think there are some concerns about the time delays and certifications and waivers and 10 forth. i don't want to get overly technical here, but the key point is we need to preserve as open space as possible when it comes to our options, and that's what the secretary would like to see. >> he very much looks forward to continuing to work with the congress in the committee as they get close to conference and the potential passage here. .. takingout of

their very hectic and demanding and important schedules to be with us this morning. the hearing is entitled management and structural reforms at the sec, in progress report. this is a very critical hearing because we understand the

important role of the sec in the regulations of our securities markets. we have had local concerns about regulation, overregulation, but it appears, indeed, the revenues and the securities industries, the last two years have been greater than any year in the previous ten. so the industry is, in fact, growing at a time when many other sectors in the american economy are in very serious distress. and i believe that those who want to starve the market watchdog or repeal recent legislation return to the days when costs and financial products were negotiated and traded. wall street bankers are leaving taxpayers on the hook to clean up the mess later. congress asked -- act to stabilize the market with the dodd-frank and consumer protection act to bring tens currency uncertainty into the

marketplace. there is no question that the regulations and those who enforce the regulations will benefit. those on wall street so that they can make more money at the hefty price. i think that is the lesson of 2008 and nine and continuing. the security exchange commission has a daunting job, a charge of protecting investors and securing our securities markets are operating and not good manner. no small task giving the growing complexity of markets and products. for example, at the end of october the total market value of the united states equity market was estimated at $13 trillion. roughly 45 percent of all u.s. households, 92 million investors make investments in the markets, principally to mutual funds. so this is of interest to every american, not just those in the financial markets. there is about the changes in both technology and trading practices are affecting exchanges, trading venue is increasingly fragmented with no

single change holding more than one-fifth of the market share. more trading is being done of these changes and so-called broker-dealers executing trades internally. over the past year-and-a-half this step of trading has increased by more than 30%, presenting new and challenging problems regulators. high-frequency traders using computers trade in less than the blink of an nine. such trades may contribute to market volume and good times, they also may contribute to shrinking liquidity in times of market stress. while the securities markets explode with novel product and increase. acknowledgments, many have been left behind. the financial crisis, trouble areas. the sec has set responsibilities from the oversight and invest the banks. the growing risk of. the right steps. the same path that we saw in the nato ponzi scheme case.

bernard nato's long-running investment fraud. they fail to ask the right questions and take the right steps. in addition, the agency respected this serious missteps on how they have handled information, conducted operation and execute missions. criticizing the agency for a trading capital formation, decreasing competitiveness, and taking a light touch against greatness. my sense is that the sec appears to be committed to reform. the chairman has installed new across the sec divisions and offices. beginning in 2009 the sec began restructuring its largest operating units. enforcement an office of compliance, inspections, and examinations. the commission has also created a division of this strategy and innovation to watch closely with new products and trading practices a risk. congress's tried to focus on improving the sec as well. the wall street reform and consumer protection act was

mandated that the sec in dazed and independent consultants to examine internal operations, structure, and need for reform which identify several opportunities including reed prioritizing activities, reshaping the agency to maximize efficiency, and effectiveness investing to improve infrastructure and engagement with self-regulatory organizations. the report also notes the considerable additional responsibility placed on the sec after the financial crisis and a gap in funding that cannot be overcome by improving efficiency . congress must fully fund the sec if it is to effectively discharge and mandate and police the markets and protect investors. the sec has been validly criticized for suspicions in the past. today's hearing will focus on how the sec management has responded to this criticism and the need for reform. the securities markets need to invest in companies to come the other and allocate capital

officially and productively. new products and technologies and jobs. they need to work with americans to save for a new cause or homes or retirement. what is done and needs to be done to improve the ability to protect investors, maintain fear or markets, facilitate capital formation, and to reinvigorate staff is at the forefront of the hearing today. this senior most management of all of the divisions and the largest program office. it is critical that congress understand what is being done to move this issue forward and ensure the missteps of the past are not repeated. with that of would now like to recognize the ranking member for his opening comments. >> thank you, very large. i agree with and appreciate the number of your comments and concerns in your opening statement. i am one as you know that things that we are having a little bit of difficulty giving it right and terms of a regulatory

approach right now. appreciate these upper ginny's for oversight hearings. as i indicated to you, because of my infamous gang of six, i'm going to have to leave and a half an hour for another meeting that the can't avoid. and so i will be missing a lot of that testimony. i will try to identify a few areas of concern so that i can submit questions as well following the hearing for the responses. i do believe that the issues we're dealing with today are critical. we must continue to do things strategic the above which areas of the market pose the greatest risk and which areas of potential improvement of the greatest benefit for investors. the objective should be to apply the taxpayer resources in a way that provides the biggest investor protection bang for the buck. in addition to these important issues other 40 hearing from our division directors. the sec on dodd-frank implementation questions on ways

