Obama's SEC pick to face reform-minded Congress

WASHINGTON (Reuters) - President-elect Barack Obama's choice to lead the U.S. Securities and Exchange Commission will be grilled Thursday on how she intends to overhaul an agency widely blamed for failing to help prevent the biggest financial crisis in decades.

Members of the Senate Banking Committee are expected to ask veteran regulator Mary Schapiro whether the SEC should be merged with the U.S. futures regulator and for ideas on how to rework rules that failed to prevent Wall Street's meltdown.

Schapiro, currently the chief executive of the Financial Industry Regulatory Authority, is also expected to face questions about what the broker-dealer watchdog could have done to uncover Bernard Madoff's alleged $50 billion fraud, something the SEC also missed.

FINRA late Wednesday said it investigated 19 trading complaints about Madoff's broker-dealer firm but they did not relate to the investment advisory issues involved in the alleged fraud.

Further, FINRA said the SEC did not pass on any complaints. "The SEC did not share the tips it received with FINRA," it said in an emailed statement.

The very future of the 74-year-old SEC is in question after a number of regulatory missteps. Under current SEC chairman Christopher Cox, the five largest U.S. investment banks -- which the SEC supervised under a voluntary arrangement -- have since either collapsed or reorganized.

The SEC has also been a punching bag for various lawmakers and Wall Street firms who successfully put pressure on the agency to temporarily stop investors from making bearish bets on financial stocks when markets were in a tailspin in 2008.

Many see Schapiro as someone who will help heal the SEC.

She has spent more than two decades regulating financial markets with a resume that includes chairing the Commodity Futures Trading Commission and a stint as an SEC commissioner.

She has been widely praised by both industry and investor groups. Members of the Senate Banking Committee have also lauded her.

Committee Chairman Christopher Dodd said Schapiro will inherit a host of issues requiring the SEC's immediate attention, including the Madoff fraud and accounting issues.

"I look forward to (the) hearing and the opportunity to learn more about Schapiro's record as a regulator, her vision for the SEC, and her extensive knowledge of the securities markets and financial services industry," the Democrat from Connecticut said in a statement Wednesday.

Lawmakers are likely to seek Schapiro's views on investment bank regulation. Even though former investment banks like Goldman Sachs have reorganized into bank holding companies and are supervised by the Federal Reserve, Congress will have to figure out how to best regulate the holding companies for broker-dealers.

And shareholder activists and business groups will be listening for anything she says on the issue of proxy access, or giving shareholders another way to advance board nominees.

Questions are also expected on the move toward a global accounting standard and the controversial fair value accounting rule that has been blamed for forcing financial firms to write down billions of dollars in assets.

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