[House Hearing, 111 Congress] [From the U.S. Government Publishing Office] OVERSIGHT OF THE U.S. SECURITIES AND EXCHANGE COMMISSION: EVALUATING PRESENT REFORMS AND FUTURE CHALLENGES ======================================================================= HEARING BEFORE THE SUBCOMMITTEE ON CAPITAL MARKETS, INSURANCE, AND GOVERNMENT SPONSORED ENTERPRISES OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED ELEVENTH CONGRESS SECOND SESSION __________ JULY 20, 2010 __________ Printed for the use of the Committee on Financial Services Serial No. 111-144 U.S. GOVERNMENT PRINTING OFFICE 61-848 WASHINGTON : 2010 ----------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Printing Office, http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202�09512�091800, or 866�09512�091800 (toll-free). E-mail, [email protected]. HOUSE COMMITTEE ON FINANCIAL SERVICES BARNEY FRANK, Massachusetts, Chairman PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama MAXINE WATERS, California MICHAEL N. CASTLE, Delaware CAROLYN B. MALONEY, New York PETER T. KING, New York LUIS V. GUTIERREZ, Illinois EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York FRANK D. LUCAS, Oklahoma MELVIN L. WATT, North Carolina RON PAUL, Texas GARY L. ACKERMAN, New York DONALD A. MANZULLO, Illinois BRAD SHERMAN, California WALTER B. JONES, Jr., North GREGORY W. MEEKS, New York Carolina DENNIS MOORE, Kansas JUDY BIGGERT, Illinois MICHAEL E. CAPUANO, Massachusetts GARY G. MILLER, California RUBEN HINOJOSA, Texas SHELLEY MOORE CAPITO, West WM. LACY CLAY, Missouri Virginia CAROLYN McCARTHY, New York JEB HENSARLING, Texas JOE BACA, California SCOTT GARRETT, New Jersey STEPHEN F. LYNCH, Massachusetts J. GRESHAM BARRETT, South Carolina BRAD MILLER, North Carolina JIM GERLACH, Pennsylvania DAVID SCOTT, Georgia RANDY NEUGEBAUER, Texas AL GREEN, Texas TOM PRICE, Georgia EMANUEL CLEAVER, Missouri PATRICK T. McHENRY, North Carolina MELISSA L. BEAN, Illinois JOHN CAMPBELL, California GWEN MOORE, Wisconsin ADAM PUTNAM, Florida PAUL W. HODES, New Hampshire MICHELE BACHMANN, Minnesota KEITH ELLISON, Minnesota KENNY MARCHANT, Texas RON KLEIN, Florida THADDEUS G. McCOTTER, Michigan CHARLES A. WILSON, Ohio KEVIN McCARTHY, California ED PERLMUTTER, Colorado BILL POSEY, Florida JOE DONNELLY, Indiana LYNN JENKINS, Kansas BILL FOSTER, Illinois CHRISTOPHER LEE, New York ANDRE CARSON, Indiana ERIK PAULSEN, Minnesota JACKIE SPEIER, California LEONARD LANCE, New Jersey TRAVIS CHILDERS, Mississippi WALT MINNICK, Idaho JOHN ADLER, New Jersey MARY JO KILROY, Ohio STEVE DRIEHAUS, Ohio SUZANNE KOSMAS, Florida ALAN GRAYSON, Florida JIM HIMES, Connecticut GARY PETERS, Michigan DAN MAFFEI, New York Jeanne M. Roslanowick, Staff Director and Chief Counsel Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises PAUL E. KANJORSKI, Pennsylvania, Chairman GARY L. ACKERMAN, New York SCOTT GARRETT, New Jersey BRAD SHERMAN, California TOM PRICE, Georgia MICHAEL E. CAPUANO, Massachusetts MICHAEL N. CASTLE, Delaware RUBEN HINOJOSA, Texas PETER T. KING, New York CAROLYN McCARTHY, New York FRANK D. LUCAS, Oklahoma JOE BACA, California DONALD A. MANZULLO, Illinois STEPHEN F. LYNCH, Massachusetts EDWARD R. ROYCE, California BRAD MILLER, North Carolina JUDY BIGGERT, Illinois DAVID SCOTT, Georgia SHELLEY MOORE CAPITO, West NYDIA M. VELAZQUEZ, New York Virginia CAROLYN B. MALONEY, New York JEB HENSARLING, Texas MELISSA L. BEAN, Illinois ADAM PUTNAM, Florida GWEN MOORE, Wisconsin J. GRESHAM BARRETT, South Carolina PAUL W. HODES, New Hampshire JIM GERLACH, Pennsylvania RON KLEIN, Florida JOHN CAMPBELL, California ED PERLMUTTER, Colorado MICHELE BACHMANN, Minnesota JOE DONNELLY, Indiana THADDEUS G. McCOTTER, Michigan ANDRE CARSON, Indiana RANDY NEUGEBAUER, Texas JACKIE SPEIER, California KEVIN McCARTHY, California TRAVIS CHILDERS, Mississippi BILL POSEY, Florida CHARLES A. WILSON, Ohio LYNN JENKINS, Kansas BILL FOSTER, Illinois WALT MINNICK, Idaho JOHN ADLER, New Jersey MARY JO KILROY, Ohio SUZANNE KOSMAS, Florida ALAN GRAYSON, Florida JIM HIMES, Connecticut GARY PETERS, Michigan C O N T E N T S ---------- Page Hearing held on: July 20, 2010................................................ 1 Appendix: July 20, 2010................................................ 41 WITNESSES Tuesday, July 20, 2010 Schapiro, Hon. Mary L., Chairman, U.S. Securities and Exchange Commission..................................................... 11 APPENDIX Prepared statements: Kanjorski, Hon. Paul E....................................... 42 Klein, Hon. Ron.............................................. 44 Schapiro, Hon. Mary L........................................ 46 Additional Material Submitted for the Record Schapiro, Hon. Mary L.: Written responses to questions submitted by Hon. Spencer Bachus..................................................... 66 Written responses to questions submitted by Hon. Carolyn McCarthy................................................... 72 Written responses to questions submitted by Hon. Ed Royce.... 73 OVERSIGHT OF THE U.S. SECURITIES AND EXCHANGE COMMISSION: EVALUATING PRESENT REFORMS AND FUTURE CHALLENGES ---------- Tuesday, July 20, 2010 U.S. House of Representatives, Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, Committee on Financial Services, Washington, D.C. The subcommittee met, pursuant to notice, at 10 a.m., in room 2128, Rayburn House Office Building, Hon. Paul E. Kanjorski [chairman of the subcommittee] presiding. Members present: Representatives Kanjorski, Ackerman, Sherman, McCarthy of New York, Baca, Lynch, Scott, Maloney, Bean, Klein, Perlmutter, Donnelly, Carson, Minnick, Adler, Himes; Garrett, Manzullo, Royce, Biggert, Hensarling, Neugebauer, McCarthy of California, Posey, and Jenkins. Ex officio present: Representative Bachus. Chairman Kanjorski. This hearing of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises will come to order. Pursuant to committee rules, each side will have 15 minutes for opening statements. Without objection, all members' opening statements will be made a part of the record. Good morning. We meet today to consider the current performance and future plans of the United States Securities and Exchange Commission. When taking over the agency nearly 18 months ago, Chairman Schapiro faced considerable challenges, perhaps none greater than restoring the Commission's reputation in the wake of the collapse of sizable investment banks and the revelation of the $65 billion Madoff fraud. This massive Ponzi scheme made it undeniably clear that the Commission's examination, oversight and enforcement programs had serious weaknesses and required substantial reforms. During her tenure and using the powers she already had, Chairman Schapiro has pursued an ambitious results-oriented agenda aimed at protecting investors and restoring confidence. She has shaken up the Commission's senior management. While she has already accomplished much, Chairman Schapiro also faces many more hurdles in the coming months, especially as she works to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act, which will become law tomorrow. This statute grants the Commission many new powers and endows it with significant new responsibilities. Today, Congress will carry out its constitutional oversight mandate by closely examining what the Commission has already done for better protection of investors, to facilitate capital formation, and to maintain fair, orderly, and efficient markets. We will also begin comprehensive oversight of the Administration's implementation of the new Wall Street reform law. I believe that Congress must focus like a laser beam on this issue by holding regulators accountable for their performance under this landmark statute. As a result, this hearing is the first of many that I intend to hold on issues related to the new law. Under the Wall Street reform law, the Commission will, independently and in cooperation with other agencies, write and police more than 100 new rules on issues like the sale of derivatives, the fiduciary duty of broker-dealers, the nomination of board directors by investors, and mandatory arbitration clauses inserted into securities contracts. Additionally, the law will require the Commission to complete a score of studies under very tight deadlines. This historic agreement also subjects credit rating agencies to greater accountability through new liability standards, and the Commission will issue rules that, among other things, establish a system to prohibit issuers of structured finance products from picking the entity that provides the initial credit rating. The statute further empowers the Commission to register and oversee hedge fund managers and other private fund advisers. Moreover, this landmark law aims to modify the structure of the agency to make it more nimble and responsive to the ever novel innovations of Wall Street. In addition to the offices and other structural reforms that it will uphold, the bill contains my proposal to require an independent, external, comprehensive examination and overhaul of the Commission. This overhaul effort will ensure that a fresh look at the inner workings of the agency is taken in order to help rectify any remaining problems and make sure that the Commission and its partners can effectively and efficiently detect and stop Wall Street fraudsters. As we proceed today, we will undoubtedly review the recent developments that have garnered eye-catching headlines on the front pages of America's newspapers. For example, we need an update about the structural reforms put in place after the markets' temporary plunge on May 6th. We also need to shed more light on last week's eye-popping $550 million settlement from Goldman Sachs. I, for one, am hopeful that this legal action will be the first and not the last brought by the Commission against the hucksters of Wall Street who spun toxic mortgages into golden financial opportunities by hiding information or defrauding investors by other means. In closing, I look forward to hearing from Chairman Schapiro on the reforms implemented by the Commission during the last year; its pending initiatives; and most importantly, on how the Commission expects to implement the many new powers and authorities contained in the conference agreement to reform the ways of Wall Street operation. Because too many Americans have lost their retirement nest eggs, we cannot rest. We must continue to work to improve the effectiveness of this support in the agency. The Chair now recognizes the gentleman from New Jersey, Mr. Garrett, for 4 minutes. Mr. Garrett. I thank the chairman. I think there is a lot on the SEC's plate these days, and I am pleased that we are having this hearing to do our proper oversight and explore really the myriad of issues that are important to the future of the markets. Obviously, one of the top things on the SEC's to-do list, since this bill will be signed into law soon, is to begin a very aggressive and far-reaching set of rulemakings that is called for in this 2,300-page financial regulatory bill. And of the around 243 new rulemakings under the Dodd-Frank bill, there is one estimate of 95 or more under the purview of the SEC. So certainly concerns that the timetable for finalizing these rules that the bill mandates is really not appropriate. It will cause the SEC to move perhaps too quickly on items that should be considered in a thoughtful and reasonable, responsible manner. Never mind the question of whether some of these rules should be considered at all. Of course, these concerns are magnified because much of the rulemaking, especially in the area of derivatives, must be done in a joint manner with the CFTC, making that process even more complicated and ripe for politically-based, rather than policy-based, solutions. So the regulatory reform rulemaking is all in all in addition to the number of major items that the SEC was already working on prior to this, and one of these areas is the concept release on market structure in which the Commission is examining a broad array of issues related to the proper functioning of the markets. Now, among the issues the SEC is looking at is the concept release, the role of high-frequency trading in today's market. And recently, Chairman Schapiro has been quoted on a number of occasions about our apparent concerns over the speed in which orders are now electronically processed. Apparently, the Commission is or will be reviewing whether some of these trades proceed too fast. I have some concerns with the Commission's focus in this area. While it can be difficult for the human mind to fathom the speed with which these transactions are processed, putting some sort of artificial governors on the trade seems to me to be a strategy that will likely produce a host of unintended consequences, one of which is liquidity could be significantly curtailed. Another could be increased, rather than decreased, volatility. So those are issues to be addressed. In a related note, I again want to highlight a portion of my April 22nd letter on the market structure release. In the letter, I express concern that the Commission's request for comments respecting the interests of long-term and short-term investors seems to focus on a perceived conflict between such groups with little to no reference to the critical interdependency between these groups and the overall equities market structure. And I am hopeful that the tone of such requests is not reflective of the SEC's analytical framework, and I would urge the Commission to consider that should be determined that additional rulemaking be required. The most successful outcome would be one that benefits their synergistic relationship as a whole. In another item, in addition to that, that I have touched on in the past and plan on exploring more going forward, is to what extent union or civil servant protections are hampering the Chairman's ability to properly discipline or fire SEC employees who are either engaged in improper misconduct in the workplace or simply not competent or simply lazy in their pursuit of protecting investors from the likes of Bernie Madoff. As Governor Christie, in my home State of New Jersey, has demonstrated so very well I think, everything needs to be on the table as we reexamine issues that may be contributing to overly costly or inefficient or ineffective government. The taxpayers in my State, or the entire country, deserve nothing less, and we cannot afford to do anything less. Also, on this point of the Madoff issue, the Securities Investor Protection Corporation, or the SIPC, is supervised by the SEC. So I will be interested to hear from Chairman Schapiro on what her thoughts are on whether it is just or appropriate for the SPIC-appointed trustees to be pursuing so-called clawback provisions from investors who have already lost millions because of Madoff's fraudulent behavior and the SEC's incompetence or inability to prosecute that behavior. If the IRS, a Federal Government entity, relied on investor statements to calculate taxes owed, shouldn't the investors be able to rely on the IRS--or on the statements as well? So, in conclusion, I don't envy Chairman Schapiro with the number of issues that are on your plate. The ones I have touched on here only are beginning to scratch the surface. And I appreciate Chairman Kanjorski's comment with the regard to the idea for future hearings and the like as far as oversight. And that is why it is so important that we have this hearing today. So, I appreciate Chairman Schapiro coming today to testify. Chairman Kanjorski. Thank you very much, Ranking Member Garrett. Now, we will hear from the gentleman from New York, Mr. Ackerman, for 3 minutes. Mr. Ackerman. Thank you, Mr. Chairman. During the course of today's hearing, we will no doubt discuss the role of the SEC in the wake of the passage of the Dodd-Frank bill, the most significant financial reform legislation since the Great Depression. As Chairman Schapiro noted in her written testimony this morning, once President Obama signs the bill into law tomorrow, the SEC will become responsible for promulgating an enormous number of new rules, creating