[Senate Hearing 111-770]
[From the U.S. Government Publishing Office]
S. Hrg. 111-770
NOMINATIONS OF: KEVIN WOLF,
SURESH KUMAR, DAVID W. MILLS, DOUGLAS A. CRISCITELLO, THEODORE W.
TOZER,
ORLAN JOHNSON, AND SHARON Y. BOWEN
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
ON
Nominations of:
Kevin Wolf, to be Assistant Secretary of Commerce for
Export Administration, Department of Commerce
__________
Suresh Kumar, to be Assistant Secretary of Commerce and Director
General of the U.S. and Foreign Commercial Service,
Department of Commerce
__________
David W. Mills, to be Assistant Secretary of Commerce for Export
Enforcement, Department of Commerce
__________
Douglas A. Criscitello, to be Chief Financial Officer, Department of
Housing and Urban Development
__________
Theodore W. Tozer, to be President, Government National
Mortgage Association
__________
Orlan Johnson, to be Chairman, Securities Investor
Protection Corporation
__________
Sharon Y. Bowen, to be Vice Chair, Securities Investor
Protection Corporation
__________
JANUARY 21, 2010
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
Available at: http://www.access.gpo.gov/congress/senate/senate05sh.html
______
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57-381 PDF WASHINGTON : 2010
___________________________________________________________________________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
CHRISTOPHER J. DODD, Connecticut, Chairman
TIM JOHNSON, South Dakota RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York JIM BUNNING, Kentucky
EVAN BAYH, Indiana MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii JIM DeMINT, South Carolina
SHERROD BROWN, Ohio DAVID VITTER, Louisiana
JON TESTER, Montana MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin KAY BAILEY HUTCHISON, Texas
MARK R. WARNER, Virginia JUDD GREGG, New Hampshire
JEFF MERKLEY, Oregon
MICHAEL F. BENNET, Colorado
Edward Silverman, Staff Director
William D. Duhnke, Republican Staff Director and Counsel
Dean Shahinian, Senior Counsel
Joe Hepp, Professional Staff Member
Neal Orringer, Professional Staff Member
Beth Cooper, Professional Staff Member
Neal Orringer, Professional Staff Member
Jonathan Miller, Professional Staff Member
Brian Filipowich, Legislative Assistant
Mark Oesterle, Republican Chief Counsel
John O'Hara, Republican Senior Investigative Counsel
Hester Peirce, Republican Senior Counsel
Dawn Ratliff, Chief Clerk
Levon Bagramian, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
(ii)
C O N T E N T S
----------
THURSDAY, JANUARY 21, 2010
Page
Opening statement of Chairman Dodd............................... 2
Opening statements, comments, or prepared statement of:
Senator Shelby............................................... 4
Senator Menendez............................................. 6
Senator Brown................................................ 6
WITNESS
Blanche L. Lincoln, Senator from the State of Arkansas........... 5
NOMINEES
Kevin Wolf, of Virginia, to be Assistant Secretary of Commerce
for Export Administration, Department of Commerce.............. 8
Prepared statement........................................... 32
Response to written questions of:
Senator Shelby........................................... 39
Suresh Kumar, of New Jersey, to be Assistant Secretary of
Commerce and Director General of the U.S. and Foreign
Commercial Service, Department of Commerce..................... 10
Prepared statement........................................... 33
David W. Mills, of Virginia, to be Assistant Secretary of
Commerce for Export Enforcement, Department of Commerce........ 12
Prepared statement........................................... 34
Response to written questions of:
Senator Shelby........................................... 43
Douglas A. Criscitello, of Virginia, to be Chief Financial
Officer, Department of Housing and Urban Development........... 13
Prepared statement........................................... 35
Theodore W. Tozer, of Ohio, to be President, Government National
Mortgage Association........................................... 15
Prepared statement........................................... 36
Orlan Johnson, of Maryland, to be Chairman, Securities Investor
Protection Corporation......................................... 17
Prepared statement........................................... 37
Responses to written questions of:
Chairman Dodd............................................ 46
Senator Menendez......................................... 49
Sharon Y. Bowen, of New York, to be Vice Chair, Securities
Investor Protection Corporation................................ 18
Prepared statement........................................... 38
Responses to written questions of:
Chairman Dodd............................................ 50
Senator Menendez......................................... 52
(iii)
NOMINATIONS OF:
KEVIN WOLF, OF VIRGINIA,
TO BE ASSISTANT SECRETARY OF COMMERCE FOR EXPORT ADMINISTRATION,
DEPARTMENT OF COMMERCE;
SURESH KUMAR, OF NEW JERSEY,
TO BE ASSISTANT SECRETARY OF COMMERCE AND
DIRECTOR GENERAL OF THE U.S. AND FOREIGN
COMMERCIAL SERVICE,
DEPARTMENT COMMERCE;
DAVID W. MILLS, OF VIRGINIA,
TO BE ASSISTANT SECRETARY OF COMMERCE
FOR EXPORT ENFORCEMENT,
DEPARTMENT OF COMMERCE;
DOUGLAS A. CRISCITELLO, OF VIRGINIA,
TO BE CHIEF FINANCIAL OFFICER,
DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT;
THEODORE W. TOZER, OF OHIO,
TO BE PRESIDENT,
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION;
ORLAN JOHNSON, OF MARYLAND,
TO BE CHAIRMAN,
SECURITIES INVESTOR PROTECTION CORPORATION;
SHARON Y. BOWEN, OF NEW YORK,
TO BE VICE CHAIR,
SECURITIES INVESTOR PROTECTION CORPORATION
----------
THURSDAY, JANUARY 21, 2010
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 9:36 a.m. in room SD-538, Dirksen
Senate Office Building, Senator Christopher J. Dodd, Chairman
of the Committee, presiding.
OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD
Chairman Dodd. The Committee will come to order. I
announced my retirement, and they took the gavel away.
[Laughter.]
Chairman Dodd. The Committee will come to order this
morning, and let me thank all of you for being here. Let me
invite our witnesses, why don't you just take seats here to
begin, and I am going to make a couple of opening comments.
Then I am going to turn to my colleague and friend from Alabama
for any opening comments he may have. Thank you. There, they
gave the gavel back.
[Laughter.]
Chairman Dodd. Who took the gavel? Who had this, by the
way? Some of the young Turks here got the gavel.
Then what I will do is I will ask several of our colleagues
here who want to introduce our guests and our nominees, and
then we will proceed with the opening statements by the
nominees themselves. So the hearing comes to order, and today
we are meeting in open session to conduct a nomination hearing
on seven of President Obama's nominees. These hearings are a
crucial part of this Committee's oversight responsibilities,
and I would like to thank the witnesses, first of all, for
their willingness to appear before the Committee and their
willingness to serve our country. We do not often say that
enough. The fact that you are willing to step up and have your
lives exposed obviously to the scrutiny of a vetting process is
something--in fact, Senator Shelby and I were just having a
casual conversation with each other coming through the door a
few minutes ago talking about--we always talk about how we are
going to reform this process to some degree to make it less
agonizing for the people who are willing to serve our country
in any administration, and so I am particularly grateful that
all of you are working to go through this process and then to
serve as well knowing that there are tremendous
responsibilities in the jobs that you will be assuming.
Our first three witnesses are for the positions in the
Commerce Department and will involve setting U.S. policy
concerning the Government's dual role in exports--namely, the
goal of promoting U.S. exports and economic growth, while at
the same time protecting our national security through
effective export controls.
Kevin Wolf, who will be introduced by our friend and
colleague from Arkansas, Senator Lincoln, has been nominated to
be the Assistant Secretary for Export Administration and, if
confirmed, will be responsible for overseeing the Bureau of
Industry and Security's export licensing system.
Our second Commerce nominee, Suresh Kumar, who will be
introduced by Senator Menendez, our colleague from New Jersey,
has been nominated to be an Assistant Secretary of Commerce and
Director General for the U.S. and Foreign Commercial Service,
and if confirmed, he will be tasked with leading a service
comprised of hundreds of dedicated public servants who advocate
on behalf of U.S. exporters and advance our economic interests
throughout the United States as well as in 80 countries around
the globe.
Mr. Mills, our last Commerce nominee, has been nominated to
be the Assistant Secretary for Export Enforcement and, if
confirmed, will execute the Bureau of Industry and Security's
export control policies. This position is especially important
at a time of heightened security concerns and economic turmoil.
Mr. Mills is an experienced attorney and distinguished public
servant in the area for which he has been nominated. Mr. Mills
spent 20 years in Government service, including 18 years
supporting U.S. sanctions policy at the United States
Treasury's Office of Foreign Assets Control. He has spent the
past 3 years in private practice working OFAC cases as well as
the anti-money-laundering audits, export control, and anti-
boycott matters.
Our next nominee is Douglas Criscitello, who has been
nominated to be the Chief Financial Officer for the Department
of Housing and Urban Development. As CFO, he will be
responsible for directly overseeing the accounting, budget, and
financial management systems for HUD. As this Committee heard
the testimony from HUD Secretary Donovan, the modernization of
HUD financial systems is both a need and a priority for the
administration. Mr. Criscitello has extensive public and
private sector budget experience and has a particular specialty
in Government finances and modeling the financial risk of
credit programs. It is the hope of this Committee that Mr.
Criscitello's extensive experience and leadership ability will
reinvigorate the office of CFO so that it functions as more
than an office to produce regular and accurate budget materials
but, rather, that it begins the process of implementing the
state-of-the-art financial technologies and practices that are
so needed.
Next we have Theodore ``Ted'' Tozer, who will be introduced
by Senator Brown, who has been nominated to be the President of
the Government National Mortgage Association, otherwise known
as Ginnie Mae, and as the head of Ginnie Mae, Ted will be
managing an organization which is small relative to its rapidly
expanding portfolio in importance to the housing market. Ginnie
Mae is facing tremendous challenges and needs a leader with Mr.
Tozer's experience. Ginnie Mae has grown enormously over the
past 2 years as other sources of mortgage credit have dried up.
Ginnie Mae needs a strong, experienced manager to lead it
through this period of unprecedented growth.
And, finally, we have two nominees to serve on the Board of
Directors for the Securities Investor Protection Corporation,
known as SIPC. SIPC was created by Congress in 1970 to give
investors certain protections against losses resulting from the
failure of their stockbrokerage firms. In order to maintain
investor confidence in the securities markets and their
brokerage firms, SIPC must operate in a manner that is
effective, efficient, and fair. This involves maintaining fund
balances that are adequate and liquid so that SIPC can pay out
investors' claims equitably and quickly. This requires
appropriate corporate governance practices so that SIPC has
adequate internal financial controls, transparent contracting
protocols, and appropriate executive compensation practices,
and its board members avoid conflicts of interest. It also
requires educating investors broadly about the role of SIPC and
the extent of SIPC's coverage.
In addition to being nominated to be a member of the board
of SIPC, Orlan Johnson has been designated by the
administration to serve as the Chairman of the board of SIPC.
Mr. Johnson has extensive private and public sector experience
as well, is currently a partner in the businessdepartment of
Saul Ewing in Washington, DC, where he works on a variety of
issues, including mergers and acquisitions, corporate
financing, and corporate governance. Mr. Johnson also has
extensive Government experience, serving 9 years as the staff
attorney and branch chief in the Division of Investment
Management for the SEC.
Our final nominee is Ms. Sharon Yvette Bowen. She is
currently a partner in the New York office of Latham & Watkins
where she represents corporations, private equity firms,
financial and institutional clients in a variety of corporate
finance issues. She has been a member of numerous bar
associations and boards, including the board of New York City's
Economic Development Corporation, the New York State
Bar Committee on Minorities in the Profession, the American
Bar Association House of Delegates, the Conference of Minority
Partners at Majority Firms, and the New York Women's Bar
Association Foundation. Ms. Bowen was recently recognized by
the Metropolitan Black Bar Association as its 2006 Lawyer of
the Year. She has also been selected as one of America's Top
Black Lawyers by Black Enterprise.
So I look forward to hearing from our witnesses, and I
thank them all for being a part of this. I am particularly
intrigued on the SIPC issue. I know my colleagues are as well,
having gone through the hearings we had on the Madoff scandal.
And I met with a group--I think probably my fellow colleagues
to one extent or another have as well. I met with a large group
of my constituents, all, of course, who lost life savings. And
these were not affluent people, by the way. These were people
who worked in an orthopedic practice in Connecticut as
secretaries, nurses, and others who invested everything in
terms of their retirement tied up with the Madoff operation.
And I have been curious and they have been curious as to
whether or not SIPC can possibly be of any help to people like
that. I know there has been some examination of that issue, but
I cannot resist in my opening comments to talk about it because
it has been devastating, what has happened to these folks. So
we may get into that in the question period, but let me thank
all of you.
Let me turn to Senator Shelby and then I will turn to my
colleagues for some quick introductions.
STATEMENT OF SENATOR RICHARD C. SHELBY
Senator Shelby. Thank you, Mr. Chairman. I will be brief. I
know we have a lot of nominees here today. I want to help you
any way I can to expedite these nominations, and that is why we
are here today.
Chairman Dodd. Thank you very much, Senator.
Let me first of all turn to Senator Lincoln. We welcome our
colleague from Arkansas for some opening comments on Kevin
Wolf, and then I will turn to Bob Menendez and Sherrod Brown.
STATEMENT OF BLANCHE L. LINCOLN,
SENATOR FROM THE STATE OF ARKANSAS
Senator Lincoln. Well, thank you, Chairman Dodd and Ranking
Member Shelby and members of the Committee. I am very pleased
to be here to introduce Kevin Wolf as the President's nominee
for the Assistant Secretary of Commerce for Export
Administration. I have been good friends with Kevin and his
family for many years now, and I strongly support his
nomination.
Many of you all will remember my predecessor, Senator
Bumpers, who told me when I got here, he said, ``I hope that
you will know the Senate that I knew.'' He said, ``Most of my
good friends came from my colleagues,'' he said, ``and so many
of my best friends were Republicans.'' And he said,
It was because we spent time together as families and we grew
together as families. We saw our children grow together. We
spent time at lengthy band concerts and lengthy baseball games,
and we had plenty of time to become good friends and have the
kind of confidence in one another that you need as a good
friend.
And those are many of the things that I have shared with the
Wolf family, the time that we have spent watching our children
grow up together, and it does make for an unusual bond and
confidence in one another, and I certainly appreciated that and
have appreciated the opportunity to get to know so many of my
colleagues that way.
But I believe that there are few people in this country who
could administer and improve the calls of export control
enforcement better than Kevin. Kevin has worked with foreign
and domestic companies for 17 years in precisely this area. His
experience has made him an expert in the highly complex and
technical arena of the U.S. export controls and sanctions.
Sitting in those softball fields or baseball fields, as each of
us got messages on our BlackBerrys, we had good conversations
about many of the things that Kevin was faced with, and I was
as well, and I began to understand much better what he did and
the particular expertise that he had.
Kevin has handled some of the largest civil and criminal
export control enforcement cases in this area. As a legal
partner with the Bryan Cave firm, he has done a tremendous job.
Because of his background, he knows better than most former
prosecutors what works and does not work with companies to
enhance compliance.
He has also proven that he can handle high-profile,
sensitive matters as evidenced by his work on these cases and
his role as the assistant special counsel for the Gingrich
ethics investigation when he served a stint as the assistant
special counsel to the House Ethics Committee in the 1990s.
Kevin is well respected by his peers and Government
regulators. He is 100 percent committed to our national
security and to our Government's economic growth. I know
Kevin's unique combination of intelligence, technical
expertise, experience, and patriotism will make him an
outstanding Assistant Secretary, and I heartily endorse his
nomination.
I thank you, Mr. Chairman, and the Ranking Member, Senator
Shelby, and all of the members of the Committee for their
consideration of his nomination, and I wish him well, as well
as his family who is with him today, Barbara, Freddie, and
Markus.
Thank you.
Chairman Dodd. Well, thank you very much, Senator. We
appreciate very much your being here this morning.
Mr. Wolf, you have got a hard act to follow to live up to
that.
[Laughter.]
Senator Lincoln. Thank you, Mr. Chairman.
Chairman Dodd. Bob?
STATEMENT OF SENATOR ROBERT MENENDEZ
Senator Menendez. Thank you, Mr. Chairman. I am pleased to
introduce to the Committee Suresh Kumar, the President's
nominee for the post of Assistant Secretary of Commerce and
Director General of the U.S. and Foreign Commercial Service.
Mr. Kumar is an experienced professional in global trade. I
believe he is the right man for the job. He has lived in
Princeton, New Jersey, for quite some time now. He has worked
for two of New Jersey's best-known corporations, Johnson &
Johnson and Warner Lambert. He has balanced his private sector
career with a belief in the importance of public service,
establishing a successful student internship program with New
Jersey businesses, which earned him a public service
commendation from the New Jersey Senate.
Mr. Kumar's impressive resume is a model for the global
economy in the 21st century. He has lived in six countries,
speaks six languages, has served on numerous global
international councils, boards, and expert advisory panels.
Educated in India at Delhi University and Bombay University,
where he received his master's in business administration and
management studies, Mr. Kumar has established businesses in
China and India for Warner Lambert and has been the head of
Worldwide Consumer Pharmaceuticals and International Vice
President for Johnson & Johnson.
But he has also given something back to the community, Mr.