to promote capital formation. with regard to capital formation, today the sec is holding two panel discussions on the issue. one focuses on current capital formation issues for private companies, and another on initial public offerings of securities regulations involving small public companies. there are several, in my opinion, unnecessary restrictions on capital formation in both categories should be removed. the house recently passed some targeted by partisan capital formation legislation that makes it easier for private companies to raise capital. also recently to reports that make recommendations on how to reverse the initial public offerings declined. to stimulate the ipo market and spur more job creation the reason president council on jobs and competitiveness in from report recommends that congress amends to allow shareholders of public companies with market valuations below $1 billion to opt out of at least section 404 compliance, if not all of the

requirements or alternatively exemption to companies from stocks and plans for five years after they go public. the ipo task force recommends providing an on ramp for emerging growth companies using existing principles of skilled regulation. the ipo taskforce expects scale of regulation and exposure to reduce internal and external compliance for such companies by 30% to 50%. both of these recommendations could result in a larger supply of emerging growth conscious -- companies going public and increased job creation of a long-term. with regard to dodd-frank, in addition to removing unnecessary restrictions -- excuse me, unnecessary restrictions on capital formation, we have to be careful that new rules being implemented give sufficient consideration to how they're going to impact main streets and the economy as a whole. how they interact with each other, and how they impact our global competitiveness. i am interested in what steps

you're taking to ensure that the rules that the agency adopts under dodd-frank are supported by rigorous economic analysis. how you will resolve inconsistencies in the approaches taken by different regulators. yesterday the house subcommittee on capital markets approved for targeted bills to modify dodd-frank. one of the measures that passed by a voice vote would prohibit the sec from requiring that swapped execution facilities have a minimum number of participants are mandating display or delay of bids or offers for any time. this is in line with the sec approach, which is more principles based and is in general far less prescriptive than that of the cftc. in june this subcommittee held a hearing on slauson execution facilities. one of the results of the hearing was that there was bipartisan agreement that the sec and cftc need to provide greater coordination and harmonization to get the rules right. as many of you probably know, i am one of those two things that

we should merge the sec and cftc, but until we can get into that discussion i will encourage that they at least for now and harmonize their regulatory activities. the cftc should know that congress is going to closely monitor how they proceed as well as the sec and that we expect this kind of harmonization and a change in course and the agencies began to divert so that we can have the kind of seamless regulatory system that does protect investors and achieve the objectives that the chairman pointed out, as he described the hope that all of us have as to how you and other regulatory agencies will operate. the other issues are would like to raise -- excuse me, mr. chairman -- in my questions. again, at this point i will wait and we can get to the witnesses. i'm going to have to step down. i apologize. pantages to not only your opening statements, but your responses to the questions we provide, and thank you for being here. >> thank you very much.

let me introduce the witnesses. we are extraordinarily fortunate today to have the key leaders of the securities and exchange commission staff. first, let me introduce mr. robert -- robert khuzami, the director of the division of enforcement of the u.s. security exchange commission. as director is responsible for this award enforcement efforts of sec personnel located at 12 different locations across the country. his tenure, general counsel for the americas, deutsche bank, ag, and before that, the global head of litigation and regulatory investigation. 1990-2002, the federal prosecutor with the united states attorney's office for the southern district of new york where a prosecutor wide range of crimes including narcotics, bank robbery, firearms, and tax, bank, and immigration fraud. during his service, he also held the position of chief of securities and commodities foreign taskforce.

thank you. eileen rominger is the director of the division of investment management. she was sworn in by -- on february 16 and is impossible for developing regulatory policy in administering the federal securities laws applicable to investment advice and funds. private investment, the goldman sacks asset management, with goldman sacks asset management as the chief investment officer responsible for managing the company's core portfolio teams including fixed incomes, equity and quantitative strategy. eight years on the capital. the managing director. the director of the division of corporate finance. washington d.c. where she advised clients on corporate

security managers involved in a full range of issues by public and private companies in capital leasing and financial reporting which also works in the division of corporate finance required to join serving in various capacities, including chief counsel and deputy director. the director of the divisions of trading and market of the u.s. securities and exchange commission. served in this position since january 4th 2010. prior to joining the position he served under hamilton where he was an expert on broker-dealer and market regulations. the director of the office of plans and some inspections examinations on jenner 25th 2010. prior to joining the commission was the practice and price waterhouse coopers. while in private practice one of price waterhouse nationally leaders and corporate government and regulatory compliance and ethics and has also led numerous

fraud and corruption investigations nationally and internationally. finally, the director and chief economist of the division of risk strategy. serve in this position since june 2011. as the madison as whittington professor of finance, the school of management, corporate finance and economics since 1983 in his been on the back of the vendor bills as 1986. in addition to teaching he published research on volatility in stock, adequacy, a unease management, policy, executive compensation, disclosure, and behavior by equity analysts. your written testimony has already been submitted. i would ask that you take five minutes and make in all presentations.

