The Wall Street Journal ran a story on yesterday testimony by SEC Inspector General H. David Kotz, noting that he "sought to defend the regulator against deep budget cuts eyed by U.S. House Republican lawmakers ..."   

[C-I Note:  Excuse us, but we find it hard to believe that WSJ reporter Jessica Holzer could interpret Mr. Kotz's testimony as being a "defense of the SEC."  We suggest to our readers that they read the rest of the WSJournal article, then read our thoughts in a BTN posting, which follows immediately.]

    Ms. Holzer Continues...  "SEC Inspector General David Kotz, a frequent thorn in the side of the agency he investigates, said the SEC would need more money to fix problems that set off a series of regulatory failures and wasteful decisions.

He said he has learned from the agency that paring the SEC's budget to 2008 levels, as House Republicans have proposed to do across the federal government, would force the agency to let go of 600 staffers.

Such cutbacks "would have an impact," Mr. Kotz argued. "I don't think there are 600 people in the SEC that are not providing value."

The SEC is lobbying for a funding increase it says it needs to carry out wider duties given it by the Dodd-Frank financial law. Last week Chairman Mary Schapiro warned that the budget strain was hampering the regulator's abilities to enforce U.S. securities laws.

Republican lawmakers at Thursday's hearing appeared doubtful that a funding increase would put an end to regulatory lapses at the agency.

House Subcommittee Chairman Jo Ann Emerson (R., Ill.) said she was concerned that such regulatory failures occurred despite the doubling of the SEC's budget in recent years.

"There's some skepticism among my colleagues that the SEC can actually do its job," she said.

Mr. Kotz conceded that many of the agency's missteps were difficult to defend, but argued that cutting funding would damage its ability to enforce U.S. securities laws.

"It's important to understand what they're up against. They are up against some heavily funded entities," he said, saying Bernard Madoff in particular had access to huge sums through the Ponzi scheme he was running.

Mr. Kotz said the SEC was making strides to address a number of problems highlighted in a series of damaging reports compiled by the watchdog.

"We are confident that the situations we identified have been ameliorated and will not recur," he said.

Republicans probed Mr. Kotz about problems he has uncovered involving the management of real-estate and procurement processes.

Mr. Kotz said a delayed decision involving office space the agency leased in San Francisco caused the regulator to pay an above-market rate. He also noted a costly office reorganization at the SEC's Washington headquarters that the watchdog concluded didn't result in any increased efficiency and was later undone by the agency.

Lawmakers questioned Mr. Kotz about reports he has opened a probe into the agency's July decision to lease nearly one million square feet of new office space in downtown Washington without first securing a funding increase from Congress. The agency backed out of most of the lease, after the funding increase didn't come through.

Ms. Emerson called the agency's decision to lease that much space before it had received new funding "alarming."

Mr. Kotz said his office is looking into whether there were sufficient studies completed before the agency concluded it needed to lease the new space.

"We're asking the question how on earth you thought you'd need 900,000 square feet of space?" Mr. Kotz said. [WSJournal, 2/11]