Risk & Compliance

Obama Picks FINRA Head Mary Schapiro to Lead SEC

The former SEC commissioner and one-time acting chairman has a reputation as a smart and tough regulator, the president-elect says.
Sarah JohnsonDecember 18, 2008

President-elect Barack Obama nominated Mary Schapiro as the next chairman of the Securities and Exchange Commission, calling on her to help overhaul the troubled U.S. regulatory system.

Obama said Schapiro, a one-time acting SEC chairman and a political independent, who currently heads the Financial Industry Regulatory Authority, is “known as a regulator both smart and tough, so much so that she’s been criticized by the very industry outsiders who we need to get tough on.”

Schapiro has spent the past 20 years in leadership roles among various regulatory bodies, including as an SEC commissioner and briefly as the watchdog’s acting chairman in 1993. She left the agency in 1994, and has been at FINRA since it was created just over a year ago, after the consolidation of the National Association of Securities Dealers and NYSE Member Regulation. That non-government regulator oversees the 5,000 securities firms that do business with the U.S. public. She also chaired the Commodity Futures Trading Commission.

In her new role, Schapiro takes charge of an agency with an increasingly tarnished reputation. Atop her priority list: modernizing the U.S. regulatory system by collaborating with the other agencies — some of which she has worked for — to get a better handle on the current “complex marketplace,” she said.

Noting that it’s rare for a president-elect to designate a new SEC chairman before taking office, Obama stressed the need for changes in the financial system. He had harsh words for the current administration’s regulatory oversight during a morning press conference, during which he also announced his nomination of former Treasury undersecretary Gary Gensler to chair the Commodity Futures Commission, and of Georgetown law professor Daniel Tarullo for a seat on the Federal Reserve Board.

The alleged $50 billion Ponzi scheme by Bernard Madoff that came to light last week has served as another reminder for the pressing need for regulatory reform, Obama said. “Regulators who were assigned to oversee Wall Street dropped the ball,” he added.

The SEC and current chairman Christopher Cox have been under extreme fire this year — from the March collapse of Bear Stearns, soon after Cox claimed the bank was well-capitalized, to the current Madoff scandal, which the SEC has scrambled to address this week after years of missing red flags that something was amiss. Cox has also played a distant third-fiddle to Treasury secretary Henry Paulson and Federal Reserve Board chairman Ben Bernanke, as those two swept through press conferences and congressional hearings this fall to explain how the financial crisis could be fixed.

Schapiro’s nomination has former SEC staffers hopeful that she can turn the regulator’s reputation around. “Below the headlines and all the noise, there are real people who are very dedicated and competent. Their morale is suffering,” CFO.com is told by David B.H. Martin, a partner at Covington & Burling LLP and a former director at the SEC’s Division of Corporation Finance.

Observers say she will have to juggle inspiring staff with implementing new processes that may be inevitable considering the public fallout from the Madoff investigation. According to Martin and others who know her, Schapiro is known as a leader who listens to various sides of any issue, from employees to investors and organizations that may be involved in heated enforcement matters.

At the SEC itself, she’ll have to seek new sources of input as top staff positions empty out during Cox’s last weeks in office. Such turnover between administrations is normal, of course, but recent resignations have included key players like John White, director of Corporation Finance, and chief accountant Conrad Hewitt. Schapiro will also have to decide whether to fight for the SEC’s current structure or go along with ideas to merge it with another agency. Earlier this year, Henry Paulson suggested the SEC’s regulatory authority should fall under the CFTC.

“She has a good grasp of the regulatory structure,” Martin tells CFO.com. “Not many people are more qualified to help in the process or even lead the process of rehabilitating the regulatory structure.”

Another SEC alum sung Schapiro’s praises. Former SEC commissioner and current Cooley Godward Kronish partner Roel Campos tells CFO.com, “she’s probably the most experienced regulator, certainly in any developed country in her time period.”

On the other hand, some critics may suggest that her greatest weakness could be her past leadership positions in the very regulatory agencies so badly in need of reform. Still, Broc Romanek, editor for TheCorporateCounsel.net and a former counsel for the SEC’s corporate finance division, tells CFO.com, “she is on record championing greater oversight of swaps and derivatives, and [the need for] other market fixes that are bound to occur.”

In addition to pressing regulatory reform, Schapiro will have to deal with Cox’s pet projects, which he has pushed through for approval in recent weeks. These include a timeline for all U.S. publicly traded companies to use global accounting standards and a mandate for companies to data-tag their financial statements. She may also address other issues that Cox dropped, such as giving shareholders input on director nominations, Jim Cox, a law professor at Duke University, tells CFO.com.

In a statement, Christopher Cox commended Obama’s choice of Schapiro, calling her a “consummate professional.” He added, “she is deeply committed to protecting investors and ensuring the integrity of our markets.”

Schapiro said during Obama’s press conference that her entire career has focused on investor protection. She considers the role of the SEC — of which she served as commissioner for six years and acting chairman for two months — role “critical to the future economic health of our economy.”

One peculiar connection to the Madoff scandal, not addressed at the press conference, is Schapiro’s reported 2001 appointment of Mark Madoff, son of accused investment swindler Bernard Madoff, to the board of the National Adjudicatory Council, which reviewed initial decisions before certain actions of FINRA’s forerunner, and continues to be involved in such FINRA processes now.