Chairman. As a special adviser at the Clinton Foundation, he
worked on food security initiatives, agricultural output
programs, loan and financing protocols in Rwanda, Kenya, and
Tanzania. Mr. Kumar spearheaded initiatives to promote economic
development and improve people's lives and livelihoods around
the world. Most recently, he has been president and managing
partner of KaiZen Innovation, LLC, a global management
consulting firm, where he advised the Bill and Melinda Gates
Foundation, the Alliance for a Green Revolution in Africa, and
the African Development Bank.
That is a pretty impressive resume, Mr. Chairman. I think
he will serve us well and the Nation well, and it is my
pleasure to introduce to the Committee Mr. Kumar.
Chairman Dodd. Well, thank you very much, and we welcome
you again, Mr. Kumar. Thank you very much. Thank you, Bob.
Sherrod?
STATEMENT OF SENATOR SHERROD BROWN
Senator Brown. Thank you, Mr. Chairman. Thanks for
convening the hearing. Thank you for giving me the opportunity
to introduce Ted Tozer, who is the nominee for President of the
Government National Mortgage Association. He is joined by his
wife, Sandy, today whom I met for the first time today.
Ted has tremendous expertise and experience in the unique
nature of the secondary mortgage market, experience that will
serve Ginnie Mae well in his new position, as the Chairman
said, in an operation that is growing in importance all the
time. He currently serves as senior vice president of capital
markets at National City Mortgage, now a part of the PNC
Financial Services Group, a position he has held for some 20
years. Prior to joining National City, Ted served in various
roles at one of Ohio's largest banks, Bank Ohio Mortgage
Company and Bank Ohio National Bank. He served on the Board of
Directors of the Ohio Mortgage Bankers Association from 1991 to
2001.
Throughout his career, Ted Tozer has been a leader of the
Mortgage Bankers Association, serving as the MBA's Secondary
and Capital Markets Committee chairman from 2002 to 2004.
During his time he worked on the MBA Residential Board of
Governors and worked with Ginnie Mae on major initiatives. So
he is very familiar with the operations of Ginnie Mae. He
understands its importance. And like so many who come in front
of us, Mr. Chairman, as Presidential nominees and nominees in
other ways, he has been very active--and people who believe in
public service, he has been very active as a community
volunteer, something that is so important for all of us.
Ginnie Mae serves a crucial function providing loan
guarantees that help to make affordable housing finance options
available to millions of low- and moderate-income households
across our country. Ginnie Mae-eligible products and programs
extend affordable credit to qualified Americans even through
times of market decline and economic uncertainty. Unlike the
other GSEs, Ginnie Mae does not buy or sell loans or issue
mortgage-backed securities itself. It simply guarantees
investors the timely payment of principal and interest issued
by other Federal agencies. In today's difficult mortgage market
environment, Ginnie Mae and its partners have demonstrated the
importance of a stable and a consistent source of housing
finance liquidity.
Ted Tozer is up for this job. As a community leader, as a
long-time--three decades of experience in banking, I think that
he will make a very--he is a very good nominee, and I support
his candidacy.
Thank you.
Chairman Dodd. Thank you very much, Senator, for those
comments and remarks.
What I am going to do is I am going to have all of you
stand, and I am going to have you take the oath, if you will do
that for me, if each of you would raise your right hand as
well. Do you swear or affirm that the testimony that you are
about to give is the truth, the whole truth, and nothing but
the truth, so help you God?
Mr. Wolf. I do.
Mr. Kumar. I do.
Mr. Mills. I do.
Mr. Criscitello. I do.
Mr. Tozer. I do.
Mr. Johnson. I do.
Ms. Bowen. I do.
Chairman Dodd. And do you agree to appear and testify
before any duly constituted Committee of the U.S. Senate?
Mr. Wolf. I do.
Mr. Kumar. I do.
Mr. Mills. I do.
Mr. Criscitello. I do.
Mr. Tozer. I do.
Mr. Johnson. I do.
Ms. Bowen. I do.
Chairman Dodd. Thank you. Please be seated.
Let me just say to all of you, since obviously we have got
seven of you here this morning, if you would limit your remarks
to around 5 minutes. I am not going to bang the gavel down,
but--and that any other--whether it is the full testimony you
want to provide or any other information you think would be
worthwhile for the Committee to have, I will just announce
right now we will include all of that in the record for you.
Then what I will do, I will begin in the order I have
introduced you. We will begin with you, Mr. Wolf. And why don't
you do this as well? Why don't you tell us who is here with
you, your family, as well. If any of them have shown up here
today, we would love to recognize it as well. It is a big day
to be before a Senate Committee in a nomination process, and so
it is an honor to have your families here with you. We know
that you do not do these things in any endeavor in life without
the support of your families. So I gather looking around the
room that there may be some families here, and we welcome them
as well. But if you have got any members here, we would like to
welcome them as well. Mr. Wolf?
STATEMENT OF KEVIN WOLF, OF VIRGINIA, TO BE ASSISTANT SECRETARY
OF COMMERCE FOR EXPORT ADMINISTRATION, DEPARTMENT OF COMMERCE
Mr. Wolf. Thank you very much. My wife, Barbara Kanninen,
and my son, Frederick, and my other son, Markus, are here.
Chairman Dodd. Good morning. You are missing school today.
Mr. Wolf. They are missing school today.
Chairman Dodd. Do you want me to filibuster up here, keep
this going all day?
[Laughter.]
Mr. Wolf. I am honored to have them here. Without their
patience, I would not be here, in fact, and I also hope that my
being here, if confirmed, will be a lesson for my two sons
about the value of public service.
Chairman Dodd. Good. I hope so as well. Thank you.
Mr. Wolf. Thank you. Chairman Dodd, Ranking Member Shelby,
and members of the Committee, I am honored to appear before you
today as the President's nominee for Assistant Secretary of
Commerce for Export Administration. I appreciate the confidence
President Obama and Secretary Locke have expressed in me. I am
hopeful that I can earn your confidence as well. I look forward
to working with you and your staff.
I want to thank Senator Lincoln for the very kind and
thoughtful introduction. We have been friends for many years,
and I have always valued her counsel and guidance. I am
delighted that she could be here today.
Mr. Chairman, I recognize the importance of the obligation
I will be undertaking if confirmed. The threats we face are
diffuse but very real. They include terrorism, non-state
actors, the proliferation of weapons of mass destruction, and
the several countries of concern. The Bureau of Industry and
Security plays a critical role in countering these threats by
regulating the flow of controlled goods, technology, software,
and services. It does so primarily by working closely with the
Departments of State, Defense, and Energy, and the intelligence
community to evaluate thousands of export license applications
a year. It also works with our international partners to
develop controls to help, for example, stem illegal
transshipments. This process and these relationships are the
front line of defense against the export, re-export, and re-
transfer of items to prohibited end uses, prohibited end users,
and prohibited destinations.
Getting this right is very important. I realize that. And I
commit to you that the Bureau will continue to do the best
possible job in advancing U.S. national security, foreign
policy, and economic objectives by ensuring an effective export
control and treaty compliance system, while at the same time
facilitating continued U.S. strategic technology leadership.
National security is the Bureau's top priority. It cannot,
however, ignore the impact export controls have on U.S.
industry. If controls become outdated or are not applied
fairly, then they burden the economy without promoting
security. Indeed, such controls could reduce our security if
they force dual-use and military manufacturing and development
to countries that do not have adequate export control systems.
I believe that I am well prepared to take on this
responsibility. As an attorney with the international law firm
of Bryan Cave, I have been working almost exclusively with
export control, anti-boycott, and sanctions issues for nearly
16 years. My clients have been primarily small, medium, and
large U.S. companies and their foreign affiliates. Most of my
work has involved explaining to them how to comply with both
the ``law and the lore'' of the often complex export control
and sanctions regulations. If U.S. Government permission was
required to engage in a proposed transaction, I would help them
apply for and receive the necessary authorizations. I have also
handled several high-profile and significant export control
enforcement cases that have affected export control law,
policy, and compliance practices. I thus have a deep
understanding of the culture, concerns, and technologies of the
American exporter and how these rules affect U.S. economic and
national security interests. As a result of this work and my
efforts to promote dialog over the years between industry and
Government officials, I also have developed a deep respect for
the career staff at the various Government agencies who
administer the rules. I look forward to working with them, if
confirmed.
My extensive background in this highly technical area will
be vital to inspiring and leading the Bureau, administering the
existing regulations fairly and efficiently, and working with
the other agencies involved in the U.S. export control system.
My background will also be vital to crafting and implementing,
with the Under Secretary and the other agencies, the details of
the significant export control reforms the President and the
Secretary have announced are necessary to maintain our national
security and economic growth. I look forward to working with
Congress during this process. In all of my efforts, I will, if
confirmed, be committed to our Nation's security and the rule
of law.
Thank you again for this opportunity to appear. I would be
pleased to respond to any questions you might have.
Chairman Dodd. Thank you very much for those comments.
I should have mentioned as well, too--and, again, I want
you to know, just given that we are back from this break and
people are busy here, we do not have a full complement of the
Committee here for these hearings. And I am going to leave the
record open for a few days so that members can submit some
written questions they may have for all of you, if they have
any. I would just urge you to respond as quickly as you can so
we can move your nominations along very quickly as well.
Mr. Kumar, welcome again. That was a very kind introduction
that Bob Menendez gave you and a very distinguished career as
well, so we are honored that you are willing to serve. Do you
have any family here with us today?
STATEMENT OF SURESH KUMAR, OF NEW JERSEY, TO BE ASSISTANT
SECRETARY OF COMMERCE AND DIRECTOR GENERAL FOR THE U.S. AND
FOREIGN COMMERCIAL SERVICE, DEPARTMENT OF COMMERCE
Mr. Kumar. Yes, I will introduce them.
Chairman Dodd, Ranking Member Shelby, and distinguished
members of this Committee, I am honored and humbled to come
before you today as President Obama's nominee to be Assistant
Secretary of Commerce and Director General of the U.S. and
Foreign Commercial Service. I want to thank President Obama for
the enormous trust he has placed in me with this nomination and
Secretary Locke for his support.
Over the past few weeks, I have had the pleasure of meeting
members of this Committee and your staff. Thank you for your
hospitality. If I am confirmed by this Committee and your
colleagues in the Senate, I look forward to working closely
with you.
I am particularly grateful to Senator Menendez from my home
State of New Jersey for his gracious introduction here today.
Let me take this opportunity to introduce you to the
members of my family who have joined me here today: my wife
Sheila, my daughter Pooja, and my son Aditya.
Sheila, my college sweetheart, has provided me her
unshrinking support through a global journey that has spanned
three decades and five countries. Sheila is amazing. Not only
is she a distinguished business executive in her own right, but
she has also managed to raise our two wonderful children.
Our daughter Pooja is a physician who is pursuing her
passion for public health. She has served the underprivileged
in remote comers of the world--from working with displaced
people from Azerbaijan to East Timor, and vulnerable children
from the streets of Kolkata to the Congo.
Our son Aditya has been a management consultant who has
also worked with the homeless in America and victims of child
labor in Asia. He has had the honor of interning for this
distinguished body, the U.S. Senate, in the office of the late
Senator Ted Kennedy. He now has the distinct pleasure and
privilege of serving in the White House.
I would be remiss if I did not mention my parents, Colonel
Sundaram and Vasantha, who instilled in our entire family the
importance of public service. Although they cannot be present
here today, they are watching these proceedings via webcast
from their home in Delhi.
As I prepared these remarks, I could not help but reflect
on what an incredible journey this has been for me from Mumbai,
India, to the U.S. 16 years ago. I stand before you as a first-
generation immigrant and a testimony to our great country. If
confirmed, you will have given me the opportunity to repay a
small measure of debt to a country that has already given me so
much.
In my 30 years in the international business community, I
have seen firsthand the immense possibilities, potential, and
prosperity that follow global trade. In the past several years
as an international development consultant, I have worked with
civil society and nonprofit organizations to improve lives and
livelihoods and support small and medium enterprises in
establishing sustainable and scalable businesses. I have worked
for multinational and local companies across six countries,
culminating in my position as the head of Worldwide Consumer
Pharmaceuticals for Johnson & Johnson. Through my work, I have
seen the tremendous opportunities for U.S. businesses to more
fully engage in Africa, Asia, and Latin America.
The value and values of free and fair trade are embedded in
my DNA. I pledge to help American enterprise enhance its
competitiveness and grow its global footprint; to increase U.S.
exports and help create jobs; and to protect our interests,
patents, and intellectual property that are so critical to
encourage innovation and support technological advancements
particularly in emerging technologies in the environment,
energy, and health care sectors. These are the priorities that
have been articulated by Secretary Locke for the Department of
Commerce, and I am humbled by the opportunity to work daily to
advance them.
International trade has always been a proven path to global
prosperity. With 95 percent of the world's consumers living
beyond our borders, we must encourage, nurture, and support
U.S. companies, particularly small and medium businesses, to
export goods and services into foreign markets. We must grow
our exports to stimulate the economy and create and sustain
American jobs. These are challenges, but they also present
tremendous opportunities. That is why I am so excited by the
prospect of leading the U.S. and Foreign Commercial Service at
this pivotal moment in time.
If confirmed, I will work closely with this Committee and
your colleagues in Congress to expand U.S. exports and advance
U.S. commercial interests abroad, to forge new economic ties
for America overseas, and to ensure that America maintains its
leadership in the global economy while advancing U.S. national
security interests through a renewed focus on commercial
diplomacy.
Mr. Chairman, I thank you for your consideration of my
nomination and for the opportunity to address any questions
that you and your colleagues might have. Thank you.
Chairman Dodd. Thank you very, very much, Mr. Kumar, and
welcome to your family. What a wonderful example you are
setting to these remarkable children of yours, as well, who are
doing so well. We thank them for being with us today.
Mr. Kumar. Thank you, sir.
Chairman Dodd. Thank you for your very generous comments,
as well, about what I think is the greatest reason of our
success as a country in many ways, is the fact that we have
been a welcoming people, and if we ever lose that status, I
think we lose the essence of who we are in many ways, and you
are a wonderful example of the wisdom of that open process over
the years that have invited so many people to be a part of
our--you made the choice to be with us. Most of us here had no
choice in the matter.
[Laughter.]
Chairman Dodd. And so we are particularly pleased with
people who make that choice, and thank you immensely.
Mr. Kumar. Thank you, sir.
Chairman Dodd. Mr. Mills?
STATEMENT OF DAVID W. MILLS, OF VIRGINIA, TO BE ASSISTANT
SECRETARY OF COMMERCE FOR EXPORT ENFORCEMENT, DEPARTMENT OF
COMMERCE
Mr. Mills. Chairman Dodd, Ranking Member Shelby, Members of
the Committee, I am honored to appear before you today as the
President's nominee for the position of Assistant Secretary of
Commerce for Export Enforcement. The President has my heartfelt
gratitude for the trust and confidence he has placed in me. I
would also like to express my appreciation to Secretary Locke,
with whom I look forward to serving, if confirmed for this
position.
I would be remiss if I did not also thank my parents,
Eugene and Dorothy Mills of Lee, New Hampshire, for their
unstinting and unwavering love and support over the course of
my life, without which I would not be before you today.
I had the privilege of starting my first permanent position
with the executive branch at the Department of Commerce and
served there as an Attorney Advisor in the Bureau of Export
Administration beginning in 1985. At that time, I had the
opportunity to assist in the implementation of the 1985
Amendments to the Export Administration Act as well as the
implementation of the South African Anti-Apartheid Act in 1986.
I am delighted at the prospect of returning to this agency
should I be confirmed and in assisting its able and dedicated
personnel in carrying out their continuing mission that is so
vital to our national security.
If given the opportunity to serve in the capacity for which
I have been nominated, I also look forward to drawing upon the
experience I gained during the 18 years I served at the Office
of Foreign Assets Control at the U.S. Treasury Department. As a
member of OFAC's Chief Counsel's Office, I provided legal
support and review for licensing, interpretive and enforcement
matters arising under the various economic sanctions programs
for which I was responsible, working closely with Department of
Justice attorneys in both the Civil and Criminal Divisions.
I also served as OFAC's Chief of Policy Planning and
Program Management. In that role, I was responsible for
reviewing all warning letters, penalty actions, and settlements
of alleged sanctions violations, and for preparing
recommendations on the disposition of enforcement matters for
the Director.
I also supervised the drafting and issuance of OFAC's first
set of comprehensive economic sanctions enforcement guidelines
in 2003 as well as the semi-annual reports to Congress on the
administration and enforcement of sanctions programs, and I am
happy to say not one of them was late.
As Chief of Licensing at OFAC, I gained invaluable
managerial experience, ensuring timely response to requests for
licenses and interpretive rulings, coordinating interagency
review when required, and reducing an initial backlog of
licensing requests from 1,400 to 100 pending cases. In 2005, I
was awarded the Meritorious Service Medal by the Secretary of
the Treasury.
If confirmed, I look forward to the opportunity to
coordinate compliance and enforcement efforts with my former
agency, as well as other agencies with important roles to play,
including the Departments of Justice, Homeland Security, State,
and Defense.