five new offices, and undertaking several studies, most of which must be completed within the next year or two. But this morning, I would like to discuss national security. Three weeks ago, President Obama signed the Comprehensive Iran Sanctions, Accountability, and Divestment Act into law. This historic legislation expands the types of transactions American firms are prohibited from entering into with Iran so as to preclude selling Iran refined petroleum, supporting Iran's domestic refining efforts or selling Iran goods or services that assist in developing its nuclear sector. The bill bans U.S. banks from engaging in financial transactions with foreign banks doing business with the Iranian military, from helping to facilitate Iran's illicit nuclear programs, or from aiding Iran's support for terrorism. The Act also holds U.S. banks accountable for actions by their foreign subsidiaries. Accordingly, foreign firms whose equity may be partially or fully held by U.S. funds or investors are also subject to the new sanctions, including not only those involved in Iran's energy sector but also those foreign financial institutions doing business with key Iranian banks or the Iranian military, as well as companies that sell goods or services that facilitate human rights abuses by the Iranian regime. The sanctions are crippling. And the penalties for firms determined to be in violation of these sanctions are equally punitive. And they should be. A nuclear Iran poses existential threats to the United States and its allies and companies must be held accountable for assisting Iran in its determination to develop nuclear capabilities and shun the international community. So what does Iran have to do with our capital markets? The potential for American investors to suffer material losses if their investments are in firms determined to be in violation of new sanctions is very real. As Chairman Schapiro knows, the SEC has a very important role to play under the Comprehensive Iran Sanctions, Accountability, and Divestment Act. American investors need to know if the companies and funds in which they invest face potential and substantial Iran-related sanctions. As the watchdog for our markets and exchanges, the SEC will be tasked with ensuring that investors have ready access to information pertaining to any potential sanctions the U.S. exchange-listed firms and funds in which they have invested will be subject to. Madam Chairman, this morning I presented you with a letter asking for your attention to these issues and assuring that U.S. investors are forewarned about potential exposure to significant losses. I would appreciate if you could address the Commission's role under the Comprehensive Iran Sanctions, Accountability, and Divestment Act this morning, and how the Commission plans to empower investors placing their money with firms involved in illegal transactions with Iran. I thank you for your continued hard work to provide confidence in the stability of our capital markets, and I yield back the balance of my time. Chairman Kanjorski. Thank you, Mr. Ackerman. We will now hear from the ranking member of the full committee, the gentleman from Alabama, Mr. Bachus, for 4 minutes. Mr. Bachus. Thank you. Thank you, Mr. Chairman. I thank you for holding the hearing which I think Mr. Garrett and I requested. This is actually the second oversight hearing; the first one was last July, Chairman Schapiro. And we appreciate you being here today. Chairman Schapiro, I understand you inherited a Commission with a tarnished reputation and significant personnel problems. I think you have performed admirably, attempting to revitalize the Commission's culture. But clearly, as you have said, more fundamental improvements are necessary. If there are legal impediments preventing you from further transforming the agency, particularly with the civil service laws, it is our hope that we can use these oversight hearings to learn what measures can be taken to manage the Commission more effectively and demand high ethical and professional standards from its employees. In the past 2 years, we have experienced the collapse of Bear Stearns, Lehman Brothers, and ultimately the Consolidated Supervised Entity Program, the breaking of the buck by the reverse primary fund, the multibillion dollar Madoff and Stanford Ponzi schemes, as well as numerous operational and personnel problems identified by the SEC's Inspector General. These very significant and recent failures give us all the more reason to conduct aggressive oversight and to demand, along with you, that the SEC be more accountable at all levels of the agency. What many of us find particularly troubling, and I know you do, too, is that the majority of the SEC's problems were caused by its failure to use its existing authority to protect investors to address fraud and other sharp practices in already heavily regulated areas of our capital market. I want to conclude my statement today by saying this: As we have seen with subprime lending, when everyone is in charge of a problem, no one is in charge. Shared responsibility resulted in inaction because the agencies were never able to agree on what action to take or even recommend. We also saw that with credit cards. Now, we have the Dodd-Frank Act that the President will sign into law tomorrow, and it gives numerous regulators, in my opinion, vague new authorities to regulate various entities. So you have all these rules and regulations that you are having trouble enforcing, and now you have a whole other set of regulations and rules. For instance, as a result of this new legislation, clearinghouses and so-called financial market utilities will be required to process vast dollar amounts of derivative products. And today, that is just between different entities. It doesn't go in a clearinghouse. Will they become the next ``too-big-to-fail'' entities? Is there an implied government guarantee or even an explicit one that they will not be allowed to fail? The SEC--or the CFTC is the primary regulator of many of these clearinghouses and financial market utilities today. Will that continue to be the case? The Federal Reserve, in many cases, appears to be the ultimate regulator of many institutions where you are the prime regulator today. Will they be the regulator in charge if the regulators cannot agree? And what is the role of the Financial Stability Oversight Council as it relates to clearinghouses and financial market utilities? Will they have an independent regulatory role? These questions and others may not be answered for years, and therefore, the uncertainty that existed before this legislation passed, if anything, will only increase. Finally, this legislation increases the threat that the SEC will create more uncertainty in our capital markets through the exercise of new powers to reform practices that in no way contributed to the financial crisis. The crisis was not caused by arbitration agreements, corporate governance rules, or the broker-dealer suitability standards. Nonetheless, the Act requires the SEC to address these perceived problems. Obviously, you are faced with a lot of questions, and one of them is, are you ultimately in charge or do you have to work with the other agencies, and who makes the final decisions? And that is going to be something that is going to require additional oversight and coordination, not only between the Congress and your agency but between the agencies. Thank you. Chairman Kanjorski. Thank you, Mr. Bachus. Now, we will hear from the gentleman from California, but before he starts, may I remind the members of the committee that we have assigned time, and I hope that we would hold to that time. A few of us have gone over that time this morning. Let us hold to the 3 minutes that are allocated. The gentleman from California, Mr. Sherman. Mr. Sherman. Thank you. I would like to associate myself with the statements of Mr. Ackerman. It is critical that the SEC make sure that investors are aware of those corporate actions that would cause the issuer to be subject to sanctions under the newly passed bill. Many people have mentioned the Madoff case. I should point out, that should have been detected in the first 15 minutes of review, because the first thing that should happen when the SEC gets a financial statement is, you look at the auditor's report. And that would raise the issue, is the auditor large enough to do the audit? Had that question been asked, Madoff would have been detected in 15 minutes or so. And I would hope that some basic reviews go on with financial statements filed with the SEC by broker-dealers, investment advisers, etc. And that should include the most basic question, and that is, who is the auditor, and is that auditor qualified to do the audit? I want to focus on credit rating agencies. The chairman has excellent language in the bill that will be signed tomorrow that, as I understand it, becomes effective immediately, but there are two other aspects dealing with credit rating agencies that really don't have effect until the SEC takes action. The first of these is designed to make sure that credit rating agencies are fair to municipal issuers. Right now, we have a circumstance where bonds of corporate issuers get one set of grades, municipal issuers another, and I think investors are misled into thinking that the corporates are better. The fact is when a municipal issuer defaults, its revenue stream continues, and therefore, usually the bondholders are paid in full; whereas, if you held bonds in Circuit City, you are aware that when a corporation defaults, its revenue stream is ended by the going-out-of-business sale. Municipalities and States do not have going-out-of-business sales. They stay in operation and continue to collect revenue. Most importantly, are the provisions designed to make sure that the issuer, particularly of structured investments, does not select the credit rating agency? In October, I submitted in this room an amendment to require the SEC to establish a panel to select the credit rating agency. I ended up settling for a hearing which now I don't think is necessary because Senator Franken was able to get the core of my language and some expanded language into the bill. I want to make sure that the SEC is dedicated to the objective of that amendment, which is whether you go with the exact Franken language or not, that the issuer will not select the credit rating agency. I yield back. Chairman Kanjorski. Thank you very much, Mr. Sherman. Now, we will hear from the gentleman from California, Mr. Royce, for 2\1/2\ minutes. Mr. Royce. Thank you, Mr. Chairman. There is a clear difference, I think, between the American approach and the British approach in dealing with a calamity in financial regulation. In the United States, we have a history of tinkering around the edges. We add additional agencies when a crisis comes. In Britain, they are more open-minded about fundamentally reorganizing an entity when it has failed. People lose their heads there. They will even disband the agency altogether and start fresh. We have heard time and time again about the overlawyering, the bureaucratic delays, the investigative ineptitude. We heard that from our copulas here at the SEC. The fact that it took the agency 16 years to uncover the Madoff Ponzi scheme and the fact that had the financial tide not gone out, it probably would have been until his death that was carried on, I think shocks the members of this committee. And the fact that the SEC had known about the Stanford Ponzi scheme since 1997. According to the SEC's Inspector General, one SEC supervisor used her work e-mail account on virtually a daily basis to conduct business on behalf of the operator of a Ponzi scheme in Arizona. These problems did not arise from simply a lack of funding but rather a deeper, structural flaw within the SEC. So how does Congress treat an agency that has performed so poorly over the years? We reward it. The bill awaiting the President's signature vastly expands the regulatory authority without reforming the troubled agency, and under the bill, the agency will promulgate 123 rules, conduct 32 studies, and establish 7 new offices within the SEC. This is in stark contrast, as I said, to the approach taken by the Brits. As the headline in the Financial Times recently noted, ``FSA to be Abolished in Osborne Shake-up.'' So, Ms. Schapiro, you have committed to at least begin the reformation of the SEC, and I commend you for that. We spoke last week about that. But time will tell whether real reform can come from within the agency or whether we would be better served taking a page out of England's playbook and fundamentally restructuring this agency. I look forward to your testimony. Thank you. Chairman Kanjorski. Thank you very much, Mr. Royce. Now, we will hear from the gentleman from Massachusetts, Mr. Lynch, for 1\1/2\ minutes. Mr. Lynch. Thank you, Mr. Chairman. I want to thank Chairman Schapiro for attending the hearing and helping us with our work, especially in light of the recently passed reform bill, as well as the recent settlement with Goldman Sachs totaling over $550 million. Madam Chairman, last summer, we had an SEC oversight hearing in Boston where I expressed the concern about the resources that are available to the SEC to perform its duties and fulfill its responsibilities. A look back at the SEC budget reveals that while the financial markets were exploding in size and in complexity, the SEC budget remained fairly flat and, in some cases, actually shrank. I am pleased that the SEC receives enhanced resources under the new bill, but it also gets a lot of new responsibilities as well. So you have a tough row to hoe. But I would like to work with you. I had an opportunity to meet with some of the new heads of the department that you have appointed in this new structure, the Enforcement Division and the Division of Risk, Strategy, and Financial Innovation. I am encouraged by the new leadership. I am optimistic. But I also know you have a tremendous task in front of you. So I would like to hear in the hearing in your testimony about how we are going to tackle that and get down to the real mechanics. But thank you for attending, and I yield back the balance of my time. Chairman Kanjorski. Thank you, Mr. Lynch. I will now hear from the gentleman from Texas for 2\1/2\ minutes, Mr. Hensarling. Mr. Hensarling. Thank you, Mr. Chairman. After our last hearing with the SEC Chairman, I think it was made clear that, at least under the previous management, the SEC did have the authority under the Consolidated Supervised Entities Program to do something about the dangerous levels of leverage at Lehman Brothers. Unfortunately, they chose not to exercise that authority. The situation was not dissimilar to that of AIG. We know we had the former Director of the Office of Thrift Supervision, who testified before the committee that OTS did have the authority to properly regulate AIG, but again, they chose not to do it. In case after case, regulators had the authority to prevent behavior that contributed significantly to our economic debacle. Whether it was a matter of ignorance, negligence, incompetence or frankly simply making a mistake, a very costly mistake, we don't know. And so many of us find it somewhat ironic that now the financial regulatory bill that is awaiting the signature of the President in many respects rewards regulators who missed and contributed to the financial crisis with yet even more regulatory authority and does little or nothing about ignorance, negligence, incompetence, and simple mistakes. Clearly, the SEC will be getting significant new authority in addition to their tremendous workload. I have heard some estimates of 95 new rulemakings, some say 123; 32 studies, 19 additional actions and reviews. Obviously, all of this new authority and responsibility is against the backdrop of the Lehman Brothers failure, the Madoff Ponzi scheme and the SEC pornography scandal that revealed senior SEC officers clearly had more time to view pornography than they did to police security fraud. I hope