Schapiro pledges tougher SEC action

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Schapiro pledges tougher SEC action
By Joanna Chung in New York

Published: January 15 2009 23:17 | Last updated: January 15 2009 23:17

Mary Schapiro, nominee for Securities and Exchange Commission chairman, vowed on Thursday to “reinvigorate“ enforcement at the agency which has come under an avalanche of criticism for regulatory failures during the financial crisis.

“One of the first things.....will be to try to take the handcuffs off the enforcement division,“ Ms Schapiro told the Senate banking committee during her confirmation hearing, saying that procedural hurdles have made it difficult for officials to issue subpoenas and initiate investigations.

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Merkin funds subpoenaed in Madoff case - Jan-15UBS ordered to return Madoff-related funds - Jan-15Kohn says Madoff not a personal friend - Jan-15Finra probed 19 Madoff complaints - Jan-15In depth: Madoff scandal - Dec-29If confirmed by the full Senate, Ms Schapiro would take over an SEC that faces one of the most difficult periods of its 75-year history. The agency has been blamed for numerous oversight failures in the past year, including missing Bernard Madoff’s alleged $50bn “Ponzi“ scheme in spite of credible information apparently brought to its attention multiple times.

“With investor confidence so shaken, it is imperative that the SEC be given the resources and the support it needs to investigate and go after those who cut corners, cheat investors and break the law,“ said Ms Schapiro, chief executive of the Financial Regulatory Authority, the securities industry’s self-regulatory body.

Few doubt her abilities given her experience as a regulator for more than 20 years -- including at one point as acting SEC chairman and as chief of the Commodity Futures Trading Commission, the futures regulator.

But the role of her own agency, the first line of defence in inspecting about 5,000 registered US broker-dealers, also came under scrutiny by legislators in relation to the Madoff scandal.

Finra been drawn into the debate because Mr Madoff’s broker-dealer was the only business subject to examinations before Mr Madoff registered his investment advising arm – at the centre of the allleged fraud – in 2006. It is unclear how long the alleged ”Ponzi” scheme went on.

Ms Schapiro said that Finra was only empowered to inspect Mr Madoff’s broker-dealer business, not the investment advisory arm. “One of the real lessons of this tragedy is that we have this stove-piped approach to regulation that allows misconduct to take place out of the sight of at least some of the regulators,“ she said, adding Finra received no direct tips about Mr Madoff’s alleged fraud and that none were shared by the SEC with Finra.

If she becomes SEC chairman, Ms Schapiro said she wanted to quickly create a centralised process with respect to tips and whistleblower complaints. She also addressed a range of other issues in response to legislators’ questions.

She said that systemically important financial products, such as credit default swaps, needed to come under the regulatory umbrella, while hedge funds should be registered so that “we could have a much better handle on who’s out there and what they’re doing.“

It might worth exploring the idea of having resident examiners inside credit rating agencies, she said, while it was necessary to re-examine short-selling rules, whether the SEC should re-institute the “uptick“ rule.

The rule, which was scrapped in 2007, allowed a stock to be shorted only if the last movement in its price was up, an attempt to prevent “bear raids“ that could drive the price down.

Ms Schapiro expressed concerns about the proposed roadmap by the SEC to move US companies to international financial reporting standards, or IFRS.

“I would pursue it with great caution so that we don’t have a race to the bottom,“ she said. “I have some concerns about the IFRS standards generally. They are... not as detailed as the US standards... I will take a big deep breath and look at this entire area again carefully.“

When asked whether she is in favour of giving shareholders more access to influence the composition of a corporate board, Ms Schapiro said: “The devil will be in the details, but I think it’s time for us to have a well-crafted, rational approach to the proxy for long-term large shareholders in the US.“
Copyright The Financial Times Limited 2009