Commentary by Susan Antilla
The U.S. president-elect said it all during a press conference yesterday announcing his choice to run the Securities and Exchange Commission:
The American public is frustrated that “there’s not a lot of adult supervision out there†when it comes to things political or financial.
Barack Obama is betting that Mary L. Schapiro, chief executive officer of the Financial Industry Regulatory Authority, is the right grownup to ride herd on an often-noncompliant Wall Street crowd.
As any haggard parent of a teenager can tell you — I’ve been one, so I know — whipping rule-breakers into shape is often best done by dictatorship, not democracy. The parent who seeks out the kids’ views when empty beer bottles are rolling around on the basement floor is the parent destined for a rap session at the local police station.
Wall Street’s beer bottles have been piling up in the basement so long that you can’t see out the windows. Yet we continue to consult with financial industry powers-that-be to get their thoughts about how the rules should work.
Schapiro, 53, has had a lifetime of experience in the financial industry’s version of the family rap session, better known as self-regulation. She was chairman of the U.S. Commodity Futures Trading Commission, and president, then vice chairman, of NASD Regulation, a predecessor to Finra.
When Finra was formed in the merger of the regulatory units of NASD and the New York Stock Exchange in 2007, Schapiro became CEO of the combined organization. Earlier, she spent six years outside the self-regulatory setting, serving as a commissioner at the SEC.
Liking the Boss
Her pluses are noteworthy. Enforcement got tougher at NASD under her stewardship — though, like the SEC today, NASD had nowhere to go but up when she took over. She’s known as a fair and likeable boss who engenders fierce loyalty from her staff.
Therein lies a problem. At the SEC, which arguably should be shut down and replaced by something else altogether, will the “favorite boss†be tough enough to clean house and risk a nosedive in morale?
Schapiro’s long history at Finra may hinder fixing another big problem: mandatory arbitration for investors who have a beef with their brokers. Opponents of the industry’s ultimate anti- investor policy were just starting to feel optimistic that, in the wake of gargantuan financial scandals, bills to end forced arbitration might actually get through Congress, allowing investors access to the courts.
If today’s boss of Wall Street’s private courthouse becomes tomorrow’s chief U.S. financial regulator, it’s easy odds that mandatory arbitration will be around for another long cycle of financial misbehavior.
Policing Themselves
More troubling, Schapiro comes to the job with the mindset that financial industry members should be part of the policing process.
If that sounds OK to you on its face, consider recent events. While none of the Madoff family, other than the infamous Bernard, has been accused of wrongdoing, it is a bit disconcerting to know that son Mark once served on a mutual fund task force for NASD and was on NASD’s National Adjudicatory Council, and that niece Shana Madoff was, until this week, on the compliance advisory committee of Finra. Schapiro was at the helm while both Madoffs were at their posts.
She also was vice chairman when NASD enforcement dropped the ball on a nasty swindling of BellSouth employees in North Carolina. Two Smith Barney brokers had sweet-talked dozens of the employees to take early retirement, making promises that they would never outlive their money, among other outrageous claims. NASD brought actions against the brokers and Citigroup Inc. on June 6, 2007, and hit the bully pulpit warning retirees to beware the slick words of crooked stockbrokers.
Sounds great, right? Not if you knew that an NASD investigator had known about Smith Barney’s marketing to the retirees since 2002.
Taped Baloney
I had a chance to listen to the brokers’ baloney on audio tapes that landed in my mailbox in late 2004. At that point, not a wrist had been slapped in the case. Bloomberg published a story about the fiasco on January 13, 2005.
Almost two years later, Schapiro’s enforcement chief noted in a press release touting a case against the brokers that “NASD remains strongly committed to protecting investors as they make critical decisions about how to provide for their retirement years.†Right. As long as they have five years to wait to get their money back.
The good news about Obama’s SEC pick is that the people who have worked with her uniformly call her decent and sincerely interested in the well-being of investors.
The problem is that she also has regarded her mandate over the years as being concerned with the opinion of business, which arguably is a job better suited to the U.S. Chamber of Commerce.
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Source: Bloomberg