans. most americans are compelled to invest in the markets to their

employer sponsored retirement plans with a they are a 401k or public or union pension plans. the money largely goes to wall street. the public needs assurances that those who handle our money and our retirement futures are playing by the rules and are being fair and are honoring the fiduciary responsibilities and obligations. the public assurances come from the securities exchange commission's. the sec is supposed to be guarding. this year raises troubling questions. who is watching the hen house? the talks? -- what was the fox. >> recent reports focus on david becker's conflict of interest, but this problem is actually cheaper and goes to the very heart of management practices at the sec. every organization mechanism to prevent or detect fraud, waste or mismanagement. these are commonly known as

internal controls. it would appear that internal controls at the sec are not functioning properly. one, the government accounting office tells us that the sec is not able to reliably tracked its finances because it cannot control its own financial reporting. number two, the sec's inspector general tells us that 30 employees including an assistant regional director used sexually explicit material support and only one was actually fired. was anyone else over this point? number three, now in the news media that allows the sec's general counsel was allowed to tell the commissioners on the madoff case when he had a personal financial interest. all of these matters represent a breakdown of oversight and management. a failure of internal controls. the sad irony is that the sec is the federal agency in charge of making publicly traded companies have an effective internal controls and public government

structures. in fact, mr. chairman, the publicly traded company the sec would be investing in investigating itself, and would be the penalty? federal agencies are subject to the federal managers financial integrity act which dictates the provide annual assurances to congress that their internal controls are adequate. the law has been in effect since 1982 and governs not just financial management, but program management as well. the management integrity act is within the committee's jurisdiction. therefore this hearing is about an important legislative oversight purpose the commission's compliance with of the law and others. mr. chairman, the anecdotal with samples of the internal breakdown or her symptoms of a much larger systemic breakdown. since there is no sec to investigate who the sec, today i challenge my colleagues. thank you, mr. chairman and i yield back the balance of my

time. >> i thank the gentleman, and i now recognize the link a member of the subcommittee on the government organization, efficiency and financial management, mr. towns, former chairman of the committee, full committee, for five minutes. >> thank you very much, mr. chairman. thank you for holding this hearing today. the sec is at an important crossroads. >> is successfully emerging from a troublesome period. leading up to the collapse of the country's financial system. and it is to take the lead in reforming wall street and preventing another financial meltdown due to its enforcement of the dodd-frank act. this hearing will examine financial management work force and internal operations at the sec. it is encouraging to see all the new initiatives, chairman shapiro has put in place in the last two years. the sec hired its first to britain to become chief operating officer to oversee the functions in the financial reporting and internal controls and we salute you for that,

madam chair. the sec has also hired a new chief information officer to oversee its information technology function. the chair person has restructured the entire enforcement division recruited experts and is putting in a new government structure in place. this is commendable as well. as with any organization, lapses can and do occur. i understand the sec has taken this very action against those who have been accused of misconduct at the commission and that greater accountability has been integrated into the disciplinary process. the sec is responsible for safeguarding the confidence of american investors in the financial markets, and i hope our hearing today will help our financial fulfill its mission and i now yield the balance of our time to the ranking member of the full committee.

>> thank you. >> abbett thank the gentleman for yielding. the committees responsible for assuring our government operates effectively and efficiently. that means holding public officials to the highest standards, demanding excellence at every turn and eliminating even the appearance of impropriety. today the committee intends to examine allegations against david becker, former general counsel of the sec. i do not know, my duty to mr. becker peery i've never met him, never talked to him, and the minority was excluded from mr. stifel's interview and chairman fisa's stat interviewed him. but i do want to make sure everyone who comes before this committee is treated fairly and putting mr. siegel, chairman shapiro and others. if understand the facts quickly, mr. capito's was 500 possible was with to bernie madoff in 2000. mr. speaker's mother died in 2004 and when her funds are divided among mr. spiegel and his two brothers in 2006, they had increased to about

$2 million. when mr. becker joined the sec in 2009 he notified the officials about his inheritance and when the issue is a rose that led to his inheritance. he sought advice from the sec officials and received clearance to proceed. some have suggested mr. becker may have benefited financially from the leader decisions but it appears that the opposite may be true. the basic question the as easy faced is whether to support an asset dalia ressa method used by representing the bernie madoff victims called the cash and cash out at it and the different evaluation methods proposed by several law firms in the last statement that it. under the first mr. becker's inheritance would be subject to litigation to recover or clawback assets on the victims. under the second, it appears that there would not. based on the following the sec chose to support the first method this meant the trustee could sue mr. becker and his brothers to recover some of his mother's inheritance which is

exactly what happened. mr. chairman, in your briefing memo for today's hearing, you acknowledge that the sec's decision was, quote, actually detrimental to mr. becker's interest. nevertheless, i have serious questions about the conclusions of the sec's ethics office, chairman shapiro, that these issues had no effect on mr. speaker of's financial interest. someone else of question might have tried to get vintage of the situation. i also have questions about whether mr. becker's interest should have been disclosed more widely within the sec, and i hope we can learn more about this process today. i also invite my her republican colleagues to join us in making sure the sec has all the resources that it needs. the proposed cutting $148 million from their budget. and we do need a robust sec.

chairwoman shapiro i read what you have done and accomplished. you inherited a mess. an agency that chairman mccain said should resign. we understand that. and so again, i'm looking for a fair hearing and one where we can get to the bottom of all of this yield back. >> i thank the ranking member, and all members may have seven days to submit opening statements for the record. we now recognize the panel. we have the honor and mary shakira with the securities exchange commission, mr. jeffrey rice center is the director of the sec's office of human-resources. mr. john thune had a jack katz is the chet deacons of the three of the exchange commission. mr. stevan is a securities attorney who serves as deputy to chief litigation counsel of the sec's enforcement division from 1993 to 2001, and ms. helen

chapman is the attorney representing approximately 250 investors, and mr. bernard madoff's investment securities firm. it is the policy of the committee that all witnesses be sworn in before they testify. please rise and raise your right hand. >> do you solemnly swear or affirm the the testimony you are about to give this committee will be the truth, the whole truth and nothing but the truth? >> you may be seated. the record will reflect all of the witness's answer in the affirmative. and with that, i thank you. and so we will begin at this time with german schapiro. for opening statements and we would love to hear yours about this conflict that has been discussed. ms. schapiro. >> thank you very much, mr. chairman, randy members quickly and towns and members of

the subcommittee. thank you for inviting me to testify regarding the financial management workforce management and internal operations of the securities and exchange commission. as you know, i'm joined by jeff risinger of the office of human-resources. when i arrived at the sec two years ago, the agency was reeling from a variety of economic events and the chandeliers and a need of across-the-board reform. we needed more experts attending the connection among the divisions and offices. and an effective strategy for handling the tips and complaints. and these challenges were exacerbated by inadequate infrastructure, much real weaknesses in the financial management and a culture that had failed to keep up with an increasingly complex financial marketplace. and so we immediately and comprehensively set out to change the way the commission worked. my written testimony details the reforms of the last two years that i would like to highlight. we brought new leadership and senior management to virtually every office and hired the commission's first chief

