Practice - Regulatory/Compliance
Walter Steps Out of Schapiro Shadow Into SEC Chairmanship
by: Robert Schmidt
Tuesday, November 27, 2012
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Elisse Walter, who has spent the past four years as Securities and Exchange Commission Chairman Mary Schapiro’s closest confidant and behind-the-scenes adviser, will soon step into the spotlight that she has mostly shunned in trying to help her close friend succeed.

Designated to become SEC chief by President Barack Obama when Schapiro leaves in December, Walter is little known outside of Washington where she has spent most of her career as a regulator. For the short term, at least, she’s likely to keep Schapiro’s priorities intact, securities lawyers and ex-agency officials said, citing her record of almost always voting alongside Schapiro on new rules and enforcement cases.

“She’s sincere and dedicated, and the administration knows where she stands,” said Paul Atkins, a former Republican commissioner who is now chief executive of Patomak Global Partners LLC, a consulting firm in Washington.

Because Walter, 62, was already confirmed by the Senate as a commissioner, the law allows her to become chairman without going through a second confirmation, and she can stay in the job as long as the end of next year.

Still, by not immediately naming a replacement for Schapiro’s commission seat, the administration will leave the panel evenly split with two Democrats and two Republicans -- making it harder to enact controversial policies, including the Volcker proprietary trading ban from the 2010 Dodd-Frank law and new strictures for money-market funds.

New Nomination

An administration official said yesterday that Obama will nominate a new commissioner in the near future. The official, who spoke on condition of anonymity because the deliberations were private, didn’t say how soon a nomination might come, and whether the nominee would also be designated for the chairman position. Other possible nominees for chairman include Treasury Undersecretary Mary Miller and former SEC commissioner Harvey Goldschmid, people familiar with the matter said.

Whoever serves as chairman will face many of the difficulties that plagued Schapiro, including dealing with a politically polarized commission and trying to manage an unwieldy bureaucracy that has been criticized for missing financial frauds. Other pressing issues include grappling with high-frequency trading and a fragmented market structure that has helped spark trading disruptions like the 2010 flash crash.

Lawmakers of both parties called on the president to move quickly to specifically nominate a chairman and permit the Senate to vote on his or her confirmation.

Bypassing Congress

Senator David Vitter of Louisiana, a Republican on the subcommittee that oversees the agency, said the selection of Walter represents an “arrogant bypassing of Congress.” Senator Jack Reed, a Rhode Island Democrat, described Walter as “an extraordinary talent” but said she would benefit from formal approval as chairman. “At some point it would help and provide the kind of support that you need to do some very difficult issues,” he said.

Walter didn’t return a call seeking comment. She issued a statement saying, “I am deeply honored and humbled to be the SEC’s next chairman and to continue to serve alongside the talented and dedicated SEC commissioners and staff who work tirelessly on behalf of America’s investors.”

Schapiro announced yesterday she would leave the job on Dec. 14. She joined the SEC in January 2009, her tenure buffeted by the 2008 financial crisis and the political firestorm after revelations that the SEC had missed multi-billion dollar Ponzi schemes run by Bernard Madoff and R. Allen Stanford.

While Schapiro was credited with rebuilding confidence in the agency after the scandals, she has been criticized for not punishing high-level banking executives in the wake of the credit crisis and acting slowly to enact all the rules from Dodd-Frank.

Financial Regulator

Much like Schapiro, Walter has spent her career overseeing Wall Street. Before becoming a commissioner in July 2008, Walter worked at the Financial Industry Regulatory Authority, the self regulator for brokerage firms that Schapiro headed. Walter also was general counsel at the Commodity Futures Trading Commission where she overlapped with Schapiro.

In an earlier SEC stint, Walter worked in the Corporation Finance Division and the general counsel’s office.

Walter, a cancer survivor, has sent mixed signals in recent months about whether she wants to stay at the commission. In February, she gave speech to an annual SEC conference that was widely seen as valedictory, telling the crowd her remarks would be “somewhat nostalgic” since the end of her term was near. Walter, according to one person at the SEC, also has confided to her staff that she is looking forward to retirement and spending more time in Maine where she has a house.

On the other hand, there were signs her tenure might be extended. She went through a new FBI background check several months ago, according to two people interviewed by the agents, and her official photo was recently updated.

One Dissent

While Walter voted with Schapiro most of the time, her dissent on a rule requiring brokerages to build a single system for monitoring trading activity has led some observers to think she may forge a more pro-regulation path than Schapiro. In that rule, passed in July, Schapiro sided with Republican Commissioners Daniel Gallagher and Troy Paredes to support an industry-backed solution that allowed for some trades to be reported the following day.

Walter wanted the information to be recorded in real time. She called the rule “an overly cautious approach” that would “ensure that the industry remains one step or one day ahead of the regulators.”

In her February speech, Walter also gave some insight into how she may act as chairman, telling the group that “for me, it is critical to put the agency first and my personal views second.”

That means, she said, “considering carefully when to compromise and when to hold fast; when to speak and when to hold my tongue; and when to dissent,” as well as “working to complete the tasks that Congress and the president assign to us through legislation, regardless of our personal feelings about those tasks.”

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