I almost had a heart attack when I was at the check out counter during one of my late night supermarket runs. There in front of me, next to the People Magazine–was the Time magazine May 24, 2010 edition. On the cover were three very influential women. The first was Elizabeth Warren, Harvard law professor and overseer of the $700 billion government bailout of the banking system. Secondly, there was Sheila Bair, head of the Federal Deposit Insurance Corporation. Lastly there was Mary Shapiro, front and center, the new chairman of the Securities and Exchange Commission.
I like Elizabeth Warren a lot. She is gutsy and tells the truth. Feisty, like a junk-yard dog. Feel pretty much the same about Sheila Bair, she is her own person. But Mary Shapiro, a sheriff? You got to be kidding me Time. Are you smoking your new hydroponic stash or just Northern California semsimilla?
Time states, “Unlike many of the men they oversee, the new sheriffs of Wall Street never aspired to eight figure compensation packages or corporate suites.” Time magazine is joking. It is apparent that the press, like much of Congress does not understand the revolving door practice between Wall Street and the regulators, and the oxy moron self-regulation business. For starters, they could have drilled down a little bit about Finra–where Mary Shapiro was the former CEO.
Shapiro may have not looted shareholders like Stan O’Neil from Merrill Lynch, Dick Fuld from Lehman Brothers, Jim Cayne from Bear Stearns–but she did not leave the self-regulator Finra with an empty pail. Finra is the self-regulatory body that missed Bernie Madoff’s $50 billion scandal and the R. Allen Stanford $7.2 billion fraud. It has huge oversight of over 4,900 broker dealers and more than 664,975 registered representatives. Often Finra has been accused of letting the big Wall Street broker-dealers get away with miscreant behaviour while crushing the little guy. I know, some years back Finra’s predecessor the NASD put me through hell on a mistake they made. It was a traumatic experience and they never apologized.
While investors see all red in their retirement accounts, self-regulators at Finra see all green.
In 2008, the last year Mary Shapiro was CEO Finra she made $3.2 million at the not-for-profit regulator. In 2009, Shapiro received $7.2 million as part of her accumulated retirement plan benefits package ( not-for-profit?). Shapiro’s compensation package also included $20 thousand for club memberships, $20 thousand for personal and financial and tax consulting–as well as a car and driver in Washington D.C. and New York. Yet Shapiro’s compensation is not the highest, Robert Glauber, Shapiro’s former boss and now a law professor at Harvard Law School, got $6 million in 2006. But get this one, Salvadore Sodano, who retired from the NASD in 2005, got his final $3 million of his $22 million exit package he got in 2005! Oh yeah, Douglas Shulman, who is now the Internal Revenue Service Commissioner, received $2.74 million for working a partial year at Finra in 2009. Total benefits and compensation costs for Finra jumped to $541.7 million in 2008, with 2,800 employees, brings average compensation to $204 thousand per employee.
Mary Shapiro, while she was at Finra appointed Mark Madoff, Bernie Madoff’s son, to the National Adjudicators Council–the regulatory body that reviews disciplinary action by Finra. Shana Madoff, Bernie’s niece, was the compliance officer at Madoff’s firm, but also a member of the compliance committee of Finra.
It gets worse. Lena Stinson, was the director of compliance for R. Allen Stanford’s Ponzi scheme, served on Finra’s membership committee. Frederick Fram, chief operating officer of Standford Group Holdings, served on Finra’s education committee.
What sparked it off was that afternoon during lunch, I–forever the CSPAN junkie–was watching the new Finra chairman Richard Ketchum testify before Congress about the recent market meltdown which lost one thousand points in a nano second. Ketchum said he was just a regulator. Yikes.Several months earlier Ketchum was testifying before Congress lobbying for Finra to get more regulatory authority. Yet where was Ketchum before he was at Finra? Ketchum was former General Counsel for the investment bank at Citigroup–which is undoubtably the worse managed bank in history, although at this point it is a toss-up between UBS, Royal Bank of Scotland, Wachovia or Bank of America.
Finra did not only look out for the common man’s money, it could not even look out for its own. When Finra was formed with its merger with the National Association of Securities Dealers (NASD) and the regulatory arm of the then New York Stock Exchange (NYSE) it inherited–some say took–about $2.24 billion in cash by 2007. Finra, like Homer Simpson, followed the market frenzy like the rest of Wall Street, under Shapiro and then CEO Robert Glauber, who is now a Harvard law professor. Finra–with the assistance of Harvard’s endowment manager Jack Meyer–invested the billions with 60 different money managers, including 10 unregulated hedge funds and private equity leveraged buyout shops. Can’t believe it–regulator loses a bundle in unregulated investments. Investment included infrastructure bets and Russia funds, with opaque disclosures and vague rates of return. Based upon 990 tax filings, Finra went on to lose about $696 million or 27% of its portfolio in unregulated investments!
An internal report by Finra’s board of governors, entitled “Report of the 2009 Special Review Committee on Finra’s Examination Program in Light of the Standford and Madoff Schemes,” was not kind to Finra either. It revealed that the self-regulator was bogged down in bureaucracy and inept staff that lacked the basic understanding of the scope of their jobs. In February 2010, the Project on Government Oversight (POGO) slammed Finra as well for its incestuous relationships between self-regulatory agencies (SROs) and the financial service industry. All true, but I guess it makes no sense to Time.
The last time Time pulled this, they put up “Committee to Save the World” with Alan Greenspan, Larry Summers and Robert Rubin in February 1999. For Elizabeth Warren and Sheila Bair, I guess two out of three ain’t bad.