By Michael Smallberg
A commissioner at the Securities and Exchange Commission (SEC) issued an unusual statement Wednesday criticizing an SEC study on the oversight of investment advisers, and calling on Congress to delegate significant SEC authority to a self-regulatory organization (SRO). In her statement, however, Commissioner Elisse B. Walter did not disclose that she was previously a senior executive at the Financial Industry Regulatory Authority (FINRA)—the nation’s largest SRO—or that the organization paid her more than $3.7 million in salary and bonuses in 2008.
SEC Chairman Mary Schapiro, another former FINRA executive, recused herself from voting on the study released Wednesday. It appears that Walter is not operating under the same restrictions when it comes to FINRA-related matters. In fact, Walter attended a meeting in November 2010 with top executives and industry representatives from FINRA to discuss the SEC study, one of several meetings held between SEC officials and outside parties regarding the oversight of investment advisers.
POGO believes that Commissioner Walter’s decision not to recuse herself on this issue raises a conflict of interest concern. There is certainly a question whether she should be making recommendations that could affect her former employer and other self-regulatory organizations.
In her statement Wednesday, Commissioner Walter remarked that “the SRO model has, in fact, benefited regulation of the securities industry for more than seven decades.” POGO has raised concerns, however, about FINRA’s “abysmal track record” regulating broker-dealers prior to the financial crisis. In a letter to Congress last year, POGO highlighted the close ties between FINRA and the industry it oversees, and urged Congress to examine the lack of transparency and accountability at the organization. More recently, POGO wrote to the head of FINRA urging him to make the organization’s board meetings open to the public and to implement other recommendations approved by FINRA’s members.
Michael Smallberg is an Investigator for POGO.
Image of Walter being sworn in as Commissioner: SEC.