>> thank you. the director of a division of enforcement and thank you for the opportunity to testify today concern new management and structural reforms that the sec. when i arrived in the sec in early 2009 to lead the enforcement division the as is mr. going to come to terms with the impact of the financial crisis. our job and our challenge of the division of enforcement was to investigate and hold accountable those who contributed to the financial crisis. we took the challenge head-on. we immediately set to work investigating conduct that may have injured it to the financial crisis and at the same time launched an ambitious plan to reform the organizational structure of the division so that we can work smarter and more efficiently than we have in the past. through hard work and innovation we have now completed was the most significant restructuring in the history of the division of enforcement. although the conventional wisdom was that this location cause

buses significant organizational changes would undermine our productivity, that, in fact, did not happen. in fiscal year 2011 we filed a record 735 enforcement actions, more than ever filed in a single year in the history of the securities and exchange commission. those actions included 57 insider-trading actions and nearly 8% increase over last year's total, 146 enforcement actions related to investment visors and companies, a single year record and 30 percent increase over fiscal year 2010. 112 in for some actions related to broker-dealers, 60 percent increase over last year. our focus on financial crisis cases have continued during the two and a half years, the last two and a half years, we filed 36 separate financial crisis related actions against 81 defendants, nearly half of whom are ceos are cfo's or other senior officials that came to nearly $2 billion in financial sanctions including actions

against goldman sacks, city, and senior executives and american home mortgage. equally and perhaps more importantly, record number of cases including many of highly complex transactions, products, and market practices. in the past fiscal year refiled actions and deeds j.p. morgan for misleading investors, the ceo of the housing market began to plummet. what covina for misconduct in the sale of two ceos tied to the performance of residential mortgage backed securities, two firms involved in the sale of uncivil ceos to five wisconsin school districts, and charges against six executives akbar corporation and three executives at and? for misleading investors about their financial condition. in addition to deprive the wrongdoers and to different -- deter future misconduct we obtained judgments totaling almost 3 billion which was a 170% increase.

we have also distributed nearly three and a half billion in penalties of the last two years to harmed investors. at the same time we were doing this reinstituted the organizational changes in our division, fund management structure, revamp the way that we handle tips and complaints, facilitated the prosecution of wrongdoers to a formal program that encourages individuals and companies to cooperate in the sec investigations and created five national specialized units focused on prior dirty areas involved in high-risk and have hired many industry experts, not lawyers with genuine market expertise and specialized experience to assist in our investigation. today, someone testifying, improper bond valuations, there is a good chance the city across the table from them, someone who used to value bonds for a living and one cannot overestimate the clarity and candor that brings

to witness testimony. we also focused on thinking creatively and proactively to find emerging threats stopping fraud earlier before the become more destructive. so just using investment advisers as an example, we are now viewing registration documents were eye-risk advisors to determine who lies about things like their education or business affiliations or assets under management under the theory that if they come face-to-face with enforcement authorities early on for a relatively small matters there going to know that we're watching and be less likely to graduate to bigger frauds. reviewing a mutual-fund fee arrangements by analyzing databases to find funds that is of a poor performance, i fee arrangement, and sub advisory arrangements, all of which might suggest excessive fee arrangements and inadequate oversight. we have used the border work using risk factors, overseas auditing affiliate's and oversight capability to identify those u.s. other firms with

foreign clients that may be engaged in financial reporting violations. as a result of our focus on initiatives and our pro-active strategies and hiring of experts , we are better equipped to stop fraud center. the continue innovation, they must keep pace with its possibilities. we have achieved these results in light of relatively flat budget amounts that have constrain our ability to backfills lost a minor administrative staff and upgrade i t. we need those resources to continue those efforts, but with that and our new ideas and structure i think we will continue to be aggressively prosecuting fraud. thank you. >> thank you, very much. >> good morning. my name is meredith cross, and i am the director of the division of corporation finance. i am pleased to testify today along with my fellow directors on behalf of the commission to discuss the division's activities and responsibilities and challenges that lie ahead. the division of corporation

finance core function is revealing company filings, making law making recommendations to the commission that relate to corporate finance managed and providing interpretive advice to the public about the security and corresponding regulations for corporate finance matters. with the staff of approximately 470, we are responsible for the review of nearly 10,000 reporting companies, including tens of thousands of disclosure documents each year plus initial public offerings and other public capital market transactions of corporate issuers, a public asset backed securities offerings and proxy statements, but mergers, acquisitions, and tender offers. approximately 80 percent of the staff of the division is the sides of the review function. requiring the commission to review disclosures, particularly the financial statement of exchange reporting companies at least once every three years and are frequently with circumstances warrant. this is no small task. following enactment of the act in 2003, the division revised its review program to meet the new review mandate and hired

