Risk & Compliance

The SEC under Schapiro

Can Mary Schapiro restore investors' confidence in the beleaguered regulator?
Edward TeachFebruary 1, 2009

Can Mary Schapiro change the Securities and Exchange Commission from hapless bystander to tough cop?

A seasoned career regulator, the 53-year-old Schapiro was tapped by President Barack Obama to succeed Christopher Cox as chairman of the SEC, and people are hoping she can restore investor confidence in the beleaguered agency. Her résumé is reassuring. Schapiro has served as an SEC commissioner, headed the Commodity Futures Trading Commission (CFTC), and led both the National Association of Securities Dealers (NASD) and its successor, the Financial Industry Regulatory Authority (FINRA), where she was CEO at the time of her nomination. As this story went to press, Schapiro was scheduled to appear at a confirmation hearing before the Senate Banking Committee, and her approval by the full Senate was widely expected.

Some critics had reservations about her past performance, however. They noted that FINRA failed to detect the $50 billion Ponzi scheme allegedly conducted by Bernard Madoff, even though the agency did not have jurisdiction over Madoff’s investment-advisory business, where the fraud supposedly occurred. Also, Schapiro has been accused in two lawsuits of misleading NASD members about the 2007 merger that created FINRA; a lawyer for Schapiro said the suits have no merit.

Still, Schapiro has “great credibility,” says Stephen Crimmins, a partner at Washington, D.C., law firm Mayer Brown and deputy chief litigation counsel of the SEC’s enforcement division from 1993 to 2001, and “she has the respect of the entire regulatory community.”

The choice of Schapiro is a good sign that President Obama wants an SEC that is tough on enforcement issues, says Crimmins. A likely first step: increasing the enforcement division’s staff, which has shrunk in recent years. It’s also possible that the SEC will be consolidated with other financial regulators, namely the CFTC. John Coffee, a professor at Columbia Law School, says Schapiro’s appointment “sends a pretty clear signal” that the Obama Administration will seek such a merger, which was a key recommendation of the Treasury Department’s 2008 blueprint for regulatory reform. Politically, however, it could be “an uphill battle,” says Coffee.