News reports at the time estimated the move immediately tripled the $125,000 salary she made in the government. The NASD was renamed FINRA in 2007. By the time of her 2008 nomination to the S.E.C., she was making $3.1 million a year running the organization. Her relatively controversy-free 12-year tenure in the job was a boon when Mr. Obama was vetting potential S.E.C. chairpersons. She was also known to be a favorite of Mr. Rubin, who first bonded with Ms. Schapiro when he interviewed her for the CFTC post in 1994, when she was nine months pregnant. Ms. Schapiro in 2009 was ranked by Forbes as the 56th most powerful woman in the world, 54 slots behind Ms. Bair. In 2010, Ms. Schapiro rose to the 17th spot on the list, published a month after the agency announced its $550 million settlement with Goldman Sachs over the infamous ABACUS trades.

“She’s just so violently focused on the hot-button, HuffPo-sexy, like, ‘Goldman Sachs’ headlines,” said Roddy Boyd, a former trader and the author of Fatal Risk: A Cautionary Tale of AIG’s Corporate Suicide. “And no one’s gotten nailed for institutional fraud?”

Instead, Ms. Schapiro’s agency has elected to focus its energies prosecuting the insider trading racket around Raj Rajaratnam’s hedge fund Galleon Group currently being detailed before a federal jury downtown. The firm is accused of making $36 million–a fraction of Ivan Boesky’s alleged gains from his similar exploits a quarter-century ago. When Goldman Sachs CEO Lloyd Blankfein was called to the stand, Mr. Rajaratnam’s lawyers were barred from asking him about his role in the financial crisis and thus distract the court from the case at hand by turning its attention to the infinitely larger systemic con the government was not seeking to punish.

Ms. Schapiro’s agency has been so aggrieved for so long now that most of the headlines it makes are also allegorical meta-stories: an inspector general report that chronicled the epidemic of porn addiction that seized agency attorneys in 2008, as a wave of (warranted) panic was washing over the credit markets. A lesser publicized 2009 internal probe detailed the less prurient workplace pastimes of a pair of S.E.C. enforcement attorneys in the Dallas office who shared a passion for day trading, in violation of the agency’s rules against investing in stocks; both ended up losing money. The S.E.C.’s repeated failure to pay attention to the steady stream of credible and evermore substantive tips about Mr. Madoff’s Ponzi scheme was the subject of another epic inspector general report.

But most indicative of the woeful state of the S.E.C. has been its 2009 suit against Bank of America over the billions of dollars in bonuses the bank haphazardly agreed to pay Merrill Lynch employees as part of the firms’ shotgun 2008 merger. The case was complicated by the fact that, according to Bank of America CEO Kenneth Lewis’ later testimony before Congress, the Fed coerced the marriage and that former Merrill Lynch CEO John Thain had done nothing apparently illegal in coaxing Mr. Lewis into agreeing to pay $3.62 billion in early Christmas bonuses to Merrill employees as a condition of the merger. The compensation was doled out despite the $15 billion in “unexpected” mortgage losses they were on the verge of reporting. And the merged bank was on the receiving end of the second-largest handout of federal bailout funds.

In September 2009, when the S.E.C. filed a motion to settle its case against Bank of America for a miniscule $33 million, the federal judge assigned to the case was alarmed. Assailing the settlement as a “contrivance designed to provide the SEC with the facade of enforcement” that failed to “comport with the most elementary notions of justice or morality,” Judge Jed Rakoff threw out the proposed agreement
and told regulators to revisit the case.

The S.E.C. dutifully reopened its investigation, while at the request of the House Oversight Committee its inspector general opened its own investigation into the initial investigation, and the agency returned five months later with a new figure: $150 million, along with a more detailed list of assurances that everyone involved conducted themselves in accordance with the law. The day before the agency brought its amended settlement proposal before the court, the New York attorney general’s office sued the bank, alleging that the bank had orchestrated a cover-up and in due course fired its vociferously opposed general counsel because he “knew too much.” For its part, the S.E.C. stuck to its conclusion that everything was basically kosher, and the termination had been wholly “unrelated” to the merger. Judge Rakoff responded with an approval more incredulous than his rejection: “Given the somewhat tortured background of these cases and the difficulties this motion presents, the Court is tempted to quote the great American philosopher Yogi Berra: ‘I wish I had the answer to that question because I’m getting tired of answering that question.’”

The 100-page report on the internal investigation into the case is sympathetic to Ms. Schapiro’s agency. Staffers are quoted complaining that the New York attorney general’s office mostly refused to cooperate with them. The report claims that such turf battles weren’t specific to the two agencies but commonplace in New York City white-collar-crime cases, where prosecutors compete to pack as many big cases onto their résumés before selling out to provide defense in criminal cases. (The team that sued Bank of America was led by a former S.E.C. enforcement attorney, who has since left the AG office for Goldman Sachs.)

But many of S.E.C.’s problems getting along with other investigators seem unmistakably political: Staffers also complain of suspecting TARP overseer Neil Barofsky of conspiring with the New York lawyers against them. Separately, they also lament an apparent unspoken mandate to go easy on TARP recipient banks like Bank of America. The obvious–but seemingly unrecognized–subtext is that the agency is hamstrung by the political agenda of the Obama administration, which openly loathes Mr. Barofsky and most other critics of the bailout program White House officials like to tout as one of their landmark achievements.

In Washington, where passing laws is somehow considered a sexier business than enforcing them, all that matters now is whether Ms. Schapiro can win the fiscal stalemate with Republicans and secure the funding to hire the 800 new employees she and most sober-minded analysts estimate are needed to enact the Dodd-Frank reforms. If she can, no one will even remember how valiantly she fought the unwinnable war with Wall Street. And if she fails, the blame will mostly lie in the fact that the war was unwinnable to begin with.

editorial@observer.com

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