More recently, since 2007, I have worked in private
practice, first at Baker, Donelson, Bearman, Caldwell and
Berkowitz, a regional law firm present in five Southern States
and DC, and then at DLA Piper, a global law firm with a
presence in more than 60 cities throughout the United States
and in more than 25 countries. Through my participation in
several extensive internal investigations involving both civil
and criminal matters, I have gained a deeper appreciation of
the challenges that companies face, most of which are
attempting in good faith to comply with often complex
regulatory regimes.
I believe that the enforcement of those regimes must not
only be fair and firm, but also as clear and transparent as
possible in order to advance both our national security and
foreign policy interests and our economic potential through
export promotion. Finally, in those instances where good faith
is not a factor, I commit to vigorously enforcing our nation's
laws to ensure that those who flout the rules are caught and
punished.
Thank you again for this opportunity to appear before you.
I would be pleased to respond to any questions you may have.
Chairman Dodd. Thank you very much, Mr. Mills.
Mr. Criscitello, thank you again for joining us.
STATEMENT OF DOUGLAS A. CRISCITELLO, OF VIRGINIA, TO BE CHIEF
FINANCIAL OFFICER, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Mr. Criscitello. Thank you, Chairman Dodd. Let me start off
by introducing my family in the back here, my wonderful wife,
Linda----
Chairman Dodd. Can we see you? Stand up.
Mr. Criscitello. My wonderful wife, Linda. She has been
putting up with me since our high school days back in
Binghamton, New York, and my three----
Chairman Dodd. You are going to be the next witness we
have.
[Laughter.]
Mr. Criscitello. My terrific kids, Lindsay, Sammy, and
Kyle.
Chairman Dodd. Terrific. Welcome. We are glad you are here
with us today.
Mr. Criscitello. OK. Well, Chairman Dodd, Ranking Member
Shelby, and distinguished Members of the Committee, my name is
Doug Criscitello and I would like to thank you for the
opportunity to appear before you today. I know the Committee is
really busy right now and I appreciate the opportunity to be
here.
I am absolutely humbled and honored to be the choice of
President Obama and Secretary Donovan to serve as the Chief
Financial Officer at the U.S. Department of Housing and Urban
Development. If confirmed, I look forward to being part of the
team at HUD that will work with you and your staffs to address
the significant housing and community development needs of our
nation.
For the past 24 years, I have dedicated my career to
governmental budgeting and financial management, with a
particular emphasis on Federal credit programs, financial
management, and budgeting. I have served in a number of
different positions in that area at both the Federal and local
levels of government. My most recent position in government was
in New York City as the founding Executive Director of the New
York City Independent Budget Office. IBO is an agency that was
modeled after the Congressional Budget Office here in
Washington to provide objective, nonpartisan analysis of fiscal
issues facing New Yorkers.
While at IBO, I concentrated initially on establishing the
agency--I was the first employee there--and establishing IBO as
a credible, nonpartisan voice on the many budgetary matters
facing New York. And that was no easy task in that city. I am
sure, as you all know, everyone in New York seems to have a
very strong point of view.
IBO's mandate was broadly aimed at enhancing official and
public understanding of fiscal issues facing New Yorkers, which
allowed me to work on a range of issues, and that role required
me to think creatively about how to make governmental budgeting
understandable to elected officials and to citizens, doing
things like originating the concept for the Federal Taxpayer
Right to Know Act, a bill introduced by Senator Schumer and
enacted in 1999 to provide citizens with detailed information
about how their taxes are spent.
Prior to my IBO position, I spent 9 years as a career civil
servant in the Federal Government focused on financial
management and budgeting. At the Small Business Administration,
I led efforts to help that agency implement two of the most
important financial management statutes of the 1990s, the Chief
Financial Officers Act and the Federal Credit Reform Act.
Before working at SBA, I served as a Budget Examiner at the
Office of Management and Budget in the Housing, Treasury, and
Financial Institutions Division. I held a similar position at
the Congressional Budget Office before that, where I learned
the importance of providing impartial financial and budgetary
analysis to elected officials to empower them to make informed
legislative decisions. My primary areas of responsibilities at
both OMB and the CBO involved credit programs, economic and
community development, and budgetary analysis.
Since 2000, I have worked in the private sector as a
consultant and service provider to the government. At JPMorgan,
I worked in the Government Institutions Group, where I provided
operational and financial advisory services to a host of
Federal agencies, including HUD and SBA. That position allowed
me to enhance my understanding of the capital markets,
including how they can be used to help accomplish public policy
goals.
At PricewaterhouseCoopers, I helped the firm establish a
financial services--a Federal financial--I am sorry--helped the
firm establish a public sector financial services practice
aimed at supporting Federal financial stabilization
initiatives. I also worked with a number of financial credit
agencies, including HUD, on engagements involving credit reform
implementation and various other financial management matters.
Clearly, expanded programs and increased levels of funding
have occupied management at HUD over the past year while the
ongoing work of promoting sustainable home ownership, community
and urban development, and access to affordable housing has
continued. If confirmed by the Senate, I will work to ensure
transparency and accountability of these programs through an
effective financial management and internal controls program
aimed at deterring waste, fraud, and abuse of taxpayer dollars.
Key priorities will include providing timely and reliable
financial information for use by both executive and legislative
branch officials and ensuring the Department's financial
management program continues to get a clean bill of health from
its auditors.
I would like to conclude by saying again how truly honored
I am to be before this Committee. I have worked with HUD's
programs for many years and am aware of at least some of the
financial management and budgetary challenges facing the
Department. If confirmed, I look forward to working with you to
help HUD achieve its mission in a way that advances our
economic recovery prospects while ensuring that taxpayer money
is spent wisely.
Thank you, and I look forward to your questions.
Chairman Dodd. Thank you very much. That is a wealth of
experience you bring to this job, and I know they are going to
be very excited to have you working with them, so we thank you
very much for your willingness to come back into public service
for our country.
Mr. Criscitello. Thank you.
Chairman Dodd. Mr. Tozer, welcome.
STATEMENT OF THEODORE W. TOZER, OF OHIO,
TO BE PRESIDENT, GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION
Mr. Tozer. Thank you. I would like to take this opportunity
to introduce my wife, Sandy, and recognize her for the 29 years
we have been married and the incredible support she has given
me----
Chairman Dodd. Sandy, where are you? Why don't you stand up
so we can see you back there, Sandy. Nice to see you. Thank you
for being here with us.
Mr. Tozer. Chairman Dodd, Ranking Member Shelby, and
distinguished Members of the Committee, I want to thank you for
the opportunity to appear before you today and thank you to all
of the Members of the Committee and their staffs whom I have
met over the past 2 weeks. And thank you, Senator Brown, for
your kind words.
I am honored and humbled by the confidence that President
Obama and Secretary Donovan have shown in me by my nomination
to this position at such a critical juncture in the history of
housing. My 30 years' experience in the mortgage capital
markets has uniquely prepared me to manage the Ginnie Mae, if
confirmed. An effective President of Ginnie Mae must balance
the needs of all three major stakeholders: The issuers,
investors, and the U.S. Treasury.
I began my career managing the operations of BancOhio
National Bank's broker-dealer operation and its asset and
liability management function. During the 6 years I managed the
broker-dealer, my responsibilities included compliance,
accounting, trade settlement, customer security safekeeping,
and risk management. During this phase of my career, I
developed a good understanding of what was involved in running
a trading floor and was able to be part of the initial phase of
interest rate risk management by the banking industry.
My experience working in the investment community has
prepared me to work closely with the investor base of Ginnie
Mae Securities to help educate the investor communities on the
various Treasury-guaranteed mortgage programs. This education
is critical in keeping the cost as low as possible to the
borrowers.
During the last 24 years, I have managed the capital
markets for National City Mortgage Company. My responsibilities
included daily pricing of loan products, managing interest rate
risk of loans being held in inventory for future sales,
designing loan products that are salable into the capital
markets, delivery and settlement of loan pools, and negotiating
the sale of loan pools into the capital markets. My experience
at National City allows me to develop a broad knowledge of the
mortgage company's operations. I was required to balance the
needs of the sales force, the servicing department, and
mortgage investors. During my 24 years in the mortgage banking
industry, I developed strong relationships with the capital
market managers, whose companies account for 80 percent of
Ginnie Mae's issuances.
During my career, I worked closely with the FHA
Commissioner and the FHA Chief Risk Officer, two mortgage
industry leaders with whom I will work closely if I am
confirmed as President of Ginnie Mae. These relationships were
developed by participating on Fannie Mae and Freddie Mac's
National Lender Advisory Boards, serving as Chairman of the
Mortgage Bank Association Capital Markets Committee, as well as
the Mortgage Bank Association Residential Board of Governors.
Serving in these roles allowed me to understand the needs of
the mortgage bank industry as a whole.
I have also developed strong relationships with Wall Street
mortgage traders, which has increased my understanding of how
they view mortgages and their value. If confirmed, these
experiences and relationships will help Ginnie Mae fulfill its
responsibilities to both educate investors about loan program
modifications and to be a capital markets advisor to the
Federal housing agencies. Having a President of Ginnie Mae with
capital markets expertise is more critical now than ever as the
government uses various loan programs to stabilize the housing
market.
If confirmed, I will in an efficient and risk-averse manner
work to make Ginnie Mae a strong foundation for execution of
housing policy.
Thank you for your consideration of my nomination and I
look forward to answering the questions you may have.
Chairman Dodd. Thank you very, very much. We appreciate
your willingness to serve, as well.
Mr. Johnson, we thank you for, again, your willingness to
be a part of this administration and to serve and we thank you
for your appearance here today.
STATEMENT OF ORLAN JOHNSON, OF MARYLAND, TO BE CHAIRMAN,
SECURITIES INVESTOR PROTECTION
CORPORATION
Mr. Johnson. Thank you, Mr. Chairman. Chairman Dodd,
Ranking Member Shelby, and members of this distinguished
Committee, I would like to thank you for taking the opportunity
to allow me to appear before you today and consider my
nomination to be the Chairman of the Securities Investment
Protection Corporation. I am deeply grateful to President Obama
for nominating me to this important position. In addition, I
also appreciate the time that Members of the Committee have
already taken to meet with me, and if confirmed, I look forward
to working with the Committee to address the challenges in
ensuring the adequate protection of investment accounts and
general investor confidence in the United States financial
markets.
With the Chairman's indulgence, I would like to take a
moment to introduce my family that is here today.
Chairman Dodd. Please.
Mr. Johnson. I would like to introduce my wife, Zina, who
is here supporting me, as she always has in our nearly 20 years
of marriage. I would also like to recognize my daughter, Nia
Johnson, who is not here today. She is an eleventh grader at
Blue Mountain Academy and couldn't be here. But my two sons are
here, Adam Johnson, who is in eighth grade, and my youngest
son, Jair, who is in fifth grade. The two are missing school
but didn't seem overly concerned.
Chairman Dodd. Would you stand up so they can see you?
Where is your wife? Is that Zina and the boys? Missing school
again today, too, huh?
[Laughter.]
Mr. Johnson. Yes.
Chairman Dodd. You owe me big time.
[Laughter.]
Chairman Dodd. I could have scheduled this on a Saturday.
[Laughter.]
Mr. Johnson. Thank you, Mr. Chairman. It is indeed an honor
and a privilege. I have had approximately 20 years of
experience working on complex corporate and securities
transactions, both at major law firms and in the public sector.
As you note, I am currently a partner at Saul Ewing in
Washington, DC, where my practice focuses on general corporate
matters, business transactions, and Federal and State
securities laws.
Prior to being with Saul Ewing, I had a chance to be with
the New York-based law firm of Milbank Tweed, where I co-headed
the regulatory practice here in Washington, DC. For nearly 10
years, I was with the Securities and Exchange Commission, both
as a Staff Attorney and as a Branch Chief, and in that
opportunity I had to do numerous audits of investment advisors
and energy companies in conjunction with public State utility
commissions and also with the Federal Energy Regulatory
Commission.
I have also been given a great opportunity to stay on the
cutting edge of securities issues by having an opportunity to
teach securities regulation at Howard University School of Law
for over 15 years. And as a result, I have had an opportunity
to not only to stay on top of current issues, but also to get
some wisdom of young people in the classroom, as they have
ideas in this area, as well.
As you are all well aware, SIPC's primary goal is really to
protect individual investors from financial hardships and to
insulate the economy from disruptions which can follow the
failure of major financial institutions. I think SIPC has and
should continue to stand as the first line of defense in
protecting investors when such failures occur and act swiftly
to eliminate so much as possible these risks that are
associated with customer losses.
If confirmed, I look forward to continuing and expanding
SIPC's work in the areas of investor education and ensuring
that its current rules and regulations provide adequate
safeguards to protect investors in this ever-evolving global
financial market. I believe that the Act that supports SIPC
provides the framework that can be and should be used to guide
the protection of investment accounts, not just in the U.S.,
but also may act as a framework for worldwide financial
markets. If confirmed, I would view my role as being a
principal advocate for robust investor protection.
Mr. Chairman and Members of the Committee, I thank you
again for your consideration of my nomination and look forward
to answering any questions that you may have.
Chairman Dodd. Thank you, Mr. Johnson, very, very much.
Ms. Bowen, thank you for being with us. You are at the end
of the line here. You have been very patient----
Ms. Bowen. I am happy to do so.
Chairman Dodd.----and we appreciate that very much. So
thank you again for your willingness to serve and a very
distinguished career and record you have had, as well. So we
are honored you are here with us.
STATEMENT OF SHARON Y. BOWEN, OF NEW YORK, TO BE VICE CHAIR,
SECURITIES INVESTOR PROTECTION
CORPORATION
Ms. Bowen. Thank you. Chairman Dodd, Ranking Member Shelby,
and other distinguished Members of the Committee, I am honored
to have been nominated by President Obama to serve as Vice
Chair of the Securities Investment Protection Corporation. I
want to thank the Members of the Committee and their staff for
meeting with me and making time for this nomination hearing
today.
I also would like to take this opportunity to briefly
introduce my family members who are here with me today. My
husband, Larry Morse, who has been a constant supporter and
friend since we first met at the University of Virginia. My
sister, Sheila Taylor, and my nephews, Vincent, Junior, and
Victor Bowen. Although other members of my family could not be
here today, I want to acknowledge and thank them for their
abundant and unconditional love and support.
I have practiced in the corporate securities and finance
areas of the law for more than 25 years. I am fortunate to be a
member of the legal profession and to do what I love. My
interest in finance, law, and business started during my early
years, even before I knew that there was a place called Wall
Street. After receiving a degree in economics, I attended
business and law schools at the Northwestern University. I then
moved to New York and began my career as a corporate attorney.
My expertise in securities and corporate law and deep
interest in our financial markets provided great background for
me to address the challenges SIPC currently faces. When I read
about the state of the economy and the financial markets at the
formation of SIPC, I found many common themes we also face
today. Yet at the same time, our current environment is vastly
different and far more complicated. Even the sheer growth in
the volume of customer accounts, let alone the types of
securities within those accounts, could not have been imagined
40 years ago.
I look forward to bringing my deep knowledge of securities
and corporate law to my role as Vice Chair of SIPC, should I be
confirmed. I look forward to working with you and helping to
improve our protection of investors.
Thank you again for your time and consideration. I am happy
to take questions.
Chairman Dodd. Well, thank you very, very much. Again,
congratulations on our nomination----
Ms. Bowen. Thank you.
Chairman Dodd.----and again, your willingness to be a part
of the administration to serve.
As I said earlier, there will be some written questions, I
am sure, from other members. There are only three of us here
right now, so I will just take a few minutes on some questions
and begin with Mr. Wolf, if I can, and then sort of work down,
based on time, and turn to Senator Shelby and Senator Johnson,
as well, for any comments they may have.
I wonder if you might, Mr. Wolf--we have had a lot of
interest here, Senator Shelby and I and this Committee over the
years, we have jurisdiction over a lot of these issues. We
wrestled with trying to strike this balance between expanding
markets obviously, which are critically important to our
economic growth, and a time in which we live, obviously, with
technology can also impose some risks to us all. So we never
get it perfectly right and it has got to be a dynamic process,
because as technology improves and becomes more available, to
what extent, then, do you try and put restraints on it,
competition, all of these factors that have to be weighed in
making these decisions.
So I wonder if you might just begin by giving us some sense
of what priorities should be considered in modernizing our cold
war-era export licensing system, since a lot of it originated
during those times. A lot has changed since the end of the cold
war, obviously, that puts additional pressures on those
decisions. And what else do you think can be done to enhance
our security? If you had to make a choice between those two--I
think all of us would agree that while we would like to see
expanding business opportunities--if granting licenses in
certain technologies exposes our country to additional risks, I
think all of us would clearly opt for the choice of protecting
our security. So give us some idea of what you think the
priorities ought to be and how we ought to handle this.
Mr. Wolf. Thank you. Excellent question that goes right to
the heart of the matter. I don't necessarily see it as a
question of--can you hear me now?
Chairman Dodd. We have had a lot of improvements in
technology, but obviously not this here.
Mr. Wolf. Speaking of technology----
[Laughter.]
Mr. Wolf. No, I don't necessarily see it as a question of
balance. I see it as a question of national security. It
doesn't necessarily mean in the course of identifying those
goods, technology, software, and services that have
implications or uses with respect to weapons of mass
destruction, for example, or of issuing for the countries of
concern, but I do see the economic side coming in and having
rules that, as you put it, are modern, are up to date, that
take into account the realities that were no longer in the cold
war, and you achieve the economic efficiencies, you achieve the
economic growth, you achieve the economic benefits by having
regulations that are modern, that face today's threats, that
deal with today's threats, that are clear, that are
understandable, that are transparent, and that take into
account the wisdom and the experience of all the various
agencies involved in this, the Departments of Defense,
Departments of State, Energy, and the intelligence communities.