that the SEC is capable of improving its track record while also taking on these new responsibilities. Clearly, as we look around in our economy, one of the greatest challenges we have to job creation is frankly not a lack of capital; it is a lack of confidence. And I am curious, with all this new regulatory authority that will be granted to the SEC, how will the SEC handle the levels of uncertainty that have been created by this new law? Already, the Federal Reserve reports that public companies are sitting on almost $2 trillion of cash and liquid securities. We need to get that money out of the stands, onto the playing field, and the actions of the SEC will bear greatly upon that. Thank you, Mr. Chairman. Chairman Kanjorski. Thank you, Mr. Hensarling. Now, we will hear from the gentleman from Georgia, Mr. Scott, for 1\1/2\ minutes. Mr. Scott. Thank you very much, Mr. Chairman. Welcome, Chairman Schapiro. You have quite a challenge before you with our newly, about-to-be-signed, Wall Street reform bill. As you go about your testimony, I would be very interested for you to sort of explain to us your interpretation of what you see your role is under this new bill, particularly in relationship to protecting our investors, stabilizing our financial markets, how you are going to regulate over-the- counter derivatives, and how you are going to rein in excessive risk-taking. And, of course, we want to know your concerns about the new role and the concerns that you raise in terms of the implementation of your impending expansion of your duties. But I am particularly concerned that you express to us today how you see your role playing out in the implementation of the Iran Sanctions Act. You have a very critical role in that, especially given the fact that the real meat and potatoes of this sanctions bill is within the financial community, as well as investments in their infrastructure of the importation and of refined gasoline. I look forward to your testimony. Thank you for being here. Chairman Kanjorski. Thank you, Mr. Scott. Now, we will hear from the gentleman from California, Mr. McCarthy, for 2 minutes. Mr. McCarthy of California. Thank you, Mr. Chairman. I thank you for scheduling this hearing. I look forward to hearing from the SEC Chairman about her agenda, especially given the movement of the bill, the new responsibilities and funding for the Commission. As you know, Chairwoman Schapiro, I remain very interested in how the SEC coordinates its inspections and examination staff and the activities with the policymaking division of the trading and markets and investment management. As you have made internal changes, I am interested in an update on how you have integrated processes to avoid the stove-piping. In a similar vein, your post-Madoff reforms indicate a new protocol in the New York regional office to better integrate broker-dealer and investment advisor examinations with a goal of having the most knowledgeable staff coordinating the exams. I hope you will be able to address how this kind of cross- training is working, and if so, how could it work across the Nation so that we can better be able to examine and find the Madoff scandals sooner and not be able to move forward? I yield back the balance of my time. Chairman Kanjorski. Thank you very much, Mr. McCarthy. Now, we will hear from the gentleman from Indiana for 1 minute, Mr. Carson. Mr. Carson. Thank you, Mr. Chairman, for holding this important hearing today. While we are continuing to see signs of an economic recovery, it is critical that we take steps to prevent another financial crisis of this depth and duration. One of the most important things that the SEC can do to help the economy towards sustainable growth is to be the most effective market regulator, protecting investors while also encouraging capital formation and investment. Undoubtedly, the SEC has undertaken many reforms to protect the interests of investors. And I hope that it will live up to its mandate of protection. As the economy recovers, it is imperative that we continue to focus additional firepower on behalf of investors who might otherwise lose their confidence in the integrity of these markets. Thank you, and I yield back. Chairman Kanjorski. Thank you, Mr. Carson. Now, it is my pleasure to introduce and welcome one of our witnesses--our only witness this morning, the Chairman of the Securities & Exchange Commission, Mary Schapiro. Without objection, Madam Chairman, your written statement will be made a part of the record. You are also recognized for 5 minutes to summarize your testimony. We will try to be a little lenient because of, obviously, the indicated interest in your statement. So welcome to the subcommittee, and we look forward to your statement. STATEMENT OF THE HONORABLE MARY L. SCHAPIRO, CHAIRMAN, U.S. SECURITIES AND EXCHANGE COMMISSION Ms. Schapiro. Thank you, Chairman Kanjorski, Ranking Member Garrett, and members of the subcommittee. I appreciate the opportunity to testify today on behalf of the Securities and Exchange Commission. When I testified before the subcommittee last year, we were just emerging from an economic crisis that threatened our financial system and the entire American economy. The markets were still trying to regain a firm footing and confidence in the institutions of government generally, and the SEC specifically was shaken. In response, we have embarked on a conscious effort to become a more nimble and responsive regulator, updating our rules, breaking down silos, and reinvigorating our enforcement program. I believe we have made substantial progress and have laid a strong foundation for more progress in the coming years. My written testimony provides an overview of the actions and initiatives the SEC is taking to fulfill this mission, but this morning, I would like to briefly highlight a few. Internally, we set out to rebuild our culture and refocus on our core mission. We hired new leadership across the agency, streamlined procedures, encouraged a culture of collaboration, and created a new division to improve our understanding of new products, trading practices, and risks. We substantially restructured our Enforcement Division, creating specialized units to tackle the most complex types of cases, and we eliminated a layer of management, redeploying investigators to the front lines. Similarly, our examination program, also under new leadership, is in the process of restructuring. While the numbers can never tell the whole story, the changes are already bearing fruit. In Fiscal Year 2009, compared to the previous year, the Enforcement Division more than doubled the amount of civil penalties it obtained; more than doubled the temporary restraining orders it sought; more than doubled the number of formal orders of investigation it issued; and more than doubled the amount of funds distributed to injured investors, over $2 billion. Further, thanks to our congressional support, we were able to upgrade our information technology capabilities. One of the first initiatives we launched was centralizing all our existing tips and complaints into a new single searchable database. We are in the midst of building an entirely new system to record and track this information for the entire agency which we expect to deploy later this year. We are also building analysis and workload tools to better prioritize, assign, and track this information. All of this will allow us to more effectively identify valuable leads for possible enforcement actions and compliance exams. Of course, we are not just working to make the agency more investor- focused, but the rules as well. In the past year or so, we have proposed or finalized rules designed to improve market stability, transparency, and investor protection. We have adopted rules to provide greater protections to investors who entrust their assets to investment advisers; to strengthen credit quality, liquidity, and maturity standards for money market funds; to create a stronger, more robust framework for credit rating agencies; to curtail pay-to- play practices by advisers; and we have proposed rules to provide greater disclosure about target-date funds. We have also taken steps to improve market structure and functioning with proposals to address flash orders, dark pools, and sponsored access. Additionally, even before the market events of May 6th, the SEC issued a concept release raising questions and seeking input to improve price discovery and strengthen market resiliency in our highly dispersed equity market. Immediately after May 6th, we acted quickly to build upon existing rules and protect investors in the process. The Commission has approved and the markets have implemented a pilot uniform circuit breaker program for S&P 500 stocks, and we have been working to expand the program, proposing to include Russell 1000 stocks and certain exchange traded funds. We have published for comment proposed SRO rules designed to bring order and transparency to the process of breaking clearly erroneous trades. And we recently proposed creating a new consolidated audit trail to create a single repository of all order, trades, and quotes. This is designed to give us a comprehensive view of market activity; to aid investigations by the Enforcement Division; and to significantly expedite market reconstructions, such as that being undertaken in connection with May 6th. And finally, we have begun to prepare for the significant implementation requirements associated with financial regulatory reform legislation. To hit the ground running, we have established a streamlined process and created interdivisional teams to address specific issues, and we are developing estimates on how best to allocate resources for the implementation effort. I believe we have had a productive and active year. We have improved personnel and technical resources and at the same time proposed and implemented rules that will improve our financial markets, provide additional transparency, and increase investor protection and restore confidence. We are ready and eager to build on the substantial progress and, within the framework of financial reform, work to become an even more effective agency in the year ahead. I would be very happy to answer your questions. [The prepared statement of Chairman Schapiro can be found on page 46 of the appendix.] Chairman Kanjorski. Thank you very much, Madam Chairman. I will take the prerogative of the first questions. I certainly welcome you to the subcommittee, and I daresay it is my evaluation this will be your nicest appearance since we do not--we are not going to be here testing what happened or what breakup occurred through the years. With that spirit in mind, and knowing how involved you were in assisting this subcommittee and the full committee in drafting the regulatory reform bill that the President will sign tomorrow, can we extend our hand of cooperation to you that as you develop your task force, your studies, and get the responses back under the new authorities placed in your hands under the bill, that we will have a very positive response and coordination between this committee and yourself? If you run across changes that should be made or are obvious to you, but perhaps you may determine that you lack the legal authority under the various acts, then you will work very expeditiously to report to us and request that additional authority? Ms. Schapiro. Absolutely, Mr. Chairman. I actually appreciate that invitation to work with the committee as we work through many issues that are likely to arise over the course of implementation. Chairman Kanjorski. Today, I was asked by a reporter, what is most the important thing that the Act will accomplish? You know it is 2,400 pages, which is pretty heavy, and to a lot of Americans, they think that has to represent a lot of nonsense in a way because how can anybody compile something that is 2,400 pages that is meaningful? The fact of the matter is, as you know, we have been working on this legislation for years, and part of this legislation has been enacted several times by this committee or the Congress, and we are just now having the opportunity to put it into law. All that being said, do you have any reservations as to some shortfalls in the existing law? Is there anything we should immediately start to work on to correct the shortfalls, one being, as was pointed out this morning, again by a reporter, on the budgetary problems? Are those budget problems somewhat restrictive for you, and could that cause you some difficulty? Ms. Schapiro. As you know, the SEC sought self-funding the way the FDIC, the OCC, the Fed and other bank regulators are funded. And that was not accomplished in this legislation. But we are extremely grateful for the flexibility that was added to the budgeting process for the SEC that will allow us to maintain a reserve fund that will help us fund some technology projects that we think will be multiyear projects, as well as having the ability to have matched funding and to present our budget to Congress at the same time we present it to the Administration. So, while it is not everything we had hoped for, it is a significant step forward, and we are very grateful for that. Chairman Kanjorski. I recognize that we have established a new council; that you are now a member of the Economic Stability Council. We used to have another name for it, the Systemic Risk Council. That being said, have you had an opportunity to examine that section and particularly the authority granted by what has been known as the Kanjorski amendment, the amendment that I had offered that we create the authority within that council to discipline organizations and restrict organizations' operations and powers if they pose a grave risk to the economic system of the United States? That particular council, of course, is given the authority to do many things, including to take apart existing organizations and break them down to something below the level of ``too-big-to- fail.'' Can you give us just a short expression of what you think of that? Ms. Schapiro. Sure. I think it is an incredibly powerful tool that the Congress has given to the regulators collectively with that particular provision and more generally with respect to--I think it is called the Financial Stability Oversight Council at this point. And I know that all of the regulators are looking forward very much to getting together very soon and starting to talk about how the council will operate, how we will collect information, how we will carry out our responsibilities as a council and as well as individually under the new law. And I think we are quite humbled by the amount of authority that we have. Chairman Kanjorski. Thank you very much. I see my time is about to expire. Now, I recognize the gentleman from New Jersey, Mr. Garrett, for his 5 minutes. Mr. Garrett. I thank the chairman. In opening where the chairman ended off, just along that line, I, too, hear from constituents back home saying, how could we possibly have understood that 2,300 or 2,400 page bill, and I don't think we could. And I don't think anyone who was there at 6 a.m. did. And that is probably why, I think it was Senator Dodd said, just as Speaker Pelosi said with the health care bill, we have to pass this bill in order to understand what is in it. So we will only begin to understand what is in this bill, not today, not tomorrow, but probably years down the road and then following all of the regulations that you will be promulgating as well. And there is the problem, the lack of certainty that Chairman Frank was talking about that would be created by the bill is just the opposite; we are creating less certainty in the marketplace and investors will remain on the sidelines for an indefinite period of time as we begin to see how these rules and regulations all play out. One of the areas I touch upon was one that we had in the hearing, I guess, the ranking member talked about we had a year ago, with regard to the Madoff situation. As you know, the SEC is siding with Irving Picard, the trustee in the Madoff litigation--liquidation, I should