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University of Iowa News Release

Release: April 11, 2002

Law Dean Discusses Strengthening Securities, Exchange Commission at Law Luncheon

Joel Seligman, dean of the Washington University law school and an expert on securities law, spoke at the UI College of Law Thursday and suggested the Securities and Exchange Commission (SEC) could become more independent if it changed its funding mechanism.

His proposal is to remove the SEC from the usual federal budget process, where its appropriations are negotiated between the White House Office of Management and Budget and Congress. Instead, the agency would fund itself through fees and other charges it collects. Such a funding process would make the agency more independent and less beholden to the whims of politicians, he said.

"The Federal Reserve System has a similar funding mechanism, and it rarely has its independence questioned," Seligman said at a law faculty luncheon. Seligman's historical research has shown that the SEC becomes less effective during business booms because its budget increases are not large enough to handle the extra work required during a period of rapid economic growth. As a result, the SEC becomes overwhelmed, its ability to investigate suffers, and within a few years a wave of corporate scandals ensues.

Only during those scandals does Congress increase the SEC's budget so it can more adequately investigate corporate financial filings, he said.

"During growth periods, Congress' enthusiasm for securities regulation dissipates," he said, pointing out that while the U.S. economy grew by leaps and bounds between 1995 and 1998, the SEC's staff was frozen. In fact, he said, the SEC staff was so overwhelmed that they eventually considered joining a union. "It's unusual to see attorneys and accountants want to unionize, but working conditions were such that they felt it was their only alternative."

But the wave of business scandals that followed Enron's collapse in 2001 finally prodded the Bush Administration and Congress to increase the SEC's budget by 77 percent in 2002, he said.

STORY SOURCE: University of Iowa News Service, 300 Plaza Centre One, Iowa City, Iowa 52242-2500.

CONTACT(S): Tom Snee, 319-384-0010, tom-snee@uiowa.edu.