“First, we have endorsed the creation of a single financial markets stability supervisor…Second, the industry strongly supports the administration’s proposal for a public-private partnership to absorb troubled assets…Third, it is clear the complexity of some financial instruments went too …Markets themselves have also imposed some much-needed discipline, declaring the end of complex and confusing products such as collateralised debt obligations squared….Finally, we firmly believe that there have been excesses on the compensation front….compensation should not encourage excessive risk-taking, but should promote business sustainability and be aligned with the best interests of shareholders, the financial system and the economy.”

Timothy Ryan, President and Chief Executive Officer. The Securities Industry and Financial Markets Association (Sifma). June 8, 2009

Alliance For Economic Stability

Home U.S. SEC Initiative SEC Ethics and Conflicts Reports Mary Schapiro’s Conflicts of Interest and Multi-Million-Dollar Annual Compensation for Regulatory Work.

Mary Schapiro’s Conflicts of Interest and Multi-Million-Dollar Annual Compensation for Regulatory Work.

SEC Chairman Mary Schapiro earned a multi-million-dollar salary performing regulatory work as a FINRA executive. From 2002 to 2008, Schapiro earned $1.2 to $3.2 million per year as a FINRA executive. Her current salary heading the SEC, which oversees FINRA, is less than $200,000. FINRA is a private organization that performs regulatory work assigned by the SEC. FINRA is also overseen exclusively by the SEC. Schapiro has been listed by Washingtonian Magazine as the fourth richest member of the Obama administration, with up to $41 million in assets, but Schapiro’s fortune came entirely from working as a regulator, unlike any of the other richest administration officials listed in the article.

Schapiro’s fortune made from being a regulator has been neglected by the press. For instance, in a recent cover story for TIME magazine, a reporter wrote about Schapiro not having sought the 8-figure salaries of Wall Street. The reporter did not acknowledge that Schapiro made a 7-figure salary or may have an 8-figure net worth from performing regulatory work at FINRA. FINRA’s executive compensation for government-assigned regulatory work is a key cause of conflicts of interest in regulatory oversight of the financial system. FINRA executives have a financial incentive to let the securities firms regulated by FINRA increase their profits as much as possible, even if the firms engage in conduct counter to investor interests. As an example of this, a former FINRA vice-chairman, Salvatore Sodano, was recently charged with exploiting regulatory deficiencies for his personal gain. The SEC has an established record of not opposing, allowing broad discretion to, or even deferring to FINRA. As particularly evidenced with Mary Schapiro, who went from the SEC to FINRA and then back to the SEC, there is a revolving door between the SEC and FINRA, with SEC staff tending to go to FINRA for higher pay. The AES has published an in-depth report on conflicts of interest inherent in FINRA. Schapiro and her FINRA colleagues have been “entrepreneurial regulators,” a term coined by the AES in a letter to Congress. As entrepreneurial regulators, FINRA executives have generated fortunes from repeated private regulatory mergers and spin-offs, such as the 2007 merger that created FINRA from NASD and NYSE Regulation, in which FINRA executives were accused of lying to the firms they regulated concerning pay-outs to the firms as part of the merger. FINRA also acquired and later sold the American Stock Exchange (“AMEX”). The SEC sanctioned the AMEX for regulatory deficiencies during the time that FINRA owned it.


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