Is Mary Schapiro Set For Another Showdown With Judge Rakoff

One of the pieces we highlights in today's frontrunning was commentary by Susan Antilla at Bloomberg, discussing the perfect world in which the SEC wasn't merely yet another tentacle of the Wall Street syndicate, slapping wrists and issuing statements now and then to remind of its worthless existence. One of Susan's points brilliantly Swiftian in its simplicity: "Considering the blinding evidence of dysfunction, it occurs to me that enough is enough. Why not just shut the place down?" Many would say this is such an obvious observation that it has escaped the thinking of the majority. Yet when this market bubble pops, which it eventually will, unless the Fed can somehow find a way to bring the value of the dollar to 0, a furious America will once again demand the heads of those who were supposed to oversee the irrational exuberance in progress. At that point Mary's tenure will be over, yet the travesty that is the SEC will likely continue in some form.

However, there is a chance for an earlier resolution. Judge Rakoff, who so far has been the critical voice of sanity in a corrupt world, may cross paths with Mary even before her ultimate downfall.

As Susan points out, Mary is under fire in several lawsuits, and in one, the judge recently assigned provide some semblance of judicial logic is none other than Jed Rakoff:

It’s worth noting that Finra is a defendant in three lawsuits dating from Schapiro’s tenure. One of them, by Standard Investment Chartered Inc., names Schapiro as a defendant and seeks to make unredacted versions of certain documents public. Those might wind up embarrassing the woman in charge of the SEC if they show that she misled brokerage firm members about the “special member payments” they got when Finra was formed in 2007.

You probably haven’t heard the last on this one: On Sept. 11, Standard and Finra heard from the court that the case had been assigned to Jed Rakoff. We may not get good regulation from our pathetic securities agency. But you can’t say they don’t put on a good show.

One can only hope that Mary will be promptly booted out in one way or another before she has done too much irreparable damage, and will be replaced with someone who actually has the investors' interest at heart, not that of a Wall Street run amock by algorithms that now trade a bankrupt AIG ever higher, and a banking system that essentially reshuffles free Federal money into purchasing equities day in and day out.

Comments

[buzzsaw99]

Bark like a dog Mary, now roll over. Good girl!

[Mediocritas]

Rakoff is awesome, but he'll probably die in his sleep from an unexpected heart attack in 5..4..3..

[SWRichmond]

A false flag op would be perfect for this; simply independently arrange for selected targets to be in some public location at the same time...

[SWRichmond]

"Considering the blinding evidence of dysfunction, it occurs to me that enough is enough. Why not just shut the place down?"

Libertarians consistently argue that "regulation" merely provides cover for corruption, and a false sense of security for the unknowing masses.  Yes, by all means, close the place.

[JohnKing]

Mary is probably in the Ken Lewis squeeze, Bazooka Ben and Tax cheat Timmy are "encouraging" cooperation with malfeasance for the sake of the financial system.

May as well just junk the SEC.

[lizzy36]

Ms. Schapiro is very busy today....

She must have read the article in the NYT's 3 weeks ago. 

The U.S. Securities and Exchange Commission is “aggressively” reviewing the sale of bonds based on life insurance policies to determine whether the process is fair to policyholders and investors, Chairman Mary Shapiro said.

http://www.bloomberg.com/apps/news?pid=20601087&sid=alCpWhGVrhKk

[Hrundi V. Bakshi]

lizzy, fair point however you are giving Ms. Shaprio too much credit for being only 3 weeks behind.

[Jim_Rockford]

      Here's one of her earlier articles dealing with the newly mentioned Rakoff case, from Bloomberg.com:  http://www.bllomberg.com/apps/news?pid=20601039&sid=a7Z0kTRepLKM&refer=home#

 Obama’s Market Cop Pulled Shades on Sketchy Deal: Susan Antilla

Commentary by Susan Antilla

Jan. 2 (Bloomberg) -- There’s always somebody left grousing when a financial deal gets done. The buyer says he paid too much, the seller says she didn’t get enough, and the employees say they got the shaft when the merger led to layoffs.