significant numbers of new staff accounts, which has enabled us to meet the review mandate each year. we also reviewed the disclosures that many companies more often than once every few years. for example, the largest company. these and the largest financial institutions currently overvalued continuously on a real-time basis. corporation finance has been working to enhance the disclosure review program including by increasing the focus on largely financially significant and achieving additional efficiencies in our reviews as a smaller company. our increased focus requires greater resources and traditional disclosure reviews and our ability to implement this enhancement turning on whether rare able to aliquot sufficient resources balancing of the division's. during the 2011 fiscal year the division established three new offices, structured finance which focuses on disclosure reviews and policy-making for asset backed security, the office of capital market trend,

which evaluates trends in security offerings in the capital markets to determine whether our rules and regulations and review approach are adequately addressing them, and a new review group and disclosure operation that focuses on the largest financial restitution. the division has staffed these offices almost entirely by transferring existing staff to them. resources permit, we plan to hire to fully staff these offices in the middle and to carry out their intended work. corporation finance recommends new rules or changes to existing rules for the commission to address areas a needed change. the division is reason greuel has focused on asset backed securities, corporate governance disclosure and dodd-frank act implementation. responsible for preparing a wide variety of roles to implement a significant number of dodd-frank act requirements which include, for example, rules for corporate governance and effective compensation including golden parachutes, disclosure of papers, performance, ratios, and

employee injector hedging policies and was extended for compensation committees and consultants and for erroneously awarded compensation. also specialize disclosure rules for complex minerals, safety, and payments to government by resource, regulation of asset backed securities and revision to accredited investor in disqualification of offerings involving bad actors from relying on the private regulations. the division is undertaking a significant new initiative to look for ways to reduce regulatory burden on small business capitol formation in a manner consistent with the best protection. products include the triggers for public reporting generally known as the 500 cheryl greuel, restrictions on communications and private offerings, in particular this restriction and general solicitation, communication and public offering, and new capital rating strategies such as crown funding of the scope of our existing

rules to regulate capital. thank you for inviting me to appear before you today. i would be happy to answer any questions you may have. >> if you could, please. >> good morning. my name is robert cook, and i am the director of the division of trading and markets, and it is a pleasure to appear here to there with my colleagues from the commission staff. the division of trading and markets irresponsible for developing rules and standards for our markets and markets intermediaries, including securities exchanges, alternative trading systems, broker-dealers to my clearing agencies, transfer agents, and self-regulatory organizations such as been run in the ms rb. the exponential growth and the size and the complexity of the u.s. securities market in recent years has traded special challenges with a business mission. in the past year the division has focused on several key initiatives to improve the oversight and function of our equity market. the commission adopted a new rule to ban access arrangements

under which producers to provide certain customers with unfettered access to the security markets without any controls to protect market stability. second, the commission adopted large trade reporting requirements that would help identify and obtain trading information on the largest participants in the u.s. securities market. third, we are preparing a recommendation that the commission for greuel to create and implement command maintain a consolidated on the trail to address significant shortcomings in the agency's present ability to select among the trade data in inefficient and scalable manner. fourth, the division's work and implementation of several fish adjust to address significant market volatility such as occurred on may 6 of last year. a disorderly market and have coordinated proposed efforts to implement a limit of coming down functionality for equity markets that will help prevent change outside the scope -- specified

parameters following trading to continue. in addition, the division has assisted an appropriation a proposed update to the existing marketwide circuit breakers. the division's core function has expanded substantially in the past year under the gun-frank act. all told the division has primarily been a fossil 47 separate rulemaking initiatives of which the commissioners published 21 for public comment. the division is also substantially involved in 12 cities of which seven have been completed. most notably we have been charged with responsibility for developing the registration and regulatory regime for participants in the security based otc derivatives market, including data repository, dealers, major participants, execution facilities, and clearing agencies. going forward, this will mean that trading and markets and coordination of the other divisions and offices will be registering these new entities, maturing market developments, and promulgating new rules

modifications, and guidance were needed. today the commission's proposed 13 rules related to otc derivatives. once the proposal phase is complete the division is planning to recommend the commission seek public comment on an implementation plan that will facilitate a rollout of a new requirement in a logical, progressive, timely, and efficient manner that minimizes unnecessary disruption and cost of the market. the division is impossible for many provisions of the act relating to proprietary trading activities, and has to oversight of financial markets utilities such as clearing agencies, and new procedural requirements for processing proposed rule changes pending the new offices for credit rating agencies and municipal securities the division has continued to work with them to carry out existing functions in these areas, including the appropriation of rules required. in conclusion, the division's