So the priorities that I would bring to this is keeping
that in mind and adhering to the rule of law so that the rules
are understandable and clear and working primarily with respect
to keeping the lists up to date and having a process in place
where the various lists of items controlled are consistent with
the modern reality.
Chairman Dodd. Well, good. Let me--you know, we recently
did the ability to pass unanimously out of our Committee
dealing with Iran sanctions, and one of the provisions of that
legislation deals with the transshipment of sensitive U.S.
technologies through third countries that end up in Iran and
our concern about those practices.
And second, let me ask you, as well, as part of the same
question, how does this foreign availability standard help
level the playing field for U.S. companies without compromising
our security, as well? They are different questions, but I
would like you to address both, if you could.
Mr. Wolf. Thank you. Both very good questions. Again, with
respect to the transshipment issue, it is as much a matter of
policy as it is enforcement. Even with respect to the rules
that exist, it is vital that foreign parties involved with U.S.
goods and technology and derivatives of U.S. goods and
technology are aware of and abide by the rules governing them
so that items going through one country don't end up in
prohibited destinations.
I have read your legislation and will be happy to and
continue working with your staff on the various carrots and
sticks that go with trying to encourage our counterparts in
other countries to enforce their own domestic export control
regulations to accomplish the broader common interest.
Chairman Dodd. Good.
Mr. Wolf. With respect to the----
Chairman Dodd. Foreign availability.
Mr. Wolf.----foreign availability question, it is very
important that foreign availability be taken into account with
respect to all of the changes that will occur with respect to
the regulations as they become modern. It is, however, not the
sole criteria. There are going to be circumstances where
unilateral controls are important, where foreign availability
isn't the determining factor, but given the process that
already exists, it is something that absolutely must be taken
into account when deciding any individual licensing situations
and any alterations to the existing regulations.
Chairman Dodd. Well, good, and I appreciate your answer on
that, as well. Under the Defense Production Act, again, which
this Committee has jurisdiction over, during emergencies, the
Commerce Department helps instruct private companies to set
aside commercial orders so the government contracts are
prioritized, enabling FEMA to better respond to these
disasters. The President recently signed into law a reform
measure that Senator Shelby and I wrote together mandating
greater government coordinating in this area. How would you
respond to the GAO's criticism that prior to our bill's
enactment, U.S. agencies failed to coordinate or prepare in
advance of emergencies? Do you think that was legitimate?
Mr. Wolf. Thank you. I am an export controls and sanctions
expert and the Defense Priorities and Allocation System will be
something that I will need to come up to speed on. I look
forward to working with your staff on it, working and taking
into account and taking seriously the reports of the GAO study.
Chairman Dodd. Well, I appreciate that and would like to
hear back from you on that, as well, as you analyze it.
Mr. Kumar, again, thank you for your willingness to serve.
I mentioned the dedicated public servants that you are going to
be supervising. They are just remarkable people and doing a
very difficult job advocating on behalf of U.S. exporters,
advancing our economic interests. What are some of the key
challenges facing these public servants in increasingly the
global marketplace and how does the Commerce Department respond
to those challenges and what efforts can be made, in your view,
to expand American small business access to critical markets?
I should point out, I am a great advocate of the Export-
Import Bank and part of it, I became more aware of it because
my wife, Jackie, was the Vice Chairman of the Export-Import
Bank for a number of years and worked as the Chief of Staff of
that agency for some time. It is a job-creating agency, in many
ways, to expand markets and create opportunities. But today, it
seems we have got to do a lot more. They have done a lot, I
must say, in small business areas, but I would love to hear
your thoughts.
You have got the private sector experiences as well as
global knowledge and information, so share with us some ideas
and thoughts on how we might expand this.
Mr. Kumar. Thank you, Chairman Dodd, for the opportunity to
address something very close to my heart. Expanding business
across the world can never be done by just one person or one
entity and you have just touched upon the fact, the tremendous
resources which are available to U.S. companies through the
Commercial Service and the wonderful network of Commercial
Service public servants across the world, as also the Eximbank
and the SBA.
If this Committee would confirm me, I would look forward to
working very closely with all these different resources the
government has at its disposal and make that available
specifically to small and medium enterprises to build
constructive plans and engage productively in those markets. If
I am confirmed, I know what can be done. I have seen it
firsthand running businesses, and I know what resources are
required by small and medium enterprises which may not have the
wherewithal of major American corporations.
So I look forward to the opportunity of working closely
with your staff, understanding through them what your
constituents need, and unleashing, if you may, the power of all
the resources which we have to make a constructive engagement
all over the world.
Chairman Dodd. Well, I appreciate hearing that, and I think
you can bring some special talents to this. In a time when
obviously credit is not as available to these smaller
businesses, we have all heard from our small business
communities in all of our States about the difficulty they are
having, and obviously that is a separate matter we have to work
on, but there are opportunities out there internationally. And
again, you don't have to travel the world today to have access
to contracts and opportunities.
Today, the information technology has made a lot of this
readily available on your computers screen in your very office,
wherever you may reside in the country, and how we can enhance
that and expand that and educate our small business community
about how they can take advantage of this. It seems terribly
complicated. They don't have the ability to speak six different
languages, as you do, but they don't need to today. there are
ways in which they can access this without having to go through
all of that, and it seems to me it is a wonderful opportunity
for us and we need to expand that.
I think every one of us up here would be very excited about
some ideas that you can bring to us on how we can help promote
and advance that idea. So I encourage you to really jump into
that, because you can make--you are not going to make all the
difference, but in a tight credit market, expanding contract
opportunities globally can do an awful lot for businesses that
never imagined that someone might be interested in their
service, their product that they offer. So I really encourage
you to step up with that, if you could.
Mr. Mills, let me just--and then I will turn to Senator
Shelby. I am taking a lot of time, and I apologize. I wrote
some legislation, again, along with my Committee members here,
which was later signed into law that raised civil fines in the
area of strengthening and deterrent effects on U.S. trade
restrictions, and we increased those fines from $50,000 to
either $250,000 or twice the amount of the transaction. In
addition, we raised criminal penalties from $1 million with a
maximum jail sentence of 20 years in these areas.
I wonder if, in your view, these penalties have enhanced
our sanctions and export enforcement tools. I know you have
some knowledge about all of this, so I would be curious as to
your reaction to this, as to whether or not we have gone too
far, it is not far enough? Are they having they having the
desired effect, in your view?
Mr. Mills. I think that this Committee and the Congress
made a tremendous contribution by passing that legislation and
I have watched my former agency with great interest as they
have implemented new enforcement guidelines to supercede the
ones that I was responsible for back in 2003. I think that the
enhanced penalties provide a huge deterrent against violation
of the sanctions and export control laws given that BIS is
operating under the same authority at this point.
I think the way that OFAC, the Office of Foreign Assets
Control, has parsed it out in terms of dividing possible
violations among those that are egregious and those that are
non-egregious, and then accordingly, they have a scale and 12
different factors that you look at, is an instance where they
provide a very transparent scheme for ensuring that each case
is dealt with properly, and if needed, those enhanced penalties
are available, but in most instances, they probably won't have
to go that high. It would be judged on a case-by-case basis.
Chairman Dodd. In that regard--and then this will be the
last because it goes to that authority, as well--there have
been criticisms, as there always are, over not doing enough,
but one of the criticisms that has been raised is that key
export control authorities were allowed to lapse in the last
number of years, including provisions of the Special Deputy
U.S. Marshal status to Commerce agents and requirements our
government discourage compliance with foreign boycotts against
allies, Israel being one that this issue has been raised with.
I wonder if these issues, the important priorities of the
Commerce Department's Bureau of Industry Security and what
enforcement priorities should there be for BIS.
Mr. Wolf. In the realm of those responsibilities that I
would have if I am confirmed, I would want to guarantee that
the enforcement agents were on a co-equal footing with their
counterparts in other agencies and had all the tools that they
needed to enforce the regulations.
Chairman Dodd. Is that a legitimate criticism, or is that--
about letting these areas lapse in this area, or is that just
talk?
Mr. Wolf. I think that the criticism is legitimate insofar
as the enforcement agents do not have the same authorities that
their counterparts are able to exercise and that that is
certainly something that could be addressed in legislation.
Chairman Dodd. But, in your view, it needs legislation,
then?
Mr. Wolf. Yes.
Chairman Dodd. Well then, again, I think we would welcome
some ideas and thoughts in that regard, as well.
Mr. Wolf. Certainly.
Chairman Dodd. OK. Senator Shelby?
Senator Shelby. Thank you, Mr. Chairman.
Mr. Tozer, yesterday, HUD announced many changes to FHA
lending, including increasing mortgage insurance premiums,
increasing downpayment requirements for high-risk borrowers,
and increasing enforcement on FHA lenders. What do you think
will be the impact of these changes on the health of not only
FHA, but also on the health of FHA loans that make up most--a
lot of the mortgage-backed securities for which Ginnie Mae
guarantees the timely payment of principal and interest? Have
you thought about that?
Mr. Tozer. Basically, my feeling--again, I have not gotten
a chance to have a lot of conversations with the Commissioner
and his staff about it, but my feeling is that the co-issue of
home ownership should be sustainability and putting people into
a home that they can basically make their payments and stay
current on and to minimizing their chance of foreclosure. So I
think anything that is done to create a system where the
borrower can continue to make their payments and be put in a
home that they can spend as long as they want to spend in it
and not have problems with the financial ability to pay, I
think it is critical. So anything that is done to do that, I
think the whole system is better off in the long run.
Senator Shelby. What do you, based on your experience, what
opportunities and challenges do you believe face the next head
of Ginnie Mae?
Mr. Tozer. From my perspective as an issuer--again, I have
not had an opportunity to really spend a lot of time with the
Ginnie Mae staff--the staff is very dedicated, but I think just
the sheer growth. They have gone from really being a very small
piece of the mortgage industry to now, because of FHA and VA
becoming a bigger piece of the market because of the low
downpayment potential in those programs, I think it is the
growth and trying to deal with the issues of counterparty risk
with their issuers and just understanding the market and
becoming a major player. I think that is probably the biggest
challenge.
But the people that I worked with when I was an issuer,
they are very dedicated, a good foundation. I am looking
forward to working with them, if confirmed, to move the agency
to that next level to really make it a very solid operation
that can support the housing market as a whole.
Senator Shelby. But you had explosive growth here. In 2009,
FHA's share of the mortgage market was 30 percent.
Mr. Tozer. Right.
Senator Shelby. The 2 years prior to that, their market
share was 3 percent.
Mr. Tozer. Right.
Senator Shelby. So you have really grown and those
challenges will be with you to handle the growth, will it not?
Mr. Tozer. It will be, and I am really, if confirmed,
excited about taking on. With my 30 years, I have worked with
Ginnie Mae, worked with the various capital markets, and that
is what I am excited about, helping them move to that next
level and making them a really good, world-class operation that
they deserve to be.
Senator Shelby. Mr. Criscitello, would you describe some of
the challenges that you see facing HUD and how you plan to
address some of these challenges? Specifically, what new
approaches would you take in addressing the problems, and HUD
has got some real problems?
Mr. Criscitello. Yes, definitely and I would just echo Mr.
Tozer's comments on some of those challenges. I would say the
largest challenge, at least from an FHA and Ginnie Mae
perspective, is balancing the need to mitigate risk while
continuing to serve under--while continuing to support
underserved communities and also while continuing to foster our
economic recovery.
Senator Shelby. What about the staffing problems? You are
going to have challenges there, too.
Mr. Criscitello. Sure. You know, it is interesting. Back in
the 1990s, I acted as the CFO at the Small Business
Administration and sort of the mantra at that time was doing
more with less. Well, the loan guarantee programs at SBA really
caught on in the 1990s and they were becoming increasingly
popular and we were handling increases in the ten to 15 percent
a year range. We thought that was a profound increase. But
given the statistics that you just cited, that was nothing
compared to what FHA and Ginnie Mae are up against. These are
tremendous increases.
So it is going to be important--in the past, just looking
back, a microcosm of this problem at SBA in the 1990s, we
looked to how do we handle these rapidly expanding programs,
how do we measure and mitigate financial risk, ensure
appropriate accounting and financial controls, and also
developing a budget was a--big challenges.
Senator Shelby. Mr. Wolf, getting into your area and pick
up on what Senator Dodd was raising, in 2008, the U.S. House
found that the State Department had inadequate resources and
staff to properly review commercial licenses for military
exports in a timely and thorough manner. Do you think that the
Department of Commerce has the resources and staff necessary to
integrate non-U.S. actors to create a more effective global
export control and treaty compliance, or do you not know yet?
Mr. Wolf. Well, thank you for the question. It is an
important question and I hope to find out, if confirmed, the
status. I know that it is an important task and you need
resources and manpower, engineers, expertise in order to do so.
So I look forward to learning more about the budget and the
status of the funding.
Senator Shelby. I will direct this question to Mr. Mills
and to you, Mr. Wolf. What measures do you intend to implement
to ensure that your agency becomes more effective in deterring
efforts to divert sensitive U.S.-made dual-use items to Iran
and to China? Senator Dodd was also in this area with you. Mr.
Mills, how can you be more effective there? It is a challenge,
a big one worldwide.
Mr. Mills. I think, first and foremost, to ensure that the
enforcement agents and their counterparts at the Export Control
Offices overseas have the tools that they need to investigate
potential violations and follow through on that and that the
process is efficient, that the resources are properly allocated
in this regard, and that the focus is on the points of
diversion. I am very intrigued by the draft legislation out of
this Committee and I think that that is an excellent focus to
have.
Senator Shelby. Thank you.
Mr. Johnson, when Congress created SIPC in 1970, many, as
you well know, many brokerage firms were stand-alone entities.
Today, many brokerages are subsidiaries within large, complex
financial institutions. As this Committee works toward
comprehensive reform of our financial system, one of our
important challenges is to determine how to most effectively
resolve large complex financial institutions that fail with
minimal disruption to the financial system and at minimal cost,
I hope, to the taxpayers. It may become necessary to modify--we
don't know yet--some of SIPC's authorities.
You were nominated because of your extensive background
working with complex financial firms. What do you think are
some of the major issues that you would suggest that the
Committee focus on as we plan for the potential failure of
large complex broker-dealer firms in the future?
Mr. Johnson. Well, I think there are a couple of things,
Senator Shelby, that we would have to focus on, in particular,
if confirmed, probably three primary areas that I would like to
focus on. One area is going to be investor education, the
ability to almost take the show on the road, to let investors
really have a better concept of their protections that they
have available under SIPC.
Secondarily, I think even the current full-scale
examination of current rules and regulations that we have in
place. I have had a chance to work in that area both at the SEC
on a number of items and was even part of a group, and I don't
know if it is an oxymoron, where we received an award for
regulatory simplification.
[Laughter.]
Mr. Johnson. So it is an area that I think and I believe
that SIPC is looking forward to really creating a task force
that will start to kind of reevaluate exactly all the rules and
regulations. It has been a number of years since something of
that nature has taken place, and I think that you start out in
that area, and that in and of itself, I think, helps you to
really find out if you have all the adequate tools in place for
investor protection, because at the end of the day, this is an
agency whose primary role is to protect investors.
The last thing I would point to is really what I would call
the export of the intellectual capital that currently exists at
SIPC, the ability to be able to utilize some of these rules and
regulations from an international standpoint as other countries
look to figure out how to handle these issues, as well. Many of
the issues we are dealing with are no longer just domestic.
They are global issues. And if we were in a position to have
what I would call transparent rules and regulations that can go
across lines from a cross-border standpoint, I think it would
help to simplify things.
I would mention that the transaction that SIPC spent a lot
of time with dealing with the collapse of Lehman Brothers in
large part was really grand in scope, over 130,000 accounts
that had to be dealt with. It is one of those situations which
crossed State lines, obviously, international lines. And for
all intents and purposes, a pretty seamless transaction in
terms of moving groups from one organization to another. So I
think the framework is in place, but I think what we will end
up doing is doing an evaluation to make sure we have adequate
safeguards in place.
Senator Shelby. Ms. Bowen, as you are well aware, SIPC does
not offer to investors the same blanket protection that the
FDIC provides to bank depositors. Despite efforts to educate
individual investors, which he just alluded to, about what SIPC
covers and what it does not cover, many people are confused
about SIPC's role here. Do you have--have you thought about
this? Do you have any specific ideas on how to improve SIPC's
investor education initiatives? He has alluded to this. It is
very important. And how will you measure the success of these
ideas, because a lot of people, I think, thought that there was
just blanket coverage there.
Ms. Bowen. Right.
Senator Shelby. Do you want to comment on that?
Ms. Bowen. Yes, definitely. And certainly, there was a lot
of confusion as to what SIPC does do and does not do, and some
of that, frankly, from the educational perspective, I think you
could work on a parallel basis with the SEC and other
regulatory agencies that play the role of enforcement, who have
the powers to investigate. So I think one of the ways to sort
of enhance it, it is not just SIPC by itself, but we have a
regulatory regime which you, of course, are examining right
now.
