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SEC Chair Got Waiver to Oversee Wall Street Law Firm

Mary Jo White, the head of the Securities and Exchange Commission (SEC), was granted a waiver last year allowing her to vote on agency issues affecting a major corporate law firm that was also a former client of hers.

White was permitted to handle SEC business affecting Simpson Thacher & Bartlett LLP, a firm that has represented some of the biggest names on Wall Street. The waiver was issued in February 2014 but remained undisclosed while various matters involving Simpson Thacher played out before the Commission. The Project On Government Oversight found the waiver posted online last week by the Office of Government Ethics (OGE).

Mary Jo White

Mary Jo White, Chair, Securities and Exchange Commission

At a time when Members of Congress are sounding the alarm about the over-representation of Wall Street veterans in government positions, White’s waiver shows how the government must grapple with tough choices when it recruits industry representatives through the revolving door. Should White and other officials be allowed to handle agency business that affects former employers or clients, despite the potential conflict of interest? Or should they be forced to remain on the sidelines, limiting their work as public servants?

In previous comments to POGO, an SEC spokesperson stated that the agency is “blessed with a deep pool of talented experts on just about any issue that comes up,” so it hasn’t been a problem when employees have to recuse themselves. But SEC officials’ ties to former clients on Wall Street have at times been so tangled and extensive that they threatened to hamstring the agency on important matters. A 2013 report by The Wall Street Journal found that four of the SEC’s commissioners were “barred from enforcement votes and certain other matters affecting more than 20 companies,” and that one commissioner “didn’t vote in 59 of the agency’s 118 closed-door meetings” over a two-year period.

Over the course of her career, White went from prosecuting financial fraud as a U.S. Attorney to defending financial industry clients as an attorney at Debevoise & Plimpton LLP, a corporate law firm. When President Obama nominated White to lead the SEC, POGO and others took note of the fact that she used to represent powerhouse Wall Street banks such as JPMorgan, UBS, and Morgan Stanley. But those weren’t her only clients. In a 2013 financial disclosure report, White revealed that she also provided legal services to Simpson Thacher, a firm that does plenty of its own work representing big businesses before the government.

Under the ethics pledge signed by President Obama’s appointees, White was required to wait at least two years before handling SEC business that could affect a former employer or client. But the agency’s ethics official decided to waive this restriction for matters involving Simpson Thacher and its clients. The waiver suggests that the SEC’s work was hindered when White remained on the sidelines. “Thus far, as Chair of the Commission, you have recused from particular matters in which Simpson Thacher represents a party,” the waiver says. “This has led to a situation in which your leadership, experience, and expertise have not been brought to bear on significant matters before the Commission.”

“I understand that for several years prior to your [April 2013] appointment Simpson Thacher was a client for whom you performed attorney services,” the ethics official wrote in the waiver. However, under the Obama ethics pledge, a firm is defined as a “former client” only if the appointee “served personally as agent, attorney, or consultant [to the client] within the 2 years prior to the date of his or her appointment.” As a result, the waiver discounts the “approximately 6 hours of work” that White did for Simpson Thacher in January 2011, and notes that she billed less than one hour for her work on Simpson Thacher matters in the two years preceding her appointment. It is unclear how much work she did for Simpson Thacher before the six hours in January 2011, or if she had any ongoing arrangement with the firm over the years that could undermine her loyalty to the public as an SEC official. “[T]he minimal amount of your work for Simpson Thacher during the two years prior to your appointment does not present a significant concern regarding the appearance of undue influence that the Pledge is designed to prevent,” the waiver says.

White’s waiver does not say what her “several years” of work for Simpson Thacher entailed, how important it was, or how extensive it was. Appointees are not even covered by the ethics pledge if their services for a past client consisted “merely of speaking engagements” or “other kinds of discrete, short-term engagements, including certain de minimis consulting activities,” according to a 2009 guidance letter issued by OGE. The letter offers criteria—such as “the amount of time devoted” and “the nature of compensation (e.g., one-time fee versus a retainer fee)”—for evaluating an appointee’s relationship with a past client.

In White’s case, the government apparently decided that her past work for Simpson Thacher was significant enough to trigger a recusal under the ethics pledge, but it’s unclear exactly how the ethics officials made that determination or why they decided to waive the “cooling off” rule last year. A different OGE letter issued in 2009 said it is the “President’s intention that waivers will be granted sparingly and that their scope will be as limited as possible.”

As previously reported, White also received an ethics waiver last year because she used to provide direct legal services to one of Simpson Thacher’s clients, Credit Suisse. White, Simpson Thacher, and the SEC declined POGO’s requests for comment.

White’s newly disclosed waiver does not identify specific matters involving Simpson Thacher that have come before the SEC during her tenure. But other records posted on the SEC’s website show how the firm has interacted with the agency on high-profile cases.

