Wednesday, January 7, 2009

Two Views of Shapiro as SEC Chair

I am a bit ambivalent about Mary Shapiro becoming the SEC Chairman. On one hand, I think she has the experience and ability to do the job, and certainly did a great job as the head of the NASD and FINRA. An added plus is that she has successfully steered the NASD and the NYSE through their merger - and the new SEC Chairman is going to have to deal with something similar.

But what troubles me is the message that is being sent. Pundits can bash the SEC all day long for the Madoff Mess, but the reality is that the first line of regulation was FINRA, Mary Shapiro's organization. Shapiro and her executives give great speeches about their regulatory goals. They are all very impressive when you see them at a conference or read their speeches. But in practice, not so much. FINRA has some serious problems on the front lines.

Those problems are systemic, and troublesome, and made even more troublesom when one realizes that the FINRA Staff, who conducted at least 8 examinations of Madoff's brokerage firm, did not find any significant misconduct, dropping fines on him for $7,500 and $8,000 at a time.

The entire Madoff Mess will take years to shake out, but with FINRA in the middle of all of this, is Mary Shapiro the right one to take the helm at the SEC?

Steven Pearlstein at the Washington Post doesn't think so. In his column Obama's SEC Pick is No Joe Kennedy Perlstein argues that Shapiro would be a great pick at any other time, but not now. He argues that we need someone from the outside, to shake theing up, and to fix "the center of a failed regulatory process fo the past two decades." He makes a number of good points.

The Editors at TheCorporateCounsel.net blog diagree, and offer Incoming SEC Chair Shapiro: A Rebuttal. They point out Shapiro's experience, level-headedness, and even her "insider" status, as in "insider" in the regulatory world, rather than a Wall Street Insider, which she clearly is not.

The SEC needs an overhaul. While I have every confidence that Shapiro's experience will enable her to successfully orchestrate that overhaul, I fear that the Madoff Mess, and the yet to be publicized FINRA Failings, are going to overshadow, and undermine those efforts.

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