House Bill Would Abolish SEC's 'Sweep' Division

by Glen Shapiro, LawAndTax-News.com, New York

17 January 2006

Legislation introduced late last year in the House of Representatives would abolish the SEC's Office of Compliance, Inspections and Examinations (OCIE) and re-assign its inspectorate to other SEC Divisions.

Representative Vito Fossella (R-N.Y.), a member of the House Financial Services Committee, sits for a Staten Island district which is home to many Wall Street executives. OCIE was created ten years ago to conduct 'sweep' investigations which target a particular issue across sectors such as investment funds or brokerages. It can and does examine firms against which there has been no complaint and which most times have done nothing wrong. Naturally, OCIE is a hate object to many Wall-Streeters.

Under the bill, HR 4618, the Compliance, Examinations, and Inspections Restructuring Act of 2005, inspectors have to give advance notice and would be limited to requesting records that firms are required to keep.

Says the bill:

'Before an administrative division or office of the Commission may conduct an inspection of registered brokers or dealers, registered investment companies, or registered investment advisers, it shall provide written notification in such form determined by the Chairman. Before an administrative division or office of the Commission may conduct a sweep examination of registered brokers or dealers, registered investment companies, or registered investment advisers, it shall seek authority from the Commission to conduct such a sweep examination or inspection in the same manner and subject to the same procedures that the enforcement divisions or offices of the Commission must follow in seeking the authority to conduct a formal investigation or inquiry regarding a registered brokers or dealer, a registered investment company, or a registered investment adviser.

'An administrative division or office of the Commission shall confine the content of a sweep examination or inspection to those existing books and records that the registered broker or dealer, registered investment company, or registered investment adviser is required to keep and maintain under applicable rules and regulations, and may not require the creation of a new document or the calculation or presentation of data that is not required to be kept or maintained under applicable rules and regulations.'

Representative Fossella says the changes are needed because firms and individuals are currently hesitant to take their concerns to the SEC for fear of being slapped with an inspection. But he is not a heavyweight politician, and if he can't attract some potent sponsors to his bill, it is not very likely to go far.

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