Schapiro Leaves SEC Stronger, But Struggles Remain

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WASHINGTON — Securities and Exchange Commission Chairman Mary Schapiro will leave the agency next month in significantly better shape than she inherited it nearly four years ago, but without completing the arduous task of fully implementing Dodd-Frank.

After the SEC formally announced Schapiro's Dec. 14 resignation on Monday, observers were quick to laud the agency chief for helping to redeem an agency badly damaged after the Bernard Madoff scandal came to light in late 2008.

"For an agency whose reputation was fairly tarnished, she has helped right the ship in some ways," said Brian Gardner, an analyst with Keefe, Bruyette & Woods. "People were questioning its existence a few years ago, and she's transitioned the agency beyond that."

Mary Schapiro (Image: Bloomberg News)

Schapiro joined the SEC in January 2009, after previously serving as a commissioner at the agency and as chairman of the Commodity Futures Trading Commission. She also served as chief executive of the Financial Industry Regulatory Authority, an industry watchdog.

At the SEC, Schapiro was faced with a number of tasks, including implementing mandates from the Dodd-Frank reform law and the Jumpstart Our Business Startups Act, and working to improve the structure of the market in the face of new technologies like high-frequency trading.

"Over the past four years we have brought a record number of enforcement actions, engaged in one of the busiest rulemaking periods, and gained greater authority from Congress to better fulfill our mission," Schapiro said in a press release on Monday.

Observers said she was also able to successfully galvanize agency staff as part of that effort.

"She was able to rally people and get them to continue to do great things at the agency thanks to the fact she's a good leader, had been at SEC before and the CFTC and has a lot of background and good will built up that carried her forward," said David Lynn, a partner at Morrison & Foerster and former chief counsel of the SEC's division of corporation finance.

But concerns remain with the agency's slow implementation of certain mandates under the financial reform law and the JOBS Act, in part due to budget and staffing restrictions.

"I don't think the fault lies with her or the SEC about the ability to finish Dodd-Frank initiatives. The fault with that resides with Congress, which gave her and other agencies more than they could handle at the time," said Gardner. "In some respects I don't even know if you can explain it just on budget terms. … It's just a bandwidth issue. They were tasked with doing so much in so little time."

Rep. Barney Frank, the outgoing lead Democrat on the House Financial Services Committee, said Schapiro did extraordinary work given the Republicans that attempted to slow the agency down.

"She has had the difficult job of implementing the financial reform law, with its significant grant of new powers to the agency she chairs, in the face of obstruction from Republican appropriators, conservative judges seeking to impose their ideology, and elements in the business community seeking to take advantage of these forces," Frank said in a statement.

Gardner said that some lawmakers and other critics may also continue to push the agency about its efforts to punish illegal activity, particularly for actions taken leading up to and during the financial crisis.

"Questions coming up during the confirmation process of a successor are going to focus on the SEC's work getting consent agreements, and whether the agency is tough enough in investigating those violating securities laws," said Gardner. He pointed, for example, to a settlement with Citigroup over its collateralized debt obligations that a judge threw out last year.

President Barack Obama said on Monday that Elisse Walter, currently a commissioner, will serve as chairman following Schapiro's departure on Dec. 14.

"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. 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," said Obama in a statement.

"I am also pleased to designate Elisse Walter as SEC Chairman after Mary's departure. I'm confident that Elisse's years of experience will serve her well in her new position, and I'm grateful she has agreed to help lead the agency."

Walter's five-year term ended in June, but commissioners are allowed by law to stay on for an additional 18 months. Walter worked at FINRA before being appointed to the SEC in 2008, and observers say her background will help aid her work at the agency's helm.

"She's recognized as a very talented implementer and thinker, and at a time when one's in the process of implementing these Dodd-Frank requirements, she's ideally suited to help the agency fulfill its operational responsibility," said Eugene Ludwig, founder and chief executive of Promontory Financial Group and a former comptroller of the currency.

Walter will likely serve as chairman in the short term, until the White House appoints a permanent successor to Schapiro, according to press reports.

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