Regulatory leadership in action

May 1, 2012 05:55 PM

Looking at the continuing MF Global mess the one thing that becomes clear is a lack of leadership and accountability across the board. This is apparent in this You Tube video (below) of Securities and Exchange Commission Chairman Mary Schapiro answering question from House Financial Services Committee member Steve Pearce (R. NM).

When asked who made the decision to let MF Global Inc. go into a SIPC liquidation, Schapiro says “SEC staff made the recommendation” to Commodity Futures Trading Commission Chairman Gary Gensler and her that it go to SIPC in a meeting on Oct. 31.




She didn’t even say whether there was further discussion or that she chose to accept that recommendation. However, when Rep. Pearce followed up and asked why she didn’t take more aggressive action regarding potential wrongful acts, she quickly pointed out that there were only 318 securities accounts at MF Global and that the SEC was not its primary regulator.

This is the Chair of the SEC not a member of the MF Global executive committee answering questions. But she did not feel it necessary to explain the conflict with those two facts: A) that the decision to move MFGI into a securities regulator controlled liquidation was based on a recommendation from SEC staff, and B) that the actual securities activity of MFGI was minimal.

And what of Chairman Gensler? She didn’t share his response. Unfortunately Rep. Pearce expounded on Gensler’s past work with Goldman Sachs instead of simply asking why would he accept this recommendation given that this was a mainly futures broker.

Last week CFTC Commissioner Jill Sommers’ testimony before a congressional committee seemed to conflict with a SEC/CFTC joint statement from Oct. 31 but jived with Schapiro’s testimony.  Sommers said they were not involved in the decision and simply were informed of it.

Schapiro went on to say, “If there are violations of the law here we will pursue them with as much vigor and force as we possibly can.” When? Pearce didn’t even respond as the comment held as little weight as the effort our regulators have put behind this outrage.

The line of questioning was a little confused as what Pearce seemed to be getting at is it not so much why MFGI went into a SIPC liquidation but why MF Global Holdings was allowed to operate independently after MFGI was put into liquidation. Allowed to sell off assets when there was a shortfall in a subsidiary.

More on that later but Schapiro sounded like so many of the MF Global executives who have testified. She did not seem  make a decision or be responsible for the actions of the agency she runs.

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.