I think the other thing we should probably do is to see how
we got to where we are today. I think one of the best ways to
solve problems is to understand why we are where we are today,
and I think, frankly, 40 years ago, there was just no way,
given the sort of the limited mandate of the statute, that it
could have contemplated that the types of securities, what
constitutes customer accounts, whether that is an individual,
whether they are feeder funds, those types of issues. I see why
they are very confusing, because the statute does not define
those very issues that are confusing, including how you would
calculate net equity.
I think once we clarify those items that are really--some
of those issues are farther apart right now, and I think,
frankly, having clarity on those items will go a long ways in
enhancing education, as well.
Chairman Dodd. Thank you very much.
Senator Johnson?
Senator Johnson. [Presiding.] Ms. Bowen, after the massive
investor fraud perpetrated by Madoff and Sanford, there has
been a closer scrutiny of SIPC and the types of investments it
covers. In your opinion, what are the weaknesses with SIPC's
structure? Is the SIPC coverage limit of $500,000 per account
still appropriate?
Ms. Bowen. Again, as I alluded to, I think it is not,
quote, ``a SIPC problem'' as much as it is a definitional
problem and an interpretation of what the statute was intended
to do. Again, I think you should not--we should not look at
this as a SIPC item alone. It should be looked at in tandem
with other regulations that are in place.
I totally agree with you. The confusion from where we are
today led to a lot of the frustration that we have seen, some
of the frustrations that were alluded to at the very beginning.
So I think just a real examination of what it is that SIPC
should be covering, I think will go a long way in sort of
clarifying that.
Senator Johnson. Mr. Kumar and Mr. Wolf, I have a question
for you which is a bit parochial, but what set of steps will
you take to assist agricultural producers and other residents
from rural States like South Dakota in accessing international
markets?
Mr. Kumar. Thank you, Senator, for that question. While I
have spent 30 years of my life building global businesses for
major American corporations, the last 5 years of my life have
been entirely devoted to rural markets, working with small
holder farmers, albeit in a different country, Africa. Through
that experience, I have seen the unique need of rural markets
and what can be accomplished by even working on such ideas such
as export of organic agriculture product, canned products,
juices, et cetera.
If confirmed by this Committee, I will have--or you will
give me the opportunity to work with the network of commercial
and trade specialists across the Commercial Service and I am
excited of the reality that they have deep networks even in
rural markets, often staffed--the USEACs are staffed by experts
from that community who understand those markets. I look
forward, if confirmed by this Committee, to work closely with
them and with your own staff to understand better the
opportunities, the needs of your constituents and the farming
community in South Dakota, and I would really look forward to
that opportunity.
Senator Johnson. Mr. Wolf?
Mr. Wolf. With respect to the Bureau of Industry and
Security, the primary role will be, or is to carve out
exceptions for agricultural products in humanitarian and
related circumstances for countries subject to U.S. economic
sanctions. So my role would be--and I look forward to working
with your staff on this--ensuring that those exceptions are
consistent with the national security and foreign policy
guidelines set up by the Departments of State, Defense, the
White House, and the Congress so that those exemptions allowing
for the export of agricultural commodities are consistent with
the larger policy.
Senator Johnson. Mr. Tozer, what, if any, steps will Ginnie
Mae need to make in response to FHA's announced criteria
changes?
Mr. Tozer. Really, nothing. Ginnie Mae--actually, to some
degree, it would actually be a benefit to Ginnie Mae because
the idea of having loans that do not go into foreclosure and
that go their whole term as far as payment is actually a
positive to the investor base of mortgage-backed securities
versus having loans that are going to foreclosure and have to
pull out of pools. So actually, any steps taken by FHA to make
the homeowner more able to make their payment and more stable
is a positive to the Ginnie Mae program as well as the FHA
program.
Senator Johnson. Senator Menendez?
Senator Menendez. Thank you, Mr. Chairman, and let me thank
you all for your willingness to serve, as Chairman Dodd said.
I have some specific questions for Mr. Johnson. Mr.
Johnson, Madoff victims are deeply concerned about the recent
actions by SIPC, and in particular by the trustee, Mr. Picard,
and I want to ask you about some of those concerns. First, they
are concerned about the speed with which Madoff victims have
been repaid, with many of them still not paid and some of their
claims actually being litigated. What is your view of the
progress or lack thereof that SIPC has made in taking care of
Madoff victims?
Mr. Johnson. Thank you, Senator Menendez. Obviously, we are
all well aware of the complexities when you are unwinding these
complex corporate vehicles. I think SIPC has been operating in
what I would call deliberate speed. The ability to really be
able to kind of get your arms around all of this process on a
worldwide basis is going to be a considerable job. I do think
that there are going to continue to be concerns as we move
forward, because many of the issues that we are dealing with in
the Madoff matter are going to be those of first impression, in
large part.
But I think that SIPC has what I would call the track
record of showing that it has the ability in handling what I
would call large-scale activities. In particular, I just
previously mentioned the handling of the Lehman Brothers
situation, which was large in scope and in breadth, and am
feeling fairly confident that we will be able to move forward
with deliberate speed in terms of taking care of investors----
Senator Menendez. Well, if you speak to the Madoff victims,
they don't particularly have that view, and I would like to
elicit from you a commitment that if you are confirmed by the
Senate, that you will meet with a group of representatives of
the victims to get a different view about where SIPC is and
listen to what their concerns are so that as the Chairman, you
might very well have an opportunity to improve where we are
headed here.
Mr. Johnson. Senator Menendez, you do have my commitment on
that. I believe in order to be successful in this area, you
have to be willing to take all points of view. As mentioned
earlier, one of the things that we will have to also take into
consideration is whether or not the rules and regulations that
we currently have in place provide the adequate safeguards. It
has been a number of years since we have had a chance to take
what I would call a full-scale view of the laws that support
SIPC and I think that is one of the first orders of business,
as well.
Senator Menendez. I appreciate it and would look forward to
your review of it and any responses we need legislatively to
help you do the job.
Let me ask you, Madoff victims are concerned about how SIPC
has used clawback litigation to retrieve money from victims to
contribute to the general pool or victims' funds. In your view,
should SIPC use these clawbacks, and if so, under what
circumstances?
Mr. Johnson. It is difficult to really come to a final
conclusion on that. Obviously, many of the issues regarding
clawbacks and things of that nature are still being handled by
the courts. But I will say that I think the primary goal of
SIPC will always be to do what is necessary for the protection
of all investors that are involved, making sure that we are not
in a position where we are simply protecting those that may
have been early to the game as opposed to those that have come
at a much later point in time.
I do think that there has to be a certain sensitivity as
you deal with issues of this nature. One of the things that we
want to make sure is that we are continuing to follow the rules
and regulations that we have, and also be willing to figure out
how to be flexible whenever possible, because obviously the
definition of the organization by its nature is to be involved
in the protection of its investors.
So from a clawback provision standpoint, I think that is
something that will have to continue to be looked at. I haven't
had a chance to see what I would call all of the confidential
and internal workings of how these decisions were made. But in
taking into consideration the final rulings of the court and
then having an opportunity to look at those issues, I am hoping
to be able to draw some fairly adequate----
Senator Menendez. Well, I hope you, and as for that fact,
Ms. Bowen, are going to look at this, also the whole question
of what, in essence, is the net equity. You know, it just seems
to me we are in a position where victims find themselves even
further behind in the process as it is unfolding. It is a
difficult situation, and maybe, yes, to some degree that of
first impression, but it just seems to me that the victims
shouldn't ultimately be further victimized because of a process
that ultimately puts them in a worse position than they should
have or would have been.
I really--I will send you some questions, both of you, on
that issue. I would like to have your responses in writing as
it relates to that.
Finally, if I may, to go to Mr. Wolf or Mr. Mills, I also
sit on the Senate Foreign Relations Committee. I have real
concerns about having sensitive U.S. technology fall into the
hands of countries that weren't supposed to get those
technologies. I want to get a sense--for example, transshipment
of sensitive technology to Iran continues to be a problem and
it seems that the United Arab Emirates has been a major hub for
illegal transshipment of goods to and from Iran. How can you
enforce export control laws to prevent sensitive items and
technologies from making their way to Iran? Particularly, what
can be done to prevent aircraft and spare parts from being
illegally reexported to Iran from third countries? That is
something I would really like to get a sense.
Mr. Wolf. It is primarily an enforcement question, so I
will defer.
Mr. Mills. Yes. I think at the front end, when the Office
of Export Enforcement performs a supporting role in the
evaluation of pending license applications to conduct pre-
license checks on potential end users in countries to attempt
to guard against diversion of these products and technology to
Iran and other countries and that that is a critical role that
is played in the licensing process, and then the post-shipment
verification to the Export Control Officers that are stationed
abroad, including the UAE, to follow up and ensure that the
items that were exported or reexported are done so in
accordance with the terms of the license. And I think that the,
as I said earlier, that ensuring that these agents have the
proper tools to perform their function is critical.
I think that the pending legislation that this Committee
has produced is very much on point on that regard with respect
to diversion concerns, so I look forward to working with your
staff and this Committee in that regard.
Senator Menendez. Finally, Mr. Chairman, I did say when
Daniel Hill testified before the Committee in October, he
indicated that the Bureau of Industry and Security only had
five agents--five agents--overseas working on end-user
verifications issues related to the diversion of sensitive
goods, I hope that we are going to look at that and strengthen
that reality, because five agents just simply cannot deal with
the breadth and scope of what we need to ensure that sensitive
technology does not get reexported illegally to other
countries, particularly countries that wish us ill. That is
something I look forward to hearing from you----
Mr. Wolf. If I may, thank you.
Senator Menendez. Thank you, Mr. Chairman.
Senator Johnson. Thank you all for your testimony and
commitment to public service.
With that, this hearing will be adjourned.
[Whereupon, at 11:06 a.m., the hearing was adjourned.]
[Prepared statements and responses to written questions
supplied for the record follow:]
PREPARED STATEMENT OF KEVIN WOLF
Nominee for Assistant Secretary of Commerce for Export Administration,
Department of Commerce
January 21, 2010
Chairman Dodd, Ranking Member Shelby, and Members of the
Committee, I am honored to appear before you today as the President's
nominee for the position of Assistant Secretary of Commerce for Export
Administration. I appreciate and am humbled by the confidence President
Obama and Secretary Locke have expressed in me. I am hopeful that I can
earn your confidence as well. Should I be confirmed, I look forward to
working with you and your staff.
Thank you Senator Lincoln for the kind and thoughtful introduction.
We have been friends for many years and I have always valued your
counsel and guidance. I am delighted that you could be here today.
I also want to thank my wife, Barbara Kanninen, and my two sons
Fred and Markus. Without their support and patience, I would not be
here today. I also hope that my nomination and, if confirmed,
government service will be a valuable lesson and guide to my sons as
they think about their futures. Public service is an honor and a
privilege.
Mr. Chairman, I recognize the importance of the obligation I will
be undertaking if confirmed. The threats we face are diffuse but real--
principally terrorism, non-state actors, the proliferation of weapons
of mass destruction, and the several countries of concern. The Bureau
of Industry and Security plays a critical role in countering these
threats by regulating the flow of controlled goods, technology,
software, and services. It does so primarily by working closely with
the Departments of State, Defense, and Energy, and the intelligence
agencies, to evaluate thousands of applications a year. It also works
with our international partners to develop controls to help, for
example, stem illegal transshipments. This process and these
relationships are the front line of defense against the export,
reexport, and re-transfer of items to prohibited end-uses, prohibited
end-users, and prohibited destinations. I commit to you that if I am
confirmed, the Bureau will continue to do the best possible job in
advancing U.S. national security, foreign policy and economic
objectives by ensuring an effective export control and treaty
compliance system, while at the same time facilitating continued U.S.
strategic technology leadership.
While national security is the bureau's top priority, it cannot
ignore the impact export controls have on U.S. industry. If controls
become outdated or are not applied fairly, then they burden the economy
without promoting security. Indeed, such controls could reduce our
security if they force dual-use and military manufacturing and
development to countries that do not have adequate export control
systems.
I am well prepared to take on this responsibility. As an attorney
with the international law firm of Bryan Cave LLP, I have been working
almost exclusively with export control, antiboycott, and sanctions
issues for nearly 16 years. My clients have been primarily small,
medium, and large U.S. companies and their foreign affiliates. Most of
my work has involved explaining to them how to comply with both the
``law and the lore'' of the often complex export control and sanctions
regulations. If U.S. Government permission was required to engage in a
proposed transaction, I would help them apply for and receive the
necessary authorizations. I have also handled several high profile and
significant export control enforcement cases that have affected export
control law, policy, and compliance practices. I thus have a deep
understanding of the culture, concerns, and technologies of the
American exporter and how these rules affect U.S. economic and national
security interests. As a result of this work and my efforts to promote
dialog between industry and government officials, I have also developed
a deep respect for the career staff at the various government agencies
who administer the rules. I look forward to working with them, if
confirmed.
If I am confirmed, my extensive background in this highly technical
area will be helpful in inspiring and leading the Bureau; administering
the existing regulations fairly and efficiently; and working with the
other agencies involved in the U.S. export control system. My
background will also be helpful in crafting and implementing, with the
Under Secretary and the other agencies, the details of the significant
export control reforms the President and the Secretary have announced
are necessary to maintain our national security and economic growth. I
look forward to working with Congress during this process. In all of my
efforts, I will, if confirmed, be committed to the rule of law,
transparency, and advancing the use of modem technology.
Thank you again for this opportunity to appear before you. I would
be pleased to respond to any questions you may have.
______
PREPARED STATEMENT OF SURESH KUMAR
Nominee to be Assistant Secretary of Commerce and Director General
of the U.S. and Foreign Commercial Service, Department of Commerce
January 21, 2010
Chairman Dodd, Ranking Member Shelby, and distinguished Members of
the Committee, I am honored and humbled to come before you today as
President Obama's nominee to be Assistant Secretary of Commerce and
Director General of the U.S. and Foreign Commercial Service. I want to
thank President Obama for the enormous trust he has placed in me with
this nomination and Secretary Locke for his support.
Over the past few weeks, I have had the pleasure of meeting Members
of this Committee and your staff. Thank you for your hospitality and
generosity in taking the time to share your insights and perspectives
on the economic landscapes of your home states. If I am confirmed by
this Committee and your colleagues in the Senate, I look forward to
continuing this dialog and working closely with you and your staffs.
I am particularly grateful to Senator Menendez from my home state
of New Jersey for his gracious introduction here today. Let me also
take this opportunity to introduce you to the members of my family that
have joined me here today--my wife Sheila, my daughter Pooja, and my
son Aditya.
Sheila, my college sweetheart, has provided me her unshrinking
support through a global journey that has spanned three decades and
five countries. Sheila is amazing--not only is she a distinguished
business executive in her own right, but she also managed to raise our
two wonderful children.
Our daughter Pooja is a physician who is pursuing her passion for
public health. She has served the underprivileged in remote comers of
the world--from working with displaced people from Azerbaijan to East
Timor, and vulnerable children from the streets of Kolkata to the
Congo.
Our son Aditya has been a management consultant who has worked with
the homeless in America, as well as victims of child labor in Asia. He
had the honor of interning for this distinguished body, the U.S.
Senate, in the office of the late Senator Ted Kennedy. Nine years,
three cities and two coasts later he is back in DC with the distinct
privilege of serving in the White House.
I would also be remiss if I did not mention my parents--Colonel
Sundaram and Vasantha--who instilled in our entire family the
importance of public service. Although they cannot be present here
today, thanks to technological advancement that makes the world a
global village, broadband and bandwidth permitting, they are watching
these proceedings via webcast from their home in Delhi.
As I prepared these remarks, I could not help but reflect on the
incredible journey from Mumbai, India, via Indonesia, Singapore and
Canada that brought me to the United States 16 years ago. I stand
before you as a first generation immigrant and a testimony to our great
country. It has provided me and my family the opportunities most could
have only dreamed about. If I am confirmed for this position, you will
have given me the opportunity to repay a small measure of the debt to a
country that has already given me and my family so much.
In the 30 years that I have been actively engaged in the
international business community, I have seen firsthand the immense
possibilities, potential, and prosperity that follow global trade. In
the last several years as an international development consultant, I
have worked with civil society and nonprofit organizations to improve
lives and livelihoods and support small and medium enterprises in
establishing sustainable and scalable businesses. I have worked for
multinational and local companies across six countries, culminating in
my position as the Head of Worldwide Consumer Pharmaceuticals for
Johnson and Johnson. Through my work in emerging economies, both as a
businessman and as a development consultant, I have seen the tremendous
opportunities for U.S. businesses to more fully engage in Asia, Africa,
and Latin America.
The value and values of free and fair trade are embedded in my DNA.
I have a deep appreciation for the unique challenges that face U.S.
businesses seeking to expand overseas. If I am confirmed, I pledge to
help American enterprise enhance its competitiveness and grow its
global footprint; to increase U.S. exports and help create jobs; and to
protect our interests, patents and intellectual property that are so
critical to encourage innovation and support technological advancements
particularly in emerging technologies in the environment, energy and
healthcare sectors. These are the priorities that have been articulated
by Secretary Locke for the Department of Commerce, and I am humbled by
the opportunity to work daily to advance them.