operating officer. we revitalized and restructured our enforcement and examination operations and revamped our handling of tips and complaints. we broke down internal silos and created a culture of collaboration. we recruited more stuff especially after the experience and expanded our training and we enhanced safeguards investors assets for rules and leveraging of the public accounting firms. although we've made significant progress we continue to seek ways to improve our operation. after all, our core responsibilities pursuing fraud, reviewing the corporate disclosure overseeing the largest cattle markets in the world and inspecting the activities of thousands of financial intermediaries are essential to restoring investor confidence in the wake of the financial crisis. but our funding is presented challenges which in 20052007 the sec experienced three years of frozen or reduced budgets forcing it to% reduction of the

agency staff. similarly, the agency's investment in new enhanced i.t. systems declined to approximately 50%. during to those of five to 2,009. while the staff levels are just now returning to the 2005 levels, the securities market have undergone tremendous growth since then. indeed, during the past decade, trading volume has more than doubled. the number of investment advisers grew by 50% and the funds they manage increased $38 trillion. and operating under the continuing resolution, only exacerbates the imbalance between our resources and the magnitude of the mission. at the same time, the dodd-frank act was significantly expanding the sec's response of the fees for the derivatives market, hedge fund advisors and municipal but pfizer's. in addition, we are also charged with enhanced supervision of the rating agencies, and regulation of asset backed securities, and the creation of the new whistleblower program. for these reasons, i am concerned that without

additional resources, we will not be able to fulfill these responsibilities in the manner in which congress intends and the american people deserve. finally, i would like to address the issue of the former general counsel david becker's role and why did his mother's own version of an account at madoff that was closed year before the fraud was revealed. mr. becker informed me, i believe shortly after he arrived in 2009, that his mother had had an account with becker de need madoff before she died and had been closed a number of years before he returned to the agency. it did not strike me that his mother's account closed years ago which presents a conflict of -- financial conflict of interest. mr. becker was and is an experienced attorney who observed his general counsel under three chairman. and i relied on him to present any ethics related issues to the ethics counsel and follow the ethics counsel at fisa and i understand that is what he did. when i returned to the agency in 2009 having served there in the late 80's and the early 90's

appointed by president ronald reagan and president bush, i read many letters from madoff's victims, people who had lost everything. moly entire focus was on how to fix the sec to ensure that another tragedy like madoff could never happen again. and how to make sure with the contours of the securities investors protection act that we could get the most money to people who were literally losing their homes. i am proud of how much was accomplished in the past two years working tirelessly with an extraordinary staff to improve the operations of the commission and enhance the public perception of the integrity of our work and fairness of our decisions. but while mr. becker did solicit and follow advice from the ethics counsel, i realized in light of this incident that is the chairman i have to ensure that we go beyond what may be required in any particular situation to be on matters like these, have to be looking around the next corner, looking beyond the horizon and thinking about and beyond what may be appropriate advice from the

ethics counsel to make sure nothing occurs and could raise questions about the commission's mission or process these. to ensure that this matter fully refuse i requested the sec inspector general conduct an independent review and analysis of all of the relevant facts. in addition, under the leadership of our new ethics counsel, we are performing a top to bottom review of our ethics program. in the meantime i look forward to answering questions about this matter to the best of my recollection. but i can say to this committee with assuredness we will learn from this experience, and we will take all actions necessary to earn the trust the public places in the us. thank you. >> thank, chairman. i would counsel the committee that the light will tell you one minute to go, yellow, and red means stop. so with that, if you could keep your comments to five minutes we would certainly appreciate it. mr. risinger. islamic mr. chairman, happy to be before the committee today. i look forward to your questions.

i have no further statements. >> five seconds. that might be a record. [laughter] thank you and congratulations. mr. katz? >> good afternoon, chairman mchenry, sharon platts, ranking member quigly, ranking member towns, members of the subcommittee. it really is an honor to be invited to testify on the operations of the securities exchange commission today. it's a matter of which of great interest and importance to me personally because for once in my career i was appointed the sec. for 20 of those years i served as the commission's secretary which was one of those unusual positions that afforded me the rare opportunity to participate first hand in the aspect of the commission's responsibility. and i retired from the commission in january, 2006 and a five intervening years i've been fortunate. i've served as a technical lead pfizer to a variety of securities commissions and the government and emerging market countries.

and i also had the opportunity to speak and write about financial regulation in the u.s.. in 2008, the center for the capitol market competitiveness at the u.s. chamber of commerce invited me to conduct a study and write a report on how to improve the efficiency and effectiveness of the sec. on the road this study based upon interviews with more than 50 current and former sec staff persons and commissioners who agreed to be interviewed and gave me their insights and criticisms. the best of which are shamelessly school. in addition in 2009 the board and article to the pittsburgh review to this article focused on the enforcement division of the sec. a subject that i didn't discuss in the chamber report. and which reflected the reviews of a wide range of people this was my own personal view. in both documents i attempted to construct and identify what could be done to make the sec

more effective capital market regulator. today i am aware that one of the philippines is of course the budget and question of resources. i have to answer that i, like most people, agree the agency needs more staff to carry out its responsibilities. but while more money and stuff is necessary, i don't think it is sufficient. to do the job well, the agency has to reexamine how does the job and i think it has to make changes. i find that it's time to critically self examine the core functions and recognize most of them just hadn't been very effective. my concern is that just having more people do more of the same things in the same way is not the best solution. we need fundamental changes in organizational management and definition. chairman schapiro has identified a number of the initiatives she

has undertaken and i commend her on them. i worked for several german and for acting chairman and i will tell you that with the possible exception of the press chair i worked with, chairman schapiro focus more attention on management organization than any of the other intervening chairman. but again these are steps that i think more needs to be done. i want to highlight the plight points contained in my written statement, and i don't have time to go through all of them but people have questions i would be happy to do it. i think the agency needs a partial reorganization. i advocate what is referred to internationally as the twin approach. one division that deals with all aspects of the retail financial-services regulation and another division that handles all provincial functions and divisions, the so-called safety soundness and stability functions. i think the agency needs a chief operating officer.

ipod chairman schapiro for appointing one. but i think you have to go further. you need a chief operating officer who really is that and has more than a title. the way i distinguish it is when you try to build a house, the architect and the owner designed the house, but you need a general contractor to actually get done to build it well and keep your budget and on time. i see my time is almost up, so i will quickly identify to other things. there needs to be substantial changes in enforcement. when you look at madoff, you understand in my opinion this wasn't a question of ability. madoff is of the commission and the stuff, these are structural issues that go with how the division enforcement frames its responsibilities and conduct those responsibilities. it has to be proactive, not reactive. and its results have to be aimed at the mediation, not penalty's

too late penalties are a function of the justice department. and in that respect i would advocate very strongly the securities office in the department of justice so that the agency doesn't have to rely upon the southern district of new york which is the limited jurisdiction. and just in closing i want to mention what i think is the most important recommendation of all. the need for a special study of the securities market. in 1961 the sec was troubled the markets were in similar of people. congress appropriated funds to permit a special securities markets. a group of technocrats, experienced people in government industries spent 18 months studying the markets and studying how the fcc functioned. they issued a fallujah fallujah report that literally for 25 years was the touchstone for everything the sec did. i think we need another one. thank you very much for your time and i'm happy to answer

