SEC head Mary Schapiro: Blame us for financial crisis too

Mary Schapiro says regulators 'failed to appreciate the growing and concentrated risks' as the meltdown loomed.

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By Katie Benner, writer-reporter

301 Moved Permanently

301 Moved Permanently


NEW YORK (Fortune) -- Regulators were as culpable for the financial crisis as banks, mortgage originators, and the ratings agencies, Securities and Exchange Chairman Mary Schapiro said Tuesday.

In a speech for attendees at the Securities Industry Financial Markets Association, Schapiro said of the regulatory community, "Perhaps we bought into the fears about global competition or failed to appreciate the growing and concentrated risks.

"Either way, the right questions were not asked, nor were the necessary steps taken to mitigate the risk before we coasted to the brink."

At a conference that also included remarks by JPMorgan Chase (JPM, Fortune 500) chief executive Jamie Dimon and Treasury Secretary Timothy Geithner, Schapiro said that market participants and regulators need to find their way back "to a place where investors have faith that the markets are working as intended."

Noting that the SEC will play an integral role in that journey toward trust and transparency, Schapiro's remarks made note of several areas she said need greater oversight, including hedge funds, over-the-counter derivatives, asset-backed securities, and financial advisors.

And in a nod to critics that accused the regulator of being asleep at the wheel on the Bernie Madoff Ponzi scheme, Schapiro said that the standard of conduct set by the SEC, "by itself, does not eliminate fraudsters." The rules must be coupled with an effective and harmonized regulatory body that oversees investment advisors and broker-dealers, she said.

Schapiro arrived at the SEC this January amid a hailstorm of criticism of the financial regulatory community. Not only had Madoff's investment business been revealed to be an enormous fraud, major institutions had failed, including Bear Stearns, Lehman Brothers, AIG (AIG, Fortune 500), Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500), and Merrill Lynch. The capital markets were frozen, and the recent era of deregulation was repeatedly blamed for the mess.

In order to toughen up the commission, Schapiro hired Rob Khuzami -- a former federal prosecutor who had focused on white collar crime, insider trading, and accounting fraud -- to head up the SEC's enforcement division.

Schapiro noted in her speech that the SEC has issued 448 formal orders since the beginning of this year, compared with 181 in 2008. It has opened 713 investigations in the past nine months, compared with 663 in all of last year. And it has received disgorgements and penalties of $1.8 billion, compared with $865 million last year. To top of page

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