In May 2014, for instance, Simpson Thacher wrote to the SEC on behalf of firms that are affiliated with Credit Suisse AG, the giant Swiss bank. (The letter was signed by Peter Bresnan, a former official in the SEC’s enforcement division who began representing clients before the agency shortly after he left, according to records obtained by POGO.) Those firms had been able to take advantage of a rule that gives companies a streamlined process to raise money from investors, but they were in danger of losing the privilege because of Credit Suisse’s legal and regulatory problems.

In February 2014, the SEC filed charges alleging that Credit Suisse “provided cross-border securities services to thousands of U.S. clients and collected fees totaling approximately $82 million without adhering to the registration provisions of the federal securities laws.” Credit Suisse paid $196 million and admitted wrongdoing in order to settle the SEC’s charges. A few months later, in a parallel criminal action brought by the Department of Justice, the bank pleaded guilty to helping U.S. taxpayers file false tax returns over the course of several decades, and agreed to pay an additional $2.6 billion to state and federal regulators.

As a result of the guilty plea, firms affiliated with Credit Suisse stood to lose their money-raising privilege. So they turned to Simpson Thacher to request an exemption from this disqualification, known as a “bad actor” waiver. Several SEC officials have the authority to handle such requests, but in this case, the matter went before the five SEC commissioners, the agency’s senior leaders. A majority of participating commissioners voted to grant the waiver on the same day Credit Suisse pleaded guilty.

The SEC’s waiver approval doesn’t say if or how White voted on the matter. In a similar case involving Bank of America, White recused herself, according to a report by Bloomberg, because she used to represent the bank’s former CEO. This led to a stalemate among the four remaining commissioners, two of whom have raised concerns about the agency’s habit of granting waivers to repeat offenders. One commissioner has warned that the SEC is in danger of enshrining a new policy, “that some firms are just too big to bar.”

Senator Sherrod Brown

Senator Sherrod Brown, Ranking Member, Committee on Banking, Housing, and Urban Affairs

If White was allowed to participate in the Credit Suisse case, it might have broken any deadlock among the remaining commissioners, but it would’ve meant she was weighing in on a highly controversial decision that involved two of her former clients (Credit Suisse and Simpson Thacher). Credit Suisse’s “bad actor” waiver was cited in a letter last year from Senator Sherrod Brown (D-OH), the new Ranking Member of the Senate Banking Committee, who told the SEC that “[r]emoving privileges enjoyed by large firms will promote better behavior, increase accountability, and demonstrate to the financial markets that certain firms do not enjoy special treatment by virtue of their size.” The reprieve granted to Credit Suisse was “particularly troubling,” Senator Brown wrote.

White also received an ethics waiver in February 2014 that allowed her to handle SEC matters affecting Credit Suisse, which she used to represent directly. But unlike the Credit Suisse ethics waiver, which POGO highlighted at the time, the Simpson Thacher waiver is only now coming to light. “Evidently there were two waivers issued with the same date but…only one was posted to the OGE site,” OGE explained in an email to POGO. “Our web administrator has now reposted the file containing both waivers to the site.”

POGO has called for the timely online posting of waivers, recusals, and other ethics records for officials who go through the revolving door. There is also a need for more detailed disclosures so that the public can evaluate, for instance, whether it was appropriate for White to receive a blanket waiver for all matters involving Simpson Thacher.

Some of the potential conflicts that have ensnared White have also tied the hands of Andrew Ceresney, the SEC’s enforcement chief. Like White, Ceresney was an attorney at Debevoise & Plimpton and represented some of the same powerhouse Wall Street firms, including Credit Suisse, JPMorgan, and UBS, according to a financial disclosure statement posted by The Wall Street Journal. The Journal has reported that both White and Ceresney remained on the sidelines in 2013 when the SEC voted to settle with JPMorgan for its alleged failure to prevent massive trading losses in the “London whale” case. POGO asked the SEC for more information on White’s recusals in cases involving Simpson Thacher, but the agency declined to comment.

Before White’s tenure at the SEC, Simpson Thacher represented defendants in a number of high-profile cases, such as when the agency alleged that senior employees from Citigroup made misleading statements about the bank’s exposure to subprime mortgages in a case tied to the 2008 financial crisis. More recently, Simpson Thacher itself came under scrutiny when the SEC accused a managing clerk at the firm of participating in an insider trading scheme.

Simpson Thacher caters to corporations and executives in a variety of matters, including investigations by Congress and financial regulators. On its website, the firm touts its roster of government alumni who have traveled through the revolving door: “Our team includes former federal prosecutors, former SEC officials (including the first Chief of the SEC’s FCPA Unit) and former members of the [Department of Justice] Securities and Commodities Fraud Task Force.”

Now it appears Simpson Thacher can offer another selling point: one of Wall Street’s top watchdogs is a lawyer who used to represent the firm, and she doesn’t have to wait any longer to oversee its clients.

Images from the Securities and Exchange Commission and Sen. Brown's office.

By: Michael Smallberg
Investigator, POGO

Michael Smallberg, Investigator At the time of publication Michael Smallberg was an investigator for the Project On Government Oversight.

Topics: Financial Sector

Related Content: Conflicts of Interest, Securities and Exchange Commission

Authors: Michael Smallberg

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