questions. >> thank you, mr. katz. mr. crimmins, who are recognized for five minutes. >> thank you. german, ranking member platts, member quigly and member cummings committee for having us today. over the last decade we've seen an explosion in the size and complexity of our capital markets exponential increases, and fleeting volume, brokers dillinger thousands of trades in a few seconds instead of maybe 100 trades per day, high-speed computer trading strategies, fragmentation of creating away from the exchanges in the dark pools 24/7 globalist stock trading. we've seen investment products become so complex that the sophisticated traders who trade them at least fully understand what they are. and scary systemic risk that threatens the recurring crises. now after the crash, we see many investors pulling out and staying out of stocks and mutual

funds. investors are still scared and sidelined with their decimated 401k. investor perceptions are critical. these people will be unwilling to continue to risk the capitol or other capital again if wall street's cop on the beat becomes a call on furlough. last summer and the depth of the worst financial crisis in 80 years, congress recognized the securities exchange commission needed twice the budget to be relevant in today's huge complex and hyper charged markets. whatever issues any one in congress has with the sec, i would respectfully suggest the answer is not to starve it in the week of the crash. the answer is not to create an environment where it will be easier to pray on investors and instead the answer is for all of us here and now to come out firmly to do whatever it takes to make the sec the strongest overseer that our capital markets deserve to recover and grow. one thing is of paramount

importance, nobody is asking the taxpayer for one line to fund the sec. what is often forgotten in the discussion is that american taxpayers pay absolutely nothing to run the sec each year under 1996 legislation adopted by a republican congress and democratic president, the money to run the sec comes entirely from wall street for fees and assessments designed to cover the cost of the sec's budget. the cost of this is substantially increased sec appropriations paid for with a successful 15 years of funding mechanism would require no tax dollars whatsoever and would add nothing to the deficit and in short the wall street user fee money is already there. congress just us to the sec use it to police wall street. madoff was a tragedy. the sec nist madoff and chairman schapiro and others have not tried to ev or run away from

that fact. but so did finra was predecessor installed him as the vice-chairman and the justice department. and so did the new york attorney general with madoff right in his own backyard. and so did how many others in putting the sophisticated financial services firms that regularly interrupted. madoff as an industry idle and nobody knew that he was a crook. yet, for a second the sec was out there bringing almost 700 complex cases from enforcement every year against almost 2,000 defendant's every year and with greater funding put abroad for more. we have criticisms of the sec departed counsel david becker. his tower i would suggest is misunderstood. he was in the secretary of some cabinet level department. instead he was the general counsel one of multiple senior advisers at a five member bipartisan commission that posted to republicans, two democrats and one independent

and whatever the power he didn't use it to benefit himself. the month after he left the agency is still to this day remains unclear exactly how any of the madoff plans are ultimately going to be calculated. and in any event the madoff trustee purports to the court, not to the sec and he will make his own decisions on what he wants to claim. finally, we need some perspective. what we are talking about is whether the estate will get to keep the 500,000 invested or whether also to keep some small amount on top of the inflation adjustment. this is breaking down and being discussed. the senior ethics official he consulted with rules that were ever theoretical conflict this may actually have presented it didn't create such a conflict he needed to reduce itself based on what was known of that time.

the possibility of a claim against the particular type of some future date was up that time to strike. now we know more of course. and the amount -- >> thank you for your testimony. you are recognized for five minutes. thank you so much for giving me this opportunity -- >> if you pull the microphone to your mouth is directional. >> thank you for giving me this opportunity to speak to you. i speak on behalf of approximately 500 madoff investors who might represent. and i speak as well on behalf of every american who hopes to save enough money in his lifetime to retire on that money. i speak on behalf of every american who relies upon the plaque on his broker's desk. we are told when we invest every account is insured up to

$500,000, and yet they've taken the position in the madoff case that the law doesn't apply to. and if i had to grade the performance with respect to its essential functions of protecting investors with respect to the case i would give the sec and f. instead of enforcing a law against them which it is charged by congress with the obligation to do, instead of enforcing the law we now know that in january of 2009 the sec agreed that for the first time in its history it wouldn't pay the insurance to each victim based upon the investors last statement. it is an insurance industry established by congress which has the power to assess the wall street firms to raise the fund

to protect investors. the statute doesn't give the right to define how it's going to allow a claim. the statute mandate's a claim is based upon the customer's last statement. and yet, the sec joined in sipic violation of the statute. this is not just my opinion. this is the opinion of chairman garate who has proposed h.r. 757, and in proposing h.r. 757 which is simply a clarification of the law, one could you h.r. 757 as a statement to the sec you cannot avoid the law. mr. garate made a statement when he introduced this bill and that sipic violated the law and the trustee in the madoff case has violated the law. if you recall in 1970 when they

were enacted, investors were encouraged to relinquish the protection of having certificated securities. that is something that will street wanted. and in exchange for the relinquishment of the protection investors were promised insurance raised to $500,000 in 1978. it was never raised after. but in the case decided the was going to be too expensive for its wall street members and so it was going to try to come up with a antiyearly new basis for ensuring accounts for the first time in the history it decided it didn't ensure the balance on the last statement. it only ensured the net investment over the life of the account which might have been 20 or 40 or 40 years. there is no evidence any investor in today's stock market

has of what he owns other than the statements he receives from his brokers. we don't of the luxury of going back to the certificates securities. the internal revenue service relies upon those statements. every investor relies upon those statements for planning their retirement, for planning their estate for their children. there was no basis in the law for with the sec did in this case, and this isn't a question of insufficient funding for the sec. this is a question of doing its mission which is to protect the investor. i'm not here to opine on whether or not he had a conflict of interest. i don't think there can be any doubt about it. but whether he advocated the constant dollar adjustment which obviously reduced his own exposure or whether he said to the sec when he came on board in february, 2009 you have made an

illegal agreement with sipic which would have worked to his advantage his judgment was clouded because everyone in the sec for what the law. there was one way to remedy this and to restore confidence in the capitol market for the average american. and that is to enact h.r. 757. thank you. >> thank you for your testimony and i thank the panel for your testimony with that we will begin questioning on our side. by mr. echostar fears on a recognized for five minutes. >> when david becker were general counsel first came in to be recalled to thousand nine and set when mother had an account with to bernie madoff why didn't you ask any questions about it? why didn't you ask questions like how much money? >> to the best of my recollection and just so i can be cleared i haven't looked at

any e-mails or whether there might be any contemporaneous notes or anything like that from the time so i'm calling back the cause of the inspector general is looking at all this. as i was looking back two years ago it's the best of my recollection was mr. becker told me his mother passed away years ago had an account at madoff i didn't, because the account was closed years before. i didn't think that the account will long deceased relative would raise the issue of a conflict of interest and mr. stifel's work. i did expect he would go to the ethics counsel and he's inexperienced government officials, government lawyers circuitry chairman of the fcc, and we use our ethics counsel all the time for their advice. i expected them to run by the ethics counsel and to follow their advice, and that's the way that it went forward. >> it seems that it's the same situation existed in a publicly

held company that you were investigating would you turn such a cavalier -- have a cavalier approach to that? is to make it hard to imagine the situation using the government ethics rules and concern about -- >> ethics rule nonetheless. >> it's very hard to answer the abstract. >> just it seems that there is a very different aspect but what good in the private sector and publicly traded situations isn't going well for the government. let's go to my next question. do you believe the account that it that david becker recommended to the commission has its attorney would have benefited its personal financial interest? >> there is no question that the constant dollar approach which apparently mr. becker invented would benefit him personally and reduce the quebec exposure. the more significant problem with the conflict of interest that mr. becker had is that if you cloud his judgment, the law

is absolutely clear that every investor is entitled to insurance based on his last statement. and mr. becker had an obligation as the general counsel of the sec to make sure that the sec comply with the law and enforced it and that is the great failure which has caused devastation to all of my clients. ..

