NOTE: Today, the Capital Markets and Government Sponsored Enterprises Committee held a legislative hearing on H.R. 2940, and four additional proposals, aimed at promoting small business capital formation by removing government roadblocks.

By Rep. Kevin McCarthy
Special to Roll Call
Sept. 21, 2011, Midnight

Twenty-six years ago, I started a small business: a deli I creatively named “Kevin O’s.” At 20 years old, I had limited culinary skills and lived in a time that predated the Food Network. In short, I was pretty much making new sandwiches as I went along.

Fortunately for me, there were enough people in Bakersfield, Calif., who seemed to like my sandwiches (most famously, the turkey, cream cheese and artichoke hearts on Holland Dutch crust). My business was successful enough that I could hire a few employees, and after a while, I was able to sell the business and use the money I made to put myself through college.

When I think back to the decision I made to start Kevin O’s, I don’t even have to wonder whether I would take the same risk in today’s regulatory environment: The answer is, unfortunately, pretty clear — I wouldn’t.

I cringe at the thought that today’s entrepreneurs even have to consider the costs of complying with duplicative, onerous and burdensome regulations before making that leap of faith to start a new business, purchase equipment and hire employees.

Today, there’s no question that small businesses are the engine of the American economy. They represent 99.7 percent of all employer firms, pay 44 percent of the total U.S. private payroll, employ more than half of all private-sector employees and have created 64 percent of all net new jobs during the past 15 years.

It doesn’t take close examination of these statistics to come to the obvious conclusion that the solution to our nation’s persistently high unemployment must include a plan to allow for more robust small-business growth.

In order to flourish, entrepreneurs and small-business owners need fewer regulatory restrictions and greater access to capital to start and grow companies and get more people working. This capital allows ideas to become real products and services, which in turn create jobs in communities and value for consumers. Unfortunately, onerous federal regulations dampen both innovation and access to capital because of the restrictions and compliance burden they place on these enterprises.

In 2010, annual regulatory compliance costs totaled $1.75 trillion, which far exceeded the $191 billion collected in corporate income taxes. These compliance costs hit small businesses disproportionately — studies indicate that small companies with fewer than 20 employees spend 45 percent more per employee to comply with complex federal regulations than larger companies spend.

Additionally, restrictions on the manner in which capital may be raised stem from outdated Depression-era regulations — they predate not only Twitter and Facebook, but cellphones and color television.

One such restriction is the “solicitation prohibition” contained in Rule 506 of Regulation D of the Securities Act of 1933. It states that in order for a business owner to “solicit” capital from an investor, the business owner must have a pre-existing relationship with said investor. If the same business owner wanted to attract investments through a securities offering from individuals outside of his immediate universe, the business owner must face registration with the Securities and Exchange Commission.

SEC registration is a process that can easily cost millions of dollars and take months, depending on the business and capital being sought.

In other words, if I had wanted to expand Kevin O’s deli across California’s Central Valley by opening five additional stores and needed more capital than a typical business loan, a good way would be through selling securities to investors. Unfortunately, I would have been prohibited from being an entrepreneur and asking people I didn’t know to invest in my business, even if they were already deemed “accredited” by the SEC.

I would have had to register with the SEC and incur all of the associated extra costs and legal fees just to solicit investment from wealthy and sophisticated millionaire investors.

This regulatory obstacle is actively preventing job creation, which is why I’ve introduced legislation to repeal this burdensome solicitation prohibition. My bill, the Access to Capital for Job Creators Act, will help entrepreneurs and small-business owners access the capital they need to be innovative, dynamic and, ultimately, become the thing our economy needs most right now: job creators.

This legislation is simply one step of the many that are needed to promote job creation and economic growth, but it’s a vital step forward. By unshackling entrepreneurs and small businesses from excessive federal regulations, our economy’s job-creation engine will once again put us back on the path to prosperity.

House Majority Whip Kevin McCarthy (R-Calif.) serves on the Financial Services Committee.

