Schapiro to Quit as SEC Chairman and Be Replaced by Walter

(Updates with Walter designation in second paragraph.)

Nov. 26 (Bloomberg) -- U.S. Securities and Exchange Commission Chairman Mary Schapiro, who took the agency’s helm in 2009 as it reeled from public rebukes for failing to rein in Wall Street abuses, is leaving the agency next month.

Schapiro, 57, will be replaced as chairman when she steps down on Dec. 14 by Commissioner Elisse Walter, former senior executive vice president at the Financial Industry Regulatory Authority, President Barack Obama said in a statement.

“When Mary agreed to serve nearly four years ago, she was fully aware of the difficulties facing the SEC and our economy as a whole,” Obama said in the White House statement. “She accepted the challenge, and today, the SEC is stronger and our financial system is safer and better able to serve the American people -- thanks in large part to Mary’s hard work.”

It was unclear how long Walter might serve as chairman. An administration official said Obama intends to make a new nomination to the commission in the near future. The official, who spoke on condition of anonymity, didn’t specify whether the nomination would be for the chairman position.

Walter’s five-year term as a commissioner expired in June. Under current law, she’s entitled to work through the end of 2013 without being reconfirmed. The president has the right to designate any commissioner as chairman.

Dodd-Frank Mandates

Schapiro’s departure comes as the agency navigates through a flood of new mandates generated by the Dodd-Frank Act and a wave of enforcement matters stemming from the financial crisis that peaked in September 2008.

The former chairman and chief executive officer of Finra and chairman of the Commodity Futures Trading Commission was appointed by Obama to run the SEC in January 2009. A political independent, she replaced Christopher Cox, a Republican who had held the office since 2005, becoming the first woman to lead

Walter, who served as interim chairman before Schapiro took over, will return to the helm as the agency works to implement Dodd-Frank rules ordered in response to the credit crisis and looks to overhaul oversight of the money-market mutual fund industry after Schapiro’s initial effort ended in failure.

“I’m confident that Elisse’s years of experience will serve her well in her new position, and I’m grateful she has agreed to help lead the agency,” Obama said in the statement.

The start of Schapiro’s tenure was dominated by public criticism over the agency’s failure to detect Bernard L. Madoff’s multi-billion dollar fraud, which was uncovered just a month before her appointment. At the same time, the regulator was under fire for its role in supervising Lehman Brothers Holdings Inc., which filed the biggest U.S. bankruptcy in September 2008, sending financial markets into a tailspin.

Enforcement Overhaul

Schapiro later tapped Robert Khuzami, a former federal prosecutor, to reinvigorate the agency’s enforcement division, setting in motion the biggest overhaul in that unit’s history. The enforcement division, which has since filed dozens of cases related to the financial crisis, has also faced criticism from lawmakers, judges and investors that it has gone easy on top executives.

In the most prominent enforcement effort after the 2008 financial crisis, Schapiro’s SEC sued Goldman Sachs Group Inc. in 2010, accusing it of fraud when it sold investors a mortgage security without disclosing that hedge fund Paulson & Co. helped pick the loans and bet against them. Goldman paid a record $550 million fine.

Schapiro’s SEC has struggled to show it has a grasp on an increasingly fragmented market dominated by electronic and high- speed trading. She has supervised adjustments of trading practices and set the stage for a future computer surveillance system after a computer program employed by one firm sparked a 20-minute plunge in stock prices, temporarily erasing $862 billion of market value.

--With assistance from Margaret Talev in Washington. Editors: Gregory Mott, Maura Reynolds

To contact the reporters on this story: Joshua Gallu in Washington at jgallu@bloomberg.net; Robert Schmidt in Washington at rschmidt5@bloomberg.net; Jesse Hamilton in Washington at jhamilton33@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net