If confirmed, I will leverage my experience and passion in
international business to maximize the efforts of the U.S. Commercial
Service in increasing the global competitiveness of the American
business community, with a particular focus on small and medium
enterprises. I will work tirelessly with the wonderful trade
professionals throughout the extensive global network of U.S. Export
Assistance Centers in over 100 U.S. cities and in U.S. embassies and
consulates across 77 countries to increase U.S. exports, and by doing
so, to create good American jobs.
International trade has always been a proven path to global
prosperity. Very simply, by increasing U.S. exports, we will be
creating good, high paying American jobs. The current economic climate
makes it even more compelling to prioritize and pursue this course.
With 95 percent of the world's consumers living beyond our borders, we
must encourage, nurture and support U.S. companies, particularly small
and medium businesses, to export goods and services into foreign
markets. We must grow our exports to stimulate the economy, create and
maintain American jobs and to help reduce our trade deficit. These are
challenges, but they also present tremendous opportunities--that is why
I am so excited by the prospect of leading the U.S. Commercial Service
at this pivotal moment in time.
If I am confirmed, I will work closely with this Committee and your
colleagues in Congress to expand U.S. exports and advance U.S.
commercial interests abroad, to forge new economic ties for America
overseas, and to ensure that America maintains its leadership in the
global economy while advancing U.S. national security interests through
a renewed focus on commercial diplomacy.
Mr. Chairman, I thank you for your consideration of my nomination
and for the opportunity to address any questions that you and your
colleagues might have.
______
PREPARED STATEMENT OF DAVID W. MILLS
Nominee for Assistant Secretary of Commerce for Export Enforcement,
Department of Commerce
January 21, 2010
Chairman Dodd, Ranking Member Shelby, and Members of the Committee,
I am honored to appear before you today as the President's nominee for
the position of Assistant Secretary of Commerce for Export Enforcement.
The President has my heartfelt gratitude for the trust and confidence
he has placed in me. I would also like to express my appreciation to
Secretary Locke, with whom I look forward to serving if confirmed for
this position. I would be remiss if I did not also thank my parents,
Eugene and Dorothy Mills of Lee, New Hampshire, for their unstinting
and unwavering love and support over the course of my life, without
which I would not be before you today.
I had the privilege of starting my first permanent position with
the executive branch at the Department of Commerce, and served there as
an Attorney/Advisor at the Bureau of Export Administration beginning in
1985. At that time, I had the opportunity to assist in the
implementation of the 1985 amendments to the Export Administration Act,
as well as the implementation of the South African Anti-Apartheid Act
in 1986. I am delighted at the prospect of returning to this agency
should I be confirmed, and in assisting its able and dedicated
personnel in carrying out their continuing mission that is so vital to
our national security.
If given the opportunity to serve in the capacity for which I have
been nominated, I also look forward to drawing upon the experience I
gained during the 18 years I served at the Office of Foreign Assets
Control of the U.S. Treasury Department. As a member of OFAC's Chief
Counsel's Office, I provided legal support and review for licensing,
interpretive, and enforcement matters arising under the various
economic sanctions programs for which I was responsible, working
closely with Department of Justice attorneys in both the Civil and
Criminal Divisions. I also served as OFAC's Chief of Policy Planning
and Program Management. In that role, I was responsible for reviewing
all warning letters, penalty actions, and settlements of alleged
sanctions violations, and for preparing recommendations on the
disposition of enforcement matters for the Director. I also supervised
the drafting and issuance of OFAC's first set of comprehensive economic
sanctions enforcement guidelines in 2003, as well as the semiannual
reports to Congress on the administration and enforcement of sanctions
programs.
As Chief of Licensing at OFAC, I gained invaluable managerial
experience ensuring the timely response to requests for licenses and
interpretive rulings, coordinating interagency review when required,
and reducing an initial backlog of licensing requests from 1,400 to 100
pending cases. In 2005, I was awarded the Meritorious Service medal by
the Secretary of the Treasury. If confirmed, I look forward to the
opportunity to coordinate compliance and enforcement efforts with my
former agency, as well as other agencies with important roles to play,
including the Departments of Justice, Homeland Security, State and
Defense.
More recently, since 2007, I have worked in private practice first
at Baker, Donelson, Bearman, Caldwell & Berkowitz, a regional law firm
present in five southern states and DC, and then at DLA Piper, a global
law firm with a presence in more than 60 cities throughout the United
States and in more than 25 countries. Through my participation in
several extensive internal investigations involving both civil and
criminal matters, I have gained a deeper appreciation of the challenges
that companies face, most of which are attempting in good faith to
comply with often complex regulatory regimes. I believe that the
enforcement of those regimes must not only be fair and firm, but also
as clear and transparent as possible, in order to advance both our
national security and foreign policy interests and our economic
potential through export promotion. Finally, in those instances where
good faith is not a factor, I commit to vigorously enforcing our
nation's laws to ensure that those who flout the rules are caught and
punished.
Thank you again for this opportunity to appear before you. I would
be pleased to respond to any questions you may have.
______
PREPARED STATEMENT OF DOUGLAS A. CRISCITELLO
Nominee for Chief Financial Officer,
Department of Housing and Urban Development
January 21, 2010
Chairman Dodd, Ranking Member Shelby, and distinguished members of
the Committee, my name is Doug Criscitello, and I thank you for
inviting me to appear before you today. I know how busy this Committee
is, and I very much appreciate the opportunity to appear before you.
Before I go any further, I would like to introduce my family: my
wife, Linda, who has been putting up with me since our high school days
in Binghamton New York, and our terrific children, Sammy, Kyle and
Lyndsay. I am humbled and honored to be the choice of President Obama
and Secretary Donovan to serve as the Chief Financial Officer for the
U.S. Department of Housing and Urban Development (HUD). If confirmed, I
look forward to being part of the team at HUD that will work with you
and your staffs to address the significant housing and community
development needs of our Nation.
For the past 24 years, I have dedicated my career to governmental
budgeting and financial management with an emphasis on Federal credit
programs and community development issues. I have served in a number of
financial management positions at both the Federal and local levels of
government. My most recent position in government was as the founding
Director of the New York City Independent Budget Office (IBO), a
municipal government agency modeled after the Congressional Budget
Office (CBO) to provide nonpartisan, objective research and analysis of
NYC's budget. While at IBO, I concentrated on establishing the agency
as a credible, nonpartisan voice on city budget and policy matters--no
easy task in a city where seemingly everyone has a strong point of
view. IBO's mandate is broadly aimed at enhancing official and public
understanding of fiscal issues facing New Yorkers, which allowed me to
work on a diverse range of issues. That role required me to think
creatively about how to make governmental budgeting understandable to
citizens--doing things like originating the concept for the Federal
Taxpayer-Right-To-Know Act, a bill introduced by Senator Schumer and
enacted in 1999 to provide citizens with detailed information about how
their taxes are spent.
Prior to my IBO position, I spent 9 years as a career civil servant
in the Federal Government focused on financial management and credit
programs. At the Small Business Administration (SBA), I led efforts to
help that agency implement two of the most significant financial
management statutes of the 1990s: the Chief Financial Officers Act and
the Federal Credit Reform Act. Before working at SBA, I served as a
budget examiner at the Office of Management and Budget (OMB) in the
Housing, Treasury and Financial Institutions Division. Before OMB, I
held a similar position at CBO, where I learned the importance of
providing impartial financial and budgetary analysis to elected
officials to empower them to make informed legislative decisions. My
primary areas of responsibility at both OMB and CBO involved credit
programs, economic and community development issues, and budgetary
analysis.
Since 2000, I have worked in the private sector as a consultant and
service provider to the government. At JPMorgan, I worked in the bank's
Governments Institutions Group, where I provided operational and
financial advisory services to Federal credit agencies such as HUD and
SBA. That position allowed me to enhance my understanding of the
capital markets including how they can be used to help accomplish
public policy goals. At PricewaterhouseCoopers (PwC), I helped the firm
establish a public sector financial services practice to support
Federal financial stabilization initiatives. I also worked with a
number of Federal credit agencies, including HUD, on engagements
involving credit reform implementation and various other financial
management matters.
Clearly, expanded programs with increased levels of funding have
occupied management at HUD over the past year while the ongoing work of
promoting sustainable homeownership, community and urban development,
and access to affordable housing has continued. If confirmed by the
Senate, I will work to ensure transparency and accountability of these
programs through an effective financial management and internal
controls program aimed at deterring waste, fraud and abuse of taxpayer
dollars. Key priorities will include providing timely and reliable
financial information for use by both executive and legislative branch
officials and ensuring the Department's financial management program
continues to get a clean bill of health from its auditors.
I would like to conclude by saying again how honored I am to be
before this Committee. I have worked with HUD's programs for many years
and am aware of at least some of the financial management and budgetary
challenges facing the Department. If confirmed, I look forward to
working with you to help HUD achieve its mission in a way that advances
our economic recovery prospects while ensuring that taxpayer money is
spent wisely.
Thank you and I look forward to your questions.
______
PREPARED STATEMENT OF THEODORE W. TOZER
Nominee for President,
Government National Mortgage Association
January 21, 2010
Chairman Dodd, Ranking Member Shelby, and distinguished Members of
the Committee, I want to thank you for the opportunity to appear before
you today. Thank you to all the Members of the Committee and their
staffs who met with me over the past 2 weeks. I also want to thank
Sandy, my wife of 29 years, for supporting me throughout my career.
I am honored and humbled by the confidence that President Obama and
Secretary Donovan have shown in me by my nomination to this position at
such a critical juncture in the history of housing. My 30 years
experience in the mortgage capital markets has uniquely prepared me to
manage Ginnie Mae, if confirmed. An effective President of Ginnie Mae
must balance the needs of all three of its major stakeholders: issuers,
investors, and the U.S. Treasury.
I began my career managing the operations of BancOhio National
Bank's broker/dealer operation and its asset and liability management
function. During the 6 years of managing the broker/dealer, my
responsibilities included compliance, accounting, trade settlement,
customer security safekeeping, and risk management reporting. During
this phase of my career, I developed a good understanding of the
running of a trading floor and was also able to be a part of the
initial phase of interest rate risk management by the banking industry.
My experience working in the investment community has prepared me
to work closely with the investor base of Ginnie Mae securities and to
help educate the investment communities on the various Treasury-
guaranteed mortgage programs. This education is critical in keeping the
costs as low as possible to the borrower.
During the last 24 years, I have managed the capital markets for
National City Mortgage Co. My responsibilities included daily pricing
of loan products; managing the interest rate risk of loans being held
in inventory for future sale; designing loan products that are sellable
into the capital markets; delivery and settlement of loan pools; and,
negotiating the sales of loan pools into the capital markets. My
experience at National City allowed me to develop a broad knowledge of
the mortgage company's operations. I was required to balance the needs
of the sales force, the servicing department, and mortgage investors.
During my 24 years in the mortgage banking industry, I have
developed strong relationships with the capital market managers whose
companies account for over 80 percent of Ginnie Mae issuances. During
my career, I have worked closely with the FHA Commissioner and the FHA
Chief Risk Officer, two mortgage industry leaders with whom I will work
very closely if confirmed as President of Ginnie Mae. These
relationships were developed by participating on Fannie Mae and Freddie
Mac National Lender Advisory Boards, and serving as chairman of the
Mortgage Bankers Association Capital Markets Committee, as well as the
Mortgage Bankers Association Residential Board of Governors. Serving in
these roles allowed me to understand the needs of the mortgage banking
industry as a whole.
I have also developed strong relationships with Wall Street
mortgage traders, which has increased my understanding of how they view
mortgages and their value. If confirmed, these experiences and
relationships will help Ginnie Mae fulfill its responsibilities both to
educate investors about loan program modifications and to be a capital
markets advisor to Federal housing agencies. Having a President of
Ginnie Mae with capital markets expertise is more critical now than
ever as the government uses various loan programs to stabilize the
housing market.
If confirmed I will, in an efficient and risk-adverse manner, work
to make Ginnie Mae a strong foundation for execution of housing policy.
Thank you for your consideration of my nomination, and I look forward
to answering any questions you may have.
______
PREPARED STATEMENT OF ORLAN M. JOHNSON
Nominee for Chairman, Securities Investor Protection Corporation
January 21, 2010
Chairman Dodd, Ranking Member Shelby, and Members of the Committee,
I would like to thank for the opportunity to appear before you today as
you consider my nomination to be the Chairman of the Securities
Investment Protection Corporation. I am deeply grateful to President
Obama for nominating me to this important position. In addition, I also
appreciate the time Members of this Committee already have taken to
meet with me, and if confirmed, I look forward to working the Committee
to address the challenges in ensuring adequate protection of investment
accounts and general investor confidence in the United States financial
markets.
It is indeed an honor and a privilege for me to be here. With the
Chairman's indulgence I would like to introduce my wife Zina Johnson
who is here supporting me today as she always has in everything that I
do in our nearly 20 years of marriage. I would also like to recognize
my daughter Nia Johnson, who is not here today and is a Junior at Blue
Mountain Academy in Pennsylvania, and my two sons who are here today,
Adam who is in eighth grade at Sligo Elementary School and my son Jair
who is in fifth grade at the Dupont Park elementary school. I have
always been blessed by their love and support.
For more than 20 years, I have had the opportunity to work in the
area of complex corporate and securities transactions at major law
firms and in the public sector as both a staff and supervisory attorney
at a major securities regulatory government agency. I have had the
opportunity to remain on the cutting edge of recent novel securities
issues in both private practice and in area of academia.
I am currently a Partner in the law firm of Saul Ewing LLP. My
practice focuses on general corporate matters, complex business
transactions and Federal and state regulatory issues in business and
securities transactions, including proxy solicitations, bankruptcy
reorganizations and equity and debt offerings. I have has also engaged
in investigations of investment advisers with state securities
commissions and numerous SEC audits of energy companies in conjunction
with state and local public utility commissions and the Federal Energy
Regulatory Commission.
Prior to joining Saul Ewing, I was with the international and
Wall-Street based firm of Milbank, Tweed, Hadley & McCloy, LLP where I
served as co-head of its regulatory practice in the Washington, DC
office. Prior to Milbank, I served for over 9 years as a Staff Attorney
and Branch Chief in the Division of Investment Management for the
United States Securities and Exchange Commission.
In addition to my work in both the public and private sectors,
since 1994, I have served as an adjunct professor of law at my alma
mater Howard University School of Law, where I have taught Securities
Regulation classes in connection with the fundamentals of Federal and
state securities laws, including the 1933 and 1934 Acts and the
Investment Company Act of 1940.
As you are well aware, SIPC's primary goal is to protect individual
investors from financial hardship, to insulate the economy from the
disruption which can follow the failure of major financial
institutions. SIPC has and should continue to stand as the first line
of defense in protecting investors when such a failure occurs, and act
swiftly to eliminate, as much as possible, the risks associated with
customer loss.
If confirmed I look forward to continuing and expanding SIPC's work
in the areas of investor education and ensuring that its current rules
and regulations provide adequate safeguards to protect investors in
this ever-evolving global financial market. I believe that SIPA
provides the framework that can and should be used to guide the
protection of investment accounts not just in the US, but in many other
world financial markets. If confirmed, I would view my role as being a
principal advocate for robust investor protection.
Mr. Chairman and Members of the Committee, I thank you again for
your consideration of my nomination, and I look forward to answering
any questions you may have.
______
PREPARED STATEMENT OF SHARON Y. BOWEN
Nominee for Vice Chair, Securities Investor Protection Corporation
January 21, 2010
Chairman Dodd, Ranking Member Shelby and other distinguished
members of the Committee, I am honored to have been nominated by
President Obama to serve as Vice Chair of the Securities Investor
Protection Corporation. I want to thank the Committee members and staff
for meeting with me and making time for this nomination hearing.
I would like to take this opportunity to briefly introduce my
family members who are here with me today. My husband, Larry Morse, who
has been a constant supporter and friend since we first met at the
University of Virginia, my sister, Shelia Taylor, and my nephews,
Vincent, Jr. and Victor Bowen. Although other members of my family
could not be here today, I want to acknowledge and thank them for their
abundant and unconditional love and support.
I have practiced in the corporate, securities and finance areas of
the law for more than 25 years. I am fortunate to be a member of the
legal profession and to do what I love. My interest in finance, law and
business started during my early years, even before I knew there was a
place called Wall Street. After receiving a degree in Economics, I
attended business and law schools at Northwestern University. I then
moved to New York and began my career as a corporate attorney.
My expertise in securities and corporate law and deep interest in
our financial markets provide a great background for me to address the
challenges SIPC currently face. When I read about the state of the
economy and financial markets at the formation of SIPC, I found many
common themes we also face today. Yet, at the same time, our current
environment is vastly different and more complicated. Even the sheer
growth and volume of customer accounts, let alone the types of
securities within those accounts, could not have been imagined 40 years
ago.
I look forward to bringing my deep knowledge of securities and
corporate law to my role as Vice Chair of SIPC, should I be confirmed.
I look forward to working with you in helping to improve our protection
of investors.