Tomorrow, the Capital Markets and Government Sponsored Enterprises Subcommittee will hold a hearing on five proposals designed to help small businesses access the capital markets for the financing they need to grow their companies and hire more workers. This hearing continues the Full Committee’s ongoing efforts to promote small business capital formation and job creation.

One of the bills on tomorrow’s agenda is H.R. 2167, the Private Company Flexibility and Growth Act. The bill has been introduced by Rep. David Schweikert.  Witnesses scheduled to testify before the Subcommittee are praising the bill as the type of pro-growth proposal needed to improve the economy.  The legislation would modernize the shareholder threshold for mandatory registration with the Securities and Exchange Commission from 500 shareholders to 1,000 shareholders.

Following are excerpts from some of the testimony in support of H.R. 2167:

Vincent Molinari, Founder and Chief Executive Officer, GATE Technologies LLC:
“Turning to the specific proposals being considered today, the proposed reform of Regulation D, as part of Representative David Schweikert’s Private Company Flexibility and Growth Act, would be a welcome change in the capital formation process that would promote economic expansion and job creation.”

“Currently, entrepreneurs and small businesses cannot access the capital they need to grow and create jobs. A record 41 percent of small business owners cannot get adequate financing, according to the National Small Business Association – up from 22 percent in 2008. A critical source of funding – the public capital markets – has been largely closed off to America’s proven job creators.”

H.R. 2167 “will improve the ability of small companies to access desperately needed capital. By reducing the regulatory burden and expense of raising capital from the investing public, Congress can boost the flow of capital to small businesses and fuel America’s most vigorous job-creation machine.”

Mr. William D. Waddill, Senior Vice President and Chief Financial Officer, OncoMed Pharmaceuticals, Inc., on behalf of the Biotechnology Industry Organization:

“[Increasing] the shareholder limit from 500 to 1000 would relieve small biotech companies from unnecessary costs and burdens as they continue to grow. As it stands, the limit encumbers capital formation by forcing companies to focus their investor base on large institutional investors at the expense of smaller ones that have been the backbone of our industry. Further, it hinders a company’s ability to compensate its employees with equity interests and negatively affects the liquidity of its shares.

“Increasing the shareholder limit and exempting employees and accredited investors from the count are measures that, together, would remove significant financing burdens from small, growing companies.”

Mr. Matthew H. Williams, Chairman and President, Gothenburg State Bank:

“This change would enable banks to deploy their capital in lending rather than spend it on regulatory requirements that provide little incremental benefit to the banks, shareholders, or the public.”

H.R. 2167 would provide “another valuable capital tool as banks work to improve the economy in our local areas and in the whole of the U.S.”

Associated Press: Congressional panel investigates Ga. bank failures

Published: Tuesday, August 16, 2011

Georgia holds the dubious distinction as the epicenter of bank failures in the aftermath of the Great Recession. But lawmakers who gathered at a congressional hearing Tuesday to investigate the causes questioned whether some of the shuttered banks were victims of overzealous regulations and strained relations with examiners.

Georgia has suffered 67 bank failures since 2008, far more than any other state. Many of those banks collapsed due to lax lending practices that left them laden with bad debt after the downfall of the housing market. But other troubled banks with better track records struggled to broker deals with regulators, and their failures wiped out generations of wealth, said U.S. Rep. Lynn Westmoreland, the Georgia Republican who organized the hearing.

"Now strict enforcement has created more failures. Banks that are too big to fail survived. Banks too small to save have been cut lose," Westmoreland said. "I'm convinced there's a middle ground between these two extremes."

Bank executives complained of testy relations with regulators and onerous legislative restrictions. Chuck Copeland, the chief executive of First National Bank of Griffin, said "second guessing and weariness" plagues interactions with bank examiners. And Michael Rossetti, the president of Ravin Homes, said lenders are overwhelmed by the new rules imposed by last year's Wall Street Reform and Consumer Protection Act, passed in response to the 2008 financial crisis.

"We are being regulated to death in all of our personal business lives," Rossetti said.

