“Barks Like a Mouse and Bites Like a Flee”

Of all the blows dealt to the SEC this week by Madoff tipster Harry Markopolos in his Congressional testimony, that’s the one sound bite that will stick with me.  Mr. Markopolos gave a startling description of the ineptitude he faced at the SEC as he tried to expose Bernie Madoff as a scam artist.  He gave specific examples of the SEC’s failures - from conflicts of interest to infighting and from territorialism and apathy to outright ignorance.  Mr. Markopolos went so far as to name names, as they say.

Based on his testimony, new SEC Chairperson Mary Schapiro has no choice but to clean house.  She will also need to address a number of other challenges, namely, she needs to put an end to the SEC’s penchant for parallel investigations with the U.S. Attorney’s office.  The SEC doesn’t need to tag along to their cases.  They need to pursue their own cases and select ones that have broad impact, not these celebrity cases that grab a headline or two (Mark Cuban, Martha Stewart, etc.).

There’s no doubt we can expect a significant amount of new blood at the SEC.  That’s a good thing but these individuals need training, and a lot of it.  Volunteer oversight committees could be one solution.  Lawyers, investor advocates, watchdogs…and yes, even industry representatives (the honest ones), should visit monthly with the SEC and download the latest information in terms of technology, trading, investment products, scams, etc.  I, for one, would be more than happy to lend my time to such a worthy endeavor.

Congress got a huge wake-up call today.  Expect big changes at the SEC.

Will Mary Schapiro Be An Investor-Advocate At the SEC?

Late into the news cycle last night, two Democratic officials confirmed that Mary Schapiro will be named chairperson of the SEC.  Ms. Schapiro currently serves as chief executive of the Financial Industry Regulatory Authority (FINRA), a self-regulatory entity created when both the New York Stock Exchange (NYSE) and National Associated of Securities Dealers (NASD) combined their oversight responsibilities.  She is the first person to hold the position since the creation of FINRA.

I am optimistic that Ms. Schapiro will use her new position, assuming she is confirmed, to revitalize the SEC.  She has both enforcement chops as well as experience rebuilding an outdated regulatory regime having created FINRA basically from scratch.  While I am no fan of Wall Street’s obsession with self-regulation, Ms. Schapiro has done a commendable job given the circumstances.

It is concerning that while she was in her position Bernie Madoff was able to allegedly perpetrate his Ponzi scheme and enforcement actions have slid, and I expect this to be a major issue during her confirmation hearing.  But I believe Ms. Schapiro’s experience will eventually temper those concerns.

Perhaps most importantly, Ms. Schapiro’s nomination breaks a destructive line of SEC leaders with close financial ties to the securities industry.  She has served as a regulator nearly her entire career.  She will also have the winds of reform at her back allowing her to more easily institute massive changes at the SEC.

For these reasons, Mary Schapiro is a good choice to oversee the SEC.