SEC’s Revolving Door Blurs Line Between Regulator and Industry

A Project On Government Oversight (POGO) study of thousands of government records found that former staff of the Securities and Exchange Commission (SEC) routinely:

  • Tried to help corporations influence agency rulemaking;
  • Defended companies suspected of wrongdoing;
  • Helped companies soften the blow of enforcement actions;
  • Won exemptions from federal law for their clients; and
  • Secured the agency’s blessing for companies to block shareholder proposals on issues such as executive pay.

POGO’s in-depth analysis of the SEC’s revolving door found many examples of where the line between regulator and industry was blurred. For example, several former SEC staffers were part of the successful lobbying effort last year to block tightening of regulations for money market funds, one of the top priorities of former SEC Chairman Mary Schapiro.

There was also the case of a former SEC manager who helped companies such as JPMorgan, UnitedHealth Group, Yahoo! and Alaska Air block shareholder proposals. When he was at the SEC, he was the deputy director in the division that reviewed these proposals.

And in yet another example, an enforcement branch chief in the SEC’s San Francisco office left the SEC in May 2010 to become in-house counsel at Wells Fargo & Co. Less than two weeks later, she filed six disclosure statements indicating she would be representing Wells Fargo in connection with pending enforcement matters, including probes conducted by her former office.

POGO’s study of the SEC’s revolving door found that from 2001 through 2010, 419 former SEC employees filed 1,949 disclosure statements indicating their intent to contact the SEC on behalf of an employer or client. Former staffers are required to file the disclosures within two years of leaving the SEC. (POGO is making those disclosure statements available online in a searchable database here.)

The examination of the SEC’s revolving door is particularly relevant in light of President Obama’s nomination of Mary Jo White to head the SEC. White is a former U.S. attorney, but more recently worked as a partner at the law firm of Debevoise & Plimpton, where she has represented Wall Street firms before the SEC.

“The revolving door between the SEC and the firms it oversees is so pervasive that it threatens the integrity of our regulatory system,” said Michael Smallberg, author of the POGO report. “The relentless flow of SEC officials to and from industry can enable powerhouse firms to shape the SEC’s culture and sway policies.”

Besides pointing out many of the systemic shortcomings that have allowed the revolving door to shape the culture of the SEC, POGO’s report also sets forth recommendations on what can be done to mitigate some of the more harmful effects of the revolving door.

Read the report here.

See the web package here.

Founded in 1981, the Project On Government Oversight (POGO) is a nonpartisan independent watchdog that champions good government reforms. POGO’s investigations into corruption, misconduct, and conflicts of interest achieve a more effective, accountable, open, and ethical federal government.

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