Regulators defended their policies, which they said helped banks and borrowers navigate the slow economic recovery. The FDIC brought stability to the banking system by quickly resolving problems with failed banks while saving the financial system billions of dollars, said Christopher Spoth, an FDIC official.

Georgia, which U.S. Rep. Spencer Bachus of Alabama called "ground zero" for the banking crisis, was a convenient site for the hearing. The collapse of the housing market in 2007 devastated the nation's financial network, but Georgia's banking system was among the hardest hit.

One of the reasons, Spoth said, was that Georgia's banks were too eager to make construction loans in the mid-2000s, when the state's economy was booming and real estate prices were on the rise.

"Not many expected the housing collapse," said Spoth.

Other systemic problems could be traced to the 1990s, when state regulators seemed to relax strict standards to make it easier for potential bankers to get charters, said Gary Fox, the former chief executive of Bartow County Bank, which failed in April.

That led to a glut of banks in small communities that couldn't support new lenders, forcing them to seek more business at lower rates in other markets. Soon, competitors were flooding the metro Atlanta market trying to outdo each other.

"It only takes a couple of folks to pollute the pool," he said.

Westmoreland and U.S. Rep. David Scott, D-Georgia, are pushing legislation that calls for a review of the FDIC aimed at investigating whether regulators are hampering rather than helping the economic recovery of the financial industry. The measure passed the House and is now pending in the Senate.

"Our banks are like the heart of our system. It's a heart that pumps out the blood. It is banks that pump out credit, pump out cash, pump out the lending, so the economy can grow," said Scott. "When we have the rash of bank failures ... then we've got to dig deep and find out what happened."

But others said regulators shouldn't shoulder all of the blame.

"That's human nature, to say someone else caused my problems," said Bachus, who chairs the House Banking Committee. "And the bottom line is that the regulators may have made a mistake, but I don't think in many cases they forced the failure of banks."

Published: Tuesday, August 16, 2011

Financial regulators have taken a public thrashing for going easy on banks before the financial crisis hit, allowing institutions big and small to dole out dubious loans. Now, according to some community bankers, regulators have abandoned their light touch for a heavy hand at a time when the industry is struggling to recover.

The Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency have dispatched on-site examiners to scour banks for minuscule problems, bankers said in Congressional testimony on Tuesday. While regulators say they are trying to prevent further bank failures, bankers complain that the examinations amount to nitpicking.

“We have found the field examiners less willing to disclose conclusions and very guarded in acknowledging progress in those areas where we may have been performing well,” Chuck Copeland, the chief executive of First National Bank of Griffin, Ga., said at a House Financial Services subcommittee hearing in Newnan, Ga.

Since the crisis hit, Georgia has had 67 institutions fail, more than any other state. Community banks, those with $10 billion or less in assets, make up the bulk of those now-shuttered institutions.

For all the talk of Bank of America’s beleaguered stock price and Goldman Sachs’s disappointing earnings, small banks are faring far worse than their large Wall Street counterparts. More than 380 banks have failed since early 2008; 326 of which were community banks, according to the F.D.I.C.

“The F.D.I.C. is keenly aware of the significant hardship of bank failures on communities in Georgia and across the country,” Bret D. Edwards, the head of the agency’s division that oversees bank failures, said in prepared testimony before the financial services committee.

But some bankers say their regulators are making matters worse by misunderstanding the cause of the industry’s woes. Mounting losses at small banks are not owed to reckless risk-taking, community bankers say, but the unforeseen collapse of the commercial real estate market in the Southeast.

“Did we have a role setting ourselves up to become victims? No doubt,” said Mr. Copeland of First National Bank of Griffin, a nationally registered bank that is overseen by the Office of the Comptroller of the Currency. “But did we recklessly pursue growth and earnings at all cost with no regard to the other elements of our mission? Never.”

That message is lost on regulators, he said. “We understand that it is not a personal affront; it is simply this environment of second-guessing and weariness in which we are all operating.”

In testimony before the subcommittee, regulators said they were taking steps to address the perception that their examiners are overly strict.