workload is dominated by eight rivers range of functions that are vital for protecting investors and markets. the scope of these functions has expanded tremendously. many of our currency initiatives will extend well into target : beyond. thank you for inviting me to be here, and no accord to answering your questions. >> thank you very much. >> chairman, ranking member, members of the subcommittee, let me join my colleagues from the commission and thanking you for the opportunity to testify today . it has been nine months since i joined the sec. the director of the division of investment management. before coming to the commission and over 30 years of experience in asset management as a portfolio manager and a portfolio team. the division assists the commission in its oversight and regulation of america's $43 trillion investment management in st. in doing this we administer the investment company act of 1940

in the investment advisers act of 1940. we oversee and develop regulatory policy for investment advisers and funds. the division has devoted the last year to implementing the provisions of the dog-frank act as it relates to investment advisers. the act significantly change the regulatory wednesday for the entities. first, it increase the statutory threshold for sec registration for 25 million to $100 million in assets under management. second, it eliminated a registration exemption for advisers to hedge funds and other private funds and finally required advisers that are not registered to submit reports to the commission. as a result build to not meet the new asset threshold and after withdrawal and register instead in their home states. advisers to hedge funds and other private funds will be required to register with the

commission were to qualify for one of the narrower exemptions added by the dawn-frank act. in june the commission adopted rules to implement these changes we anticipate adding approximately 750 new private fund advisers to the sec registrants will. we will see and estimate an overall decline of 28% in adviser registrants overall. under new rules that will report more detailed information of their operation, including information about the private funds that the managed which will allow us for the first time to obtain much-needed information. following the implementation of these rules to my anticipate that the division will shift more work to its disclosure, and to prevent bias, and exempted relief programs. another important area we are working on is to implement the retirement -- requirement of the dodd-frank act that consensus to the press reporting.

the dodd-frank act mandated commission require private fund advisers, including advisers to hedge fund and private equity to report information about the private funds that they managed for stocks systemic risk assessment. recently the commission adopted a rule that requires registered investment advisers managing of least $150 million in private fund assets to report system at risk information on a new form called form pf. the initial stages of this reporting will begin next year for some of the very largest private fund advisers. the division is also working on a number of important initiatives in other areas outside of this agenda. one of which i will highlight. prior to my arrival at the sec and in response to the run on money-market funds during the financial crisis the commission adopted important reform in the area of money-market fund regulation. these reforms include a requirement for money-market funds to report detailed portfolio holdings in the nation

on a monthly basis. using this data the division is able to monitor and discuss trends and the associated risks with the commission and with member staff. given the structural fragility is that remain in money-market fund this but the commission's reform the division continues to consult with member staff on additional regulatory reform steps. in addition to our role and commission rule making a large part of our administration of the investment company act and the investment advisers act consists of providing legal guidance in the form of interpretive and no action letters. as well as incentive relief from the provisions of both acts. we also review filings and investment companies in order to both monitor and enhance compliance with disclosure and accounting requirements. pursuant to the requirements under the act of 2002, the division reviews the annual reports of all investment

companies, no less frequently than once every three years. the division also provides legal and policy guidance to the is an unfortunate. again, thank you for the opportunity to testify and i am having answer any questions you may have. >> thank you very much. >> chairman, ranking member, members of the subcommittee mine in his crib louis, and i am the chief economist and director of the division of strategy and financial innovation. thank you for the opportunity to testify on behalf of the securities and exchange commission regarding this business operations activities and challenges. i joined the division as director in june of this year before coming on board was a professor of finance at the graduate school of management at vanderbilt university where i focus on research and teaching. primarily in the area of corporate finance. also a ph.d. economist. the division was created as part of the agency's modernization

initiative to share expertise and bring together critical data from across the agency. it was established in september september 2009 to provide the commission and its staff a sophisticated analysis that integrates economic, financial and legal expertise which then provides economic analyses which is part of the commission's rule making progress and supports of examination and enforcement with data-driven wrist-based analytical models. it also oversees the commission's pcr and interactive did a program. the division has been especially focused on the agency's increased use of computerized risk analysis and data sharing. the division participates in the rule making process by helping to develop the conceptual framing for and assisting in the subsequent writing of the economic consequences of the rules of the commission promulgates. where appropriate the sec considers in addition to the investment of investors whether the action will promote efficiency, competition, and

capital formation and gays in rulemaking. economic analysis of business rules considers the key economic effects of the various alternatives that should be considered in developing regulation. analysis of the likely economic effects of the proposed rules while critical to the rule making process to be challenged. certain costs or benefits may be difficult to quantify or value with precision, particularly those that are in direct or intangible. the division is committed to continuously improving economic analysis and commission rule making and to the integration of the economists into the room making progress. of the division is striving to fully comply with these increased demands, it faces challenges in its ability to do so giving current resources. the second core function of the division is to administer a number of data driven responsibilities and initiatives. for example, the division currently provides economic and statistical analysis to support

