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Good Riddance, Mary Schapiro?


Lauded by some, others see the departing SEC Chair as having been wholly ineffectual.


After four years as Chairman of the Securities and Exchange Commission, Mary Schapiro will be stepping down next month.

"When Mary agreed to serve nearly four years ago, she was fully aware of the difficulties facing the SEC and our economy as a whole," President Obama said yesterday in a statement. "But she accepted the challenge, and today, the SEC is stronger and our financial system is safer and better able to serve the American people -- thanks in large part to Mary's hard work."

However, others see Schapiro's tenure as far less successful, with non-profit consumer rights group Public Citizen pointing out that "the SEC under Schapiro failed to prosecute any figure of note."

"If the problem is a culture on Wall Street to make money at all costs, with ethics having very little do with it, then I don't know a way to cure that other than through perp walks and profiles of senior executives adapting to life in prison," Bart Naylor, Public Citizen's financial policy advocate and a former investigator for the Senate Banking Committee, tells me.

The SEC points out that they "prosecuted the largest insider trading scheme ever discovered, winning a record $92.8 million fine" in a civil case brought against former Galleon Group CEO Raj Rajaratnam, now serving 11 years for trading on illegal stock tips involving, among others, Goldman Sachs (NYSE:GS), Google (NASDAQ:GOOG), and Procter & Gamble (NYSE:PG). But, as former SEC enforcement attorney and Justice Department prosecutor (and current Wayne State University law professor) Peter Henning told Bloomberg last year, "Insider trading is really flash."

Though the Rajaratnam prosecution was widely covered in the media, there is no escaping the absence of charges brought against those considered to have been at the root of the financial meltdown.

The SEC, says Bart Naylor, is "outspent tremendously by Wall Street" and is "outgunned when you look superficially at the dollar levels."

"That said, I think the SEC -- and I have a couple of acquaintances working there -- makes the decision to go after a relatively small fry because it's less expensive, requires fewer of their attorneys, and they have a higher chance of winning a settlement," he tells me. "At the same time, I think that if the SEC did swing for the fences, if you will, and take on those higher-level executives, while they might lose once or twice, they might also win a couple of times and I think that would be a really critical statement."

Success? In Whose Mind?

The SEC website currently features a page detailing its successes -- 734 enforcement actions in 2012. But Naylor is underwhelmed, explaining that in the aggregate, many of these accomplishments are half-baked, at best.

"We're seeing cases such as the recent one Justice brought against Countrywide/Bank of America (NYSE:BAC) that revealed frauds taking place, yet no human beings were apparently accountable for those frauds -- it was 'the company,'" Naylor tells me. "To the extent that the SEC is claiming success based on the 175 individuals that have been named, I applaud their recognition that this is how they should be judged, but considering that there is no senior person at any of the larger banks that clearly engaged in fraud being targeted, I think that by their own measures, they need to be judged as wanting."

"We catch a rogue trader now and then, but it's difficult to believe that it's just a bunch of low-level people that have gone off the reservation," he says.

Then, there is the issue of Mary Schapiro's past as CEO of industry self-regulatory group FINRA, where she developed a reputation for being weak on enforcement -- a charge that followed her to the SEC.

"On the implementation of Dodd-Frank , we have seen Schapiro generally defer to industry concerns, retreating to things the financial industry would be comfortable with," Naylor says. "She didn't seem to get out of bed in the morning worried about protecting investors. She was focused on reducing compliance burdens to the industry."
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