“The Federal Reserve takes seriously its responsibility to address these concerns,” Kevin M. Bertsch, an associate director of the Fed told the subcommittee. The Fed, he said, has created training programs for its examiners and conducts occasional reviews of their examinations.

For its part, the F.D.I.C. said it was reaching out to bankers for guidance on the examination process. In 2009, the agency created the Advisory Committee on Community Banking, made up of small bankers from across the country, according to Mr. Edwards of the F.D.I.C.

“The F.D.I.C. takes great care to ensure national consistency in our examinations,” Mr. Edwards said.

Promises are unfulfilled while the costs are real

By Rep. Sean Duffy

It was one year ago today that President Obama signed the so-called "Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010." Like other signature pieces of legislation of this administration, the name can be misleading. Like the so-called "stimulus" that stimulated nothing but more government debt, this bill fails to actually reform Wall Street or protect consumers, which is a remarkable accomplishment, considering it was more than 2,300 pages long and contained more than 400 regulations and mandates.

For small community banks and credit unions, like those in Central and Northern Wisconsin, the hundreds of new rules will require an estimated 2,260,631 labor hours just for compliance. Those are hours that your local bank or credit union will spend dealing with some Washington bureaucrat instead of focusing on the needs of customers like you.

Just because Wall Street is in New York and has a bad reputation doesn't mean it's right or fair to lump the "little guys" in Wausau, Hayward and Superior in with them. As one of the few members on the House Committee on Financial Services from the rural Midwest, I have made it a top priority to speak up for the community banks and credit unions that are on Main Street, not Wall Street.

That's why I've tried to reform the centerpiece of the Dodd-Frank law, the Consumer Financial Protection Bureau (CFPB), a brand-new agency that will cost the American taxpayers more than $329 million for 2012 alone. I am all for protecting consumers but this agency actually could hurt consumers and slow economic recovery because of the additional regulatory burden it creates for small, local financial institutions. More troubling is the lack of accountability of the CFPB, which will be led by a single, unelected bureaucrat who can set his own budget with no congressional oversight.

Today, the House will vote on H.R. 1315, a common-sense bill I've introduced to increase consumer protection and government accountability. It would replace the director with a bipartisan commission and establish a meaningful review process of CFPB rulings that are inconsistent with the safety and soundness of the banking system. This bill doesn't get rid of the CFPB, it simply recognizes the reality that we cannot separate consumer protection from the safety and soundness of the banking system. If our banking system fails, our economy fails and ultimately, consumers suffer. This measure reflects my commitment to a system of checks and balances, and a financial system that is safe, sound and accountable.

The financial crisis that dragged our nation into a recession warranted action. Dodd-Frank was rammed through Congress on claims that by increasing government mandates and control over the private economy, we would see "robust growth in our economy" and "greater economic security" for our working families and small businesses. One year later, with new business creation at a 17-year low and paralysis in the private sector, it's clear that Dodd-Frank has woefully underdelivered. While the promises of Dodd-Frank remain unrealized, its costs on the economy are real. It will have cost more than $1.25 billion by this time next year, lead to the hiring of thousands of new bureaucrats and will continue to be a drag on the private sector for decades to come.

Job creation has been and will continue to be my top priority in Congress. Part of getting our economy growing again and getting our people back to work means unraveling the burdensome mandates and regulations that are not just causing uncertainty in the marketplace, but killing jobs in America. One year after Dodd-Frank, let's recommit ourselves to smart regulation that will help establish a job-friendly environment, protect consumers and turn this economy around.

Rep. Sean Duffy, Wisconsin Republican, is a member of the House Committee on Financial Services.

The failures of the Dodd-Frank Act continue to mount.

Dodd-Frank Risk Panel Delays Create ‘Guessing Game’

By Cheyenne Hopkins and Ian Katz - Jul 18, 2011
Posted at Bloomberg.com

A team of regulators charged with preventing another financial crisis is fending off criticism it’s moving too slowly to identify the firms whose failure could pose a threat to the economy.

