Schapiro must learn from her mistakes or go

Mary Schapiro, chairman of the SEC, cannot be surprised that she is taking heat from Congress for hiring a general counsel who played a role in determining how victims of Bernard Madoff would be compensated, even though he had benefited from an investment with the notorious financial criminal.

One of the roles of the Securities and Exchange Commission is to hold companies to high standards of transparency and disclosure.

It’s for that reason that Republican lawmakers are raking Ms. Schapiro over the coals for allowing former SEC general counsel to weigh in on legal matters pertaining to Mr. Madoff — even though Mr. Becker had disclosed that his late mother had a Madoff account and that he had profited from it.

Last month, the House Committee on Oversight and Government Reform received notice that Mr. Becker was a defendant in a lawsuit seeking the claw-back of his mother’s account. That account — which had grown to more than $2 million from an initial investment of $500,000, thanks, no doubt, to Mr. Madoff’s “wizardry” — was liquidated by Mr. Becker and his brothers when their mother died in 2004.

When Mr. Becker was hired as general counsel in 2009, internal ethics arbiter William Lennox, who reported to Mr. Becker, gave his boss the green light to participate in the Madoff case. In fact, an e-mail trail shows that he did so after about 25 minutes of deliberation.

The chairman of the House Committee on Oversight and Government Reform, Rep. Darrell Issa, R-Calif., two weeks ago characterized the Becker scandal as “the greatest challenge to the SEC’s credibility since Bernie Madoff.”

Ms. Schapiro herself has expressed regret over her handling of the Becker fiasco.

“While Mr. Becker did solicit and follow advice from the ethics counsel, I realize, in light of this incident, that as chairman, I have to ensure that we go beyond what may be required in any particular situation,” she said in sworn testimony before the House Committee on Oversight and Government Reform.

But regret isn’t good enough.

The SEC is supposed to be a watchdog for individual investors, including those duped by Mr. Madoff.

It must handle its own conflicts of interest with the same level of competence and integrity that it demands of financial advisers in their dealings with clients. Anything less is simply unacceptable.

Ms. Schapiro deserves to be fired for not insisting that Mr. Becker recuse himself on matters pertaining to the Madoff case.

That said, however, we are not calling for Ms. Schapiro’s ouster — at this time.

For starters, her firing would come at a pivotal time for the SEC. The agency simply cannot afford to be leaderless — or in limbo as a new chairman gets up to speed — while it’s trying to stave off Republican attempts to roll back its funding.

Secondly, it’s doubtful that the Obama administration would find a more qualified and competent executive to replace Ms. Schapiro. For all her faults, Ms. Schapiro has done an admirable job of cleaning up the mess she inherited when she assumed her role at the SEC in 2009.

The fact that no Republican lawmaker has called for Ms. Schapiro’s resignation in the wake of the Becker fiasco is a testament to what she has accomplished.

All leaders make mistakes. All good leaders admit to those mistakes and learn from them.

It is our expectation that Ms. Schapiro has learned a valuable lesson about the potential for conflicts within the upper echelon of the SEC and will take steps to prevent a situation such as Mr. Becker’s from ever happening again.