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SEC’s Revolving Door Blurs Line Between Regulator and Industry

Dangerous Liaisons: Revolving Door at the SEC Creates Risk of Regulatory Capture

A Project On Government Oversight 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.

Download a PDF of the full report for easy reading on your tablet or eReader

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.

Sen. Charles Grassley (R-Iowa) released a statement about the report saying:

The revolving door is moving faster than ever.  This report documents exactly why it remains an ongoing concern. The SEC has to fix this problem once and for all. That involves more disclosure, more meaningful restrictions, and top-to-bottom application of the rules without waivers that make any restrictions meaningless. It’s especially important for the SEC to fix this problem with the arrival of a new chairman who, if confirmed, would bring a lot of good things to the commission but also a lot of connections to the securities industry she’d be regulating. She’d need to operate under strict rules while at the commission and afterward if she returns to the private sector, and so should everyone else. Policing the revolving door is important to the integrity of rule-making and enforcement.

In a Huffington Post story about POGO's report, Sen. Sherrod Brown (D-Ohio) said:

The SEC has significant authority to crack down on companies that engage in wrongdoing, but too often the biggest Wall Street megabanks get a free pass in the form of penalty waivers and forbearance. It’s no wonder that the American public is so skeptical of the cozy relationship between Wall Street and Washington.

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 our searchable revolving door database)

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.

By: Andre Francisco
Online Producer, POGO

andre francisco Andre Francisco is the Online Producer for the Project On Government Oversight.

Topics: Financial Sector

Related Content: Conflicts of Interest, Financial Oversight, Revolving Door, Securities and Exchange Commission

Authors: Andre Francisco

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