April 3 (Bloomberg) -- Mary Schapiro’s decision to join Promontory Financial Group LLC after running the U.S. Securities and Exchange Commission amplifies the firm’s competitive advantage as an employer of former regulators.
Schapiro, 57, joined Promontory yesterday as a managing director advising clients on risk management and corporate governance, Washington-based Promontory said in a statement. Promontory has carved out a niche in the U.S. capital, hiring heavy-hitting former regulators to advise banks and other clients prepare for scrutiny by the agencies they left.
“They’re the go-to firm when there’s a boo-boo moment,” said Cornelius Hurley, director of the Boston University Center for Finance, Law & Policy. “And there’s a reason for that, because they have tremendous credibility and a lot of expertise.”
Critics of the so-called revolving door between government and business say moving between the two can compromise the objectivity of regulators and give companies leverage to unduly influence rules.
In an interview, Schapiro said that criticism doesn’t fit her situation because she won’t go back to government. She said she has pledged not to lobby or otherwise try to influence a federal agency while at Promontory.
“I spent four years working shoulder-to-shoulder with the SEC staff coming out of one of the most difficult periods in the agency’s history, and I would be profoundly uncomfortable going back to those people and asking them for anything or trying to influence them,” Schapiro said.
Dennis Kelleher, president of the nonprofit advocacy group Better Markets, said Schapiro’s vow to avoid lobbying is meaningless because behind-the-scenes work can be more valuable to clients.
“Providing information, perspective, context, names, views previously expressed, background, judgments, contacts and direct phone numbers, among many other things, to clients, directly or indirectly through colleagues and third parties, is actually much more valuable,” Kelleher said in a statement.
A career regulator who also ran the Financial Industry Regulatory Authority and Commodity Futures Trading Commission, Schapiro joins an expanding team of former government officials landing at Promontory. The firm, founded in 2001 by Eugene Ludwig, former head of the Office of the Comptroller of the Currency, hired OCC chief counsel Julie Williams after she stepped down last year. And the door spins in both directions; to replace Williams, the OCC hired a Promontory managing director, Amy Friend.
“What really has made them different is they have a focus on hiring worldwide a lot of former regulators,” said Annette L. Nazareth, a former SEC commissioner who is a partner at law firm Davis Polk & Wardwell LLP.
Former SEC officials at Promontory include Laura S. Unger, a commissioner from 1997 to 2002, and Kathleen Hamm, a former assistant director in the enforcement division.
Schapiro’s move to Promontory also reunites her with Frank Zarb, who was chairman of Finra’s predecessor, the National Association of Securities Dealers, when Schapiro was president of NASD Regulation. Zarb, 78, is Promontory’s non-executive chairman and a member of its advisory board. Arthur Levitt, a former SEC chairman and board member of Bloomberg LP, the parent of Bloomberg News, also is a member of Promontory’s advisory board.
Under an executive order signed by Obama in 2009, former federal officials such as Schapiro are barred from communicating with their former agency for two years following their exit from government.
Schapiro took over at the SEC in 2009, after Lehman Brothers Holdings Inc. and Bear Stearns Cos. collapsed on the agency’s watch. She won praise from a predecessor, Harvey Pitt, for helping to restore the agency’s credibility, while investor advocates and other critics said she failed to hold banks accountable and manage policy disputes among commissioners.
Promontory’s reputation suffered in recent months as a result of its participation in a government settlement with mortgage servicers over improper foreclosures. Promontory and other consultants, including Ernst & Young LLP and PricewaterhouseCoopers LLP, were hired by many of the largest paid about $2 billion to review whether any foreclosures done in 2009 and 2010 wrongfully harmed homeowners.
Lawmakers have criticized the process because it yielded no compensation for wronged borrowers. Regulators later pushed for a $9.3 billion settlement that mostly ended the consultants’ reviews.
Promontory and other consultants will be the focus of an April 11 hearing of a Senate Banking subcommittee headed by Democrat Sherrod Brown of Ohio that will examine the relationship among federal regulators, banks and third-party consultants.
Promontory “has a reputation for integrity and excellence and clearly I did my due diligence before I made a decision,” Schapiro said.
Schapiro’s move to Promontory completes her shift from government to the business world. She was nominated last month to serve on General Electric’s board of directors, who were paid at least $250,000 last year, according to GE’s latest proxy statement. Schapiro previously served on the boards of Kraft Foods Group Inc. and Duke Energy Corp. before leaving those roles to become SEC chairman in 2009.
In a phone interview, Levitt said Schapiro would be a “huge asset” for Promontory because she is well regarded and brings “recent intimate involvement” with regulatory initiatives. The firm’s stable of former regulators is a competitive advantage, said Levitt, who added that Schapiro would be asked to advise clients how to comply with new rules and avoid dust-ups with regulators.
“That is an important and legitimate use of her time without crossing the line of conflicting with her previous government service,” said Levitt, who was SEC chairman from 1993 to 2001.
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