"What you have to change in Wall Street is you have to make sure that in addition to carrots, there are sticks. And it can’t be a one way street where they are making ungodly amounts of money when things are good and then they move on to someplace else for a while when things are bad.”

Warren Buffet Business Wire Interview October 20, 2009

Alliance For Economic Stability

Home U.S. SEC Initiative SEC Ethics and Conflicts Reports Alliance for Economic Stability Investigates SEC Chairman’s Violations of President Obama’s Executive Order on Ethics.

Alliance for Economic Stability Investigates SEC Chairman’s Violations of President Obama’s Executive Order on Ethics.

The Alliance for Economic Stability (AES) is investigating violations of President Obama’s executive order on ethics by the Securities and Exchange Commission ("SEC") Chairman Mary L. Schapiro.

The AES discovered that the current SEC Chairman, Mary Schapiro, has violated the President’s executive order on ethics, due to her previous employment as CEO of FINRA, the private company that performs regulatory work under the oversight of the SEC. Schapiro earned between $1.2 and $3.2 million per year between 2002 and 2008 as a FINRA executive, which does not include deferred benefits and savings plans and additional compensation Schapiro received from also serving as a director of several public companies during the same period despite the directorship’s plain conflict with her regulatory duties. See AES report titled “Mary Schapiro’s Conflicts of Interest and Multi-Million-Dollar Compensation for Regulatory Work.” The executive order prohibits the President’s appointees from working on matters as government officials that may substantially affect their previous employers. The order was given a great deal of public attention as part of the President’s efforts to clean up Washington and prevent conflicts of interest in the “revolving door” between government and the private sector. Click here to see the executive order. Before her appointment to the SEC, Schapiro was the CEO of FINRA. As Chairman of the SEC, Schapiro has direct power to appoint the individual directors directly responsible for FINRA oversight, which presents a direct and material conflict of interest due to FINRA being a private contractor without any other government oversight. In her first year at the SEC, Schapiro used her power, granted by the Reorganization Act of 1949 (link), to appoint new directors overseeing FINRA. These include the directors of the Division of Trading and Markets, the Division of Enforcement, and the Office of Compliance Inspections and Examinations. Even if Chairman Schapiro were to recuse herself from actions directly related to FINRA, her decisions not to take actions impacting FINRA present material conflicts of interest. For instance, the SEC has taken no action against FINRA related to FINRA’s failures to detect the Madoff and Stanford Ponzi schemes, or Lehman’s Repo 105 scheme. On the contrary, the SEC under Schapiro has allowed FINRA to lobby Congress using a report generated by FINRA itself that finds FINRA not responsible for Madoff and Stanford, despite conclusive evidence to the contrary. See the related AES report on FINRA. In testimony before Congress, Schapiro has also avoided addressing FINRA’s responsibilities related to the failure of Lehman Brothers and the use of “Repo 105” in its FINRA-registered broker-dealer. See the related AES report on Schapiro’s testimony about Repo 105. Chairman Schapiro does not appear on official government lists of the President’s appointees who received a waiver from the executive order. Schapiro also made a separate agreement on ethical standards in a letter to the U.S. Office of Government Ethics's designated official at the SEC. The letter, however, does not set out any potential consequences for violations of the agreed-to standards. The AES believes that Chairman Schapiro’s apparent violation relate to larger conflicts of interest in the status of FINRA as a private company performing regulatory work and in FINRA’s executive compensation – both of which have not been addressed by Washington officials in the financial regulatory reform measures currently being debated or by the press. The AES has written to the Obama administration urging for an investigation to be conducted into this matter, and the AES will be conducting further investigation privately. The AES will also be investigating whether other government officials are in violation of the President’s executive order.


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