Thank you for your time and consideration. I am happy to answer any
questions.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY FROM KEVIN WOLF
Q.1.-1. During the hearing, you pointed out that ``it is vital
that foreign parties involved with U.S. goods and technology
and derivatives of U.S. goods and technology are aware of and
abide by the rules governing them so that items going through
one country don't end up in prohibited destinations.'' At a
recent international seminar of government and private experts
on export control and nonproliferation, it was suggested that
foreign compliance with U.S. re-export rules may improve if
contracts between U.S. manufacturers and foreign re-sellers of
their products uniformly required compliance with those rules.
The contracts would need to specify substantial liquidated
damages for violations--and these contract rights would need to
be regularly and vigorously asserted and enforced. Recent
cases, involving diversion of microprocessors to Iranian
missile and nuclear entities, are instances when such contract
rights could have been asserted--and if asserted, could have
served as a deterrent for other would-be diverters.
Based on your experience, do you think such an approach
would bring practical non-proliferation benefits?
A.1.-1. I agree with the basic premise of the question that
export control compliance clauses are a ``best practice'' and
should be encouraged. Indeed, in my experience, they are a
common element of contracts involving the sale of goods,
technology, or software across borders. If they are tailored to
the type of export control issues potentially created by the
transaction and the parties' level of export control
understanding, they can aid compliance and have practical non-
proliferation benefits because they serve an educational
function. Parties that may not have known about or be
experienced in dealing with the potentially applicable export
control rules are, with the clause, informed of or reminded of
a regulatory compliance obligation that exists in connection
with the sale.
As a practical matter, however, the liquidated damages
element of such clauses are rarely enforced by the parties for
a variety of reasons. Parties also tend to resolve their
disputes in other ways. In any event, the reminder that a U.S.
Government investigation (which can be time-consuming and
costly for both the exporter and consignee) could occur or that
denial orders or criminal penalties could be imposed if the
export control rules are violated tends to have, in my
experience, more of a deterrent effect than the possibility of
having to pay liquidated damages. This does not mean, though,
that they do not serve an educational, thus compliance, purpose
in bringing attention to the export control issues associated
with the proposed transaction.
Q.1.-2. What are potential challenges, if any?
A.1.-2. If company compliance programs do not include a
requirement to train business and contracts personnel regarding
the meaning and significance of such clauses, the clauses do
not have an educational value and can become, for compliance-
related purposes, meaningless ``boilerplate.''
Q.1.-3. How could BIS encourage such practice by U.S.
exporters?
A.1.-3. BIS should continue to encourage the use of export
control compliance clauses by including a discussion of the
issue and sample clauses in its educational outreach efforts
and documents describing export control compliance program best
practices. These materials could include sample clauses for
exporters to work with and would have practical non-
proliferation benefits if they emphasized the need for parties
to tailor their clauses to the export control compliance issues
potentially created by the goods, technology, software,
countries, end-uses, and end-users at issue. Many companies
will choose not to include the liquidated damages element of
such clauses in their contracts for a variety of reasons. For
example, many companies have general policies against accepting
such clauses for business and competitive reasons and the laws
of some countries may limit the use of such remedies. The
option of including such clauses can nonetheless have an
educational, thus non-proliferation, benefit for the reasons
described above.
Q.2.-1. For a number of years, BIS has operated under
significant constraints, limiting the agency's ability to hire
and retain quality staff and hampering access to resources
needed to pursue its key national security mission.
In your opinion, what effect has the recent resource
constraints had on the licensing/enforcement function at BIS?
A.2.-1. I am not in a position to determine what impact recent
budget constraints have had on the licensing and enforcement
functions at BIS. It is my understanding that, until recently,
BIS had been operating under a continuing resolution and as a
result there have been few new hires. If confirmed, I will work
to identify the licensing personnel and supply needs of BIS's
Export Administration and, if needed, work to ensure that
resources are made available. Additionally, I will work with my
counterpart who is responsible for BIS's Export Enforcement to
ensure that future budget requests include the appropriate
funds to meet future licensing and enforcement needs. If
confirmed, I will commit to seek out ways to use the resources
that are available efficiently and to the greatest impact for
export control compliance.
Q.2.-2. In your opinion, what does the licensing and
enforcement function at BIS require to do a better job, in
terms of manpower and other resources?
A.2.-2. I am not in a position at this time to determine what
resources will be required for the licensing function at BIS to
do a better job. If confirmed, I will review the resources
required and those currently available to determine what
additional resources might be needed.
Q.2.-3. If confirmed, what measures would you implement to
remedy these shortcomings?
A.2.-3. If confirmed, I will assess the personnel and supply
needs of BIS's Export Administration and work to empower that
office's management to hire the necessary personnel to support
Export Administration's needs. I will also review the
feasibility of detailing of personnel to those offices most in
need of support, particularly those offices with licensing
responsibilities.
Q.3. In 2007, BIS launched the ``Validated End-User'' (VEU)
program, which allows select foreign companies to receive
controlled dual-use goods without otherwise-required export
licenses. Since its inception, the program has been criticized
as posing a national security risk while not being of much use
to exporters.
In your opinion, has the program been designed and
implemented effectively and securely? Do you believe it should
continue, and if so, how would you modify the program to
improve its operation?
A.3. The VEU program is premised on the fact that the companies
allowed to participate in it have a history of civilian end use
and have robust, transparent, and verifiable export control
compliance programs. Thus, in principle, the program is
effective as it reduces the licensing burden on BIS and the
companies and secure as it achieves the same or better level of
export compliance that would have been achieved through the
individual licensing of particular transactions. In my view,
its existence also appears to be an important part of U.S.-
China trade relations.
Without access to the information pertaining to the parties
involved or that would like to participate in the program, I am
not in a position to say whether the program has been designed
and implemented effectively and securely. If confirmed, I
commit to review its effectiveness and security and, if
necessary, make recommendations for its revision.
Q.4. Last summer, a GAO study demonstrated that export controls
on sensitive dual-use goods can be easily circumvented by
domestic sales and subsequent shipments out of the country.
Recent enforcement cases show that this technique is widely
used for illicit procurement to China and Iran.
If confirmed, what measures would you seek, by BIS and by
industry, to address such domestic procurement schemes?
A.4. If confirmed, I commit to work with BIS's Export
Enforcement to review current measures to address this issue
and revise BIS's efforts as appropriate.
I also commit to ensure that BIS will do what it can to
ensure that American companies are aware of the ``Know Your
Customer'' and red flag guidance that exists in the
regulations, which note that various elements of the
regulations are dependent upon a person's knowledge of the end-
use, end-user, ultimate destination, and other facts pertaining
to a transaction or activity.
Another key element of stopping such domestic procurement
schemes is vigorous enforcement actions against those companies
that ``self blind,'' i.e., willfully cutoff the flow of
information that comes into the company in the normal course of
business. Company personnel and individuals need to know and be
reminded that consciously disregarding facts indicating a
potential export control violation will not insulate them from
prosecution.
Q.5.-1. The Commerce Department has emphasized the use of
``trusted'' companies and countries as a way to reduce export
licensing and facilitate trade. At the other end of the
spectrum is Commerce's ``Entity List,'' which is meant to be
the key nonproliferation tool helping industry to identify
risky foreign buyers. According to BIS, the Entity List
``undergoes continual review and revision.'' But a quick glance
at the List shows that many of the entities have been on it for
almost 10 years without an address or key aliases. There have
even been cases when BIS has identified an alias for an Entity
List company in a press release (http://www.bis.doc.gov/news/
2007/china07202007.htm), but then failed to add that alias to
the Entity List itself. Also, recent additions to the Entity
List have targeted known diverters and trans-shippers but not
end-users linked to missile and WMD programs.
Based upon your experience, do you believe the Entity List
effectively identifies the ``risky'' end-users? If not, how
would you improve it?
A.5.-1. Without access to the information pertaining to the
listed companies or the intelligence regarding companies that
should be listed, I am not in a position to say whether the
list effectively identifies ``risky'' end-users. I do know,
however, that BIS's attention to listing companies and
individuals that are involved in diversions, illegal
transshipments, violations of export control rules is a
critical part of the export control compliance system.
Companies with effective compliance programs rely on this
information when making decisions about potential transactions.
The list and efforts to expand the list are also central to the
need to have more targeted end-user and end-use specific
controls rather than those based solely on country-specific
controls. If confirmed, I will work to ensure that the Entity
List effectively identifies end-users of concern based on the
data and intelligence available to BIS.
Q.5.-2. In your opinion, has BIS been trying to find additional
identifying information for listed entities and failed, or has
it simply not made an effort to review and update poorly
described entities?
A.5.-2. BIS has recently increased the number of individuals on
the Entity List. In addition, as part of the recent expansion
of the Entity List, BIS, and its inter-agency partners, have
committed to an annual review of all of the entities on the
Entity List to keep the list up to date. If confirmed, I will
review the existing process and the potential for revisions to
the Entity List.
Q.5.-3. Will you commit to updating the address and alias
information of all entities that have been on the list for 3
years or longer within your first 6 months in office?
A.5.-3. My understanding is that there is an inter-agency
review committee, the End-User Review Committee (ERC), made up
of representatives from the Departments of Commerce, State,
Defense, Energy, and, when appropriate, the Treasury. The
Export Administration Regulations (EAR) now require the ERC to
review the listing of all of the entities on the Entity List at
least once a year. If confirmed, I will work to ensure that the
Entity List contains, to the extent possible and within the
scope of this interagency process, the correct, relevant, and
required information about the listed entities.
Q.5.-4. Will you commit to review, if confirmed, the missile
and WMD programs of countries represented on the Entity List,
and to identify any additional entities in those countries that
need to be added to the List for proliferation reasons?
A.5.-4. If confirmed, I will work to review the missile and WMD
programs of countries represented on the Entity List and add
any additional entities as appropriate to address proliferation
concerns.
Q.5.-5. Based on your extensive experience counseling companies
on export control compliance, are there changes that could be
made to the Entity List, whether in format or content, that
would simultaneously make it easier for U.S. companies to
comply with the law, and make it harder for the entities on the
List to get controlled U.S. technology?
A.5.-5. A prominent part of the BIS website is a link called
``Lists to Check.'' It collects together in various
downloadable formats the lists companies need to be aware of
and check as part of their export compliance program. In my
experience, different types of companies with different types
of export control compliance programs find this link and the
multiple ways in which the information in it can be downloaded
to be useful. If confirmed, I will nonetheless review with BIS
personnel ways in which the lists can be made even more user-
friendly, budget permitting, for companies that want to or
otherwise should screen their exports against the lists.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY FROM DAVID W.
MILLS
Q.1.-1. During the hearing, you expressed support for pending
legislation, produced by this Committee, regarding destinations
of diversion concern. In fact, sometime prior to this
legislation, the ``destinations of diversion concern'' concept
was raised by the Bureau of Industry and Security as a
regulatory proposal.
Do you agree that implementing this as a regulation as soon
as possible would decrease the risk of sensitive goods being
diverted to Iran?
A.1.-1. I believe that any effort to decrease the risk of
sensitive U.S. dual-use goods being diverted to Iran is worthy
of serious consideration. If confirmed as the Assistant
Secretary of Commerce for Export Enforcement, I will make it a
top priority to closely study this issue and review any
previously generated studies on this matter in order to make an
informed decision.
Q.1.-2. If so, will you support implementing the ``destinations
of diversion concern'' proposal immediately through
regulations?
A.1.-2. As you know, one of the most critical priorities of the
Bureau of Industry and Security is to prevent illicit
diversions to Iran. To that end, Bureau of Industry and
Security (BIS) currently has several programs in place toward
achieving that goal. If confirmed, after conducting the
critical review and assessment described above, and immersing
myself in the current strategies employed by BIS, I will have
vastly improved information from which to make these judgments.
Q.2.-1. For a number of years, BIS has operated under
significant constraints, limiting the agency's ability to hire
and retain quality staff and hampering access to resources
needed to pursue its key national security mission.
In your opinion, what effect has the recent resource
constraints had on the licensing/enforcement function at BIS?
A.2.-1. I understand that recent resource challenges have had
an adverse impact on filling several personnel positions and on
some basic support resources needed to execute BIS's mission.
My understanding is that unfilled positions range from BIS
special agents and export control officers to analysts required
to produce quality leads and in depth case support for BIS's
special agents. I have not had an opportunity to determine what
the resource constraints have meant to BIS's functions.
However, if confirmed, I plan on immediately reviewing and
assessing the impact that these shortfalls have caused, as well
as what steps have been taken and need to be taken to address
them.
Q.2.-2. In your opinion, what does the licensing and
enforcement function at BIS require to do a better job, in
terms of manpower and other resources?
A.2.-2. I believe BIS needs to ensure it maintains a viable
force level and presence domestically and overseas. BIS also
needs to provide quality analytical support that will ensure
its special agents are focused on the most pressing threats and
are provided the support to successfully enforce the laws and
regulations so that our most critical dual-use items do not
fall into the hands of entities that threaten our national
security. As noted above, if confirmed, I will carefully review
the available and required resources needed to carry out these
functions.
Q.2.-3. If confirmed, what measures would you implement to
remedy these shortcomings?
A.2.-3. As noted above, if confirmed, I will review BIS's
enforcement needs, including possible shortcomings. The review
will focus on issues such as ensuring the personnel and funding
mix is appropriate for the mission, ensuring BIS has the right
skill sets and job series for the functions to be performed;
and ensuring BIS employees are provided the proper training to
successfully perform their jobs.
Q.3. In 2007, BIS launched the ``Validated End-User'' (VEU)
program, which allows select foreign companies to receive
controlled dual-use goods without otherwise-required export
licenses. Since its inception, the program has been criticized
as posing a national security risk while not being of much use
to exporters.
In your opinion, has the program been designed and
implemented effectively and securely? Do you believe it should
continue, and if so, how would you modify the program to
improve its operation?
A.3. The ``Validated End-User'' (VEU) program was designed to
facilitate trade to civilian end-users who have reliable and
robust export compliance programs, while minimizing risks to
national security. If confirmed, I will review the VEU program
with the other cognizant BIS officials and determine whether
adjustments are needed to ensure that the program is
implemented consistent with those objectives.
Q.4. Last summer, a GAO study demonstrated that export controls
on sensitive dual-use goods can be easily circumvented by
domestic sales and subsequent shipments out of the country.
Recent enforcement cases show that this technique is widely
used for illicit procurement to China and Iran.
If confirmed, what measures would you seek, by BIS and by
industry, to address such domestic procurement schemes?
A.4. Purchasing commodities represented as ``domestic sales''
is a tactic which has been employed by exporters to obtain
items they are seeking for illegal shipment abroad without
applying for an export license. It is my understanding that the
BIS, through its Office of Export Enforcement (OEE), maintains
a robust outreach program with industry that includes
disseminating guidance on how to guard against illegal exports
emanating from transactions represented as ``domestic sales.''
During these outreach visits, OEE special agents discuss the
importance of knowing their customers and watching for any red
flags indicating that sensitive U.S. commodities, technology
and software may be exported contrary to the national security
and foreign policy interests of the United States. Such
guidance is intended to serve as a tool for the exporting
community to use while employing due diligence regarding
business relationships and decisions.
Although presented in the context of ``export''
transactions, those guidelines can also be used when screening
business transactions presented as purely domestic. As such,
the guidance can be used to screen a wide range of
transactions, not solely those represented as exports.
Furthermore, BIS endorses as a ``best practice'' that industry
include a statement on the purchase order that items are
controlled under the Export Administration Regulations and may
require a license prior to being exported out of the United
States, and encourages business to have customers certify in
writing prior to the sale that the items are not for export.
During these visits, special agents also encourage industry to
contact OEE regarding any abnormal circumstances involved in a
transaction so that it can be assessed as a possible diversion.
Numerous referrals have emanated from such outreach activities.
If confirmed, however, I will review this issue with the
other cognizant BIS officials to determine if additional
actions are warranted.
Q.5.-1. A key aspect of BIS efforts to prevent diversions of
dual-use goods (including to Iran) are the Export Control
Officers (ECOs) placed in strategic locations around the world.
The ECOs are tasked, among other duties, with carrying out
inspections to ensure that dual-use goods exported from the
United States are indeed in their declared locations and uses,
and have not been diverted. However, only five ECOs have been
in place--one each in Beijing, Hong Kong, Moscow, New Delhi and
Abu Dhabi, United Arab Emirates. BIS has contemplated adding
another ECO in China and one in Southeast Asia (for diversion
points like Malaysia).
In your experience, do you believe that this small number
of BIS inspection officials (despite some assistance they
receive from other Embassy personnel) is sufficient to prevent
diversions to unauthorized end-users and end-uses, including to
Iran and China?
A.5.-1. From my perspective, the mission of trained special
agents at the ECO positions is a critical component to
effective export control enforcement and licensing. The current
locations appear to be located at the most critical embassies
to provide the best coverage to ensure dual-use technologies
are not diverted to activities that are counter to our national
security and foreign policy interests. If confirmed, I will
focus on filling any vacancies in a timely manner.
Additionally, I understand that BIS did receive funding and is
currently staffing the posting of a new ECO position at
Singapore that will have regional responsibilities in
Singapore, Malaysia, and Indonesia. This will provide
additional coverage in an area that is a large transshipment
point for world trade. Finally, while BIS does not have a large
ECO footprint, it is my understanding that BIS does have the
ability to send teams of agents to those countries that do not
have ECO coverage to perform multiple End-Use Checks in areas
that need additional emphasis.
Q.5.-2. If confirmed, what do you intend to do to increase the
number and quality of pre-license checks, post-shipment
verifications and other anti-diversion inspections?
