This report was originally published 6/2/09

Mary L. Schapiro, Chairman of the Securities and Exchange Commission (SEC) testified before the Subcommittee on Financial Services and General Government today. The purpose of the testimony was to provide an update on the efforts the SEC has taken since the start of the year to enhance investor protection and improve market confidence. According to Chairman Schapiro:

“The SEC must act promptly, decisively, and with resolve. We also must have a renewed commitment to protecting investors…”

The SEC has already made changes to bolster its Enforcement program by eliminating bureacratic impediments to investigations and providing for more rapid approvals of formal orders of investigation. From an investor protection perspective, the results thus far have been encouraging. Since the end of January:

• The SEC has filed 34 emergency temporary restraining orders compared to 12 a year ago
• The number of investigations opened has increased 23% YOY to 358
• The SEC has issued 188 formal orders compared to 74 a year ago.

Chairman Schapiro also spent a significant amount of time arguing for greater resources for the SEC overall. In our original poston Huron Consulting Group we highlighted the lack of hiring at the SEC for the past 3-5 years. In light of what has transpired in the past 12-18 months, it is still truly remarkable. The President’s current FY10 budget request includes a 7% increase in spending for the SEC, which would permit the SEC to fully fund an additional 50 staff positions over 2008. According to Chairman Schapiro:

“These positions would help the SEC’s Enforcement program enhance its pursuit of tips, complaints and other leads, thus increasing the resources the SEC can dedicate to frauds that citizens bring to our attention.”

You can find the full testimony here.

It Is Becoming Increasingly Obvious the SEC Will be More Active and Aggressive, Huron Consulting Group Should be a Direct Beneficiary

As we stated in our original post on HURN, the SEC has been embarrassed. However, there are increasingly clear signs that the SEC is in the process of re-emerging as a more streamlined, active and effective agency. To quote Mary Schapiro directly: “I came to the SEC to shape public policy in the interest of investors and to strengthen our enforcement program.”

We think HURN will be a direct beneficiary of the SEC’s increased vigilance. The company’s financial and accounting consulting division assists companies with complex accounting and financial reporting issues. Securities class actions suits and SEC investigations are often the impetus for a board of directors or a company’s execuitves to hire HURN to help resolve an issue. For the past 18-months, the financial and accounting consulting practice has been a substantial drag on HURN’s earnings power. Utilization rates have remained below 60% for five consecutive quarters and profitability for the division has been depressed. We anticipate the division is poised for a rebound in profitability in the next 3-6 months based on the mounting number of securities class actions suits and increased activity from the SEC. We estimate a recovery in utilization rates for the financial and accounting practice could boost EPS by as much as $0.55-0.80 in 2010 relative to consensus.

As always, please act accordingly….