I’m not sure if we want the Securities & Exchange Commission staff to “act like [their] hair is on fire,” as new SEC Chairman Mary Schapiro said on Friday that she was telling her staff, but it is certainly better than being asleep when their hair was on fire.
Schapiro has drawn fire for her leadership of the Financial Industry Regulatory Authority, or Finra. As Kevin Drum detailed at the time, The Wall Street Journal even has questioned her ability to lead the SEC at this time:
One of the biggest Wall Street disasters of 2008 was the September bankruptcy filing of Lehman Brothers Holdings Inc. . . . Joseph Mays Jr., a consultant to small broker-dealers and a former NASD examiner, says Finra should have scrutinized the mortgage-backed securities at the root of the crisis. “If I had to assign blame, I’d blame Finra and the SEC, but I’d blame Finra first because it’s the first line of defense,” he said.
Her successful confirmation hearing, held Jan. 16, gave Schapiro a chance to challenge the WSJ’s article, which she did:
Schapiro’s voice takes on a firmer tone than the tired-sounding whisper she has been using thus far. “You can ignite real passion in enforcement lawyers by giving them the tools and the resources to battle the fraud,” she argues, pointing out that she started her career as an enforcement lawyer. She says that the WSJ article “presented a completely unfair picture” of her enforcement history. She points out that at FINRA she has taken action against Morgan Stanley, Merrill Lynch, Citigroup, CSFB and Ameriprise. FINRA took a look at variable-annuity products, IPO abuse, late trading, market timing, insider trading, and the sale of some securities, she argues. “I hope the WSJ piece doesn’t color your impression too much of me because I can be as aggressive an enforcer as anybody can be at the SEC.”
Assuming that Schapiro holds up to that aggressive stance in her new role, she will lead to a significant change from the agency positions under former Chairman Christopher Cox. From the moment of his nomination, his position — and those he would place on the agency in the years that followed — were clear and well known. From The Washington Post at the time of his nomination:
Securities Industry Association leaders said they saw the Cox nomination as an opportunity for the agency to “reassess burdensome, duplicative, costly” regulations.
The agency did euphemistically “reassess” those burdens, going so far in 2007 to file an amicus brief in Tellabs, Inc. v. Makor Issues & Rights, Ltd., favoring the businesses accused of securities fraud rather than investors challenging the alleged wrongdoing. This filing led Ohio, along with more than 20 other states, to file a brief opposing the SEC position and supporting the more investor-friendly interpretation of the law at issue. (Full Disclosure: I worked on that states’ brief.)
As Schapiro moves the agency past the Cox era, I do hope to see her “giving [her lawyers] the tools and the resources to battle the fraud” — and would hope to see her agency work in a way the is more supportive of states’ interests in protecting investors from fraud.
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Chris Geidner is the award-winning senior political editor at D.C.'s Metro Weekly and has written for The Atlantic Online, The American Prospect, Advocate.com, Salon and other publications, as well as at his blog, Law Dork. In 2011, he received the Excellence in News Writing Award from the National Lesbian and Gay Journalists Association for his coverage of "Don't Ask, Don't Tell" repeal. Prior to moving to D.C. in 2009, he served as an attorney on the senior staff at the Ohio Attorney General's Office and had earlier worked for a leading Columbus law firm. An extended biography can be found