Nov. 26 (Bloomberg) -- Mary Schapiro will step down next month as U.S. Securities and Exchange Commission chairman, turning over the reins to Commissioner Elisse Walter in a move industry observers say will bring little change at the agency.
Schapiro, 57, who took the SEC’s top job in 2009 as it reeled amid public rebukes for failing to rein in Wall Street abuses, will leave the post Dec. 14, the agency said in a statement today. President Barack Obama named Walter to succeed Schapiro as the SEC navigates a flood of mandates from the 2010 Dodd-Frank Act and pursues efforts to overhaul regulation of money-market mutual funds and high-frequency trading.
“Elisse Walter is a safe choice,” James Angel, a visiting finance professor at the University of Pennsylvania’s Wharton School of Business, said in a telephone interview. “She has the experience, she has credibility and she hasn’t offended too many people. With all the other problems the administration has to deal with, with the fiscal cliff and everything else, the last thing they need is a major confirmation battle.”
Walter, 62, who served as interim chairman before Schapiro took over, will step in again as the agency works to implement Dodd-Frank measures such as the so-called Volcker rule limits on banks’ trading and tries to overhaul the money-market mutual fund industry after Schapiro’s initial effort ended in failure. The agency has also struggled under Schapiro’s leadership to enact rules for implementing the financial-regulation overhaul, keep pace with industry advances in high-speed trading and win legal settlements that pass muster with a public seeking to place blame for the financial crisis.
A Democrat who has backed Schapiro on virtually every rulemaking vote, Walter was an executive vice president at the Financial Industry Regulatory Authority, where Schapiro was chairman and chief executive officer before rejoining the SEC.
Her views “are consistent with the views of the administration,” Ken Bentsen, executive vice president at the Securities Industry and Financial Markets Association, said today in a telephone interview. It’s “entirely logical and appropriate” for Obama to put her at the helm, Bentsen said.
“Elisse Walter brings tremendous institutional knowledge and experience,” he said. “She’s been at the table during this tumultuous period in the financial markets.”
It was unclear how long Walter might serve as chairman. Her five-year term as commissioner expired June 5, and under current law, she’s entitled to work through the end of 2013 without being reconfirmed. The president has the right to designate any sitting commissioner as chairman.
Obama intends to make a nomination to the SEC in the near future because Schapiro’s departure will leave the five-person panel one member short, according to an administration official. The person, who spoke on condition of anonymity, didn’t say whether the nomination would be for a chairman.
“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,” Obama said in his statement, which also praised Schapiro.
Senator David Vitter of Louisiana, a Republican on the Banking subcommittee that oversees the SEC, said the selection of Walter represents an “arrogant bypassing of Congress.”
“The Obama administration needs to appoint people who are focused on ending too-big-to-fail and bailouts, but unfortunately someone with that mentality won’t even get a fair consideration,” Vitter said in a statement.
Senator Jack Reed, a Rhode Island Democrat who leads the Securities, Insurance and Investment subcommittee, said the SEC needs the leadership that a permanent appointee would bring.
“I think it’s a practical response to Mary’s departure, but I think in a timely and deliberate way they should send up a nomination to chair,” Reed said in a statement. “Elisse is extraordinary talent, but acting is different than confirmed.”
Walter had been a senior official at the National Association of Securities Dealers Inc., the brokerage industry’s self-regulator, before it merged with oversight functions of the New York Stock Exchange to become Finra in 2007. Her history at the SEC goes back to her days as a staff lawyer starting in 1977, according to her SEC biographical entry. Like Schapiro, Walter also served at the Commodity Futures Trading Commission, where she was general counsel.
Schapiro, a former CFTC chairman, was appointed by Obama to run the SEC in January 2009, shortly after the credit crisis pushed Congress to approve billions of dollars in bailout funds for Wall Street firms that became overextended on the agency’s watch. A political independent, Schapiro replaced Christopher Cox, a Republican who had held the office since 2005, as she became the first woman to lead the agency on a permanent basis.