all aspects of enforcement and litigation matters for the commission. it also has developed innovative software tools and uses cutting edge and analytic methods to identify potential problem areas associated with investment managers. the interactive data program provides information contained in certain documents filed with the commission and structured format that make the underlying data readily available for analysis. the division has a number of responsibilities that include promoting the use of interactive data, developing the infrastructure, and supporting role writing to implement did teddy requirements. to improve efficiency the division has been reorganized to reassign staffa have expertise in data analysis and risk assessment in to the newly formed office of quantitative research, which will be responsible for designing quantitative risk assessment models. this office has begun to build a data infrastructure to facilitate the development and support for the analytics. going forward, the division would like to expand

capabilities to developers this as models and to build a scalable data infrastructure to support risk-based initiatives. although the division plans to pursue these objectives simultaneously in has existing employees with the necessary expertise to work on these projects, resource constraints and hit progress and significantly slow the rate of innovation. for example, a project to develop a model to detect accounting fraud has been delayed due to resource constraints. while the division has made significant progress since its inception in 2009, the scope of its responsibilities has been significantly expanded as it continues to find new ways to assist other divisions and as it addresses the additional obligations that have been mended by the dodd-frank act. thank you for inviting me to share with you the work of the division of rest strategy and financial innovation. i like fourth to answer your questions. >> thank you very much. >> good morning, chairman and ranking member and members of the subcommittee. let me join my colleagues in thinking you for the opportunity

to testify today on behalf of the u.s. securities exchange commission. my name is carlo di florio, and then director of the office of compliance, inspections, and examinations. i joined the sec on january 205th 2010, prior to which i was a partner in the financial services regulatory practice, price waterhouse coopers knew york. since joining the sec i have enjoyed working with colleagues who are so dedicated and committed to furthering the sec important mission. the sec national exam program helps protect investors and is sure market integrity by examining for fraud to monitor risk, promoting compliance, and ensuring market integrity. informing the sec of the eyes and ears of the sec in the field. hour exams assess whether they're treating investors fairly and complying with the securities, loss, and regulations that is designed to protect investors and prevent fraud. the 830 supervisors and

examiners in the national exam program take a risk-based approach to examining $25 plus registrants, including investment advisers, investment companies, broker-dealers, derivatives registrants, has funds, mutual funds, credit rating agencies, as are zero, national exchanges, clearing agencies, and transfer agents. under the direction of the nearly 18 the o.c. has undertaken at top to bottom review and launched over 20 improvement initiatives to strengthen our strategy, structure, people, processes, technology. accomplishments over the past year include the following, we have recruited experts and launched new specialty groups that ran deep needed expertise and specialization in program areas such as derivatives and structured products. hedge funds, credit rating agencies, high-frequency trading, and risk management.

we have conducted over 1600 exams that have better targeted preventing fraud at, identifying regulations, and addressing higher risk firms, products, and practices. we have implemented a new large for monitoring group to focus on systemic risk firms, and a new risk analysis and surveillance unit to enhance our ability to monitor risk trends and target of those firms and practices represent the greatest risks to investors to markets, and capital formation. we have created a national government structure that breaks down silos and facilitates coordination and the insistence, effectiveness command accountability across the country. we have streamlined an automated our ace in process with new technology. we have clearly defined expectations and a new exam manuel and have implemented a new internal compliance program to monitor our performance and ensure our accountability. we are working to design and implement a new exam and a

training program that establishes technical training and certification standards across the country. no matter how much we improve our current program, however, the fact remains that our 830 examiners and supervisors can only cover a small portion of the 25,000 plus registrants that we are responsible for overseeing. this results in a ratio of only one examiner for every 30 registrants. ..

and automating our exam process is to be as efficient as possible and maximize the use of resources we have provided. nevertheless, resources that enable us to more effectively fulfill her new responsibilities, protect investors and ensure market integrity. thank you and it welcomed the opportunity to answer questions. >> thank you. i want to thank the witnesses for separate testimony. your collective testimony illustrates the range, the complexity and the vital importance of what you do and also underscores the need to be properly resourced to do a very complicated job, which can complicated each and everyday but innovations in the marketplace can do for thank you again for what you are doing, what you continue to do.

i think one final point on this area, if you don't have these resources, you cannot affect if they provide direction and guidance in the marketplace. perhaps professor lewis can comment. it's more efficient than any found alastair not getting guidance to make appropriate decisions. let's begin by opening and i have lots of questions i asked first before any. mr. khuzami, one of the most notorious incidents of the last two years with the made-up scandal. recently, the final act has been undertaken, which has been disposition of allegations against members of the fcc, their behavior, people in the enforcement division was involved. there have been sanctions, but no one has been dismissed.

