Correction to This Article
This article incorrectly said that Securities and Exchange Commission Chairman Mary Schapiro began her career as an enforcement lawyer at the agency. She began her career as an enforcement lawyer at the Commodity Futures Trading Commission.
MARKET COP A Fight for Relevance

SEC Chief Strives To Rebuild Regulator

By Zachary A. Goldfarb
Washington Post Staff Writer
Thursday, June 4, 2009

On the morning of Feb. 4, the chairman of the Securities and Exchange Commission, Mary Schapiro, sat in a confidential meeting reviewing financial crime cases when an assistant handed her a note. Schapiro read it and then asked everyone in the room to leave, except for her fellow commissioners and their aides.

She learned that top SEC officials had just been pilloried at a House committee hearing on the agency's failure to detect Bernard Madoff's massive fraud. When the officials refused to answer questions about the case, one lawmaker lamented that the SEC had acted like it had been "anointed by God to be all righteous."

With the room cleared, Schapiro asked whether, before her arrival eight days earlier, the agency had placed legal limits on what officials could tell Congress. It had not. Then, she immediately phoned the committee leaders and wrote a letter promising "a full accounting, both of Mr. Madoff's activities and why we did not detect the fraud."

Schapiro's rapid response offers a window into her strategy to rebuild what was once the nation's premier financial regulator and preserve the agency as the Obama administration and Congress set out to shape the future of financial regulation.

Inside the agency, Schapiro is working to step up enforcement efforts, pushing cases linked to the financial crisis and freeing investigators to more vigorously pursue financial wrongdoing. She is also pursuing regulations to govern hedge funds, derivatives, short-selling, money managers, corporate disclosures and governance.

The agency has been under enormous pressure to change. Besides the fallout from the multibillion-dollar Madoff fraud, the SEC has been hamstrung by years of bureaucratic infighting and wounded by a series of internal investigations into suspicious trading and other potential misconduct by employees. Now, the agency is fighting to protect its domain as Obama administration officials discuss stripping key powers.

Schapiro's efforts to reform the agency are still getting off the ground and have yet to gain the prominence of actions taken by the Treasury Department and Federal Reserve to stabilize the financial system. But by taking so many actions so quickly, Schapiro is trying to send the message that the SEC is an aggressive and relevant regulator.

"I wanted to be very clear almost from my first day -- not just with words, which are pretty easy to string together, but with actions -- that this is a new SEC that is moving in a decidedly different direction and at a decidedly different pace," she said in one of a pair of lengthy interviews.

Since 1934, the SEC has been writing rules for companies that participate in the financial markets and penalizing firms that break them. It is the agency's job to ensure that investors have honest and timely information, that funds and investment firms don't abuse their clients and that public companies give investors accurate data about their financial condition. But its recent past has been troubled. It oversaw the investment banking industry that all but collapsed last year, dragging down the market. The SEC leadership has appeared missing in action during moments of crisis. And the agency's pride -- enforcement -- has suffered.

"Our markets are vulnerable if we're not able to restore confidence," Schapiro said. What investors "need to see is that the rules that are in place and will be in the future are enforced and aggressively enforced. If they don't see that, their reluctance to engage the capital markets will be pretty significant."

But the messaging only goes so far. More than three months after she promised a full accounting of the Madoff fraud, neither Congress nor the public has received one.

Crisis Drives Change

Schapiro sat down in February in the agency's ceremonial conference room for a private meeting with a dozen enforcement division leaders.

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