Washington – The securities industry has learned not to underestimate Mary Schapiro.
Since arriving at the broker-dealer group NASD in 1996 on the heels of a price-fixing scandal, Schapiro has rebuilt the group’s enforcement division into a legitimate regulatory watchdog. On her watch, the NASD has expelled crooked brokers, helped clean up biased investment banking research and cracked down on mutual-fund sales abuses.
Along the way, she has won respect from all sides for her determination to put investors first and her willingness to incorporate other points of view into her regulatory decisions.
Not bad for someone who was famously dismissed as a “blond, 5-foot-2-inch girl” by the head of the Chicago Board of Trade and written off by New York state Attorney General Eliot Spitzer as “cowed.”
Last week, the NASD announced that Schapiro, 50, will become its chairman and chief executive in December, when Robert Glauber steps down.
Formerly known as the National Association of Securities Dealers, the NASD licenses, regulates and supervises 5,100 brokerage firms and 700,000 brokers, writing rules for their conduct and bringing enforcement actions against those who violate industry standards.
A former Securities and Exchange Commission member and a former chairman of the Commodity Futures Trading Commission, Schapiro has headed the NASD’s regulatory side since 1996, when she was brought in to restore credibility during criminal and SEC investigations of trading abuses on the Nasdaq, which the NASD then owned.
Schapiro basically had to rebuild the enforcement arm from scratch, and though she eventually recruited lawyers from the SEC, early on she had to do much of the work herself.
In 1996, she personally reviewed the financial statements of Comparator Systems Corp. before shutting down trading in the penny stock. A year later, she made headlines by expelling by Long Island brokerage firm Stratton Oakmont Inc. from the industry on charges of recurrent fraudulent sales practices.
When the NASD made brokers’ disciplinary records available online in 1998, that was the last straw for some brokers.
“Where is the self in self-regulation,” one complained in 1999, arguing that Schapiro had spent too much time in government.
But then the technology bubble burst and the NASD caught trouble from the other direction. Though regulators had begun investigating allegations that stock-research reports were tainted with conflicts of interest, both the NASD and the SEC were caught flat-footed in 2002 when New York’s Spitzer revealed that Merrill Lynch analysts were privately denigrating the stocks they publicly touted. Spitzer compounded the embarrassment by saying publicly that Schapiro and SEC officials were co-opted and unable to stand up to Wall Street.
But Schapiro rose to the challenge and worked with the banks, Spitzer and the SEC to forge a $1.4 billion “global settlement” that restructured Wall Street research. The NASD also cracked down on abusive mutual-fund sales practices.
“She is the real deal. She is everything you want the NASD to be,” said Stephen Cutler, former SEC enforcement director.
During the combative negotiations over the research settlement, Schapiro stood out for her reasoned tone.
“She’s tough, but she will listen, and she deals with you very professionally,” said Theodore Levine, who represented the banks in the global settlement.
Former SEC chairmen Arthur Levitt and Harvey Pitt, who often differ on regulatory issues, each had words of praise.
“Spectacular,” Levitt said.
Pitt called her selection a “no-brainer.”
Schapiro also took a cooperative approach when her examiners discovered that brokers were failing to give some customers promised commission discounts. The NASD brought 16 enforcement actions, and investors recovered $130 million.
Marc E. Lackritz, head of the Securities Industry Association, lauded Schapiro for convening an industry task force to figure out how to refund the money and prevent a recurrence.
