Mary Schapiro Vows to Be Tough Enforcer

At Senate hearings on her nomination as SEC chief, she says she'd immediately attack problems in the U.S. regulatory system and "reinvigorate" the enforcement staff. She may also slow down the IFRS roadmap.

President-elect Barack Obama’s choice to chair the Securities and Exchange Commission, Mary Schapiro, used her Senate confirmation hearing today to deflect critics who accuse her of being soft on enforcement during her tenure as head of the Financial Industry Regulatory Authority.

“I have never been afraid to go after people I thought had violated the public trust,” she said, adding that FINRA pushed through 15,000 enforcement cases on her watch. Her statement came after Senate Banking Committee members lightly probed Schapiro during two hours of questioning, noting that FINRA is one of the regulators blamed for failing to uncover Bernard Madoff’s alleged $50-billion Ponzi-style fraud.

In FINRA’s defense, Schapiro said U.S. regulators’ “stovepipe” system does not encourage communication between agencies — something she hopes to change if confirmed. Calling the Madoff scandal “a tragedy,” she said that the SEC did not share any tips about the investment manager with FINRA, and that her agency’s purview was limited to the broker/dealer side of the business, which had clean books and records, as opposed to the books at his investment advisory business. If confirmed, Schapiro said, she would spend her first few weeks in office working on centralizing tips and whistleblower complaints that come into the SEC.

Schapiro also vowed during the hearing to slow down some of her predecessor’s pet projects, such as following a timeline for transitioning all U.S. publicly traded companies to global accounting rules by 2016. Rather, she said she would immediately focus on fixing the regulatory holes that contributed to the credit crisis.

Without naming chairman Christopher Cox, Schapiro said the commission’s current enforcement policies have “handcuffed” the division. Under Cox, the SEC’s lawyers are required to get the commissioners’ approval before negotiating penalty terms with companies — an approach that critics say has led to low or negligible fines.

At the hearing, senators simultaneously placed a large amount of blame on the SEC for the current state of the U.S. economy, and acknowledged that Shapiro won’t be able to fix all the problems herself. “The Securities and Exchange Commission has broken down, and it’s unclear if it needs gas or a whole new engine,” said Sen. Robert Menendez, a New Jersey Democrat.

The senators noted the public criticism that has nagged Schapiro in recent weeks, including publicity about two lawsuits that accused her of making misstatements in the time before FINRA was formed from the merger of the National Association of Securities Dealers and NYSE Member Regulation. They did not ask her any specifics about the cases, which she said have “no merit.”

Giving support to Schapiro’s confirmation, Menendez said that no one on the committee doubts her ability to take over as chairman. But said that he and other senators have reservations about whether she can be a “robust” enforcer. Schapiro has spent the past 20 years in leadership roles among various regulatory bodies, including as an SEC commissioner and, briefly in 1993, as the watchdog’s acting chairman. At FINRA, a non-government regulator, she oversees the 5,000 securities firms that do business with the U.S. public.


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