say, on how investors' net equity is to be calculated. We have all heard about the SEC's having difficulty in uncovering the fraud, albeit before you got there. Should investors infer from your position that they should no longer rely on the statements issued to them by their broker-dealer, but should instead keep a running total of their net investment in order to avoid the potential of a clawback provision later on, should their broker-dealer ever be exposed in a Ponzi scheme? If so, should we put some sort of statement, a little asterisk on the statement in the future, so they understand that these statements are really not what they seem to be, and you are responsible for your own situation? Ms. Schapiro. I don't think that is what is necessary, and I don't think we should tell all investors they can't rely on the account statements they receive from their broker-dealer. The vast majority of broker-dealers operate honestly and well within the confines of the law. Mr. Garrett. But that is what we were telling these investors, right? Ms. Schapiro. The approach we have taken with respect to Madoff quite generally is to bring together protections that we think will help prevent, to the greatest extent possible, another Madoff from ever occurring. So, for example, contained in the Dodd-Frank bill is a requirement for broker-dealers to be audited by a PCAOB-registered accounting firm and for that accounting firm to, in fact, be overseen by the PCAOB. That will help with the issue with respect to a no-name accounting firm that is clearly not up to the task. We at the SEC have approved rules that are in place requiring that when an investment advisor uses any kind of an affiliate to custody customer funds or assets, those have to be subject to a surprise examination by a PCAOB-registered accounting firm. And in certain circumstances, there also has to be an independent SAS 70 report given. So we have tried to build some structural protections into the system, as well as all the reforms you have heard me recite so many times about what the SEC is doing. If I could just correct one thing you said, we did agree with SIPC that the correct calculation was a money-in/money-out net equity calculation, but we urged the court--and the court has since confirmed that reading of the SIPA law--we did urge the court to do it on a constant-dollar basis, so that earlier investors in Madoff would realize the time value of their money, as opposed to much more recent investors. The court declined--didn't deny that, but the court did not specifically take that under consideration yet. Mr. Garrett. And I will close. My time is going by quickly here. One, just to say that most who have come before the panel recognize that no matter what we do here, we may find ourselves in these situations down the road. And I guess that is what I am talking about, is the next investor who is in a situation like this, despite all the things we had in the past and have in the future, really has to be watching out for themselves to some extent still. Can you just comment very briefly on what you are going to do with regard to the 404(b) situation? You and I have talked about this for the short period of gap time. Ms. Schapiro. Yes. I am happy to let you know that our exemption with respect to small issuers under 404(b) expired last month. The Dodd-Frank bill contains a permanent exemption from their having to comply with 404(b). We will make it quite clear that during that interim, we do not expect compliance with 404(b) by those companies that would otherwise be exempted under the law. Mr. Garrett. My time is up. Thank you. Chairman Kanjorski. Thank you very much, Mr. Garrett. Now, we will hear from the gentleman from New York, Mr. Ackerman, for 5 minutes. Mr. Ackerman. Thank you, Mr. Chairman. Madam Chairman, you certainly have a lot more on your plate than ever was anticipated before, I think, with Dodd-Frank coming into being, with the Iran sanctions being in existence already for 3 weeks. There is an awful lot that you have to do that was not initially anticipated at the time your agency was officially formulated. I want to concentrate on the Iran sanctions. How confident are you that you will have everything in place within the framework of the timetables? Ms. Schapiro. Congressman, we are working on that right now. We share your sense of urgency that we need to deal with these matters. There are a couple of things that are required of the SEC under the Iran Sanctions Act. One is that, like the Sudan divestiture provisions that were done several years ago, we need to write rules that make it clear that an investment company cannot be sued for divesting itself of the stocks of companies that deal in Iran. Those rules are being written and I think are nearly completed, and we need to publish those and move forward, and there is some disclosure also associated with mutual funds and investment companies. The second thing we need to focus on is the fact that, as you said in your statement, there are punitive sanctions that can be levied against companies that violate the Iran Sanctions Act. That can create material contingent liabilities that would need to be disclosed by public companies. So we need to work on how we will do our disclosure review process in that regard and how we will communicate with public companies about their obligations in that regard. And I would say, finally, I think we could do something to help educate investors about the potential here for a company to be sanctioned under this law and face very severe sanctions and what that might mean for investments. So we need to work on some sort of investor alert. Mr. Ackerman. You suddenly wind up in the national security business besides the investor protection business. And indeed, every investor now, every American investor, finds herself or himself in the national security business also and has a right to be informed, first because of their probable individual determination to protect this country and not wanting to invest in a company that invests in a country or its economy that is determined to do damage, material damage, to the United States, but also to protect their investment from becoming sanctioned because the company is sanctioned, and they are now losing money. If a company, under the rules that you will be promulgating, is engaged in an activity that could potentially lead to sanctions, that indeed could put a potential investor's money at risk in that company. If the company is engaging in potentially, that is risky business. Is that considered, in your view, material information that has to be disclosed to investors or potential investors? Ms. Schapiro. I think our general approach would be that where there is a real chance for a company to be sanctioned under this Act, and it could create a material contingent liability for that company, that is information that would have to be disclosed. And we are working through these issues and what kind of guidance we can give specifically on them right now. Mr. Ackerman. Let me cite a specific example. I am sure we are not up to this yet, but it is specific. A company such as Honeywell, Honeywell Corporation, they do substantial business with the United States Government, and all companies doing business with the United States Government, that have contracts with the government, are prohibited from doing business with Iran under the act, which puts Honeywell in that category, because they maintain a subsidiary that conducts prohibited business with Iran. Should Honeywell be required to disclose to its investors and potential investors its business that it does through its subsidiary with Iran and the potential risk that it faces from the loss of their government contracts? And should they be required in their advising potential investors and current investors that portion of their business and profits are at risk and express that as a percentage of their profits? Ms. Schapiro. I guess I would be a little uncomfortable giving any kind of definitive answer and interpreting the law vis-a-vis the facts and circumstances. But I will tell you that we have experience through our Office of Global Security Risk of looking at these kind of issues in the context of the state sponsors of terrorism, for whom we also require certain levels of disclosure. And I would say that under that kind of analysis, where there is a subsidiary relationship that pushes us towards a view that there is maybe a material relationship, that would have to be disclosed. But I guess I would like to think about it more carefully before I opine on that particular set of facts. Mr. Ackerman. Thank you, Madam Chairman. Thank you, Mr. Chairman. Chairman Kanjorski. Thank you very much, Mr. Ackerman. Now, we will hear from the gentleman from Alabama, Mr. Bachus. Mr. Bachus. Thank you, Mr. Chairman. Chairman Schapiro, the Dodd-Frank Act creates what I would call maybe a nightmare scenario for American businesses that will have to wait for years to find out what the rules of the road are on derivatives while the SEC and the CFTC complete multiple joint rulemakings mandated by the bill. Of course, the derivatives market is a $600 trillion market, and prior to this legislation, a lot of those derivatives were between parties. They weren't cleared. My understanding is that many of these, if not all of them, will be required to be cleared through clearinghouses, or at least a great percentage of that. Do you have any timetable with how long you think it may take to come up with these rules and regulations? I know with Gramm-Leach-Bliley and the Commodity Futures Modernization Act, it took up to 5 years to complete the joint rulemaking. Ms. Schapiro. To the extent there are actual deadlines in the statute--and there are for many of the rulemakings--it is our goal to meet those statutory deadlines while at the same time trying to have as robust a notice and comment process as we can because we recognize the Congress has entrusted to us the responsibility for fleshing out the congressional goals that are contained in the bill and that we will need lots of input from market participants, investors and others about what those specific contours of the regulations need to look like. In fact, we are meeting today with the CFTC to talk through how we might jointly conduct our notice and comment and collaboration process where people come in and tell us what they think and why they want rules done a particular way, or what the burdens and hardships are for them so that we can leverage our staff resources, and we can also move as quickly as possible at the same time to try to get as many of these rules in place as possible. So we are committed to both speed and expedition, but also to a deliberative process that allows us, as the two agencies work together, to get to the right results so that we don't hold up the markets, and we don't cause unnecessary uncertainty. Mr. Bachus. Do you see any of these clearinghouses being designated as--or either of the financial market utilities being designated--or considered may be a better word as ``too- big-to-fail?'' Ms. Schapiro. I think what is important that came out of the bill from our perspective as a regulator of clearinghouses is that the Federal Reserve Board will really serve as a second set of eyes to help us identify the risks of the clearinghouses. And they can, in fact, determine that the SEC or the CFTC's prudential requirements are not sufficient, and then the council would step in and have a conversation and a debate and discussion about whether the prudential or other requirements have to be raised. There is no question that these will be enormously important centers of both financial stability and financial risk. But we in the CFTC both have a long history of oversight of clearinghouses, and the clearinghouses have very robust and largely successful risk management systems in place over a many year period, whether you are looking at the securities clearinghouses, the options clearinghouses or the futures markets. So I have a pretty high level of confidence that we will be able to continue our oversight with the additional support of the Fed and the council but in a way that takes the best of what these enterprises are already capable of doing in terms of risk management. Mr. Bachus. The Federal Reserve does have what I would call veto power over some of your regulations, does it not? Were you the primary regulator? Ms. Schapiro. They do have the ability, if they believe that our requirements are insufficient, to work with the council, the Financial Stability Oversight Council at large. And the Council can impose upon the SEC and the CFTC or another primary regulator to adopt standards, different standards or higher standards. Mr. Bachus. All right. Will the Council have any regulatory supervisory duties or will they-- Ms. Schapiro. No. I think that the routine day-to-day supervision continues to be carried out by the primary regulators--SEC, CFTC, OCC, FDIC. Mr. Bachus. Just one final question. The discount window emergency funding would be available if these clearinghouses were designated as ``too-big-to-fail,'' is that correct? Ms. Schapiro. I don't believe that discount window access is contemplated, but I guess I would have to go back and look at where things landed. But emergency assistance is possible. Mr. Bachus. Okay. Thank you. Chairman Kanjorski. Thank you very much, Mr. Bachus. We will now hear from the gentleman from California Mr. Sherman. Mr. Sherman. Thank you, Mr. Chairman. You have a lot of responsibilities under this new Act. Part of it is section 939(f) dealing with credit rating agencies. How dedicated are you to creating a system with regard to structured financial products so that the issuer does not select the credit rating agency? Ms. Schapiro. As you know, Congressman, I have long been interested in the idea of a wheel system or the potential for a self-regulatory organization to make the assignment of the credit rating agency to the issuer or some mechanism that tries to make the bond that creates this profound conflict of interest between the issuer, investors and the credit rating agency. I can't speak for the Commission, which would obviously have to vote ultimately on whatever rules we propose. But we are very committed, I can tell you, to the study that is contained in the statute that would have us study the potential for a third party selection agent of some sort, third party assignor of-- Mr. Sherman. Are you as dedicated to the rulemaking as you are to the study? Ms. Schapiro. Oh, absolutely. And as you know, we have done multiple levels of rulemaking even before I came to the SEC to try to deal with the conflicts of interest of credit rating agencies, the due diligence process, the problems of rating shopping, the problems of investors not being able to understand the track record and performance of particular ratings. And some of those rules have actually very recently gone into effect. We get lots more rulemaking authority under this bill, and we will-- Mr. Sherman. This is not just rulemaking authority. This is a statute that requires you to adopt a rule. Ms. Schapiro. Absolutely, and many of those rules within 1 year. We are keenly aware of that. Mr. Sherman. This one gives you 2 years. Ms. Schapiro. The study does, yes. Mr. Sherman. And then not just the study. But then you are supposed to--are you going to be back here 2\1/2\ years from now saying, ``We did the study, and that is all we have to do?'' Ms. Schapiro. No. Mr. Sherman. Or are you going to be adopting a rule that ends this-- Ms. Schapiro. I think the statute actually requires us at the conclusion of the study to go ahead and establish some sort of system for assigning ratings for structured finance products. Mr. Sherman. And I am not going to micromanage exactly which system that is, although Senator Franken's amendment has details that my amendment did not have that I commend to you. Do you think you can get it done in less than 2 years? Ms. Schapiro. I will make lots of people very unhappy when I go back to the