The Good and Not-So-Good About Obama's Expected SEC Chief

Barack Obama’s expected appointment of Mary L. Schapiro to head the Securities & Exchange Comission signals a period of tougher enforcement but her elevation to the post is not without problems.

Schapiro, 53, is currently head of the Financial Industry Regulatory Authority (FINRA), a non-governmental enforcing of securities rules.

Her choice, expected today, would mean that the SEC would have a boss well grounded on both the governmental and non-governmental sides of enforcement. Besides FINRA, Schapiro has been chairman and CEO of the National Association of Securities Dealers, another industry regulator. On the government side, she has been an SEC commissioner (1988-1994) and also chairman of the Commodity Futures Trading Commission (CFTC) (1994-1996).

Her service on those two federal posts would be critical because Obama’s expected reorganization of securities regulation is likely to merge all or parts of the SEC and the CFTC. Details aren’t available yet, but Schapiro has worked both sides of the aisle and her experience would come in handy.

Tougher enforcement is in the wind since the SEC under current chairman Christopher Cox has been hit with one regulatory scandal after another. He has admitted that the SEC didn’t do enough to get tough with Bernard Madoff’s huge Ponzi rip-off scheme. While Cox was busy promoting self-regulation and “nice guy” consensus, insurance giants such as American International Goup and various major banks were busy getting embroiled in dangerous, off-the-books derivative schemes based on dicey sub prime mortgages.

Unfortunately, some of the blame might slop over to Schapiro in these cases. One might ask where she was since FINRA should have been flagging the dangers of Credit Default Swaps and other securities time bombs. To be sure, Schapiro has called for better oversight of Credit Default Swaps over the past 15 years. But self-regulator FINRA obviously didn’t do much about them. Neither did FINRA catch Madoff.

Another big question for Schapiro is how she will come down on shareholder rights. About a year ago, Republican Cox punted when he had to make a decision about whether to push for shareholder access to proxies. He opted to maintain the status quo, which gives shareholders little power, while claiming that the issue would be revisited. It hasn’t been.

The fact that Schapiro has such a strong background in “self regulation” doesn’t inspire that much confidence. If Obama had wanted to send a clearer message on the topic he could have picked a stronger shareholder democracy advocate such as Damon Silvers, associate general counsel of the AFL-CIO or former SEC commissioner Annette Nazareth.

On the bright side, Schapiro has been a strong advocate for investor education and is familiar with global regulation She is a graduate of Franklin and Marshall College and got a law degree from George Washington University. She is on the boards of Kraft Foods and Duke Energy. She is active in global securities regulation groups such as the International Organization of Securities Commissions, an important point since trends seem to point to more cooperation and perhaps one global securities cop.

We’ll have to wait to see how she does.