When the dealmakers are securities regulators and the injured party is a noisy former regulator who sniffs out scams for a living, the resulting brawl can be more raucous than most.

Consider the complaint filed in federal court last week against the Financial Industry Regulatory Authority Inc. and its chief executive, Mary L. Schapiro, President-elect Barack Obama’s pick to run the Securities and Exchange Commission.

Benchmark Financial Services Inc. of Ocean Ridge, Florida, is suing Finra and its top officers for allegedly deceiving members of NASD -- formerly the National Association of Securities Dealers -- about terms of the merger of NASD’s regulatory unit with that of the New York Stock Exchange in July 2007. The combination created Finra.

Benchmark is run by Edward Siedle, a former SEC lawyer who today investigates pension fraud and other financial abuses. The firm, a Finra member, has now twice challenged the regulator that oversees it.

Siedle sued NASD in 2002 when it tried to block him from publishing a book that examined and ranked the disciplinary records of member firms. Amid NASD’s objections and threats to sue him, Siedle scrapped the project.

The $35,000 Payment

This time, he’s arguing that Finra gave members a deal that stiffed them a bundle of money.

To get that deal through, the brokerage firms that made up NASD had to vote for by-law changes that were dosed with generous amounts of both carrot and stick. Vote for the changes, and you get a $35,000 “special member payment,” NASD told its 5,100 members in December 2006. Vote against it, and you risk that the SEC will “make its own decision about the structure and governance” of NASD.

NASD’s proxy said the $35,000 payments would come from “the expected value of the incremental cash flows” from the consolidation. Schapiro told an audience at a road show that they would come from the proceeds of NASD’s sale of Nasdaq, according to a redacted Finra memo filed in a 2007 court case.

Thus motivated, NASD members approved the by-law changes at a special meeting on Jan. 19, 2007. Helping seal the vote was NASD’s claim in its proxy and at road shows that a payment exceeding $35,000 per firm “is not possible” because it could “seriously jeopardize” its tax-exempt status.

Claimed Clairvoyance

How the clairvoyants at NASD could have known that when the proxy was published on Dec. 14, 2006, is anyone’s guess, because it would be months before the agency received a ruling from the Internal Revenue Service. The information wasn’t in hand even by Jan. 19, 2007, when members voted to change the bylaws, thus paving the way for the merger.

On March 13, 2007, with the road show completed and the voting closed, NASD finally got its IRS ruling. I bet you’d like to know what the IRS said. Well, so would I. And so would the former NASD firms who settled for $35,000. And so would Edward Siedle.

Contents of the unredacted IRS ruling are confidential, a Finra spokeswoman said in an e-mail to Bloomberg News. (While the letter is public, the redacted numbers aren’t.) Ditto for contents of a fairness opinion that NASD sought from Houlihan Lokey Howard & Zukin Financial Advisors, Inc. before the deal was done. All that stuff has been filed under seal in a lawsuit that preceded Siedle’s, Standard Investment Chartered Inc. v. National Association of Securities Dealers.

Must Be Good

It must be pretty sexy stuff, because when a lawyer for Standard Investment wrote to lawyers at NASD and NYSE on July 19, 2007, to suggest that the documents under seal be shared with the SEC, the answer was an absolute no.

“We cannot agree with your proposal,” NASD lawyer F. Joseph Warin replied.

“You do not have permission to share with the SEC (or anyone else) any documents produced by NYSE in this litigation,” wrote NYSE lawyer Douglas Henkin.

The SEC can’t see documents that self-regulatory organizations produce in a historic merger that the SEC must bless? Did I miss the press release that announced that the SEC is no longer in charge of the so-called SROs?