building if I were to promise that because we have so much on our plate. But we will move expeditiously. We have multiple tracks obviously that we are proceeding with. We have 20 studies to do. Mr. Sherman. Let me shift to build on Mr. Ackerman's questions. Two years ago, the SEC established a Web tool to allow investors easy access to a list of companies who, in their public filings with the Commission, disclosed that they conduct business with countries who sponsor terrorism. Needless to say, the companies didn't like that, told you that it was imperfect, and you pulled the Web site. Can companies get you to abandon anything you do just by showing it is imperfect? Or you can always make it better. But is this Web site going to be back up? Ms. Schapiro. I have to tell you that this Web site was both put up and taken down long before I came to the SEC, so my understanding of it is that the way it was developed, anytime one of the State sponsor of terrorism countries were mentioned, the company's name turned up on the Web site even if they weren't, in fact, doing business in that country, but it was mentioned in passing. So I think it was an imperfect tool. To your broader question, ``Can companies get us to back down on things,'' I don't think that is-- Mr. Sherman. The real question here is, are you going to put the tool back up with or without improvements? Ms. Schapiro. I would have to look at the tool. Mr. Sherman. I fear that on this one, the companies have shown you that it is too difficult to be perfect, and therefore you should do nothing, which suits them just fine. Ms. Schapiro. I think you know me well enough and the record of the SEC over the last 18 months shows that ``do nothing'' has not been in our vocabulary. Mr. Sherman. On this one, we have no Web site. We need the Web site. And then it is up to the investor to click, go read the report, and they may say, ``We have decided not to do business in Sudan because it is a state sponsor of terror.'' Ms. Schapiro. I would be happy to look. Mr. Sherman. It is a research tool, not a device that makes the decision. Just because you Google a company's name and the word ``Iran'' doesn't mean Google refuses to do the search. It also doesn't mean Google is telling you what they are doing. And likewise, the Office of Global Risk Management was designed to protect investors, and I would hope that the SEC would move forward to issue regulations to ensure companies disclose activities involving state sponsors of terror. It is long past time for those regulations to be issued. Chairman Kanjorski. Thank you very much, Mr. Sherman. Mr. Sherman. Thank you. Chairman Kanjorski. Now, the gentleman from California, Mr. Royce. Mr. Royce. Thank you, Mr. Chairman. Yes, I was going to ask about this issue that I think you are familiar with. The Richmond Fed did an estimate, and they said there were about $25 trillion in liabilities, 28 percent of all financial liabilities that were covered by the Federal financial safety net. And basically, the concern that this raised was that such an expansion of the safety net probably has weakened a lot of market discipline. This was back at the end of 2008 that they did their study. But they said that has to contribute to instability in the financial sector. The question really is, how can policymakers focus on credibly scaling back that safety net and making its boundaries transparent and basically thus creating, again, market discipline in the equation when the assumption becomes, ``too-big-to-fail'' is the way we are headed towards these large institutions. Some of your testimony brought up some additional questions that I would ask. There has been this discussion as to whether these private firms, these equity firms or hedge funds can pose a systemic risk. They tend to be much smaller in size. They tend to be much less in leverage. They don't overleverage much compared to the bigger financial institutions. They certainly, until now, held up well during the recent financial crisis. They didn't receive any bailouts. But as you know, the Systemic Risk Council will be able to deem a nonbank financial company systemically important. And with that designation comes that special treatment by the government, which includes a level of support, at least for those who loan to these institutions should these entities run into trouble. The counterparties, the creditors are going to anticipate that you have that government support there. We have had debate in this committee over whether this special designation will lead to a competitive advantage. We have seen studies where basically larger firms are going to be able to borrow at 1 percent less if they are deemed systemically important. But over the years, as I said, the level of support under our financial system has grown. It has grown exponentially during the last few years. Now it is $25 trillion, apparently. And going forward, I think it is important to understand where that line is drawn and how inclusive that government backstop is. And that brings us to the question, a simple designation by the regulators that a given institution or industry will fall inside that government support system or outside can have tremendous consequence. Mr. Bachus had asked you specifically about clearinghouses, and I thought that answer was illuminating. So I will ask you a question going to these private firms, do you believe this industry in general can pose a systemic risk? And following up on Mr. Bachus's question, do you believe a clearinghouse could pose a systemic risk? I think the clearinghouses solve a lot of transparency problems. But on the other hand, it opens up some additional problems. And lastly, I had some questions for the record that I will leave you with. But could I have your response? Thank you. Ms. Schapiro. Let me just say, we have actually been flying pretty blind about private funds and hedge funds, as they are more popularly called, because we don't even have good even basic census data about the number of hedge funds, about the extent of their activities in the market, about the impact to their trading activities, about their leverage or their governance structure or the people who are-- Mr. Royce. I am all for you getting to that information. But the question is, deeming them systemically significant. Are there some that you think would-- Ms. Schapiro. That leads me to, I guess the response that is really not clear, whether as a whole this industry is systemically important, whether there are individual institutions that are. Mr. Royce. I understand your point, but let me go to my last point. Are you worried at all about this Federal backstop and the way it keeps building and the way that it displaces market discipline? Ms. Schapiro. I am concerned about the Federal safety net, and I am concerned about market discipline. My fear is that we didn't see a lot of market discipline over the last several years, and whether that is attributable to the presence of the Federal safety net or attributable to the wishful thinking on the part of lots of people who are running businesses, I can't say. But I do think that it will be very important for the Council to consider these issues about where the lines are drawn. I agree with you. Mr. Royce. Thank you. Chairman Kanjorski. Thank you very much, Mr. Royce. The gentleman from California, Mr. Baca. Mr. Baca. Thank you, Mr. Chairman, and Mr. Ranking Member. Thank you for being here. As we all know, oversight and accountability has to play a major role in what is going on, and we are about ready to sign the Dodd-Frank bill that will do a lot of this. But in doing so, I would like to state that over the past decade, we have seen our staffing levels at the SEC drop below adequate standards and your technology capacity was lacking. Past funding limitations have been cited as one of the reasons for these shortfalls along, of course, with your oversight and accountability. The Dodd-Frank bill sets out a new funding process for the SEC, and while it will still be subject to congressional approval, it will be considered separate from the President's general budget request. In your view, and I state in your view, will this change do anything to ensure that the SEC's funding needs are met on a consistent basis? Ms. Schapiro. Thank you, Congressman. I do think that these steps are helpful to us for sure, and I am very grateful for them. Most importantly, the ability for us to take $50 million of registration fees and put those into a reserve fund not to ever exceed $100 million will allow us to fund some of our longer-term technology projects with certainty that if our appropriation diminishes or doesn't increase to the extent we need it to, we can at least continue those projects. Or if we operate for very long periods of time under continuing resolutions, that money will help tide us over so we don't have to shrink our staff during those periods. So I think they are very helpful. They are not everything that we would have hoped for with self-funding but I think they are very constructive and I am very appreciative to have those. Mr. Baca. Thank you. Another question I have, a couple of weeks ago, there was an article in The Washington Post about the PCAOB and its effectiveness over the past decade. In my view, the Board has struggled to find its way over the past 8 years, failing adequately to assist in situations like the ones that helped cause the collapse in 2008. Currently, the positions of chairman and the two board members are vacant. In your testimony, you state that you are still asking for recommendations for candidates. Can you give us a timetable as to when you hope to have these positions filled? Ms. Schapiro. I would be happy to. One of the issues in filling them sooner was the overhang of the Supreme Court case that challenged of the constitutionality of the PCAOB, the concern that it wouldn't continue to exist. That has been resolved. The PCAOB continues to operate. A small fix had to be made as a result of the Supreme Court case. But we are now aggressively recruiting for both the chairman and two board members. We have posted a letter on our Web site seeking nominations. We have written a letter to a number of organizations and institutions asking for nominations. It would be our hope to fill this in the fall after the appropriate background checks and vetting process interviews by the Commissioners. But it is one of our highest priorities. PCAOB must be a functioning part of the regulatory community. There are lots of international issues with which they are involved. They are getting new responsibilities under the law as well, and I view it as one of my highest priorities. Mr. Baca. Thank you. As we look at those positions, hopefully as we fill them in, we will look at the diversity and the growth of our Nation and our country too as well and hopefully that diversity will be reflected when you look at filling those positions. Ms. Schapiro. Yes. Mr. Baca. Thank you. I yield back the balance of my time. Chairman Kanjorski. Thank you very much, Mr. Baca. Now, we will hear from the gentleman from Texas, Mr. Hensarling. Mr. Hensarling. Thank you, Mr. Chairman. Madam Chairman, I think you obviously know, as we all do, that unfortunately our economy is still mired in almost double-digit unemployment. We have had 2.6 million of our fellow citizens lose their jobs since the stimulus bill was passed almost 18 months ago. At least when I talk to people, from Fortune 500 CEOs all the way down to small business people in my district, one overarching theme comes through--you heard me mention it in my opening statement--and that is uncertainty. The head of the Business Roundtable happens to be the CEO of Verizon. Ivan Seidenberg said, ``Government is injecting uncertainty into the marketplace and making it harder to raise capital and create new businesses.'' The head of the U.S. Chamber, Tom Donohue, has said, ``It is a fundamental uncertainty that is holding business back.'' The chief economist for the NFIB, Bill Dunkelberg, had said, ``Stop scaring us to death with all this stuff that is going on and settle down.'' So now, as you well know, you have inherited apparently the authority and responsibility to promulgate 123 new rules, 32 studies, establish 7 new offices or committees, in addition to at least 19 SEC actions and reviews that are ongoing. Do you believe that uncertainty is adding to the level of unemployment? And if so, what can you do with the new authority and responsibility you have been granted to at least minimize the adverse impact of uncertainty on those who would otherwise bring capital into our economy to help create jobs? Ms. Schapiro. Congressman, I am really not qualified to say whether uncertainty is adding to unemployment. But I am probably qualified from my prior life to say that uncertainty isn't good for business, and sometimes even the answer they don't want is better than no answer at all. People can get on with it and get their work done. We are going to work very hard at the SEC to be as expeditious as we can in fulfilling our rule-writing mandates of which, as you point out, there are many. At the same time, we want to make sure we hear from those people who are going to be most affected by what we do, and so that will be a tension and a balance for us, but we would like to be able to gather input to understand, what is the operational impact of this rule if we write it? How is it going to affect this particular industry participant? How it will affect these kinds of investors? So while we work very hard to move quickly, we don't want to shortchange the process that does so much to improve the rules that the agency produces. Mr. Hensarling. Chairman Schapiro, I realize the bill has yet to be signed into law--and I guess my invitation to the signing ceremony is probably lost in the mail. But regardless of that, under section 925, you have new authority under collateral bars. Do you have any timetable on when you will be able to add some level of clarity to the marketplace, either that section 229(l), enhanced application of anti-fraud provisions? Ms. Schapiro. The summary of collateral bars is relatively straightforward. What it means is that if we have barred you from participation in the securities industry, you are a registered person who committed fraud while a broker-dealer, it would mean that we could bar you from becoming associated with an investment adviser as well. Because committing fraud as a broker-dealer and then being able to move over and work as an investment adviser is not really a good result. Mr. Hensarling. So you would think maybe in short order? With respect to a timetable? Ms. Schapiro. We may not even need a rule with respect to something like that. That may operate by virtue of the statute itself. But your point is right. There are lots and lots of rules that we have scheduled out with a very big spreadsheet, with a team of people assigned, with an individual point person responsible. We meet every week to see what our progress-- Mr. Hensarling. So you do have a spreadsheet with a timetable? Ms. Schapiro. Oh, absolutely. Mr. Hensarling. Is that something you have or will share with this committee? Ms. Schapiro. We could share. The timetables come-- Mr. Hensarling. Speaking of timetables, mine is about to run out. Quickly, I am also concerned about the standard of care that will be applied to broker-dealers as compared to investment advisers. And I am really concerned on how the application of this standard could impact kind of the traditional broker-dealer model that allows a lot of people to still have affordable access to capital markets. Do you have any insight there on how that rule may be promulgated? Ms. Schapiro. I do. As a long-time broker-dealer regulator, I understand this issue very well, I think. But I also understand that from the perspective of an investor, the services provided by an investment adviser and a broker-dealer are largely identical in many cases. In the provision of advice, which is how the statute is limited, to retail customers, we shouldn't leave it