$500,000 respectively with made-up. the inspector inspector general found it necessary to make sure sure that this note employee had no involvement in any examination. do you think the inspector general would have been interested in a situation involving your chief lawyer and senior sec official who served as general counsel from 2000 to 2002. >> i can predict -- i can imagine you might have been and of course he is looking at all of these issues now and i expect he will thoroughly explore that. >> understand you inherited a horrific rob him, but it always starts with the top down.

they always look at accountability within the hierarchy and it seems like we have a two edged sword here. we should have demanded a better accountability. speeding congressman i would agree from where i sit now in understanding the things i understand now that i didn't understand in and 2009 having arrived at the sec and discovered i had an agency in absolute -- to manage. and not knowing all the steps that would be taken by the trustee or a good decisions the commission would make down the road but knowing those things now i wish that we had -- i wish mr. becker had recused himself. >> the gentleman from illinois mr. quigley is recognized for five minutes. >> thank you mr. chairman. madam chairwoman "the new york times" shirt for good on march 5 this year that the sec declined

to enforce the requirement from dodd-frank. that would make rating agencies subject to expert liability and the securities law. this would make rating agencies liable for false ratings. could you comment on the timeline for implementing this measure? >> yes, i would be happy to. the way the rule works world works is if the rating is included in a registration statement for security than the rating agency must consent having liability. that is the dodd-frank requirement. we had existing sec rules that required for asset backed securities registration statements that of the rating was used to sell the securities the rating needed to be included in in the registration statement. rating agencies have absolutely unequivocally at least the ones that are in existence now, refused to consent so that made public offerings up asset-backed securities impossible because they couldn't get the consent of the rating agency to include the ratings but they use the ratings

to sell the securities. so we temporarily set aside our rule, our requirement that the asset-backed issuers disclose their ratings and a registration statement because we didn't want to be holding up all public offerings up asset-backed securities and pushing them into the private market which we felt were not as good for investors. we are right now, our staff is working through a reconsideration of our disclosure requirements and i believe that they recommend we eliminate our preexisting requirements for including the ratings and therefore the liability provisions can go forward. we are also hopeful that some of the newer rating agencies that it indicated an interest in becoming registered with us will actually be willing to consent which is i think i'll congress hope the ball would work. speak and you any guess on the timeframe for that? >> i can't but i would be more than happy -- i would say over the next couple of months but i would be happy to get you a more definitive answer right away.

>> thank you and he talked about the agency that you inherited. you talked about to a certain extent the reforms necessary and those you have implemented, but as mr. camps point, whether or not more assets -- i think you need the assets to do your job, help more than the need for in a sense restructuring, reforming and reinventing yourself. are you looking at the agency from that respected than the broader picture? if you were to start over what would you do and how would you do it? >> absolutely. i actually would do again many of the things we have already done. this has been an agency that sort of has been upside down and shaken pretty hard over the last two years so new leadership across the board in every major office in division, new chief ethics council. we also restructure enforcement division and people into specialized groups where they could get deep expertise more

quickly in particular areas like structure products. we have also restructure their examination program. both of those, enforcement and examination largely in response to the failures that were so vividly demonstrated in the inspector general's report on madoff. we have also brought new technology which is going to be critical to us. we have too many people doing low value work because we don't have the technology. >> what you mean no value or? >> for example when we bring enforcement cases would bring in massive amounts of electronic data so that we can look at trading records or we can look at e-mail transmissions between parties who might be sharing nonpublic information. we need to be able to use it data analytics to find the important information in all of that and not have people plowing through all that information. when the markets fell so dramatically on may 6, tickets tickets -- it took us five

months to reconstruct trading data because we don't have the capacity in the sec. >> that was the final question given we have limited time. the technological match for those that you are regulating. >> not at the moment we are. we have a phenomenal new information bester making real progress i think that we are a long way from the people that we are regulating in terms of our technical capability but i think we can get there. i think we can put up a good fight anyway. >> thank you. i yield back. >> i thank the gentleman and i recognize the vice chair of the tarpon financial services a lot subcommittee mr. guinta from new hampshire for five minutes. >> thank you very much richard chairman. mr. kasei thank you and all the witnesses for being here today. i wanted to direct my first question to you, sir. in your testimony you talked about the site structure and financial companies that have grown substantially in the past 30 years and they think what your position is that you are

comparing the sec over the same period of time in fact that it has not run or changed or modified substantially. but i wanted to get a little clarification on that first if you would. >> thank you very much. obviously i think everyone would agree capital markets today are exponentially greater but my point was more directed to the way the sec is structured and it is not just a question of size. is a question of a structure that corresponds with the entities you are regulating and the point i was making is in the early 1970s and basically the current organizational structure of the sec was last reformed market regulation focused on stock exchanges in broker-dealers. and you had a division of investment management regulation which focused on investment advisers and there were two very separate components of the industry. there really was that.

because of consolidation in the industry and the blending of the roles, the fundamental distinction between a stock brook or who is a condition-based seller of securities and an investment adviser who is an asset under management adviser and a comprehensive portfolio is a historical heart attack. doesn't exist but because you have two divisions applying to different laws according to a model that no longer exist you get these anomalies. the fight over fiduciary duty differential. more importantly you have two different divisions who had different ways of thinking about it and neither of them wanted to compromise. they both wanted to maintain their piece of that. >> does that speak a little bit to the silo effect you are referring to? >> absolutely. i used to joke that the silas at

the sec were so real that in fact they had locks doors and that because all the paper that comes from my office i actually have a skeleton key and occasionally allowed me to him luck each of the silo doors again invited to. most people don't, and it is a real issue in any organization given the size and it is compounded because remember you have different securities laws written in different points in time for different segments of the industry. had each division jealously guarded the law that the controls, the markets changed. >> i listened to what chairman schapiro mentioned in her earlier comments about some of the improvements and modifications and changes that she has made and they sound laudable and responsible. that being said, i wonder what type of congressional action may or may not be necessary given the systemic trouble and that we

have seen within the sec and i don't want to get into the specifics that a few things we have been talking about here. we have to prevent these from happening again. people in our nation need to have confidence not just in the sec bug in the markets as well and i wonder serwer you can say about the types of intervention you feel congress should be considering? >> well, that is a very different in -- difficult question for me to answer and the reason is they spend virtually my entire career at the sec and i think it is different for congress to micromanage the internal organization operations. you can set policy. you can give direction but i think it is dangerous when congress tells the agency this is how you get it done. i think the agency really has to take this responsibility on and

chairman schapiro is an entirely new team of senior people. i don't know most of them. they seem very competent. my hesitation is this. if you rely exclusively on a team of people coming into effect change when those people walk out the door the change walks out with them. you need to change the structure. you need to change the culture and most importantly, you need the agency to define what it is it is trying to do and how do you measure whether this got it done? you need that discipline. >> thank you, sir. chairman schapiro i am have a few seconds left to what assurance can you give us that new management team is effectively managing and maintaining the necessary changes? >> i have to say i think change starts with leadership absolutely and having a new -- all new leadership team makes an enormous difference that they are committed to working together and institutionalizing collaboration among all the divisions. for example we now have colleges

of regulators for the largest financial cetaceans. is no longer just the trading and markets division. it is no longer just the examination group. there's a group of people drawn from all over the agency who could have potentially an interest in the health of that financial institution who meet regularly to talk about what is going on in the company to look at the financials, to meet with the staff of that financial institution so college of regulation is one example. we are merging in some of our offices and we will eventually, our examination programs are investment advisers in broker-dealers which mr. katz mentioned. i should finally say that we have just commissioned and i believe it is going to be released today dodd-frank required us to hire an independent consultant to do it very in depth study of the sec's organizational structure and that will be released today and i fully expect that there will be some helpful ideas for us to improve how we operate.