that is a question which is forefront in many people's minds. accountability -- u.s. for accountability in the marketplace. the american public is asking for accountability to the sec. can you count on it on the disposition whether or not you feel that was appropriate? >> yes, senator. accountability is our obligation as well and with respect to olathe madoff a matter with many of the forward-looking reforms and changes in organization revisions that you've heard this morning with respect to a very wise decisions. the inspector general's report identified a total of 21% approximately who you believed warranted follow-up for possible disciplinary actions. at about 10 of those left the

division since the report was issued. and the sec has no ability to discipline ex-employees who have departed, so that left approximately 11. we conducted an extremely aero process to make these decisions, including bringing an independent offered to come in and connected to an independent investigation and then make recommendations to the proposing officials and ultimately deciding officials because it is an agency decision. all of the 11 persons who are recommended, nine are recommended for actions by the law firm and action was in fact taken against all nine. in a couple of cases, it was i think two cases perhaps, less than what the law firm had recommended and i think i will defer to mr. to florio, who i

think it was in the oc program at the individual with a proposal that should be terminated. in fact, a different result was achieved. generally, all persons recommended by the law firm suffered a range of discipline. >> mr. di florio, can you comment? >> as my colleague, mr. khuzami noted -- are you able to hear me okay? as my colleague, mr. khuzami indicated, a serious review was undertaken in all of the individuals were identified were discipline. in one instance, the law firm recommended termination of an individual or if termination would have a significant negative impact on the operation said the sec, then to fashion the alternative remedy that would significantly change that individual roles and

responsibilities such as demotion and reduction in pay. so the fcc followed the recommendation of the law firm and refashion rose of the individual. they no longer have supervisory responsibilities. there'll is reduced. they received a reduction in pay and a suspension of 30 days. i would also just assure the congress and the american people that we have taken the lessons learned and have implemented improvements to prevent fraud so we can ensure american integrity. >> could you just follow quickly on some of the steps you take i'm looking forward based upon the experience was madoff. >> sure, we have undertaken significant training for all examiners and investigators in the sec of fraud techniques,

fraud tools and make sure that our forces truly understand the scenarios that are out there and how to act quickly to shut them down. i think our results as articulated by mr. khuzami and some results identify demonstrate how we begin to have been in hot. in addition they brought technology to bear, so we have a new system for tips, complaint and referrals for command and make sure we have the right people triage and following up on it. i'm bringing technology, better resources, better people to the job. >> thank you very much. mr. khuzami, judge ray goff has reason question about the appropriateness of the settlement you have proposed the city court. but it raises a few questions.

do you raise allegations against the company that there are no individuals that have been pursued in this case another case is peered into a lot of people on the street, they wonder how a company can commit serious violations of securities laws and yet no individuals are involved or assessed. and i think that is at the heart of one of the concerns that judge breakoff fast. can you comment on that? >> sure, senator. we focus first and foremost for the reasons you identify. individuals. in the citigroup case itself, we charge the individual who is responsible for the particular transaction and wherein education. recharged the firm that

represented that was independently select in the portfolio when in fact i was not the case. two individuals were charged in this case. overall across her credit crisis as they can approximately 26 individuals and entities are high-ranking officers. the entirety of the executive suite of new century and in the mac and other companies and individuals who have sold these have been charged, part of the concern has been gone up to the executive suite and why haven't the heads of banks that charge. it's a difficult challenge in transactional cases because what is going on occurs to come it three and four levels about the executive suite. if you are selling a cbo, it is

being put together by individuals working on the tasks and disclosures written by individuals who are not at the executive level. so the evidence of their duties and applications don't always write software to the top in the executive suite unlike an accounting fraud or financial statement or a couple were ceos and cfos may sign up on the accuracy of financial statements. so to some degree by the second earned him as the function of the nature of the cases come up with aggressively charged over half of the individuals in these cases, 40 to 50 high-ranking ceos, cfos and executives. >> is a follow-up on one additional question before a recognize senator merkley and then senator menendez. you are of course talking a civil charges, which is your responsibility. but there's been many other who have raised the issue of wired or any criminal charges because

there are at least suggestions, allegations of criminal violations as well as civil violations. as i understand it, you would have to refer those cases to the department of justice. but the record is not -- there are very few i can think of, criminal cases that have been taken in the wake of the worst financial crisis in the history of the country and behavior, which at least is the outside observer seems to be highly questionable. have you been making referrals? and has the chest is being systematically turning you down? how can you comment on this relationship? >> senator, we're picturing a close with the justice department and other offices than i can assure you they are keenly interested in cases arising under the credit crisis and look extremely closely at the evidence in these matters conduct their own inquiries and reach their own determinations.

it is a hurdle for them. they have a higher standard of proof in a criminal case. they must prove a case beyond a reasonable doubt. and so, some of the challenges we face, the face even more forcefully because of the higher standard of proof. but i can assure you, it is not for a lack of dedication or to professionalism or talent that criminal cases have been filed. >> i present for me and today he was made referrals, but they have not been followed through because of the judgment they have to make independently. >> we work very closely with them. we don't just take a case and referred and wash her hands of it. we are in constant communications and discussions in reviewing evidence and working collaboratively. >> thank you very much. there'll be an additional round of questioning. but they recognize senator merkley for his questions.