The still-secret IRS redactions are a major target of Siedle’s lawsuit, which doesn’t seem to be rattling too many nerves at Finra. The suit “restates allegations that have already been dismissed by the court,” Finra spokesman Nancy Condon said in an e-mail to Bloomberg. “We think this suit is equally without merit.”

Fresh Case

One of the lawyers who brought both the Standard Investment and Benchmark suits, Jonathan Cuneo, said he has filed an appeal in the Standard Investment case. As for the recent Benchmark complaint, Cuneo says he has additional information about NASD’s actions that make this case a fresh, stronger one.

Siedle, in the meantime, was readying to leave for vacation on Dec. 23 when the phone rang in his Florida office. A Finra examiner was calling to say that she would be there the first week of January to inspect his books and records. Siedle said he replied, “Funny thing is, just yesterday afternoon a reporter from Bloomberg asked me if I got harassed by Finra, and I said no. And here is your call.”

These days, it’s nice to know that examiners are showing up to kick the tires of brokerage firms. Who, though, is kicking the tires of our regulators? When the nation’s biggest non- governmental securities regulator is ducking behind sealed court documents and redacted documents, you have to wonder what they have to hide.

(Susan Antilla is a Bloomberg News columnist. The opinions expressed are her own.)

[buzzsaw99]

The SEC blows investment bankers by day, helps them cook the books at night.

[Anonymous]

Expect more of the same:

"Insiders" Continue to Show Contempt For the Rule of Law. Latest Example: Frontrunning Perot Option Buyers Wipe Their Ass With the SEC.

http://tinyurl.com/kqx8nz

http://www.monkeybusinessblog.com/mbb_weblog/2009/09/insiders-continue-t...

[andrew123]

I am not sure you can use AIG as an example of the market being irrational.  I don't know what hte number is, but there is some amount of tax payer dollars that Geithner could conceivably give to AIG (through hidden subsidies, loss sharing agreements, asset purchases, whatever) to make them a viable company.  Is it irrational to believe that Geithner won't do this?  Why?

[Anonymous]

This is just a prelude for the SEC's responsibilities to be consolidated into a new, super duper regulatory agency as part of the upcoming financial reform. Mary already knows she will have to fall on her sword.

[deadhead]

Perhaps we should lure Hank Paulson out of retirement to run the SEC?

[Cognitive Dissonance]

I suggest we use Kibbles & Bits to lure Hank out of retirement.

[LoneStarHog]

I am sure that this post will perturb many brain-dead feminists. (Pardon the pleonasm)

Having lived through the tumultuous 1960s and one of its facets, the Sexual Revolution, I would like to make one observation and remind everyone of a tired old mantra:

It Would Be So Different If Women Were In Charge (i.e. In Power)

Having been a staunch supporter of The Women's Movement (i.e. Women's Liberation), but supporting only the intellectual/moral honesty part of the movement, I argued that women are just humans and it would be no different.  Women can be just as intellectually dishonest and corrupt as any man.

Well we now have women in high-level positions in all levels from government to corporate. (Pelosi, Clinton, Shapiro, Bair, et.al.)

Question:  Do You See Any Difference Since "Women Are In Charge"?

[Anonymous]

lmao....i said the same thing back then - it would
be no different whatsoever than when the leadership
positions were held primarily by men....

if i weren't in such polite company i would
tell schapiro to shove it up one of her cavities
and i don't mean ass....

[Ned Zeppelin]

LoneStar: How long has it been since the divorce?

[LoneStarHog]

1978.  She was a very intelligent, educated and beautiful woman, but presented me with a choice -- her or the Harley.

Needless to say...

[bugs_]

Its more worser dood.

