WASHINGTON - THE newly designated top US markets watchdog faces a difficult task in restoring confidence in an agency blamed for colossal mistakes in the economic meltdown and a massive Wall Street scandal.

President-elect Barack Obama's selection of Ms Mary Schapiro to head the Securities and Exchange Commission (SEC) comes at a time when the financial market regulator is in desperate need of rebuilding its reputation, analysts said.

'The SEC's long established reputation as the world's premier financial law enforcement and regulatory agency has been shattered,' said Mr Jacob Frenkel, a Maryland securities lawyer who worked in SEC enforcement with Schapiro in the 1990s.

The meltdown in global financial markets coupled with an unprecedented scandal involving Wall Street broker Bernard Madoff has in particular undercut confidence of foreign investors and institutions, according to Mr Frenkel.

Foreign investors 'are used to looking up to the SEC' in matters of financial regulation, said the attorney.

Mr Ross Albert, also a former SEC enforcement official with Ms Schapiro and currently with the private Atlanta firm Morris, Manning & Martin, said the agency appears to have neglected its mission of enforcement and investor protection.

'I have talked with many of my former colleagues and they feel, with some justification, that (current) chairman (Christopher) Cox and the majority of other commissioners have sought to muzzle the enforcement division, at least insofar as Wall Street and financial interests are concerned,' Mr Albert said.

Mr Albert said Mr Cox, 'like many of the administration's principal economic advisers, largely worshipped at the altar of deregulation, and in down economic cycles that can have disastrous consequences.

Mr Albert said Ms Schapiro was highly regarded and that her selection 'will go a long way to restoring the prestige of an agency that has been rocked in recent years by leadership and management failures'.

Mr Frenkel also praised Ms Schapiro, calling her 'a very thoughtful, level-headed and enforcement-oriented regulator'.

'There was a very short list of candidates for the SEC who could save the agency from extinction, and Mary Schapiro was on that short list,' he said.

Ms Schapiro, appointed by former president Ronald Reagan as an SEC commissioner, serving for six years, now heads the Financial Industry Regulatory Authority, a self-regulating agency for Wall Street.

She served in the mid-1990s as chair of the Commodities Futures Trading Commission, the agency that oversees market trading of oil, corn and other commodities.

Mr Frankel said it will take much time and effort to restore global confidence in the SEC and US financial markets.

'I think it will be a long road to restoring the confidence in the SEC, but it will never come back to what it was,' he said.

He said the Madoff fraud that could have cost investors as much as 50 billion dollars (S$74.4 billion) was due to 'a lack of transparency and a regulatory inspections failure'.

For the new SEC chief, he said the best course would be 'to take all steps possible to maximise transparency at all levels of the market'.

Additionally, he said the SEC chairman should 'apply the enforcement and inspections programme to the large market players as vigorously as you do to the small operations, and send a powerful message by cleaning house and installing leaders in critical functions at the SEC who will instill confidence that the program can work again'.

Earlier this week, Mr Cox said there had been lapses at the SEC but that 'over 3,600 men and women who work for the Securities and Exchange Commission are, in my experience, extraordinarily professional'.

But he said he had ordered a review of the handling of the Madoff case with an eye toward identifying the source of the regulatory problems.

According to Mr Albert, the statements by Cox appeared to be 'intended to deflect the blame from him to senior staff that he either selected or left in place'.

He called Mr Cox 'the anti-Harry Truman' known for his saying that 'the buck stops here'.

'He is in charge of a large and significant federal agency that has a proud history. If the buck doesn't stop with chairman Cox, who does it stop with?' -- AFP

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