Skip to content

Opening statement of Senator Mike Enzi
Regarding the nomination of Bill Donaldson
To Serve As Chairman of the Securities and Exchange Commission

February 5, 2003

It's nice to be back at the Committee after the recess, and I look forward to working with the Committee on issues affecting the financial services sector.

I want to welcome Bill Donaldson to the Committee. I certainly appreciate his willingness to take on this role and to help restore investor confidence in our capital markets.

This is not an easy time to become the head of the SEC. The markets have recently gone through more turmoil since the 1930's. Corporate fraud and the bursting of the internet bubble has cost investors large portions of their personal savings and retirements. In my opinion, the job of the next SEC Chairman will be to restore this confidence and renew Americans' willingness to participate in our capital formation process. This will be an incredible challenge for the new Chairman.

I believe part of accomplishing this includes penalizing the wrongdoers to the fullest extent possible. The purveyors of corporate fraud must be punished swiftly and severely. The only way to punish these criminals is to deliver real sentences and harsh monetary penalties. The victims of these crimes demand justice and they deserve to receive it. Class action lawsuits that allow the trial lawyers to reap millions of dollars while the investors receive pennies will not bring justice to the victims. To accomplish this, I'm glad that during last year's passage of Sarbanes-Oxley we significantly strengthened white collar crime penalties. I know that Congress did this with the expectation that the law enforcement community would utilize the authority.

I also want the new Chairman to closely examine and follow Congressional intent during the Commission's rulemakings. For instance, I do not believe that anyone who was involved in the development of Sarbanes-Oxley believed that the Financial Accounting Standards Board should not be the accounting standard-setting body described in Section 108. However, the SEC has yet to officially notify the FASB they are that body.

It was my understanding that while naming this standard-setting body that we would be giving FASB more independence.

By giving them an independent funding source and statutory authority, they would have a better ability to make independent decisions on accounting matters. This section was not intended to give the Commission significantly more authority over accounting standard-setting. The Commission does not have the expertise to set accounting standards.

This lack of acknowledgment by the Commission has left the FASB in a funding crisis. Private companies are no longer supplying funds to the FASB because they were intended to have the mandatory funding mechanism outlined in Sarbanes-Oxley. The Commission should immediately name the FASB as the standard-setting body in Section 108.

This point brings us to, I think, a bigger issue. Throughout the recent rulemakings, the SEC has gone beyond the statutory requirements of last year's legislation. Whether it is the auditor independence rule, the Section 307 lawyer provision, or the naming of the FASB which I mentioned, the Commission seems determined to go beyond the statutory requirements. Some of these issues, in particular the non-audit services provision, went well beyond the statute.

A large part of Sarbanes-Oxley was the construction of a new Public Company Accounting and Oversight Board or PCAOB. This board is designed to be the front-line regulator of the accounting industry, including the establishment of non-audit service prohibitions. It was unnecessary for the Commission to go as far as the proposed rule did when we are a few months from the PCAOB operational. They, not the Commission, will be in the best position to make the determination regarding what is, and is not, a conflict.

Also, I know that the salary levels of the members of the PCAOB has received a lot of attention, particularly from Members of the Commission. This Board was constructed to be private and not a government agency. Part of this was to ensure it could attract and retain qualified members of the Board by offering competitive salaries. I think we need to ensure that the Board is able to continue to attract these people.

I know that I've put a lot on your plate, Mr. Donaldson. I want you to know that I have complete faith in your abilities and the direction which you'll lead the Commission and our securities markets. If, at any time, you feel you need more authority or resources to help weed out corporate wrongdoers, I hope that you'll feel comfortable calling on this Committee before we encounter these types of problems again.

Mr. Chairman, I thank you for your efforts on this matter. I look forward to working with you, the Members of the Committee, and the Commission in the future.