“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,” Obama said. “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.”
After passing a set of money fund rules in 2010 that tightened credit standards and introduced liquidity minimums, Schapiro argued the funds still posed a danger to the global financial system and pushed for even tougher changes opposed by asset managers.
Schapiro shelved her plan in August when all the other commissioners except for Walter said they wouldn’t support it. Looking to prevent the Financial Stability Oversight Council from taking over the process to resolve the impasse, fund company executives last month floated a compromise plan built around allowing funds to restrict withdrawals when they are under stress.
Walter’s designation as chairman “means more of the same, although any fresh face has the potential for renewing compromise talks,” Peter Crane, president of money-fund research firm Crane Data LLC, said in an interview.
“A new SEC chair supporting systemic rules would make them a lot easier to finalize, but Treasury holds the big gun,” Karen Shaw Petrou, managing partner of Washington-based research firm Federal Financial Analytics Inc., said in an e-mail.
Schapiro’s SEC also struggled to show it has a grasp on an increasingly fragmented market dominated by electronic and high-speed trading. She supervised adjustments of trading practices and set the stage for a future computer surveillance system after a computer program employed by one firm sparked a 20-minute plunge in stock prices on May 6, 2010, temporarily erasing $862 billion of market value.
Following Knight Capital Group Inc.’s $457 million loss because of a trading error in August, the agency is grappling with the need to ensure that brokers and exchanges can avoid technology mishaps that may harm investors. Nasdaq Stock Market flubbed Facebook Inc.’s initial public offering in May, two months after Bats Global Markets Inc. withdrew its own IPO because of a technology malfunction.
The start of Schapiro’s tenure was dominated by public criticism over the agency’s failure to detect Bernard L. Madoff’s multi-billion dollar fraud, which was uncovered a month before her appointment. At the same time, the regulator was under fire for its role in supervising Lehman Brothers Holdings Inc., which filed the biggest U.S. bankruptcy in September 2008.
Kayla Gillan, Schapiro’s deputy chief of staff until last year, said her former boss deserves credit for fighting back against arguments that the SEC be dissolved after its failures.
“Mary has served four of the most difficult years the SEC has ever faced,” Gillan said in an interview. Gillan, now a principal at PricewaterhouseCoopers LLP, said Schapiro “restored the agency and the capital markets to a place the investors can rely on them again.”
Schapiro tapped a former federal prosecutor, Robert Khuzami, to reinvigorate the SEC enforcement division, setting in motion the biggest overhaul in that unit’s history. The division, which has since filed dozens of cases related to the financial crisis, has also faced criticism from lawmakers, judges and investors that it has gone easy on top executives.
In the most prominent enforcement effort after the 2008 financial crisis, Schapiro’s SEC sued Goldman Sachs Group Inc. in 2010, accusing the Wall Street firm of fraud when it sold investors a mortgage security without disclosing that hedge fund Paulson & Co. helped pick the loans and bet against them. Goldman Sachs paid a record $550 million fine.
Paul Atkins, a former Republican SEC commissioner who is managing director of Patomak Global Partners LLC, said Schapiro “politicized the SEC on rulemaking and enforcement.”
“She’s been pandering to special-interest groups” by pushing shareholder access to company board ballots, requiring manufacturers to report use of metals tied to conflicts in central Africa and pursuing cases such as the one against Goldman Sachs instead of “what the SEC has needed, a focus on the nuts and bolts of the agency and recovering from Madoff” and a Ponzi scheme run by R. Allen Stanford, Atkins said.
Schapiro’s leadership drew praise from former SEC Chairman Harvey Pitt, a Republican appointed by President George W. Bush.
“I think she’s been a spectacular chair and done a great job under difficult and trying conditions,” Pitt said in an interview.
Pitt, who hired Walter for her first stint at the SEC as a lawyer in the general counsel’s office, said he doesn’t expect an ideological shift even as she puts “her own stamp on things.”
“She’s pragmatic; she wants to get the job done,” Pitt said.
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