Schapiro money-fund failure marks diminished role for SEC

SEC Chairman Mary Schapiro (Source: Bloomberg) SEC Chairman Mary Schapiro (Source: Bloomberg)

What Mary Schapiro considered her most important task had just run aground, a symbol of the aspirations and missed opportunities of her tenure as head of the U.S. Securities and Exchange Commission.

Schapiro worked for two years on a plan to head off what she calls the “terrifying” prospect of a run on money-market mutual funds like one that forced a U.S. rescue in 2008. After fellow commissioners refused to follow her lead, she teared up as she worked on a statement accusing opponents of having their heads “in the sand,” two people involved in the process said.

It’s not surprising that Schapiro’s frustrations boiled over that August evening. She has told friends that the late nights and almost constant policy battles have left her exhausted and eager to depart after the November election.

Admirers and critics agree Schapiro rescued the agency from the threat of extinction when she was appointed by President Barack Obama four years ago. Still, she hasn’t fulfilled her mission -- to overcome the SEC’s image as a failed watchdog by punishing those who steered the financial system toward disaster and by proving regulators can head off future breakdowns.

“It was harder than I thought it was going to be,” Schapiro, 57, said during an interview in her office that looks out on the Capitol dome.

“You have this nice little box of things you want to do all tied up with a bow, and you walk in the door and it’s very hard to keep at least one eye on that agenda while you’re dealing with the flash crashes and the new legislation and the whole range of things that happened,” she said.

New ‘Sheriff’

Taking over as the SEC was pilloried for letting bankers run amok and for missing frauds like Bernard Madoff’s multi-billion-dollar Ponzi scheme, Schapiro won praise for tackling operational problems. Thrust into the limelight, she posed for the cover of Time magazine as a “sheriff of Wall Street” and was ranked the world’s 17th most-powerful woman by Forbes.

She soon found herself contending with issues ranging from stock-market technology going haywire to employees viewing pornography at work, while managing a raft of Wall Street probes and new rules mandated by the Dodd-Frank Act.

She testified in Congress more than 40 times, advocating for the agency and admitting mistakes, including a $557 million, 10-year lease the SEC signed without competitive bids for about 900,000 square feet of office space, much of it unneeded.

Goldman Settlement

Schapiro rebuilt the enforcement unit with industry experts and more robust technology to root out wrongdoing related to the collapse of the housing bubble and rampant speculation in toxic debt instruments that froze credit and led to the bankruptcy of Lehman Brothers Holdings Inc., the biggest in U.S. history.

SEC lawyers forced Goldman Sachs Group Inc. to settle for $550 million and Angelo Mozilo, co-founder of lender Countrywide Financial Corp., to pay $67.5 million. The SEC also sued former heads of Fannie Mae and Freddie Mac, who are fighting claims they understated investments in subprime loans.

Still, SEC lawyers didn’t take action against anyone at Lehman or American International Group Inc., another firm at the epicenter of the credit crisis. The agency was attacked by lawmakers, judges and consumer groups for making few claims against individual Wall Street bankers.

Investor advocates who lauded Schapiro’s appointment grew disappointed over time. They said she didn’t have the fortitude to overcome splits inside the commission, lobbying and legal assaults by the financial industry and demands from a partisan Congress. That didn’t play to her strengths as a conciliatory manager and career regulator.

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