>> thank you, mr. chairman. it in a statement, but i do have questions about appropriate. i wanted to start to get anyone's opinion on congressman defazio's proposal on high frequency trading, which goes back to kind of thinking a little bit about the flash crash. i believe what he had in his most recent proposal is a three basis points see that discourages, if you will, the multitudinous high-speed trains for having very little impact on great other investors. and he put about that? >> mr. cook. >> thank you a senator. i am not familiar with the details of that, but i think the proposal or versions of it have been raised several times anything fair number of interesting issues that it raises. obviously there are concerns about the extent to which the

traffic that is generated by high-frequency traders is that it's so interfering with the effective functioning of the markets and to some extent, some type of fee whether it is a message the, order cancellation fee, various versions this might take. that might be hopeful in addressing that. i think the challenges are first pick in the right metrics for when that would have been, when it would kick in and what the type of fee would be. and second or more appropriately would be to not undermine the liquidity in the market that may be very important and certainly during normal circumstances. given the prevalence of high-frequency trading in our markets today, this is an area where we have to move very carefully to ensure whatever changes we introduce to a

significant portion of the volume in the markets is very carefully considered to avoid any unintended consequences. >> anyone else want to weigh in on that? >> very good. thank you. the second issue i wanted to get some insights on as the crowd funding of companies. as they move to the center now for a come as people become familiar with peer-to-peer lending, certainly this is a very different as anything traditional and investing from a very different for investors and very different for the companies. in some ways it's very exciting possibility, but also poses risk related to fraud. and how does -- any insights on how this gets pursued, supported

or guided so that it will be a win for investors and a win for companies? >> i will start off. first of all, i have to note i am not purchase a beating because of my prior work for a peer-to-peer lender. in general with regard to the capital raising strategy ideas being can be carried in congress and also that the commission, the key here is to make sure whatever is told doesn't become thought with fried said that it economies -- so investor confidence is destroyed and people want to invest in up markets in that rubble of deregulation help anyone. so we are working with market participants and the various pieces of legislation to help put in safeguards that we keep from happening. i think one of the ideas is the possibility of intermediaries as a means of protect investors

than i can let mr. cook addressed that. >> so when we think of investors purchasing securities, one of the traditional tools we have to provide protections for them as registration and regulation of the party who is doing the selling. and registering as a broker dealer. if some of the factors we think about when we think about whether that is appropriate include, does the broker of a salesman stake in the transaction? either conflicts of interest that might arise? is the intermediary handling customer funds and securities. and so, in our experience in this area, i think a couple of observations. one is that fact patterns matter and are different for in which the intermediaries may really to

investors. i think in some cases, we have given guidance that they are not subject to registration or wouldn't be because the regulatory policy concerns have not been triggered. i think another area we need to think about is whether we have sufficient of the respectable regime because the type that might be appropriate for one type of entity may not be appropriate for traditional brokerage house for example. i think if there were a regulatory regime in place here, i think that would be a key area in which a lot of flexibility to tailor requirements to the specific facts and circumstances. >> my time is up, so you just going to say appreciate your feedback on both of those. there's about 10 other topics i'd be happy to defer the conversation on. >> thank you, mr. chairman. mr. cross, africa 953 of the sub one which requires to disclose

that. third media worker compared to the ceo. and we waited with the sec earlier this year about both her intention that this provision and where it is that you are at. we got an answer that was less than satisfied jury. because it was a nonanswer as far as i can turn. so can you tell me where it is bad you are at in terms of being on track for finishing this rule and this provision by the end of this year? >> i am happy to do so. right now the division is in the process of preparing the recommendation for the commission so they can act on a proposal. we are trying mightily to make it by the end of the year. that is the schedule. that is the goal upon our public website and i can assure you we do everything we can to get there. we have a lot of things are trying to do right now and this

is one of the very important ones. but i can assure you we try our hardest make the year-end. >> i would hope we see happening across the country and people's concerns about inequality was spurred the sec to have a mere transparency. we've had testimony here, particularly from those who have come from the dirt about how it will be and they do not believe it's that difficult to produce the information, so i hope we understand particularly in light of actions being taken by citizens across this country about how important -- i know you have a lot of work. we gave you a lot of work. i understand that. this is something that clearly people look forward to having transparency and have it sooner rather than later. so we are looking forward to you achieving it by the end of the year for bringing it before the