>> the gentlelady simons expired and with that i recognize the ranking member, mr. townes. >> thank you very much mr. chairman. let me thank all of you for being here. really appreciate you taking the time to commend. chairman schapiro, the sec plays a critical role in protecting investors and ensuring that our financial markets operate effectively. you have stated that freezing the sec budget impedes the agency's ability to meet its mission, which is to protect investors, maintain fair orderly and efficient markets and facilitate capital information. can you put that in concrete terms for us? if they sec does not have the budget to properly oversee capital markets how would it affect your staffing?

>> i would be happy to. i think the two things that are most severely impacted by a limited budget at the sec our capability to hire company kinds of talent and expertise we need. people who have worked in hedge funds on trading desks financial analyst, the new expertise that will help us keep up with what is going on in the marketplace and the second is the fact that it will slow down and really hurt our efforts at reforming our technology and bringing up to speed and giving us the capacity to do the things that we need to do in order to keep up with wall street. i know we will never meet their budgets. i understand that and i have no expectation and don't believe the american public should pay for us to have a 3 billion-dollar a year technology budget that we have to do much better than we have been able to do so i think those are the two primary things that are really impacted. it plays out in lots of other ways and when examiners, we don't have a sufficient travel

budget examiners can't travel to go into that mutual fund for most americans hold their investing wealth and examine the mutual funds books and records. they can go to the investment adviser or to the broker-dealer. so in little ways, the lack of resources plays out but the really fundamental ways are bringing in those people that we need to really reform and transform the agency so people know that we have at least a fighting chance of staying on top of what is going on on wall street. and so we can also respond when emergencies come along as we saw on may 6 when the market just absolutely fell apart and scared people very badly in the retail investment public and the institutional investing public as well. we need the capability to respond to those things very quickly. >> what about the flexibility? for instance, if there is a crisis situation and you need a specific kind of person and in

order to get that person you might need additional resources to be able to track who you need to do a job at that particular time, do you have that kind of flexibility? >> we have had some flexibility over the last two years. congress has been generous in our budgets but if we continue at the senior level or archived the answer to that is no. may 6 required us to go out and bring in experts to help us analyze and go through all the trading data so we could reconstruct for the public to see what was happening every second in the marketplace when the dow dropped 900 points or 500 points in just a matter of a few minutes. it is responding to emergencies is one of the things i do worry about and that is where we lose flexibility if we don't have a sufficient appropriation. >> thank you very much. mr. chairman i yield back. >> thank you mr. chairman and with that i recognize mr. mack

of florida for five minutes. >> thank you mr. chairman and i also want to thank the panel for being here today to give us an opportunity to get your insights and ask a few questions on a very serious topic and i would like to start with chairman schapiro if i might. do you feel as is chair of the agency that it ultimately is your responsibility to ensure that all the employees are acting in accordance with sec employee conduct standards? >> i have a responsibility for the agency in that sense. i cannot tell you where 3800 employees i can take individual responsibility for each and every one to ensure that they are following the requirements the way they should be. >> but it is ultimately your responsibility as the chairwoman of the sec? >> ultimately i am responsible for the agency's conduct.

>> if i could direct your attention to slide number four, chairman schapiro, are you familiar with the rule that is being presented on the screen? >> yes. >> after reading through my material and hearing your testimony, it seems to me that you aren't completely knowledgeable of this rule at the time you hired david becker. so please allow me to read it so everyone in the room can understand the entire world. the securities and exchange commission has been entrusted by congress with the protection of the public interest in a highly significant area of our national economy. in view of the effect which commission action frequently has on the general public it is important that members, employees and special government employees maintain unusually high standards of honesty,

integrity and impartiality and conduct. they must be constantly aware of the need to avoid situations which might result either in actual or apparent misconduct for complex of interest and to conduct themselves in the official relationships in a manner which commands the respect and confidence of their fellow citizens. chairman schapiro were you familiar with this rule at the time that you received david decker as your general counsel? >> i can tell you whether i had read it. i've i have been in and out of government those of my career so i'm generally aware of the ethics rule but i will tell you --. >> hold on, i'm sorry because i only have a little bit of time. mode ago you said you were familiar with the rule. >> i am but you just asked me was i aware of it at the time that david becker arrived at the commission and i'm just telling you i can't recall whether i hit

reread the rule recently at that point or not. >> but throughout your time in the 80's and the '90s you are familiar with this rule? >> yes i am familiar with this rule and it is each employee's obligation. >> regarding david becker's work with the madoff case do you believe that mr. becker was sufficiently aware of the need to avoid actual or apparent conflicts of interest? >> i believe that -- i want to be very careful. i believe he did what he thought was appropriate and what was the required of him going to the council and seeking advice, getting that of vice and following it. do i wish now that he had been more sensitive to the potential for this issue to raise an appearance of a conflict? yes, i wish that it happen. >> just a few more questions. do you think you are sufficiently aware of the need to avoid actual or apparent topics of interest? >> on my part, yes i believe i am. >> quickly you set a cup of times i think that you wished

that mr. becker would have recused himself. is that because of the fallout, or do you really believe he should have recused himself? >> i believe that as i said, at the time from my perspective, a closed account for my long deceased relative didn't appear to me to raise a conflict of interest. but i believe now, knowing that we know now, not because of the fallout though that is very real, but because if we could connect the dots and look ahead and see what all the steps would have been that yes it would have been appropriate to recuse him. >> let me say this. also i heard you say earlier that you kind of her two for two the budget is kind of the reasons why the some of these mistakes happen. how much does it cost to follow that rule? >> that is a personal

initiative. doesn't really cost anything. >> so the argument about the budget as it pertains to this rule doesn't hold water? the argument about the budget in your opening statement that you talked about really doesn't pertain to this rule? >> no. knowing i didn't mean to suggest in any way that it did. >> thank you. >> the gentleman simon is expired and with that i recognize the ranking member of the full committee. >> i don't want that to be left hanging. i read your testimony and her daughter testimony ms. schapiro. you never made that allegation. i want to make that clear. i haven't heard it and i think it is a very unfair statement. let me go on. ms. schapiro i must tell you, chairman schapiro, that when i was talking to my staff and we were e-mailing back and forth at 4:00 a.m. this morning about this case, because it does

trouble me to a degree with regard to the appearance of a conflict of interest. and i think, when we hear ms. chaitman, what she has had to say, that shows you why, and i'm sure you see it, why we have to make sure that we don't even have the appearance, because what happens is that every decision made by mr. becker becomes suspect. it is my favorite author in his book the speed of trust, says that once trust is lost everything moves more slowly. and so, i cannot begin to tell you how pleased i was when you walked in here today and said we will go beyond what may be required.

