SEC's Schapiro Vows to Get Tough

NEW YORK ( TheStreet) -- Securities and Exchange Commission Chairman Mary Schapiro says she's working to correct "light of touch" regulatory tendencies that existed at her agency before the crisis erupted.

"There was a view that markets would self-correct," Schapiro said at a Securities Industry and Financial Markets (SIFMA) conference on Monday. "That sort of mindset clearly impacted the agency's aggressiveness."
Mary Schapiro
SEC Chairman Mary Schapiro

At SIFMA's annual meeting in New York City, Schapiro was asked whether the SEC's case against Goldman Sachs ( GS) was meant to send a signal to Wall Street that there's a new, less laissez-faire sheriff in town. She gave a half-hearted "no," but went on to explain what seemed like an enforcement case with two agendas.

Schapiro said the fraud charges against Goldman were meant to address what the SEC considered to be a firm breaking the law. But she noted that "it would be naïve of me to suggest" there wouldn't be a signal sent to the rest of the market about how to behave.

Goldman ultimately settled with the SEC for a record $500 million earlier this year, without admitting or denying any illegal activity.

Schapiro also said her agency has put in place rules to help prevent another "flash crash" like the one that happened on May 6. On that day, stock prices surged and collapsed within minutes amid heightened volatility. Questions linger about what role sophisticated technology -- electronic trading, dark pools, "flash traders" and the like -- played in stimulating the wacky market activity.

Schapiro noted that shares moved in both directions with equal volatility -- some stocks falling to pennies while others surged to $100,000. "You don't hear as much about those as you do the ones that were trading a penny," she quipped.

The SEC canceled trades in which stock prices moved more than 60% that day. After analyzing the causes of the May 6 activity, the SEC and the Commodities Futures Trading Commission issued a comprehensive report. Both the SEC and the CFTC plan to issue recommendations this week.

Looking ahead, Schapiro indicated that Wall Street compensation reform was at the top of regulators' agendas. Recent reports have indicated that, despite ongoing economic issues, Wall Street is poised to deliver another year of record pay to its employees.

Schapiro said the SEC and other regulators are working on a series of pay rules that will be outlined in the coming months. Their goal is to limit situations where traders and executives have incentive to take on risk to boost profits with no exposure to the downside of decisions gone-bad.

"These are things that absolutely have to change," said Schapiro.

The chairman also made some remarks on the SEC's major black eye: Bernard Madoff, the infamous Ponzi crook who stole millions from unsuspecting investors. Despite several warnings and obvious signs of his malfeasance, the SEC didn't take action until it was too late.

Schapiro said she's sent memos to employees about the Madoff case -- including victim's heartbreaking letters. It's part of her effort to implement a new culture at the agency, one of active investor protection that was absent in the past.

"We tried to make Madoff a real learning experience for the SEC," she said. "It was a real tragedy.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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