Internally, we’ve been debating whether he should have selected a more activist type personality, as FDR did with his selection of Joe Kennedy in 1935 or as President Bush did with Bill Donaldson (a former Yale Hockey Player) in 2003, but on the margin she is certainly an improvement over the SEC’s current leadership.
Schapiro is currently the CEO of the Financial Industry Regulatory Authority (FINRA), which is the largest non-governmental regulator for all securities firms doing business with the U.S. public. In conjunction with this role, she is also the Chairman of the FINRA Investor Education Foundation, the largest foundation in the U.S. dedicated to investor education. FINRA is an amalgamation of the National Association of Securities Dealers (NASD), which Schapiro ran as Chairman starting in 2006, and the NYSE’s regulatory body. Schapiro was a driving force between this amalgamation and subsequent simplification of these two regulatory bodies.
Schapiro has previously been appointed to government posts by two Republican Presidents and one Democratic President. Two decades ago, President Ronald Reagan named Shapiro a commissioner of the SEC. She was reappointed by President George H.W. Bush and then named acting Chair by President Bill Clinton. Given this background, it is likely she will garner broad bipartisan support.
In 1996, Shapiro became head of the NASD’s regulatory arm and has been widely commended for her role in reforming that part of the NASD. According to John Coffee, a securities law professor at Columbia University, before her tenure, the NASD’s enforcement arm was “seen as more of a nuisance than a threat – it just bored you to death with a thousand little paper-cuts. It has become much more serious and much tougher in the last 10 years, and she does get credit for a lot of that.”
Her key challenge from the outset will be dealing with the Madoff fraud. There are number of blogs and news sources this morning that are already suggesting she may have connections with the Madoff family. This is based on the fact that Madoff, and members of his family including his sons Andrew and Mark, were active for decades in the NASD, which Shapiro previously led. Bernie Madoff’s niece, Shana Madoff, also served on FINRA’s Compliance Advisory Group.
This Madoff connections seems largely circumstantial and, undoubtedly, the Obama team has fully vetted any association. That said, dealing with the fraud and its after effects in terms of regulation will be Schapiro’s first key leadership test. After years of uninspired leadership at the SEC, we hope that Schapiro steps up big time and her track certainly suggests she is qualified and ready to do just that.
Schapiro’s last public speech was the FINRA Fall Securities Conference and I could have pulled out a number of excerpts, but one in particular that struck me was the following:
“I think we can all agree that both the management of systemic risk and the protection of individual investors are important to the smooth operation of our financial markets. But are they really at odds with another? In my view, they represent two sides of the same coin.”
Her point is prescient in that she seems to get that, while managing risk is critical, so is ensuring that investors have the confidence to allocate risk capital. In light of the Madoff fraud, restoring this investor confidence, through the SEC, will be of utmost importance. If she can accomplish this quickly in a transparent manner, it could be a real positive catalyst for capital markets.
Daryl G. Jones
Keith R. McCullough
CEO & Chief Investment Officer