that is so very very important. in my office i have five people. whenever there is an ethics question they all have to agree. if one b. does it is out the door. why? because the public is looking over our shoulders. we want to do the right thing and we want to make sure that it is right. now, so this has been a major wake-up call, hasn't it? and here on this committee is so easy for us to get into a gotcha mode. but i must tell you after i read about what you had done at the sec since you have been there, and having sat on this committee and watch mr. cops and what he did with this organization and how it went down under him, to see you come and try to sweep up the mess, i must commend you, but the sad part about it is one

of these little incidents basically can almost destroy that trust. do you understand what i'm saying? and so i wanted to commit -- i want you to commit to this, this committee if you will. i mean tell me that these incidents, but again, tell us the difference in how you might approach it, and i understand what you did. a fellow comes to you and tells you, a years ago i got this inheritance and now -- and he wants to know about accompli. you listen to him for a while and you have 3800 employees to deal with. you hear him and then you say do you know what? the expert on this is the ethics guy. make sure you check with him and he got his opinion. so how would you deal with this differently now, looking backwards? >> we have a new ethics council first of all who is doing a top to bottom review of our program but i think i need to work with

all of our employees and communicate with all of our employees about a heightened sensitivity to issues like this. i have worked so hard in the last two years to try to put this agency back on the right path and to earn the trust of the public. and you are right, a small thing like this, not so small thing like this, can really set us back and it is not fair to 3800 hard-working employees. it is just like when somebody mentioned in their opening statement that an employee had viewed pornography at the sec. it infuriates me because those people they are working their hearts out day and night to try to do the right thing and it hurts their reputation of every single one of them. i've to work with their employees to make sure that we increase their sensitivity to issues like this, and i think with their new our new ethics council and their review of the program and how it might be strengthened, we will get some good advice and i think the inspector general is likely to

have some recommendations that will be very helpful too. >> one of the things i'm hoping is that with regard -- i was reading your testimony where he talks about technology and trying to keep up with these ever-changing transactions and how complicated they are becoming and i want to make sure that you have all the resources you have to address this, because so many of our constituents on both sides lost a lot of money and like mr. katz said or i think it was mr. crimmins they need confidence to re-enter the system of stocks. thank you. >> i thank the ranking member and with that we yield five minutes to mr. ross of florida. >> thank you mr. chairman. as a kid i was wanted to be a lawyer and fortunately i found a lot school that would take me and i went to law school. i always have a deep-seated respect for the sanctity of the law so much so that i was gratified that the american bar

association and my state bar association required not only a course but an examination of the code of national responsibility in the schapiro i understand that you too or a lawyer and even though you inherited quite a mess at a time of greatest disarray at the sec, to eggs my question that as a lawyer, when mr. becker came to you did you not think that a further investigation should be made? as a lawyer, we do complex checks. we make sure of that and it just seems to me that further inquiries have been made at that time, that this might have been avoided. >> i don't disagree with you that a further inquiry had been made this might've been avoided. i can only say what i said at the beginning, that when he raised it with me that he had a closed account. i didn't know if it was a net winner count wordnet loser

account. it didn't raise from a conflict of interest. >> the fact that he asked for a waiver from his subordinate. i think it is indicative of a problem, and inherent internal problem from an ethical standpoint. >> my understanding is, i don't know if he asked for a waiver and again i have no access to any contemporaneous documents of any sort. he asked whether or not he had a conflict and was advised that he did not have a conflict. >> do you know who is advising him that there was no conflict? >> was the ethics council of the sec at that time. >> as general counsel that would be under him, would it not? >> i believe that is the case in most agencies. >> do you feel this will be avoided again in the future? >> well i would love to say absolutely without a doubt and it would be my very strong hope with a strong new ethics council

that we hired from the treasury department that with a long government experience with the revamping of our program and with some additional education and training for our people i would hope and expect that we could avoid this. >> i agree and i think the american public needs that insurance and credibility that is going to be there. mr. risinger with regard to resources or your employees part of the general schedule in terms of compensation? >> congressman actually we have a separate schedule that we receive from legislation in congress back in 2001 in 2002. >> were you subject to the pay freeze that the president issued a? >> yes we are. >> however that is cost-of-living increases? >> does affect the cost of living increases. >> what about a great? doesn't affect that? >> we have the merit pay process that is the equivalent of step increases for the rest of government so that is technically not affected by the

pay raises. >> raises. >> interdisciplinary procedures, let me ask you this. what is the probationary period met for an employee? >> it is generally your. >> one year. after one year there is a disciplinary situation is their presumption in favor of the employee if they have been found in a violation or alleged violation of any personal policies? >> the federal law that we have to follow in terms of disciplining employees spit out a number of standards we have to go through. they're actually 12 factors you have to look at and one of them is a factor that says this is the level of discipline is necessary to stop the behavior not more than that so there's a there is a presumption you are taking a preventative or corrective step not necessarily a punitive on. >> these would have been the same procedures employed as those involved in the viewing of pornography and only one person was fired as a result of that? >> of the cases we have had in

200550% or 51% have either resigned, retired or have proposed rules in place. we have had a number of suspensions and reprimands as well. >> what is the attrition rate in your requirement in the agency? been the agency? in normal years, 70%. the last couple of years because of the economy it has been in the 3.5 to 4% range. >> how does that compare with federal agencies? >> i believe if we are talking attrition in general i think that is pretty equivalent with other agency's. >> the last question ms. tatum with regard to the madoff situation specifically, i saw when you put them on notice and you wanted -- what action would you think would have been necessary and they see i see my time is up -- what action wouldd you have requested be done in order to avoid this conflict? >> under the statute, congress

mandated that the sec going to court and enforce the law and that is precisely what i asked mr. pirro to do in my april 2, 2009 letter and in fact when the schapiro testified on july 14 for the subcommittee on capital markets that she was going to do everything in her power to provide the maximum coverage for all investors i assume that she was in fact going to follow my request that now i have learned that in january 2009 the sec had already agreed with the denial of insurance to more than half of the victim's. >> thank you. i yield back. >> mr. yarmuth of kentucky for five minutes. >> thank you mr. chairman. thanks to all the witnesses for your testimony. over the last couple of weeks i have been plowing my way through the financial crisis inquiry report which is anything but bedtime reading. it will not induce sleep, i

guarantee you that. is a matter fact quite the contrary. i'm sure that chairman schapiro that you are aware of what the report concluded particularly with regard to the sec and i was interested in an assessment of where you think you still need to go to make sure that the failings and the system that concern your agency won't recur? >> i'm sorry. i have not looked at the report recently but it obviously focuses a lot on the failures of the sec's consolidating supervision programs. all of which disappeared in the bank holding companies and are under the regulation of the fed. i think there are a lot of lessons in my testified at the fdic about the failures of the agency with respect to that program. there are a couple of things. one is it is a voluntary regulator program which i think in my view doesn't work very

well. we had not sufficient resources devoted to the regulation of the five largest investment banks. we didn't have people with the right kind of expertise and i think in some ways perhaps the most important thing is they require different kind of supervision. it provider provincial as going on-site doing an examination leading and perhaps bringing an important case and we didn't have the right mindset within the agency i think for that kind of constant dread and shall oversight approach that was really necessary. there was a lack of management focus i think with respect to the program. there was a willingness to believe what our people were being told by some of the leaders and some of those financial institutions that failed. a lack of skepticism which i think really hurt them as well.