A.5.-2. If confirmed, I will review the existing end-use check
program to assess whether the number and quality of checks
needs to be revised.
------
RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN DODD FROM ORLAN
JOHNSON
Study of SIPA and SIPC
Q.1. After the failure of the Madoff and Stanford firms, some
investors and observers are concerned that the extent of SIPC
coverage is too narrow. Also, some have questioned the adequacy
of the SIPC funding. Do you support a study of SIPA and SIPC
that would have the ability to make recommendations to
Congress?
A.1. As I testified at my confirmation hearing on January 21,
2010, I am in favor of creating a task force that will be
charged with examining all aspects of SIPC's operations with a
view toward potential legislative proposals for Congress. It is
my understanding that SIPC last enaged in such an exercise in
1978, and that task force resulted in major substantive
amendments to the Securities Investor Protection Act
(``SIPA''). I believe that another such review is long overdue,
and I would anticipate that such a review will address issues
related to the adequacy of SIPC's current funding levels. I
also understand that SIPC has requested from Congress an
increase in the credit line provided by the Treasury, through
the Securities and Exchange Commission, from the current $1
billion to $2.5 billion. The current credit line has not
changed since SIPA was passed in 1970.
SIPC Funding
Q.2. After the Madoff and Lehman failures, do you believe that
the SIPC is adequately funded to pay for current and future
losses? Do you think any changes need to be made to the funding
of SIPC? If confirmed as Chairman, would you pledge to monitor
and support the fund in order to maintain an adequate balance
or notify the Committee if legislative changes are needed to
adequately maintain the fund?
A.2. I believe that the issues surrounding funding adequacy
need to be addressed. It is my understanding that SIPC's
customer protection program is a major topic at virtually every
SIPC Board Meeting, and that assessments are now based on net
operating revenues of each SIPC member, as opposed to a flat
fee. This change in assessment should garner over $480 million
in 2010. The current board of SIPC has set a new ``target
balance'' for the SIPC Fund of $2.5 billion, to match the
proposed increase in the Treasury credit line. These revised
methodologies of assessments are scheduled to remain in effect
until that target is achieved. If confirmed, I would continue
to monitor and support the current and possibly future
assessment methodologies required to maintain an adequate SIPC
Fund, and I would notify the Committee if legislative changes
are required.
SIPC Internal Financial Controls
Q.3. In 2003, the SEC found that SIPC had inadequate controls
over the fees and expenses awarded to trustees and their
counsel. In 2004, the GAO stated that ``To address SEC's
concern, SIPC is in the process of enhancing its controls for
reviewing and assessing fees.'' Subsequently, SIPC has
addressed the inadequacies. If confirmed as Chairman, would you
seek to maintain strong internal financial controls at SIPC?
A.3. I am aware of the GAO report that addressed the SEC's
concerns regarding SIPC's controls over the fees and expenses
awarded to trustees and their counsel. I believe that the
bedrock of any financial organization is strong institutional
controls, and if confirmed, I pledge to maintain rigorous
controls in order to maintain high levels of investor
confidence.
SIPC Investor Education
Q.4. What is your view of the accuracy of the public
understanding of the SIPC's function? Do you feel that there is
investor confusion or ignorance over SIPC's role? Do you think
there is a need for greater investor education in this regard?
A.4. As with most complex financial rules and regulation, it is
somewhat difficult to ensure that the average investor is aware
of his or her protections under the law. However, it is my
understanding that SIPC has used a variety of methods to
educate investors, including well-received television and radio
public service announcements. There is always more work to do
in the area of investor education, and if confirmed, I will
work to ensure an expansion of those efforts.
Goals as SIPC Board Member
Q.5. As a potential SIPC Board Chairman, what issues would you
focus on to improve the organization or its function?
A.5. If confirmed as Chairman of the SIPC Board, I would focus
on assessing four primary areas: (1) investor education and the
efficiency of SIPC's core mission of processing claims, (2)
sharing information with our international partners in the
global financial markets to hopefully create more seamless
cross border protection of investors, (3) additional uses of
technology including the digitizing of financial records to
assist in SIPC's core mission, and (4) maintaining a high level
working relationship with the SEC and the other self-regulatory
organizations.
SIPC Relationship with the SEC
Q.6. As a potential SIPC Board Chairman, what relationship do
you intend to pursue with the Securities and Exchange
Commission, including the Division of Trading and Markets, and
with this Committee and its staff?
A.6. As someone with nearly 10 years of experience as a staff
attorney and Branch Chief at the Securities and Exchange
Commission, it has been my view that SIPC and the SEC have had
a very professional working relationship at both the staff
level and the highest levels of both organizations. Complex
matters such as Lehman, Madoff, and Stanford would never be
resolved without clear and continual communication between the
SEC and SIPC. If confirmed, it would be my intent to make
contact with the Chairwoman Shapiro as one of my first orders
of business. I have had the opportunity to work with Chairwoman
Shapiro while at the SEC and expect that we would have a very
strong working relationship. It is also my understanding that
SIPC's current Chairman, SIPC's President and Chief Executive
Officer, and SIPC's General Counsel have had numerous
substantive meetings with the SEC over the last 18 months, and
I would anticipate that, if confirmed, such meetings would
continue to occur.
Regarding SIPC's relationship with both the SEC Division of
Trading and Markets and the Senate Banking Committee, if
confirmed, I would be dedicated to a high level of cooperation,
and I would expect the same from SIPC's President and CEO and
SIPC's General Counsel.
SIPC and Pension Plan Participants
Q.7. What is your view of whether and under what circumstances
beneficiaries of pension plans or investors in feeder funds
that are customers of broker-dealers should be covered by SIPC?
A.7. The extension of SIPA protection to (1) individual pension
plan participants and/or (2) investors in feeder funds will
clearly have to be part of the issues to be addressed in any
task force report. There may be some merit to the extension of
coverage to beneficiaries of pension funds, but the issues
become far more complicated when it comes to examining investor
protections for indirect investors who are generally affiliated
with hedge funds. The possible regulation of hedge funds in the
securities area has been an ongoing discussion for the past few
years, and any final resolution of this issue in SIPA should at
a minimum take into consideration possible regulations from the
SEC or other self-regulatory organizations.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM ORLAN
JOHNSON
Q.1. Madoff victims are concerned about the speed with which
they have been repaid, with many still not paid and some with
claims currently being litigated. What is your view of the
progress, or lack thereof, SIPC has made in paying Madoff
victims? If confirmed, what will you do to improve the
efficiency with which SIPC pays Madoff victims?
A.1. From an outsider's point of view, it appears that the
speed of processing certain Madoff claims has not progressed as
quickly and smoothly as other matters handled by SIPC. If
confirmed, reviewing this matter and seeking potential
solutions would be a high priority.
Based on my understanding so far, it appears that at least
some of the delay has been due to the very unique sets of
circumstances presented by the Madoff case. The fraudulent
activities of Mr. Madoff went on for nearly 30 years.
Initially, the trustee was not in complete control of many of
the records that did exist, because the United States Attorney
had control of the records on an active crime scene
investigationsite. In addition, the records were not originally
in a digital or searchable format making it difficult to
transfer accounts to other brokerage firms. Additionally, in an
effort to give all potential claimants a fair and reasonable
opportunity to make their case for a potential claim, it is my
understanding that SIPC and the trustee in the Madoff matter
encouraged every possible claimant to file a claim, even if the
claim was somewhat doubtful under the law. This obviously
resulted in far more claims than there are accounts.
If confirmed as Chairman, I pledge to review every aspect
of the claims review process to determine whether it can be
expedited.
Q.2. Madoff victims are concerned about how SIPC has used
``clawback'' litigation to retrieve money from victims to
contribute to the general pool for victims' funds. In your
view, should SIPC use these ``clawbacks'' and under what
circumstances? Should either SIPC or Congress change the
``clawback'' policy for Madoff victims or not? Why?
A.2. To the best of my knowledge, the use of ``clawbacks'' has
been a part of every bankruptcy, Ponzi Scheme, and SIPA case.
Under certain circumstances, clawbacks have even been
congressionally mandated and can provide a reasonable path to
the equitable resolution for all investors that have been the
victims of a Ponzi Scheme. Nevertheless, I believe that
clawbacks have to be used on a case-by-case basis. Small
investors, in particular, should be given the right to make
their case that the clawback provisions would be financially
detrimental to their current situation and that they should be
exempted from such action. I believe that trustees should use
reasonable discretion and common sense in deciding whether to
apply clawbacks to certain investors--this should not be a one-
size-fits-all solution.
I believe that this is also an issue that should be
addressed to a task force that will review SIPC's operations.
Before recommending any change in the law, I would want to
examine the results of this review and the results of the
Madoff case.
Q.3. Madoff victims are concerned that it's not fair to
reimburse them based on what they originally invested, rather
than what they believed their investment had grown to. This
concerns what the proper definition of ``net equity'' is, and
is currently being litigated by SIPC in bankruptcy courts. Do
you believe Madoff victims should be reimbursed based on their
original investment or their latest statement? Why?
A.3. The proper definition of ``net equity'' can be subject to
both reasonable and differing interpretations. To the best of
my knowledge, bankruptcy courts, previous SIPA cases, and cases
involving other Ponzi Schemes, regardless of whether they arose
under SIPA, have generally utilized the ``money in less money
out'' principle. As noted above, the Madoff matter has very
unique circumstances, and we must guard against utilizing any
methods that would allow the perpetrator of an illegal scheme
to determine what a claimant will receive. I believe that after
the bankruptcy courts rule on this issue, SIPC should review is
current methodologies to determine if the money in less money
out principle is the appropriate for future activities.
------
RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN DODD FROM SHARON Y.
BOWEN
Study of SIPA and SIPC
Q.1. After the failure of the Madoff and Stanford firms, some
investors and observers are concerned that the extent of SIPC
coverage is too narrow. Also, some have questioned the adequacy
of the SIPC funding. Do you support a study of SIPA and SIPC
that would have the ability to make recommendations to
Congress?
A.1. I do support such a study of SIPA and SIPC to address a
number of items, in addition to a review of its coverage and
adequacy of funding. I believe that we all benefit from hearing
different perspectives on how to better formulate the rules and
polices that enhance the mission of SIPC.
It is my understanding that SIPC has requested an increase
in the credit line from its current level of $1 billion to $2.5
billion. If confirmed, I plan to seek more information about
this request and whether it is the appropriate level. Of
course, any changes in SIPC's role would affect the level of
funding required.
SIPC Funding
Q.2. After the Madoff and Lehman failures, do you believe that
the SIPC is adequately funded to pay for current and future
losses? Do you think any changes need to be made to the funding
of SIPC? If confirmed as Chairman, would you pledge to monitor
and support the fund in order to maintain an adequate balance
or notify the Committee if legislative changes are needed to
adequately maintain the fund?
A.2. If confirmed as Vice Chair of SIPC, I will monitor and
support the adequacy of the fund and would notify Congress if I
feel legislative action is warranted. I would also work with
the SEC and any other appropriate regulatory authority. Having
adequate funding is at the core of SIPC's ability to carry out
its mandate. Further, monitoring the fund is good governance
and should be a routine process.
SIPC Internal Financial Controls
Q.3. In 2003, the SEC found that SIPC had inadequate controls
over the fees and expenses awarded to trustees and their
counsel. In 2004, the GAO stated that ``To address SEC's
concern, SIPC is in the process of enhancing its controls for
reviewing and assessing fees.'' Subsequently, SIPC has
addressed the inadequacies. If confirmed as Chairman, would you
seek to maintain strong internal financial controls at SIPC?
A.3. If confirmed, I would seek to maintain strong internal
controls and would routinely examine them to see if there are
ways to improve them. I believe that making this process
transparent is good governance and would also increase investor
confidence in SIPC.
SIPC Investor Education
Q.4. What is your view of the accuracy of the public
understanding of the SIPC's function? Do you feel that there is
investor confusion or ignorance over SIPC's role? Do you think
there is a needfor greater investor education in this regard?
A.4. I believe there is a need for greater investor education.
I understand the public's frustration and confusion, which in
large part goes to the core of the debate of SIPC's role. The
public's misperception that SIPC was an insurance fund added to
this confusion. As we study SIPC's role, I believe we should
also examine ways to better educate and communicate with
investors. As part of increasing investor education, we should
have periodic public forums to directly communicate with
investors. If confirmed, I would examine ways to further
simplify communications in SIPC's brochures, website, and
investor materials that accompany brokerage account statements.
Goals as SIPC Board Member
Q.5. As a potential SIPC Board Chairman, what issues would you
focus on to improve the organization or its function?
A.5. Your questions highlight many of the key issues that I
hope to examine, if confirmed. These include clarifying the
role of SIPC and what it covers, determining the adequacy of
its funding, implementing rigorous internal controls, and
communicating to the public in a simple and comprehensive way.
I also believe that our focus on investor education should be
in tandem with the investor education materials and forums of
the SEC, FDIC, FINRA and other regulatory authorities.
SIPC Relationship with the SEC
Q.6. As a potential SIPC Board Chairman, what relationship do
you intend to pursue with the Securities and Exchange
Commission, including the Division of Trading and Markets, and
with this Committee and its staff?
A.6. If confirmed, I look forward to having a strong working
relationship with the SEC, its Division of Trading and Markets
and with your Committee and its staff. I think this is even
more important today as the regulation of the financial market
is being examined in a comprehensive way. Effective
communication, accessibility, and sharing of ideas with these
working groups will result in better solutions. It is my
understanding that SIPC has had many such substantive meetings
and has a strong working relation with the SEC and your
Committee. If confirmed, I hope to further strengthen these
relationships.
SIPC and Pension Plan Participants
Q.7. What is your view of whether and under what circumstances
beneficiaries of pension plans or investors in feeder funds
that are customers of broker-dealers should be covered by SIPC?
A.7. I believe that defining those circumstances would be a key
part of the study of the SIPA and SIPC. Pension plans and
feeder funds of the type we have today are vastly different
from the customers of the 1960s. When the Ira Haupt brokerage
firm was collapsing during that time, there were actual
securities sitting in a vault, which were owned by specific
named individuals. Today, determining who is the customer is a
key issue. One's expectation of a fiduciary obligation of a
trust holding one's pension account may be different from one's
expectations when one gives investment control to an entity
such as a hedge fund. It is these types of distinctions that
need to be studied and clarified. Such examination should also
be mindful of SIPC's key role of protecting customer accounts.
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RESPONSE TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM SHARON
Y. BOWEN
Q.1. Madoff victims are concerned about the speed with which
they have been repaid, with many still not paid and some with
claims currently being litigated. What is your view of the
progress, or lack thereof, SIPC has made in paying Madoff
victims? If continued, what will you do to improve the
efficiency with which SIPC pays Madoff victims?
A.1. I understand the dissatisfaction of the Madoff investors,
both with respect to the length of time involved in the payment
of claims as well as the determination of the amount of those
claims. A three-decade ponzi scheme of the magnitude of the
Madoff case is a huge challenge. Reconciling non-existent
customer accounts with false customer statements would be
challenging under any scenario. In addition, unlike customer
accounts in the Lehman case, no Madoff customer accounts could
be transferred to a solvent brokerage firm.
If confirmed, addressing this issue would be a high
priority. There are a number of ways we may be able to improve
the efficiency of paying claims. First, the claims process
should be examined to see if there are steps we can take to
speed the process. In the case of fraud, such as in the Madoff
case, we should determine if there is a way to work in tandem
with any criminal investigation involving an examination those
records. We should consider whether we could devote more
resources upfront in terms of manpower and technology. We
should also look at whether SIPC can improve its responsiveness
in communicating with each investor.
Q.2. Madoff victims are concerned about how SIPC has used
``clawback'' litigation to retrieve money from victims to
contribute to the general pool for victims' funds. In your
view, should SIPC use these ``clawbacks'' and under what
circumstances? Should either SIPC or Congress change the
``clawback'' policy for Madoff victims or not? Why?
A.2. The trustee in a bankruptcy proceeding has powers to
recover funds from fraudulent conveyances, including through
the use of ``clawbacks.'' These powers are subject to a review
by the court. Nevertheless, I can certainly understand why
investors may be concerned about the use of clawbacks. If
confirmed to serve as Vice Chair of SIPC, I would hope to study
this issue further before determining whether changes to SIPC's
clawback policy are necessary with respect to the Madoff case.
Q.3. Madoff victims are concerned that it's not fair to
reimburse them based on what they originally invested, rather
than what they believed their investment had grown to. This
concerns what the proper definition of ``net equity'' is, and
is currently being litigated by SIPC in bankruptcy courts. Do
you believe Madoff victims should be reimbursed based on their
original investment or their latest statement? Why?
A.3. How we define ``net equity'' is a key issue for SIPC that
must be clarified. As in the case of the clawback
determination, it is important that all investors are treated
fairly, and that no investor is unjustly enriched. This process
should always be transparent, and no victim should feel as if
he or she has been unfairly treated differently than others who
are in the same group of claims. Because the bankruptcy court
is currently addressing the definition of ``net equity,'' I
would await the court's decision before recommending a course
of action on this issue. The bankruptcy proceeding is a proper
forum for all parties to have an opportunity to be heard. This
forum also provides transparency, which is important in
resolving these difficult issues.