The year-old Financial Stability Oversight Council planned to start designating systemically important non-bank financial companies, such as insurers, as early as the middle of this year. The council met today without setting the criteria it will use to decide which firms could threaten to bring down the financial system, as American International Group Inc. (AIG) almost did in 2008.

The delays make it harder for financial firms to plan, fueling complaints that the industry is being hamstrung by regulatory uncertainty. Companies that could be deemed systemically important may have to wait several months to find out if they will need to raise capital or reduce leverage to comply with the council’s findings.

“Industries need to know what their cost of capital will be,” said Douglas Landy, a partner at Allen & Overy LLP, who once worked at the Federal Reserve Bank of New York. “Will they be regulated? You can’t have it be a guessing game.”

Extra Scrutiny

The council, known as FSOC, completed a rule today determining when derivatives clearinghouses require extra scrutiny because of their importance to the financial system. It also released a study evaluating treatment of secured creditors when banks are shut down.

“We have an obligation together to do the most careful, best job we can to make sure we put in place reforms that are going to endure for generations and leave us with a more resilient, more stable system,” Treasury Secretary Timothy F. Geithner, the council’s chairman, said at today’s meeting.

The FSOC, which also includes Federal Reserve Chairman Ben S. Bernanke and the chairmen of the Securities and Exchange Commission, Federal Deposit Insurance Corp. and Commodity Futures Trading Commission, was created by the Dodd-Frank financial overhaul law signed by President Barack Obama on July 21, 2010.

“After one year, it’s already clear that the Dodd-Frank act is reshaping the regulatory landscape -- filling gaps, reducing systemic risk and helping to restore confidence in the financial system,” SEC Chairman Mary Schapiro said at the FSOC meeting.

JPMorgan, Citigroup

Under Dodd-Frank, bank-holding companies with more than $50 billion in assets, which include JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and Goldman Sachs Group Inc. (GS), are automatically considered systemically important. One of the tasks of the oversight council is to determine which non-banks, such as private-equity firms, money managers, hedge funds or insurers, need the same designation and will be subject to additional oversight by the Fed.

The FSOC is also working without a full lineup of 10 voting members because Obama administration nominees haven’t been confirmed by the Senate. The Office of Financial Research, a data-collection and research unit created by Dodd-Frank to help the council, doesn’t have a director and as of last week had only 24 of the 60 employees scheduled to be on board by September.

The research office will gather information that can be used by the FSOC to force firms to raise capital, increase liquidity and sell assets deemed too concentrated in any segment of the economy.

‘Not Fully Functioning’

The FSOC “was supposed to be the centerpiece of Dodd-Frank and is not fully functioning,” said Jaret Seiberg, a financial services policy analyst at MF Global’s Washington Research Group. “A year into Dodd-Frank, our expectations were the FSOC would be running on all six cylinders, and it’s just not there.”

Plans to designate systemically risky firms were set back by at least several months when lawmakers and industry executives complained that proposed criteria were too vague -- a criticism Bernanke and other regulators didn’t dispute.

“What you need is clarity so people inside the box or outside the box understand why they are inside or outside,” Representative Randy Neugebauer, a Texas Republican and chairman of a House Financial Services Committee panel, said in an interview. A January proposal listing criteria for designating non-bank financial companies “just restated” the language in Dodd-Frank without adding detail on how the council would make decisions, he said.

Size, Leverage

Richard Spillenkothen, a former director of banking and supervision for the Fed, suggested that the council should tie some of the proposed criteria -- including size, concentration, interconnectedness and leverage -- to specific measurements.

The FSOC hasn’t “put any numbers to those metrics,” Spillenkothen said. He suggested a revision with “some numeric of what we are talking about, without making it exclusively formulaic.”

The collapse of AIG’s financial-products unit in 2008 was an impetus for Dodd-Frank and the FSOC’s creation. Collateral payments to banks that had bought protection from AIG through credit-default swaps led to a $182 billion taxpayer-funded bailout that gave the government a majority stake in the insurer.

Industry Groups

Industry groups, including the Investment Company Institute, which lobbies for the mutual fund industry, and the Managed Funds Association, representing hedge funds, have pressed regulators to avoid being designated systemically important.