at program was discontinued by my predecessor, chairman cox. >> so with regard to the present situation because most people who observe the situation now agree i think that the situation in terms of too big to fail, the largest investment banks have in fact gotten larger and that the wild west atmosphere in terms of risk-taking and so forth may have not been curtailed at all. is this a concern that you share panel is welcome to respond as well. because looking at the wall street profit picture and so forth it looks like there hasn't been a whole lot of change in behavior. >> well i do think i can speak perhaps most particularly to the over counter derivatives market where we have a direct responsibility although much progress is being made with

respect to accounting standards and other prudential measures. but getting over-the-counter derivatives market into a transparent marketplace so that regulators can understand the concentration of risk and financial institutions i think is going to be a very important piece of this. we are working through those rules as is the commodities futures trading commission. half of them have been proposed and i would expect that while we are going to miss for some of them to july 21 deadline we will get them over the finish line over the course of the rest of this year and then they will actually be facing periods to go through but i think that will make a difference. i think the work the ftc's -- fdic is doing on living wills and plans for financial institutions to wind down their business of probably will also make a very big difference and then of course the capital requirements. >> just a final question on this subject. are you confident -- we talked

about the problem essentially with resources and the dangers that would ensue if your budgets were cut or your budget was cut, but are you confident that the legislative action that was taken with dodd-frank is sufficient or are there things we need to do to make sure we don't have the situation recurred as it did two years ago? >> i think it makes large drives toward filling the gaps toward the regulatory regime. i will say that one of my concerns about the budget is that we don't have the capacity to operationalize the rules that we are putting into place so getting swap market urges event registered in the swap data analyzed in the market surveillance taking care of our things we will have to put off but i think it is incumbent upon all of us has regulators to see these markets close up to continue to tell congress where we think the issues are, where perhaps dodd franks wasn't the

right approach and where we think there are still gaps. >> thank you very much. >> i take of the gentlemen and with that i yield five minutes to the chairman of the full committee is derisive. >> thank you mr. chairman. madam chair, i just went over the business roundtable and back so i had the opportunity to see about one third of the corporate america's profits in that room almost all public companies probably all public companies except one all regulated by the sec and i was there talking about impediments to job creation. i'm going to give you a little relief from the question du jour here for a moment and that is, it dodd-frank is not perfect and it was not what you might call a low-cost low-budget way to get that her performance with less cost. if you have asked for a budget increase. in fact, if you had only the

budget increase necessary to do the work you were not doing as well as he wanted to without all the new losses what would that budget increase be in your estimation? and other words what would it cost to do it right without piling on new regulations when there is no question there have been problems properly enforcing your existing portfolio? >> mr. chairman i would have to actually do the math but maybe this helps. when we did our 2012 request, we viewed 40% of the positions and it was a total of 780 positions or 584 full-time equivalents. we use 40% of those in our ongoing programs and that is 312 positions and 60% going to dodd-frank implementation so hedge funds, oversight, over-the-counter derivatives, municipal advisers, whistleblower programs, clearing agencies agencies and so forth. >> and to follow up on that quickly the transparency element

that was asked for an agreed on by sec and other agencies never got into dodd-frank so you don't have a common mandate for reporting for transparency that had been worked out in the conference and then didn't happen. how much from this committee standpoint we are interested -- how much more efficient if you could answer for the record, how much savings could you get if in fact it was transparent interoperability both inwards and whenever possible out of the public for oversight? >> that is a great question i would like to answer for the record director because i do think it is important particularly when you have a market like the over-the-counter derivatives market with two regulators in the same space that we try to be as consistent as we possibly can and leverage each other as effectively as we can so if i could get back to on that. >> i appreciate that and i want to give an opportunity because that is a major issue of this

committee on a bipartisan basis in the last congress that didn't happen and we would like to renew it but we would certain take your input. the reigning -- remaining two minutes i did want to ask you, mr. becker's contact in retrospect was not a good idea and certainly has not led to confidence in in the independent transparency and not biased behavior of the sec when we have booked through the taillights. how can we note the changes that you are asking to be reviewed are going to clearly eliminate anything like this in the future? where'd we get the confidence in that? >> well mr. chairman i think is a fair question and i think you and i had many conversations and i try to be very transparent and up front. we will obviously be public about what our ex--- inspector general finds and what recommendation he makes what any ethics council klein says he

reviews are programs and the recommendation she makes. it will be happy to come back and talk to congress about those findings and those recommendations and see if we can develop some metrics that would actually help us figure out whether we are getting it right. >> your ethics counsel served under the general counsel career position but under the general counsel, that's correct? >> yes. >> would choose recommend moving that to the -- that would be between the public and ethics questions rather than having a general consulate who has a number of jobs? you don't have to ensure that today but i would like you to consider that. in so many different age or h.r. situations in the private sector there is a clear independence of h.r. which is a lot of the question, the question of conflict is more than a legal question particularly when it included somebody who in fact was the boss of the person they went to for this 25 minute session and clearance.

so give that some thought. i won't ask for answer today. finally is the time runs out, we on the committee want to work to try to be helpful. we realize we only have a portion of the portfolio that you see. you see much more the financial regulatory and financial oversight of another committee but the question i have for you is in our conduct of this investigation as we look at mr. becker's total portfolio on the other things he may have done and how this might have affected or not affected the madoff trust, will you promise your cooperation of this committee today? >> i will promise my cooperation to the fullest extent that i can. i don't know if i can compel him in any way to do anything. >> he asserted come in voluntarily and we have the ability to compel him but it is really making sure we can have a quick and transparent iyer g. that would be willing to share

and information that was not directly related to a referred criminal and so on so anything you can do to pledge to help us will allow us to move from where we are as quickly as possible onto something else and that is why i asked today. thank you and i thank you and i yield back. >> mr. connolly of virginia for five minutes. >> thank you mr. chairman. chairman schapiro argued a chairman who appointed the inspector general who in fact is charged with investigating mr. becker? >> no, sir. he was appointed by my predecessor. >> by your predecessor in that investigation continues? >> yes. i requested. >> you requested? >> i requested the investigation. >> you requested at? >> yes. >> thank you. we just heard a line of questioning asking you to it to look at a budget without additional regulations that was burdensome and so forth. the dodd-frank legislation added

some regulation in areas that heretofore had not been regulated at all. is that not correct chairman schapiro? >> that is absolutely correct. >> take derivatives, what are the values of the derivative markets? >> the last record 600 chilean dollars. >> i'm sorry gc trillion? it is entirely unregulated until dodd-frank passed? >> largely unregulated. >> whatever could go wrong was an entirely unregulated 600 chilean dollar market? >> we saw something that went wrong and presumably that is what motivated dodd-frank. >> maybe that is one of those word and some pieces of legislation where is going to have to put up with. that burdensome additional regulation requires sct -- sec to step up and acquire the requisite expertise to in fact enforce the regulations you are