[Anonymous]

Mary is a good ole gal from the Rubin/Summers era.
Who else would take this job at this time?
She's was tapped as a placeholder, to alert the markets that no major changes were going to be initiated by Team Obama.
They didn't count on Rakoff, who's going to be this crisis' Pecora.
It is just that her FINRA antics and past SEC history will be getting the scrutiny they deserve. It'll be fun to watch her squirm.
The attack on Mary via Rakoff also helps Mr Volcker focus attention in the backroom machinations of Mssrs, Rubin and Summers.
Obama's going to have to ditch that team, and quickly, even though he clearly doesn't want to.
All hail Judge Rakoff. Its amazing the amount of 'damage' one well placed (and politically independent) powerful person can accomplish.

[Miles Kendig]

"One can only hope that Mary will be promptly booted out in one way or another before she has done too much irreparable damage"

TD - Taking in the whole of Mary Schapiro's career I have to ask you; how much is too much irreparable damage in your book and what leads you to believe Mary has yet to reach that point?

[Anonymous]

Sounds like Mr. Durden is dreaming some impossible dreams.

[waterdog]

This Judge Rakoff versus SEC thing does not make sense. The judge’s problem is with the stockholders of BofA having to pay any fine levied by the SEC against BofA. SEC settled with BofA for $ 33 million because it could not get the bank to turn over relevant documents. The judge wants to see the relevant documents. The relevant documents will prove what we already know. Then the judge has to set the fine. But, he cannot increase a fine that the stockholders will be required to pay. Who is he going to require to pay his ordered fine? I doubt any natural person involved here will be able to pay it if it is a true fine.

I believe he is only after names.

[Anonymous]

word is mary shapiro made ~$14 million running FINRA. back when it was NASD and the "regulator" was paid in Nasdaq stock. look it up.

[Anonymous]

looks like our intrepid guardians went fishing, and caught a minnow:

Does idiocy amount to a financial crime?
Posted by Paul Murphy on Sep 22 20:35.

The SEC has pounced on New York lawyer Melissa Mahler for alleged insider dealing on a small takeover five years ago, when she worked for the big US law firm Nixon Peabody.

Why the regulator has taken so long to press its case was not immediately clear, but it is puzzling given the simple nature of allegations.

One morning, back in the summer of 2004, one Roger Tichenor, who ran a pink sheet-traded firm called Teleplus Consumer Services, phoned Mahler to get her help in drafting a press release. He told her he was discussing a sale of Teleplus to Rooms.com, an online travel company.

Fifteen minutes later, Mahler called her stockbroker and purchased $1,200 worth of Teleplus stock. Two days later she sold out, bagging a profit of $5,800.

The SEC is now demanding an unspecified civil insider trading penalty and wants those profits disgorged.

Assuming the allegations are proven, various questions spring to mind.

The brazen manner in which Mahler acted on the information (and the small amount of money staked) suggests she might not have realised she was breaking the law. If so, should society really be seeking to punish idiocy?

Also, as Ashby Jones at the WSJ’s Law Blog asks, what did she do in the 15 minutes between getting the inside tip and picking up the phone to her broker?

Then there’s the SEC. Given its current workload, what is this body doing using up its manpower on a five year old case involving less than $6,000?

Quite separately, over in London on Tuesday, the FSA had two lawyers hauled up in front of City of Westminster magistrates charged with eight counts of insider dealing. Michael Mcfall and Andrew Rimmington have been charged alongside one Andrew King, finance director at Neutec Pharma, which was taken over by Novartis back in the summer of 2006.

All three are contesting the charges.

There’s probably something we could say here about lawyers and financial law, but we should probably save our pixels until the full facts have been heard…

http://ftalphaville.ft.com/blog/2009/09/22/73276/does-idiocy-amount-to-a...

incredible!

[blindfaith]

I just LOVE the comments everyone of you post and Tyler's brillance with words. There is no site as good as this one...

BUT, zip is going to happen!  The FRATERNITY has already moved on.  "They" know when to throw a bone to the public and 'enforcers of the law of the land'.  THEY don't care who gets caught or ruined, their names will forever be hidden.  By the time this bunch of frat bros has finished fleecing this nation, nobody will have enough spare change to afford dial up.