to investors to figure out which standard of care applies in the context of that activity they are receiving. Before we write rules in this regard--and we will go through a very collaborative process--again, we are required to seek public comment. We have already written a notice, in fact, asking for public comment on the many issues that the statute lays out for us to explore with respect to how that duty works in the investment adviser world and works in the broker-dealer world. So again, we will be very consultative on this issue. Mr. Hensarling. Thank you. Chairman Kanjorski. Thank you very much, Mr. Hensarling. Now we will hear from the gentleman from Georgia, Mr. Scott, for 5 minutes. Mr. Scott. Thank you, Mr. Chairman. Chairman Schapiro, last week when I was at the White House and I was sitting right in front of the President as he was signing the Iran Sanctions Act, a cold shudder sort of ran through me at that moment. And the reason for that, I am sure, was that I know the gravity of this situation, that this is, indeed, our last best hope of stopping Iran from getting a nuclear weapon short of military action and the consequences of that. I would like to get to the nitty-gritty of how you see your role in this. So far, I think I have been able to glean, did you see your role as, first of all, making sure that companies cannot be sued for divestiture with companies doing business and sort of an education program as well? But wouldn't it make a lot of sense, Madam Chairman, right now, the President has signed the law. It is the law. And there are companies that are in violation of that law right as we speak. Wouldn't it make sense for you, as a first step moving forward, to compile that list, communicate that list out, and make sure it is available right now for investors? Ms. Schapiro. Congressman, we can certainly look at whether we can do that. I will say, the statute doesn't contain a specific line item disclosure the way the law does for conflict minerals and extractive industries and mine safety, which were three new disclosure provisions added by the Dodd-Frank bill. That said, disclosure by a company of contact with Iran that may lead to liability or punitive sanctions are something that would need to be disclosed. So what we need to do, and we have turned our attention to, let me assure you of that, is look at whether we can put out specific guidance about the disclosure that is required under this law. And then we will look at the question of whether we can go back to the old Web site or whatever that might provide a secondary source of disclosure of activities. Mr. Scott. And your interpretation of the law as it is now, don't you feel that you have that authority now to do that? Ms. Schapiro. I think we probably do. I guess I would like to confirm that with the legal eagles, but I guess we probably do have that authority to create specific line-item disclosures. Mr. Scott. And under the law as you see it now, what would happen to that company if it is found to qualify for such a list? Ms. Schapiro. I guess from the perspective of the Securities and Exchange Commission, it would be a disclosure issue. Did they fail to disclose these contracts that are material to their business operations or could create a liability for them that is material, and that could potentially be a violation of the Federal securities laws which we could prosecute civilly. We have no criminal authority. And we could prosecute those civil violations. Mr. Scott. And do you believe that this law, as it is written, provides you with the ample authority to do your particular job under the law to make sure that there are no violations? Ms. Schapiro. I believe it does, and I believe it is a very strong statement of our government's position with respect to Iran and I would agree with your sort of last hope. Mr. Scott. And finally, do you believe this will work? Ms. Schapiro. We can make the securities disclosure work. I think that has a very chilling effect, when something has to be disclosed, on the activities that a company is willing to undertake. So I think it can be an effective tool. Mr. Scott. Thank you for answering my questions on that. I think this is a very, very important effort. Finally, let me ask you about the information, the registry that under the Dodd-Frank bill, you have to get certain information from hedge funds and private equity advisers about their trades and portfolios to assess systemic risk. What information will be obtained? Ms. Schapiro. We are required under the Act to get specific things and have records maintained with respect to assets under management, the use of leverage, counterparty risk exposures, the valuation procedures and policies that are used by the fund, their trading practices, whether they have side letters with particular investors. So it is a fairly broad range of information that has to be maintained. Mr. Scott. And how will you make sure that information is transported here to Congress for congressional review? Ms. Schapiro. That we haven't really thought through, to be perfectly honest. Those records are subject to examination and inspection by the SEC. I don't know if there are provisions which would prohibit us--there may well be--from actual further transmittal. But I would be happy to get back to you on that. I just don't know how the mechanics of the statute would work on that. Mr. Scott. Thank you, Chairman Schapiro. We stand with you in helping you to progress on these challenging issues. Chairman Kanjorski. Thank you very much, Mr. Scott. The gentlelady from Illinois, Mrs. Biggert. Mrs. Biggert. Thank you, Mr. Chairman. The Dodd-Frank bill requires the SEC to issue a rule with regard to the disclosure of the pay of employees ranging from, I would say, the janitor to the CEO, all employees. When do you anticipate that the SEC will implement this provision? Do you think it will be in time for next year's proxy in the spring or is that something that will be implemented in 2012? Ms. Schapiro. I can't remember honestly whether there is a statutory deadline with respect to the advisory vote on pay, but it is a relatively simple rule for us to write. The advisory vote piece is relatively simple to write. There are some complications with respect to the disclosures that are required--more complexity, I shouldn't say complications--more complexity with respect to the disclosure required, comparing the compensation of the CEO and the median compensation of employees. The say-on-pay piece, I think, having done that already for TARP institutions, we can do that relatively soon. That could probably be in place for the next proxy season, although I can't guarantee that. I think it will take us a bit more time to structure the rules with respect to total annual comp and the ratio to median comp of employees. Mrs. Biggert. I think that there are a lot of companies that are really concerned about this and the cost to calculate the median salary of all employees, particularly large companies. And at a time when we have record unemployment and when we should be promoting job growth, should we be burdening non-financial companies with such a requirement? So I would hope that-- Ms. Schapiro. Congresswoman, we have heard a number of those concerns as we have met with public companies, and they have raised that issue with us. So we will do our best to work through those issues and we will fill Congress' mandate in as least costly a way as possible. Mrs. Biggert. Thank you. Do you agree with the FASB statement that appears in the May 2010 FASB and focus? It is a document. And it is regarding this recently issued exposure draft on expanding mark-to-market accounting. They said, ``The global economic crisis has highlighted the ongoing concern that the current accounting model for financial instruments is inadequate for today's complex economic environment.'' Do you believe that FASB's rhetoric is appropriate, and should FASB be making these policy pronouncements? Ms. Schapiro. FASB is responsible for writing the accounting standards, and they have, as you point out, issued an exposure draft with respect to fair value for loans and debt securities. That is out for comment right now. We are monitoring very closely that activity. They will hold a series of activities and roundtables for the public to weigh in on those issues. They are getting lots of comment letters as well. That will be done in the fall and we will stay very close to that. Mrs. Biggert. But the SEC does have oversight of FASB? Ms. Schapiro. We absolutely do have oversight. But again, this is the equivalent of our notice and comment proposal. Mrs. Biggert. So you will be reviewing-- Ms. Schapiro. There is a distance to go here. Mrs. Biggert. Okay. Thank you. There is a recent appellate court decision regarding indexed annuities. It effectively means that the SEC will have to restart the rulemaking process for these products. Ms. Schapiro. Unfortunately, we won't, because the Dodd- Frank bill does prohibit the-- Mrs. Biggert. This was foreclosed by the amendment adopted during the conference that would classify indexed annuities as State regulated insurance products as long as they are governed by NAIC standards. Ms. Schapiro. You are exactly right. Mrs. Biggert. Does the Commission have any future plans related to indexed annuities? Ms. Schapiro. We haven't really gone beyond the words of the statute at this point. There are concerns, and I have had these for many years, about how equity indexed annuities are sold. We are very happy to work with the State insurance commissioners who clearly have the responsibility under this law to see if we can be of assistance to them. They do have a model suitability rule. They are very focused also on sales practices, so we will try to be helpful to them in this process, but we don't have any plans to re-engage on this issue, given the legislation. Mrs. Biggert. Thank you very much. I yield back. Chairman Kanjorski. Thank you very much, Mrs. Biggert. Now we will hear from the gentlelady from New York, Mrs. Maloney. Mrs. Maloney. Thank you very much, Mr. Chairman, for your leadership. I welcome the new Chairman, and I congratulate her on her public service and on her new position. The bill that we just passed, the financial regulatory reform bill, requires the SEC to conduct 100 new rulemakings and issue 12 new reports, most of which are required within the next year. And the bill also authorizes a doubling of the SEC's budget over 5 years. But considering most of the new actions will have to be completed in 1 year, do you believe you have the necessary resources to complete the work that is required by the Dodd-Frank bill? Ms. Schapiro. We will have to double our efforts in order to get the work done that is required under the law. We are hiring right now because Congress gave us an increased appropriation last year which was enormously helpful. And over time, as we implement all of the rules, we will certainly need resource increases to examine hedge funds, to regulate over- the-counter derivatives and all of that. But I think we are prepared for the rulemaking task which is not to say it won't be hard, but we are prepared, and I think we are adequately staffed for that. But we will continue to bring people onboard. Mrs. Maloney. A number of private equity firms that I represent have raised this question to me. They are smaller, and they do not borrow money. They do not engage in derivatives or in other risky products. What is the concern that the SEC has? What is the threat that they see that requires them to be registered? They claim that being registered will cost them hundreds of thousands of dollars, and I think this is a debate that we often hear between larger corporations with many resources and smaller firms that are having trouble making ends meet. But if you have the prerequisite that you are not engaged in derivatives, you do not borrow money, you are only with that particular money and the equity fund, what is the threat that the SEC sees in such equity firms that would require their registration? Ms. Schapiro. I don't think that we do see a threat necessarily. Our concern was when the legislation was drafted that the hedge funds or private funds registration provision if it had multiple exemptions in it, hedge funds and others would just reorganize to fit into an exemption, and we would lose the benefit that the bill was giving us in closing this regulatory gap. We will be very sensitive, and we clearly understand that the oversight and examination of a small private equity fund is quite different in terms of our resources and attention that we will bring to it than the oversight of a large hedge fund engaged in highly leveraged and derivatives trading activities. Mrs. Maloney. Could you see or consider possibly two levels of registration forms, with those involved in risky derivatives or highly leveraged--having a higher standard than one that is not borrowing money or involved in derivatives? Ms. Schapiro. We can certainly look at that. Certainly to the extent they are not utilizing leverage, they wouldn't obviously maintain records on leverage and we wouldn't be examining that. But we can certainly look at what different alternatives there are. Mrs. Maloney. Also, regretfully, many of my constituents were harmed by the Madoff scheme, and many of them were retired teachers, firefighters, people who are now almost destitute because of that loss. So I would like to ask, since the Madoff scheme was uncovered, your IG has issued three reports about it. And the first talked about systemic breakdowns in the manner in which the SEC conducted its examinations and investigations. Can you expand on what these breakdowns were and elaborate on some of the changes that have been put in place since you have come onboard to ensure that Ponzi schemes like this do not hurt people in the future? Ms. Schapiro. Absolutely. In addition to specific rules we have done, for example, requiring the investment advisers to custody the assets of their customers with either an independent custodian or a custodian subject to a surprise exam by a registered accounting firm and the work we have done on our tips and complaints and referrals system so that we don't lose track of tips and information that come into the agency, we have done some things that go to the internal restructuring the organization. Some of the problems highlighted by the Inspector General really go to a lack of collaboration and coordination across geographies, New York, Boston, and Washington, for example, and between the Enforcement Division and the Inspections and Compliance Examinations Division. We have new leadership in both of those areas. We have new cross-functional teams across those areas tackling the largest financial institutions. We have united the broker-dealer and the investment adviser examination function in New York so that we are not stovepiped about who is seeing what when it is two affiliated entities, as Madoff was the investment adviser and the broker-dealer. We are really working on highlighting for employees the importance of sharing information early and often, and I think we are having some success with that. I think it is changing very much the culture of the institution. Where employees are being--in all of their examinations now do independent custody verification when they are looking at large investment advisers so that we don't rely on the word of somebody like a Madoff about how they are operating their business. And I would be happy to maybe provide more to you in writing because I could speak about this for about an hour, detailing all the changes at the SEC that were really brought about because of the Madoff failure. Mrs. Maloney. Thank you. My time has expired. Thank you, Mr. Chairman. Chairman Kanjorski. Thank you, Mrs. Maloney. Now, we will hear from the gentleman from Florida, Mr. Posey. Mr. Posey. Thank you very much, Mr. Chairman. Madam Chairman, I have had an interest, I guess, for as long as I have been here now in some accountability for what went wrong at the SEC with the