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What Were Ms. Schapiro’s Hedge Fund Investments at FINRA?

Posted by Larry Doyle on May 4, 2009 8:08 AM |

As Obama looks to send a message to the American public that he will clean up Wall Street, hedge funds are “under the microscope.” Who in Washington will be delegated to lead the charge? None other than SEC head, Mary Schapiro. Bloomberg reports, SEC Chief Schapiro Wants Authority to Make Hedge-Fund Rules.

Hedge funds have become dirty words. When Washington wants to convey excessive Wall Street greed, politicians and regulators now regularly slip “hedge funds” into their statement.

As with any industry, hedge funds run the gamut in terms of business practices and ethics. It is well documented, though, that Washington solicits and receives excessive campaign contributions from the hedge fund community.

I agree that the hedge fund industry deserves greater scrutiny. A trillion dollar industry unregulated is a breeding ground for problems.

Bloomberg reports:

“It’s probably not enough just to register hedge funds” with the SEC, Schapiro said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend. “It may well be necessary to put in place particular kinds of rules.”

Treasury Secretary Timothy Geithner’s plan to overhaul financial oversight in response to the worst economic crisis since the Great Depression would force hedge funds to register with the SEC, subjecting firms to new disclosure requirements and inspections by agency staff. Schapiro said the SEC’s authority should be broader, so it can impose further restrictions on funds as “situations evolve.”

President Barack Obama yesterday blamed hedge funds that had lent Chrysler LLC money for triggering the automaker’s bankruptcy. Obama said the funds were “speculators” that refused the administration’s buyout offers because they were holding out for an “unjustified taxpayer bailout.”

Schapiro said “it’s certainly possible” that the SEC would consider forcing hedge funds to publicly disclose short- sale positions, imposing restrictions on leverage and restricting what the firms can invest in.

Does anybody have an issue with increased disclosure and oversight? Transparency is critically important in making sure the playing field for all investors is kept fair and level.

Ms. Schapiro does have experience with hedge funds prior to this engagement, though. As I have highlighted, Ms. Schapiro, as head of FINRA, oversaw investments within FINRA’s internal portfolio which included hedge funds, fund of funds, and private equity.

From the 2007 FINRA Annual Report:

FINRA also has investments in hedge funds and funds of hedge funds that it accounts for under the equity method and includes in other investments in the consolidated balance sheets. As of December 31, 2007, the Company had hedge fund investments of $431.2 million.

Ms. Schapiro should be compelled to share with the investing public in which hedge funds FINRA invested.

Will those funds withstand the rigor of newly proposed SEC regulation? At the very least we may learn whether Ms. Schapiro was a good steward of FINRA funds. Beyond that, we may learn a lot more.

If the Obama administration is serious about developing new regulations for Wall Street, let’s make sure the transparency includes Ms. Schapiro’s tenure at FINRA and details of FINRA’s investment portfolio!!


  • lizzy

    Sounds like the administration is following through on the threat to go after those wanting their rights as secured creditors. We should definately see the transparency for FINRA’s deals with hedge funds and Ms. Shapiro’s stewardship.

  • Lizzy,

    This story may not put FINRA or Ms. Schapiro in very good light. However, Bloomberg’s story last week about FINRA selling Auction Rate Securities before the market imploded is gaining traction.

    As Obama talks more about transparency and increased regulatory oversight of Wall Street, we’ll continue to ask about FINRA and Ms. Schapiro.

    This may get interesting.

  • TeakWoodKite

    These shoddy tactics by BO and Mary Schapiro are the tip of the ice berg. Was not an appointee to the BO administration required to fill out a very detailed application?

    I would want to know what “possible” conflicts of interest were disclosed. Why do I get the impression that TurboMan was just windows dressing?

    Transparency is the mothers milk of investor confidence.
    These bozos want to slaughter the cow instead like so many buffalos of plains. No skin in the game.

  • Given the massive problems on Wall Street in 2007-08, the fact that Obama put Schapiro into SEC head is a clear indication that change will be slow or not at all. Schapiro knows the players and where protection needs to be accorded.

    This portfolio at FINRA is a story that is not going away. The ARS angle is gaining traction in the blogs.

    Sense on Cents will continue to push for transparency.

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