charged with, is that correct? >> we believe so. we are able to do the world writing that has been ongoing issue but to operationalize those rules we need an additional step. >> we have heard mr. katz and his testimony say simply having more sec staffers to the same thing would not protect investors or promote capital formation. how many areas of additional or new regulation are requiring you to ramp up in terms of expert staffing? >> well, we obviously have derivatives, hedge fund regulations. we have created a new whistleblower office although we need more help with that but it is not unknown to us. we have to increase our oversight of credit rating agencies under the act and we have to register a homely category of municipal securities markets called municipal advisers so there are half a dozen or so new areas for us to undertake regulation. >> just listening to you take off that list not of those sound

like frivolous, word and some additional pieces of regulation. they sound like thoughtful additions to the regulatory framework in light of the biggest meltdown on wall street in many years. would you share that view? >> i do think all of these areas are ones that needed to be addressed and as we break the rules we are working very hard and collaboration with other regulators but also with the public with investors and industries to make sure that we write a sensible rules as we possibly can. >> mr. katz would you share that view? or is this just another example of having simply "mode more staffers doing the same thing." >> the there is a quantitative nuance difference in what i said and i think the way you characterized it. the agency has an enormous -- enormously in large number of new areas of regulatory

authority. the question is when you go about regulating hedge funds are you go but regulating the securities market do you regulate hedge funds exactly the way you regulated investment advisers or investment companies which is a close cousin? my point is that if you look at the way the commission has regulated by susan regulated mutual funds that hasn't been terribly effective silky take the same approach for hedge funds yes that would be doing the same thing in those approaches even if it is a new responsibility with a new category. >> would you say mr. katz that some of the problems preceding the wall street meltdown in september of 2008 for example had to do frankly with the quality of the appointees, namely a whole bunch of people who didn't believe in regulation the first place and therefore didn't do it? >> i have to tell you that there is an old saying at the sec that

the commissioners decide the publicity but ultimately it is the staff that decides what it needs and how it gets done. and one of the interesting things about the sec and the relationship between commissioners and the staff is it is a close relationship and because it is a bipartisan body you are always going to get five people with differing points of view, some of them will support the staff and some of whom will them will disagree with the staff. i can't think of an occasion where you had five commissioners on one side of the table and the staff on the other side at loggerheads. that doesn't happen. you invariably get some support of commissioners and some commissions that are critical and you also get the diversion of view among the staff. financial regulation is never a

question of identifying a single right answer. >> thank you esther katz. i'm personally my time is up or godlike to pursue this further but i certainly believe that the narrative that somehow sec is treading into waters is fallacious if anything. we need more people guarding the henhouse if we are going to talk about the fox in the henhouse that they have been true in the 2008 period of time but it is not true today. i think of a chair. >> excuse me chairman if you might indulge me? one very quick point i wanted to make that mr. yarmuth brought up in that was the question of the consolidated supervised mandatory process of the sec and there's a lot of confusion about that. is a voluntary process. the recent was a voluntary process is not because of the attitude of the sec. it is because the commission sought to congress the authority to make it a mandatory process as part of the graham bliley

pill. congress explicitly prohibited from making it a mandatory process. >> i thanked the gentleman i yield five minutes to myself. chair the subcommittee on government organization efficiency and financial management and so i'm going to focus on the related but slightly different area that relates to our jurisdiction and it goes back to eye of the privilege of chairing the same subcommittee from 2003 to 2007. we had a subcommittee hearing in july of 2003 about the sec, about financial management of the sec about internal controls and read her testimony at that point that they had just put in a new financial management system in 2002 and in in the testimony of the executive director james mcconnell at the time in july 2003 saying

that we have this new system and we are going to be certified basically in 2004, january 2004 for audited january statements. here we are seven years later plus and we are now talking about the same thing, a new system using d.o.t., enterprise system to put in place a new system. i guess my first question chairman schapiro, i appreciate the changes you have made and the coo chief operating officer and other leadership changes and systemic changes within the sec, but why should the american people believe that when we were told seven years ago we got it right and we were going to be when you go forward how is it different today? >> thank you. my understanding is that was the moment some and it was deployed nine or 10 years ago and that it did it at the beginning meeting

the agency's needs but over time the agency deferred upgrading over many years and as a result it began to long -- the functionality. gaps were created and the result the sec ended up with two material weaknesses in its controls over financial reporting in our audit which is a disgraceful decision for the securities and exchange commission to be an. so with our new chief operating officer, our new chief financial officer and our new chief information officer we made a decision that rather than incur the risk of developing a new system at the sec, perhaps not really core competency for us that we would be better served by outsourcing financial management. so we went through a process and identify the department of department of transportation winces and authorize federal shared service provider used by the gao for their financial management system and made the decision that the best way for

us to remediate our material weaknesses and generate the kind of reporting that we need, minimize all the manual workarounds would be to outsource to them and i think it is the right decision for the taxpayer and i think it is the right decision for the sec. >> the follow up related to that is said the audit done at the end of this past year, clean opinion but a failure to sign off on the internal controls, i guess to related questions. first how would you describe the internal effort to get the clean opinion other than internal controls and i ask it in the sense of july 2003 as he said there was a heroic end of the year record. was because we are the system in place that allowed us to say here's the data we are ready to go. was there again a heroic effort to have that out of? >> i think they're one -- were some her roads involve. we did put together senior team of people to really shepherd the

process through. they were diligent and they stuck with it but they were also very much on board for this decision to outsource. >> internal control to last year and dodd-frank did it require the auditor sign off but for almost 20 years under the federal managers financial integrity act adopted in 82, we have said that actually over 20 years that we have had to have strong internal controls so that would be required to be some -- signed off on. i would assume you are conscious of the fact that it wasn't a new requirement that it be signed off by the auditor and whoever is overseeing those internal control systems. clearly we are not fulfilling the responsibilities. >> obsolete and under our chief operating officer we will both deal with the audit issues with respect to internal control but also the attendant business

processes so it is not just a technology for us. is going to have to be business process reengineering process process as well. >> i'm going to try to squeeze into more questions and 20 seconds. in your testimony talk about follow one person that you have for the audit recommendation of your iga in ngo and in your testimony you state that you appointed and audit official to ensure agency managers are held accountable for timely and appropriate follow. how are they being held accountable? one thing i get frustrated we find something wrong and i've asked for many years and said was anyone fired for not doing what they were supposed to do? in what way are they being held accountable? >> we are very closely tracking audit recommendations from gao and our inspector general and i can tell you my two years as chairman we have successfully closed 350 inspector general recommendations compare to 190 in the prior two years so we are

aggressive about doing it and i will tell you that the inspector general, in his semiannual report, also talks about our progress with respect to closing recommendations and whether there has been any management disagreement with his recommendations so he is quite on top of it. >> and that is i think critical here going forward. what my subcommittee what we are going to look at to stay on top of those recommendations and internal controls and it goes to the broader issue discussed here about ethics and if you don't have internal controls that is the foundation for not just good financial management the good app -- ethics environment and so we as a sub committee and chairman mchenry partnering with him here today that is what we are going to look at following up. i will yield back in you to miss beer from california for five mis.