Madoff investigation, the fact that Barrons had a cover story, I guess, exposing the scam. And still for almost a decade, the SEC made no effort to get him off the street or prosecute him. Whether it was ineptness, indifference or incompetence, I don't know, but I am still interested in knowing if and when there is going to be some kind of accountability for that. We have had scathing internal audits and external audits, and we have heard from the SEC, we are still looking at it, we are still reviewing it. There are no actions. The last word we had is, there hasn't been one wrist slapped, one whisper of criticism, nobody has been fired or furloughed, and I am hoping that an update is going to tell me that is not true. Ms. Schapiro. Congressman, during the pendency of the Inspector General's review which came out last fall, we could not take any disciplinary action against any employee at the request of the Inspector General. I will tell you that of the 20 enforcement employees who were involved in some way with Madoff, about 15 of them are gone. And of the 36 examination group employees, 19 of them are gone. A lot of the senior people have left the agency. We do have, under Federal law, a disciplinary process for employees, and it is complicated here because it requires that we go back and review how employees performed years ago. We can't just look at the Inspector General report and make a decision based on that. I can tell you that we have gathered and reviewed the evidence. We are complying with the requirements of the civil service laws and procedures. We have designated, as we are required to under Federal law, a recommending official for potential discipline and a deciding official, and the process is coming to a conclusion in the near future. It does take time. And employees have appeal rights, I will say that. So even when the agency has concluded, it doesn't necessarily mean that it is over. Mr. Posey. And I certainly don't want people who are not guilty of misbehavior to be punished. I am all about that. But I am encouraged to know that you are telling me that we are going to hear sooner or later that there is going to be some accountability and there are going to be some consequences for allowing this guy to milk the public for between $50 billion and $70 billion. Ms. Schapiro. Yes. You are going to hear that. But let me also say that, we made sure every employee had a copy of the Inspector General's, as you say, scathing reports as well as copies of victims' letters. And I talk to employees across the agency about the importance of their reading those letters so they understand, when we do our jobs well, the kind of pain that we can prevent and why it is important for us to take the lessons of the Madoff tragedy very much to heart and how that transforms how we approach our jobs at the SEC. I think our message has resonated. I see enormous enthusiasm and dedication for pursuing investor protection. And as I said in my opening statement, Madoff was a Ponzi scheme. We have shut down twice as many Ponzi schemes this year as in the prior year, and that is a significant change. Mr. Posey. Yes, it is. But what happens--it is just like Mr. Markopolos apparently went back for the second time with the second file to encourage an investigation, they blew him off and said, we have busted hundred-million-dollar schemes before. Essentially, ``We don't need your help.'' And his is so unprecedented. On another note--and I will look forward--I hope, Mr. Chairman, we will call a special meeting when we have a final outcome here and we know what accountability there is going to be for that misbehavior. Are there any plans right now to investigate recipients of bailout money in the same or a similar manner that Ken Lay was investigated for shafting all the Enron stockholders? We have some big, big companies, and there is a lot of public perception that their executives did the same thing that Ken Lay did, but they have not been brought to justice yet. Are there currently plans to pursue these investigations? Ms. Schapiro. Absolutely. And Congressman, we filed a case just a couple of weeks ago that is referenced in my written testimony where the case was brought against a TARP recipient. It was actually fraud in the receipt of TARP funds. We are working very actively with the Special Inspector General for TARP as well as with the Justice Department and others. And I can tell you for all the financial regulators, it is a high priority to look for fraud in that area. Mr. Posey. I am thinking about the pre-req activities. I am thinking about cashing out multimillion dollar bonuses when they knew the ship was on its way down, and now the government and other taxpayers having to carry that burden for them. Are we going back and doing a forensic audit of some of this stuff? Ms. Schapiro. Yes. I can tell you we have a number of investigations under way that relate to major financial institutions, some of which received TARP money at one time or another and others that didn't. But we also have brought cases against, for example, Angelo Mozilo at Countrywide, officers of Beazer Homes, some of which include insider trading charges as well. So we have actually done a fair number of cases coming out of the financial crisis. They don't all get lots of attention, but the record is there. Mr. Posey. I will be wanting to follow up on that as we move forward. Thank you, Mr. Chairman. Chairman Kanjorski. Thank you, Mr. Posey. The gentleman from Colorado, Mr. Perlmutter. Mr. Perlmutter. Thank you, Mr. Kanjorski. And just following up on a couple of comments that Mr. Posey made, also Mr. Hensarling, talking about uncertainty and accountability, my perspective on this is entirely different than theirs in that we need to bring certainty back into the markets. Accountability: there has to be accountability for those who would commit fraud or misrepresentations and those kinds of things. What we saw in 2008 was complete uncertainty and complete chaos, which I believe was as a result of certain policies of the Bush Administration and an approach which basically took the cops off the beat, meaning the SEC not enforcing the rules and regulations and laws that were on the books. This country suffered a terrible financial trauma that is going to take years for us to recover from. But at least--and just looking at the end of 2008 compared to today--business profits are up almost 100 percent. Jobs are up from the bottom when we were losing 780,000 jobs per month the last month of George Bush, and the wealth of everyday Americans has gained from dropping 25 percent--we have gained about a third of that back, and we have a long way to go. So I do agree with Mr. Hensarling that we need to bring more certainty. But obviously, the markets are responding that they want policemen on the beat, and I appreciate you, Madam Chairman, and the efforts that the SEC are taking on Ponzi schemes, on dealing with a number of other subjects that, in my opinion, had just gotten out of control under the prior Administration. I have two questions. One deals with nanotrading, high- frequency trading, flash trading. Mr. Kanjorski and I had a hearing on this a number of months ago. You attended. What is happening from the SEC's point of view in studying or monitoring these high-frequency trades, which may or may not have played a part in that dramatic drop in the market a month and a half, 2 months ago? Ms. Schapiro. As you know, we published in January a concept released to review really all the issues surrounding our fragmented equity market structure, including a focus on high-frequency trading, the strategies that are used, the impact of high-frequency trading on the marketplace. At the same time, we also have proposals out to ban flash orders, to sort of open up, light up dark pools of liquidity, to ban sponsored access where customers of broker-dealers can access markets directly and not go through risk management systems. And then we most recently proposed a large trader reporting system, so we could assign every large trader a unique identifier and follow their activities in the markets and then more broadly a consolidated audit trail so we can bring the many audit trails that exist in the equity markets into one and reconstruct events like May 6th much more efficiently. So we have lots of pieces in play on market structure. And I actually think that the May 6th events helped to crystallize to some extent our thinking about how we want to go forward with that. But it would be my hope that this fall, in spite of all the other things on our plate, the market structure is one we will not lose sight of because the real importance, frankly, to the capital raising function, which is so critical to the growth of our economy that our markets work well not just for long- and short-term investors but for the public companies that are desperate to raise capital. Mr. Perlmutter. Can you explain to me a little bit more about the circuit breakers that you have put into place? Because one of the things we have talked about for at least 2 years or more is sort of the uptick rule, which is a circuit breaker of a certain kind. Where are you on circuit breakers? And then I want to talk to you about investment advisers. Ms. Schapiro. Sure. Circuit breakers, right after the market crashed, the exchanges and the SEC worked together to create a rule that required, if a stock moved more than 10 percent in the S&P 500 more than 10 percent in a 5-minute period, trading in that stock is halted for 5 minutes while traders are able to adjust, gather their thoughts, change their algorithms, if necessary, gather liquidity into the order books, and then the stock is reopened after 5 minutes by the primary market. So if it is a New York Stock Exchange-listed company, the New York Stock Exchange would re-open trading. The circuit breakers have been triggered 3 times, actually, since they were put into place, and they operated just exactly as we hoped they would, stopped further cascading down of those stocks. They were all erroneous trades. They re-opened right where they were before they had the dramatic decline. So we have now proposed to expand those circuit breakers from the S&P 500 to include the Russell 1000 and certain exchange-traded funds; and the exchanges and FINRA are working on the next step, which would be to try to capture all stocks in a circuit breaker kind of mechanism. There are other options here that we are look at closely, whether you should not be able to ever put in an order that is priced more than, say, 10 percent away from the market. And that is something we are looking at which would eliminate erroneous trades completely. But we have a full menu of things. We are working very closely with the industry to see what is doable and what is doable in a short time to help restore investor confidence and the market's function. Because frankly, after May 6th, there were a lot of people who were saying, ``That is it. I am done. This is way too terrifying to see a $40 stock go to a penny in a matter of seconds and then go back to $40 in a matter of seconds.'' Mr. Perlmutter. Thank you. My time has expired. I would like to talk to you afterwards about investment advisers and broker-dealers and the study that the SEC needs to undertake. Ms. Schapiro. I would be happy to do that. Mr. Perlmutter. Thank you. Chairman Kanjorski. Thank you very much, Mr. Perlmutter. Now, we will hear from the gentleman from Illinois, Mr. Manzullo. Mr. Manzullo. Thank you, Mr. Chairman. Madam Chairman, as I understand it, some investors fully participate in a transparent market process by making their stock orders available and contribute to the price discovery process. Other investors don't, they operate in dark pools, a system whereby they don't need to disclose sale or buy prices. I am wondering, what incentives does the SEC offer to encouraging investors to operate in an open and transparent trading process? Ms. Schapiro. That is a great question. That is one we are really wrestling with. Because we have this fear of the development of a two-tier market where certain orders go into dark pools and others are available to a public quotation and what is the incentive to quote in public markets if you can get a better price in the dark pools. And we actually believe that there are about 30 dark pools operating and they have about 8 percent of the trading volume. We have proposed that what are called indications of interest, which are used in dark pools, be treated as bids and offers and be required to be publicly displayed unless they are very large blocks which is the reason for upstairs trading in the first place and the reason for dark pools to have developed. And we are also proposing that--for alternative trading systems, which execute a large volume of stock--that they have to display a much greater amount of their trading. So it used to be if they had less than 5 percent of trading stock, they didn't have to display. We have proposed to lower that to a quarter of 1 percent. The broader question about how to incentivize people into the public records is one that we really tried to capture in our concept release and those are issues we are working through right now. There are a number of interesting ideas that we will pursue and put out for comment. But the dark pools issue is one that we are very keenly focused on because of its potential to create the two-tiered market that could disadvantage ultimately the public price formation market. Mr. Manzullo. So I would take it that nothing in the Dodd- Frank regulatory reform bill addresses that issue? Ms. Schapiro. I cannot think of anything that specifically addresses these kind of market structure questions. Mr. Manzullo. It is not there? Ms. Schapiro. Not that I know of. Mr. Manzullo. That is okay. It is a big bill and you probably would have been briefed it because it is obviously--I have another question unrelated to this. Some investors have taken losses because they have been ``Madoff'd'' under that type of a scheme. If I have it right, it is the SIPC that provides insurance up to a certain amount. But am I also correct is that it doesn't cover a 401(k) or a retirement plan but only an individual? Ms. Schapiro. The issue there, I believe, is that under the SIPA Act, the customer--under the view of SIPC at least--the customer is defined as the individual or the account at the broker-dealer. So that while a hedge fund, for example, might have an accountant or broker-dealer, each of the individual participants in the hedge fund are not viewed as customers and therefore the SIPC payment of up to $500,000 in the case of a broker-dealer that fails is only available to the fund itself, not to each of the account holders within that fund. Mr. Manzullo. So if you have a 401(k), if you hold it in a 401(k), as opposed to individually, you are out? Ms. Schapiro. Actually I am not sure about that specifically with respect to 401(k). I would be happy to get back to you quickly with an answer. Mr. Manzullo. That is fair enough. Thank you. Chairman Kanjorski. Thank you very much, Mr. Manzullo. I think I may have a quick answer for you there. Actually, in the comprehensive study portion that we put into the bill, there is a reference to flash trading, that study take on the parameters-- Ms. Schapiro. You are absolutely correct. There is a reference to high-frequency trading in the comprehensive study that you-- Chairman Kanjorski. Because of the short period of time between the enactment of the bill and the experience we had, really, no one had sufficient information to legislate a solution to the problem. We have had a request for just a few more questions, Madam Chairman. Because we know we do not get the benefit of your presence that often, not because you do not want to testify, but you have a few other things to do over there, I suspect, and we do not want to call you back, I am going to give the gentleman from New Jersey the opportunity for another 5 minutes. Mr. Garrett. So, you are going to be really busy and you have been really busy. But back