Stoking the flames that have recently threatened the stability of the Securities and Exchange Commission, incoming chairman Mary Schapiro is facing two separate lawsuits relating to her conduct in past regulatory jobs, according to the Journal. In a pair of suits, one dismissed by a federal district judge in New York and on appeal, plaintiffs allege that Schapiro made misleading statements in urging the merger of two regulatory organizations.
The merger under question is that between the National Association of Securities Dealers (NASD) and NYSE Regulation, Inc., the former regulation arm of the New York Stock Exchange. The two regulatory organizations were merged to form the Financial Industry Regulatory Authority (FINRA) in July of 2007.
Schapiro, who headed the NASD up to its merger, at which point she took the reins at FINRA, is accused of making false claims on the behalf of the Internal Revenue Service (IRS) in regard to payouts made to member firms of the NASD. The firms, many of whom are plaintiffs in the suits, were offered $35,000 apiece in efforts by the NASD to get the merger approved.
Schapiro claimed at the time that this figure was the most allowed by the IRS, though the tax agency did not actually issue a ruling on the matter until months later. The lawsuits use this error as their basis.
“Our cases raise questions about the transparency, truthfulness and candor of the NASD and its leadership in a major financial transaction with its own members,” said Jonathan W. Cuneo, the lead prosecutor in both cases.
“These lawsuits are meritless, and the second suit is just a dressed-up version of the first one that was rejected by a federal judge,” said F. Joseph Warin, a lawyer representing Schapiro. “The second suit was filed days after Ms. Schapiro was nominated to become chairman of the SEC. It looks to me like a desperate effort to leverage Mary’s nomination to squeeze money out of FINRA before her confirmation vote.”