In addition to releasing preliminary rules for designating clearinghouses, the FSOC has conducted studies on the Volcker rule, which restricts banks from trading solely for their own profit; and concentration limits, or market-share size of the largest banks.

The FSOC’s work on systemic risk shouldn’t be done too quickly because it must be thorough, said Kim Olson, a principal at Deloitte & Touche LLP.

“The idea is to get it right,” she said. “There are different things that can make you systemic, so how do you capture that and capture that in a balanced manner? These definitions, these concepts, don’t come in precisely formed definitions.”

Data Collection

The financial research office, set up to help the FSOC decide on systemic-risk designations, risks duplicating data- collection efforts at other regulators.

The Fed created the Large Institution Supervision Coordinating Committee last year to support the central bank in its systemic research, and the Federal Deposit Insurance Corp. formed the Committee on Systemic Resolutions to advise it on the systemic activities of banks.

The Office of Financial Research has been “way too slow,” said Allan Mendelowitz, a former regulator of the Federal Home Loan Banks and one of the original creators of the idea for a research division. The Treasury, which houses the office, is “ambivalent” because it doesn’t want the office contradicting its own views, he said.

Acting Leaders

FSOC is also tackling the issues with only half of the 10 voting members having been confirmed to their jobs. The FDIC, the Office of Comptroller of the Currency and the Federal Housing Finance Agency all have acting leaders that have yet to be approved by the Senate.

Former Ohio Attorney General Richard Cordray, introduced today as Obama’s pick to lead the Consumer Financial Protection Bureau, will also need Senate confirmation. Retired Treasury official Roy Woodall is awaiting confirmation for an FSOC seat designated for an insurance specialist.

 Financial Services Committee Chairman Spencer Bachus today announced the Committee’s schedule for the remainder of July.

“Our Committee will continue promoting policies that encourage growth, investment and new jobs, and we will remain focused on our important oversight duties,” said Chairman Bachus.

The Committee schedule remains tentative and will depend upon witness availability and other factors that may require changes. Therefore, each meeting will become final only when the official notice is distributed.  Additional information about each hearing, as well as hearing witnesses, will be announced at later dates.

All meetings will take place in Room 2128 Rayburn

Wednesday, July 20:
The Full Committee will meet for a markup of pending legislation at 10 a.m.

Tuesday, July 26:
The Financial Institutions and Consumer Credit Subcommittee will hold a hearing on the rent-to-own industry at 10 a.m.

The Domestic and Monetary Policy Subcommittee will hold a hearing on the impact of monetary policy on the economy at 2 p.m.

Wednesday, July 27:
The International and Monetary Policy Subcommittee will hold a hearing to examine the relationship between the health of the U.S. housing finance system and global financial stability at 10 a.m.

The Oversight and Investigations Subcommittee will hold a hearing on credit rating agencies at 2 p.m.

Yesterday, Financial Service Committee Chairman Spencer Bachus presided over a field hearing that highlighted the role of the National Computer Forensics Institute (NCFI) in Hoover, Alabama in fighting cybercrime.

“The National Computer Forensics Institute is providing valuable training to the state and local law enforcement officials who are our first line of defense against crime.  They are being equipped with the skills needed to combat the new wave of cybercriminals. Investigations based on information drawn from computers and electronic devices can be highly complex, and the training provided by the NCFI is critical to bringing these cases to successful prosecution,” Bachus said.

Bachus was joined at the hearing by Congressman Mike Rogers (AL-3) and Congressman Steve Fincher (TN-8).  Witnesses were: Alvin T. Smith, Assistant Director of the U.S. Secret Service, Randall Hillman of the Alabama District Attorneys Association, Gary Warner, Director of Research for Computer Forensics at the University of Alabama at Birmingham, and Clay Hammac of the Shelby County Sheriff’s Department, whose training at the institute helped lead to the arrests of suspects in a drug-related quintuple homicide.

