The target on SEC Chair Mary Schapiro’s back is getting larger and gaining more focus. How so?
The lead editorial in this weekend’s edition of The Wall Street Journal goes after Schapiro hard in writing Mary Schapiro’s Say on Pay. While the editorial leads with the ongoing battle Schapiro and the SEC are having with Bank of America’s (NYSE:BAC) lack of disclosure during its merger with Merrill Lynch, the Journal quickly turns the tables on Ms. Schapiro and addresses the lack of disclosure at Ms. Schapiro’s former haunt, FINRA.
Come to papa.
Regular readers of Sense on Cents are well aware of how consistently and steadily I have been banging this FINRA drum. It is long past due that America is truly introduced to Wall Street’s self-regulatory organization, the Financial Industry Regulatory Authority (FINRA).
The Journal’s editorial lambastes Schapiro and FINRA regarding its lack of disclosure of its excessively generous compensation practices, especially for a not-for-profit organization. The WSJ writes:
Ms. Schapiro is also imposing on BofA shareholders governance policies that for whatever reason she decided were not appropriate for the organization she ran until taking the SEC job in 2009.
The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization, which means it is a private organization vested with regulatory authority and enjoying the force of law. Participants in the securities industry must pay fees to FINRA to support an annual budget that approaches $1 billion, and they must live under FINRA regulation. That regulation, or lack thereof, became briefly famous when the organization failed to uncover wrongdoing by Bernard Madoff.
FINRA enjoys an exemption from federal taxes, but neither taxpayers nor regulated brokers have a say on the pay of FINRA executives. In fact, it’s a challenge even finding out what FINRA pays its senior officials.
While public companies like Bank of America are required to disclose executive compensation in exhaustive detail in their annual disclosures filed at the SEC, you won’t find such information in FINRA’s 2008 annual report, or anywhere on its Web site, as of this writing. After we called in a request, the organization emailed a copy of FINRA’s IRS filings for 2008, but nonprofits are only required to provide the material in response to written or in-person requests.
FINRA’s Form 990 for 2008 reports that Ms. Schapiro’s compensation was $3.3 million, not bad for an outfit that lost almost $700 million that year thanks largely to an overly aggressive strategy of investing FINRA’s portfolio in hedge funds and other exciting opportunities. Last year FINRA changed to a more conservative investment approach, but as far as we’re aware it made no effort to claw back some of Ms. Schapiro’s salary.
In 2009 Ms. Schapiro left FINRA with a $7.3 million retirement package. We know this because of SEC and FINRA responses to media inquiries, not due to any disclosure process akin to what profit-making public companies do. Once FINRA files its 990 later this year, industrious taxpayers will at least be able to submit formal requests to learn all the details. Perhaps an outfit like FINRA needs to pay such salaries to attract top talent, but in any case Ms. Schapiro should explain why disclosure wasn’t a priority when she was the one in the executive suite.
Yes, why wasn’t disclosure a priority when Ms. Schapiro was the one in the executive suite? I have been asking that very question for the last thirteen months. What have I learned? Well, let’s just say that The WSJ is merely hitting the tip of the iceberg with this editorial.
What else does FINRA need to disclose?
1. Information regarding its liquidation of $647 million auction-rate securities in mid-2007 when the ARS market had started to fail. Did FINRA front-run the market and engage in insider trading? America wants disclosure.
Sense on Cents wrote, “An Open Letter to the Board of FINRA Regarding Auction-Rate Securities.” (July 27, 2009)
2. Information regarding its investment activities specifically in regard to an allegation made that FINRA had an investment in Bernie Madoff. America wants disclosure.
Sense on Cents wrote, “Attorney Claims Wall Street’s Cop, FINRA, Invested in Madoff.” (September 15, 2009). This commentary includes an 18-minute video clip.
3. Information regarding the very formation of FINRA itself. Recall that FINRA was formed by the merger of the NASD with NYSE Regulation. Attorneys for a FINRA member firm have made very credible allegations that Ms. Schapiro and her fellow FINRA executives lied verbally during the roadshow for the merger and in the proxy statement for the merger. That lie had a dollar value of $175-$350 million. America wants disclosure.
Sense on Cents wrote, “Attorney Richard Greenfield Brands Mary Schapiro and FINRA Execs as ‘Liars’” (October 19, 2009).
In my opinion, the lack of disclosure on compensation is important but truly pales in comparison to these issues.
Dow Jones, The New York Times, and Bloomberg have called for FINRA to unseal documents regarding its merger as highlighted in my third point above. No surprise that FINRA has fought hard to keep those documents sealed.
I am thrilled that today the globally distributed and preeminent financial periodical, that is The Wall Street Journal, is calling Mary Schapiro out for her lack of disclosure. I only wish the Journal had the balls to call Mary out on these other topics.
With the Journal’s lead, hopefully other outlets will also realize that Mary Schapiro has a lot to answer to America, just as I highlighted last December 21st in writing, “Mary Schapiro Owes America Some Answers.”
Disclosure: No positions