in February of this year, the SEC issued an interpretative release with regard to perhaps some people would say not as important, the issue of disclosure costs associated with climate change. You had that in February. Then, we had the health care bill come out, and to the best of my knowledge, correct me if I am wrong, there was no such interpretative statement with regard to that. Despite the fact that when some companies were--like Caterpillar and others were reissuing statements, you had the Commerce Secretary down the street being somewhat critical and you had some chairman here in this House wanting to go after these companies for what they were doing, but there was no interpretative statement there with regard to that, now we have, I guess, just recently, Bank of America, not on health care but on the bill that is before us right now, saying that what their projected cost of compliance will be. So my simple question on this is: Will you be issuing an interpretative release with regard to what we are discussing today? And that is the whole-- Ms. Schapiro. It is a fair question. I really don't know the answer to that. Let me explain that with respect to the climate release, we did have investors managing more than a trillion dollars in investments ask us to petition the Commission for greater clarity on climate-related business risks and we did have the New York attorney general investigating a number of firms for inadequate disclosure of climate risk in his view. And this was also actually on the agenda of the SEC before I even arrived. But I think it is also really important to note here that this was an interpretative release about existing disclosure obligations that we did not either opine on the existence of climate change or its causes if any, and we did not impose new requirements. I will tell you that from my private sector experience, I know that a number of companies have done a very good job with their climate related disclosure over several years. But that it is quite spotty. But on the health care side, we have seen before the bill was passed even a number of health care companies do a good job on their disclosure already. Mr. Garrett. It actually wouldn't be health care companies. It would just be any companies that would be impacted by it, right? It is my fault, my time. I appreciate that. So you will be looking into it is the bottom line? Ms. Schapiro. We can certainly look at that. Mr. Garrett. One of the interesting things--the bill came out, and almost immediately after, you had a letter from Senators Dodd and Lincoln to Representatives Frank and Peterson with regard to an area of their interest. And that is the way that the bill will be treating an aspect of the bill that was quite controversial at the time. It is interesting that they were members of the committee who drafted the bill and their letter to Representatives Frank and Peterson came out so quickly afterwards. So I guess my question is, do you interpret the legislation the same way that Lincoln and Dodd did, that under the legislation, under no circumstances should end users be subject to margin capital or clearing requirements? Ms. Schapiro. I think this is actually largely a question for the CFTC, quite honestly. Because under the bill, there is no exemption as an end user for a financial institution. So it is really--the end-user exemption goes to non-financial companies that are hedging a commercial production risk. Those are likely to be commodity-type products and those are not under the SEC's jurisdiction. Mr. Garrett. To the extent that you will be working jointly with the CFTC and regulations have to come out on these matters, what will be your interpretation or input on those discussions? Ms. Schapiro. I think we will have a serious discussion about it. I honestly don't know where we will end up. Mr. Garrett. So you don't have an opinion? Ms. Schapiro. I don't know what their view is at the CFTC at this point. Mr. Garrett. You don't know what theirs is, but you do know what your view will be even on the broader issues? Ms. Schapiro. I think we will try to arrive at a view together to the extent that we have to engage in joint rulemaking. Mr. Garrett. So it was ambiguous in the bill and it is ambiguous going forward? Ms. Schapiro. We will work through the issue. I would be happy to come and talk to you about it as we progress on that. Mr. Garrett. Another area that is somewhat ambiguous--and this is an area where I got a study actually put into the bill--surprise--and that is to deal with the fact that we have so many different aspects with the retention requirements, you have the FASB rules coming out as far as 166 and 167, the changing capital requirements that are both in the bill and also what you guys are working on with Reg AB. And we were saying you should study all this stuff to see how they all work together. Are you with me on that? So my question very briefly is, the study is going to be done because it is in the bill. So are you going to be on hold then with regard to what you all are doing with regard to Reg AB and until our studies get done so it all comes out clean and easy? Ms. Schapiro. I think that there are going to be a lot of aspects of Reg AB that are going to be subject to a joint rulemaking, among the regulatory agencies, I believe, shepherded by the Treasury Department. So while we do have our proposal outstanding, we would be receiving comments. The comment period has not even closed yet. We are obviously going to have to sit down with our colleagues in the regulatory community and see where we go from here. We understand the message is to try to get these things coordinated. Mr. Garrett. So you are going to sort of rely on the study to help you with that? Ms. Schapiro. The study will be important. Mr. Garrett. Great. Thanks. Chairman Kanjorski. Thank you very much, Mr. Garrett. Now, we will hear from the gentleman from Florida, Mr. Posey. Mr. Posey. Thank you again for the opportunity to follow up, Mr. Chairman. Madam Chairman, you mentioned that 15 of 20 investigators are no longer at the SEC? Ms. Schapiro. 15 of--I don't have all the position levels or anything like that. But 15--about 15 of the 20 enforcement employees who are involved in one way or another with Madoff over a many, many-year period off and on, are gone. Mr. Posey. And the others were examiners? Ms. Schapiro. Examiners, yes. Mr. Posey. How many examiners-- Ms. Schapiro. I understand that about 19 out of 36 are gone. This isn't a science because some people touched these matters very peripherally, some people more so, some were in supervisory positions, some were quite junior. And frankly, that was one of our issues, I think with respect to the quality of the supervision of the examinations. Mr. Posey. Very good. The question that really begs for an answer is, where did they go? Are they working for other enforcement agencies now? Are they working for the companies they were supposed to regulate or enforce before? Are they retired and receiving pensions while the people that Madoff screwed are busted for the rest of their lives? Can we get a rundown of where they went? Ms. Schapiro. I don't know the answer to that. We do know where employees go for a period of 2 years after they leave the SEC. They are required to report where they have been employed or who they have been retained by. But I don't know that we have any right beyond that to know where they are. Mr. Posey. I think there is a necessity to know where they went. It is like letting a pedophile slink out the door or change neighborhoods and it makes everything okay. I think we are dealing with the same type of a problem here and I think it is important. If the people who allowed Madoff's fraud to perpetuate are now at other regulatory agencies, I think we ought to know that, and the other agencies ought to be put on notice. If they are working for a company they used to regulate, I think we ought to know that too. Ms. Schapiro. Congressman, I would like to disagree with you. These aren't bad people. In some cases, they were people who were very junior and were not adequately trained or supervised in what they were doing. In some cases, they were being pulled from one project to another project because the flavor of the day perhaps was market timing and late trading by investment companies and this is highlighted in the Inspector General's report. There are a lot of reasons the SEC failed with Madoff. And I have been highly transparent about those reasons. We have published all the Inspector General reports. We have posted on our Web site all of the actions we have taken to try to improve the agency's operations to try to prevent something like this from ever happening again. But I don't think we have to vilify these people. There are lots of reasons for this failure. Some were people who didn't do a good job, without a doubt. But we can't say that about everybody. Mr. Posey. There are people who are out $50 billion or $70 billion that might feel a little bit differently. Maybe they haven't had the same sensitivity classes but they think there needs to be accountability for bad conduct, misconduct, and maybe criminal misconduct. I read the audits, and as I said before, and you acknowledged, they are scathing. So the signal when nobody is held accountable for what is done, if they are allowed to quit and not be held accountable because they left, the signal is you don't have to do your job right. If you don't do your job and the taxpayers get bilked $50 billion to $70 billion, we will talk about how insensitive it could be to point a finger at anybody in the agency here; and if you just leave, everything will be okay and it will be forgotten. Ms. Schapiro. I think people paid a very large price through the Inspector General's reports. I am not suggesting that is enough. We have a disciplinary process. It is coming to a conclusion. It is pursuant to the Federal civil service rules. I agree very much in accountability, which is one reason why we have talked so much over the last year and a half about Madoff, why the Inspector General reports are out there. He was given free rein to do whatever investigation was necessary and we have been very transparent about it. Mr. Posey. My only point in saying that 15 of the 20 investigators who were involved in this--and stealing is stealing, even if the government is in on the job, believe it or not. Some people think that if the government is involved, it makes it okay. Stealing is still stealing, even if the government is involved in it. And I think saying that 15 of 20 of these investigators and 19 of the 36 examiners are no longer with the agency doesn't make what they did okay, and doesn't mean that they can't be held accountable. We should know where they are now. Ms. Schapiro. I agree it certainly doesn't make what happened okay. I am not sure how we hold them accountable under the law if they have left the agency and they haven't violated any law. I am happy to think that through further. Mr. Posey. Maybe some of the 1,200 lawyers who file 600 cases a year can find time between filing a half a case every year to research that a little bit and see how other law enforcement agencies handle that when somebody leaves a job after maybe they have embezzled money or helped somebody embezzle money, how leaving the job just doesn't change the fact that they have done something very wrong and there needs to be some accountability for it. And they have ways of bringing those people to justice in the private sector. Maybe it may seem relatively unheard of in the public sector, but in the private sector, they seem quite capable of getting people like that and bringing them to justice and holding them accountable. Ms. Schapiro. I hear you, and we will certainly think further about that. I don't know of any evidence or suggestion that anybody was embezzling at the SEC or aiding somebody knowingly embezzling if that is a suggestion. Mr. Posey. They certainly, they certainly by their--what would you want to call it--indifference or ineptitude let the Madoff fraud perpetuate for a decade. I think everybody with a half a brain in the financial industry knew that. That is why none of your big money managers or hedge fund managers got caught. They read the Barron's expose, front page story on what a fraud this guy is. But for 10 years, the SEC did nothing about it. You read the investigation just like I did. And I am just saying that there needs to be consequences for that kind of behavior, and you told us that you are going to see that eventually we are going to hear some just being served in the future as you go through the proper course of doing this. But I am just making the statement that 15 people who were culpable probably to some degree, 19 of 36 who are culpable to some degree should not be unnamed or forgotten just because they left the agency. I think we need to know, as I stated, where they are, if they are with agencies they used to regulate, if they are in charge of overseeing at other agencies now where the blunder could be repeated and if they just retired and they are collecting pensions at the expense of the people who got bilked. Chairman Kanjorski. Mr. Posey, I yielded you 3 minutes of your time just so that you could-- Mr. Posey. God bless you, Mr. Chairman. Thank you so much. Chairman Kanjorski. I do want to wind this up. I want to thank Madam Chairman for her courtesy in remaining over here for these extra questions, but I do want to--as to what Mr. Posey talked about, as you and I discussed, I believe it was yesterday, but time escapes me now, there is no natural immunity to criminal law if you work for the SEC; that is true. If there are criminal violations to the U.S. Code, they will be pursued by the Justice Department, not by the SEC, because the SEC only takes actions in a civil matter, as we all know. I do think, however, that Mr. Posey raises an interesting question, and perhaps as you are constructing the comprehensive study, that would be a good question to be posed to the studier: what could we do and what can we do to be more effective in finding or maintaining jurisdiction over employees in highly sensitive positions that could participate in or subliminally be part of a fraud or violation of the law? Maybe we could come up with-- not only for the SEC but other sensitive agencies--some methodology; I would hate to find out that Homeland Security, because an employee did not act according to the highest standards and then left the agency, they were unreachable. I think that is the question that Mr. Posey is positioning. As you construct the comprehensive study, Madam Chairman, I know you are already done with the construction of it, but seriously, if you could put some thought to it, it would be an interesting question either this subcommittee could follow up on or other committees of the House. Ms. Schapiro. I would be happy to do that. I should make it perfectly clear, if we have suspicion of illegal conduct by an SEC employee, that would be a referral immediately to the Justice Department. That would not be something that we would-- Chairman Kanjorski. Right. As I expressed to you, there is a great hunger out there in the land for someone to be reprimanded, prosecuted, or in some way made to pay a price for extraordinarily bad judgment or activities that could border on criminality. Maybe we could cooperate together on that and utilize the comprehensive study to accomplish that. Now, that being said, and having kept you well over the witching hour of noon, we thank you for your courtesies to the committee. We look forward, as I said, to working with you in the future. I would note that some members may have additional questions for this witness which they may wish to submit in writing. Without objection, the hearing record will remain open for 30 days for members to submit written questions to this witness and to place her responses in the record. Without objection, it is so ordered. The panel is dismissed and this hearing is adjourned. 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