Congressman Bachus said that cybercrime is increasingly international, making it a national security concern.  He pointed to recent hacker attacks on U.S. government websites, including the CIA’s website, and on computer systems operated by major financial institutions.

“The National Computer Forensics Institute is a great asset to our country.  It is helping to protect us from attacks targeting our financial system and our defense and intelligence agencies.  The training performed here has also put financial fraudsters, child molesters and murderers behind bars.  We can be proud that the education being provided here is protecting public safety across our nation,” Bachus added.

Congressman Bachus played an instrumental role in helping to locate the NCFI at the Hoover Public Safety Building.  The center has trained more than one-thousand law enforcement officials since its opening in 2008.

The Birmingham News published the following news story on the field hearing:

More needed for battle on cybercrime

The Birmingham News

By MARTIN SWANT

June 30, 2011

A top U.S. Secret Service official warned members of Congress at a hearing in Hoover on Wednesday that cyber-criminals are responsible for hundreds of millions of dollars in losses to U.S. businesses, underscoring the need to train law enforcement officials, prosecutors and judges to learn to deal with the fast growing category of crime.

“Current trends show an increase in network intrusions, hacking attacks, malicious software and account takeovers which result in data breaches that affect every sector of the American economy,” Alvin T. Smith, assistant director of the Secret Service, said during testimony at a field hearing held by the U.S. House Financial Services Committee on Wednesday.

Many people do not even know they’re a victim of identity theft until long after they are attacked by a hacker, said Randall Hillman, executive director of the Alabama District Attorneys Association. In the Internet era, there is a “most pressing” need for digital information and law enforcement officials who know how to identify and use that evidence, which can be used to solve not just financial crimes but also to gather evidence for prosecuting murders and child pornographers.

“We have very quickly moved from just blood and guts to megabytes and megapixels,” Hillman said during the field hearing at the National Computer Forensics Institute in Hoover.

U.S. Rep. Spencer Bachus, R-Vestavia Hills, is chair of the committee and led the field hearing, which is used to gather evidence for developing public policy.

In just the past several months, financial and government institutions including Citigroup, the International Monetary Fund, the United States Senate and the Central Intelligence Agency have been victims of hacking. Sony, whose Play-Station network was hacked in May, estimated the cost of the attack will total $171 million.

Smith said the Secret Service, through partnerships with law enforcement entities and academic institutions, have arrested “numerous transnational sovereign criminals” responsible for the theft of hundreds of millions of account numbers which led to retail and financial institution losses totaling $600 million.

The National Computer Forensics Institute, which opened four years ago, is a cybercrime training center fun ded by $4 million annually from the Department of Homeland Security’s National Protection and Programs Directorate. The NCFI, which facilitates training for state and local law enforcement officials from around the country by U.S. Secret Service personnel, since May 19, 2008 has trained 839 students. However, budget constraints limit the NCFI to operate only at 25 percent capacity. Full capacity of the training facility would cost $16 million annually.

Bachus said he intends to look into ways of finding additional funding for the NCFI. He said the other funding doesn’t have to come from the Secret Service and could possibly come from the financial industry or federal regulatory agencies.

“We can’t continue to let $37 billion a year leave our financial and other retail companies and let the great percentage of it end up in foreign countries,” Bachus said during an interview after the hearing. < /span>

Bachus said one of the most memorable moments from the hearing was when about two dozen judges from around the country attending the NCFI this week stood and introduced themselves. Several explained the significance of the training they’re receiving.

There is a significant need to train more law enforcement officers, prosecutors and judges to investigate and prevent cybercrimes and electronic evidence, said Gary Warner, director of Research for Computer Forensics at the University of Alabama at Birmingham. Warner, who also testified at the hearing, said there are more cybercrimes being committed than there are law enforcement officials with the time and resources to fight back.

Warner said only about 1.3 million victims file cyber-crime complaints each year even though about 11 million are actually victims each year. He estimates the total annual financial loss in the U.S. from such crimes is about $53 billion. One of the most important things someone can do, he said, is report everything, even seemingly small amounts such as $100.