[by Larry Goldfarb]

Mary Shapiro took the helm as chairman of the SEC amid the wreckage of two of the most significant investment banks, the promise of the most significant financial regulation since the acts that created the agency in 1934, and a public that was significantly behind regulating wall street and the banks.  She had just had come to the SEC where she oversaw the birth of Finra out of the regulators from NASD and NYSE.  Shapiro could have envisioned, and many might have agreed with her, that her tenure had potential to be the most significant in the agency’s history.  Yes, there was talk of abolishing the agency and melding it into another regulator and there were significant hurdles ahead, but optimism reigned.

By all accounts, the success during Schapiro’s tenure has been mixed.  She received high marks for:

• Preventing the agency’s demise. “I give her enormous credit for -- virtually single- handedly -- preventing the commission’s demise,” former SEC chairman Harvey Pitt said, adding that her greatest contribution was “restoring the agency’s credibility and importance.”   Schapiro recruited Robert Khuzami, a former prosecutor then at Deutsche Bank AG (DBK), to head enforcement. He cut a layer of management, formed groups to focus on specialized areas of wrongdoing and created a system for handling tips about frauds. She tapped Carlo di Florio from PricewaterhouseCoopers LLP to revamp the inspections unit, which also had been faulted with missing the Madoff fraud.

• ​Restoring the reputation of the SEC.  She said her first job was “to try to stem the tide of skepticism” and then to focus on long-term needs. She removed hurdles for investigators and hired new senior staff. By the time Dodd-Frank was enacted a year and a half later, the SEC was handed wider jurisdiction and more funding

• Schapiro bulked-up the enforcement unit to root out wrongdoing that led to the 2008 crisis, forcing Goldman Sachs Group Inc. (GS) to settle for $550 million and Angelo Mozilo, co- founder of lender Countrywide Financial Corp., to pay $67.5 million. The SEC sued the former heads of Fannie Mae (FNMA) and Freddie Mac, who are fighting claims they understated investments in subprime loans.

But her accomplishments, while impressive, have been impacted by what her critics see as a series of weaknesses that hamstrung the organization from decisively dealing wirth the aftermath of the financial crisis.

• Not holding the CEOs and senior executives responsible for their actions during the financial crisis.  “The investing public has a right to expect that government regulators will continue to hold accountable those individuals responsible for misconduct -- and that includes those culpable at the top, not just the flunkies below,” Aguilar said. Lynn Turner, a former SEC chief accountant, said that the agency’s actual enforcement record signals to Wall Street that the tough talk is just rhetoric. Schapiro “has created a culture where it is better to ask for forgiveness than beg for permission,” Turner said. “And the trouble is, she always forgives them.”

• Behind schedule and lacking focus in drafting the Dodd Frank Regulations.  Two years after Congress handed the SEC the challenge of crafting almost 100 rules, the agency is behind schedule on about half of them, according to a tally by Davis Polk & Wardwell LLP.  Daniel Gallagher, a Republican commissioner, said rules haven’t been taken up in the order of their importance. In a Sept. 24 speech, he called Schapiro’s agenda a “scattershot menu of short-term and reactive priorities.”

• Difficulty courting Commissioners.  Investor advocates who lauded Schapiro’s appointment grew disappointed over time. They said she didn’t have the fortitude to overcome splits inside the commission, lobbying and legal assaults by the financial industry and demands from a partisan Congress. That didn’t play to her strengths as a conciliatory manager and career regulator. The  best example of an inability to gain consensus for key actions to eliminate the “terrifying” prospect of a run on money-market mutual funds like one that forced a U.S. rescue in 2008.  Despite hours of lobbying the commissioners, she was unable to gain a majority, losing the key democratic vote of Luis Aguilar. 

It is generally expected that Schapiro will leave office at the completion of President Obama’s first term.  The question that analysts will have to ponder is not whether Schapiro made a difference at the Agency, but whether she accomplished enough in this critical juncture in American finance.

For more information, please read [ Bloomberg, 10/19/2012]