Is Mary Jo White—President Obama’s nominee to head the Securities and Exchange Commission (SEC)—an intrepid enforcer who will protect investors and hold Wall Street accountable? Or will she look out for the financial industry she used to represent?
The Senate Banking Committee is set to confront these questions at White’s confirmation hearing Tuesday. Her confirmation may be a foregone conclusion, but that doesn’t mean it inspires confidence.
President Obama has touted White’s experience as U.S. Attorney for the Southern District of New York, where she handled prosecutions of terrorists and white-collar criminals. “You don’t want to mess with Mary Jo,” he said when he announced her nomination in January.
The nomination may give the appearance that the president is hiring a tough cop to police Wall Street. But White doesn’t have an especially remarkable record of prosecuting Wall Street, and she has almost no record as a regulator, making it hard to predict what kind of rules she would craft for corporations in general or the financial industry in particular.
Moreover, she has spent the past decade as an attorney at the law firm Debevoise & Plimpton, where she defended clients before the government in white-collar cases.
Media coverage of White’s nomination has highlighted several causes of concern, including her industry entanglements, the limited nature of her commitment to sever ties with her law firm, her past association with an effort to weaken an SEC whistleblower program, and her expressed view of aggressive enforcement.
To be sure, her appointment has drawn cheers in some quarters. According to Fox Business News, in an interview JPMorgan chief executive Jamie Dimon called White “extremely capable, competent, bright and tough” and a “perfect choice” to head the SEC.
White’s recent clients at Debevoise have included such major players as JPMorgan, UBS, Deloitte & Touche, General Electric, former Bank of America CEO Kenneth Lewis, and former HSBC chief Michael Geoghegan, according to her financial disclosure report.
So what happens when White is in a position to oversee these firms?
In an ethics letter signed last month, White outlined the steps she will take to avoid real or apparent conflicts of interest.
Under government ethics rules, and the pledge taken by President Obama’s political appointees, White will have to “cool off” for at least two years before she can work on issues involving Debevoise clients or her former clients. She will also be restricted from handling matters involving the clients of her husband, a partner at Cravath, Swaine & Moore who used to be the head of the SEC’s Corporation Finance Division.
These recusals are no small matter. The four current commissioners are “barred from enforcement votes and certain other matters affecting more than 20 companies,” accordingly to an analysis by The Wall Street Journal. “At least one commissioner didn’t vote in 59 of the agency’s 118 closed-door meetings” during a recent two-year period, the Journal reported.
If White cannot participate in SEC work involving a company such as JPMorgan—which is reportedly being investigated by the agency for its multi-billion dollar trading blunder—how effective can she be at leading the agency?
On the other hand, if White is permitted to work on issues affecting her former clients, how can the public be assured that she’s acting with independence and objectivity?
To make matters worse, three of White’s past clients aren’t even listed on her financial form because “disclosure of the representation is the subject of attorney-client privilege and other confidentiality obligations that do not permit disclosure without consent or waiver by the client.”
This explanation prompted Jonathan Weil at Bloomberg to ask: “If disclosure of the three clients’ names would violate attorney-client privilege, how is White allowed to divulge their names to anyone? Such as, say, the government-ethics officers charged with vetting and monitoring her? If she’s not allowed, how are they supposed to do their jobs and ensure her compliance with the law?”
There are other problems with White’s ethics plan.
Upon leaving Debevoise, she is entitled to receive a monthly retirement payment of $42,500. If she is confirmed, the law firm will pay her a lump sum payment in lieu of the monthly payments she would ordinarily receive over the next four years. The wording of her ethics pledge leaves open the interpretation that, after four years, when her tenure as SEC chairman presumably ends, the monthly payments would resume, potentially leaving her financial interests linked to those of this major corporate law firm.
Weil was not satisfied with this arrangement. “If there’s nothing wrong with having a financial interest in Debevoise, why not take the firm’s monthly checks while she’s SEC chairman and skip the lump sum?” he wrote. “Alternatively, if she believes there is something wrong with being owed money by Debevoise while she’s SEC chairman, why not cut off all ties with the firm and negotiate a one-time payment that settles everything?”
In addition, White’s husband is not severing his financial ties with Cravath, another major corporate law firm. He is simply converting to “non-equity partner status and will receive a fixed salary and an annual performance bonus,” according to her ethics letter. This setup would not eliminate the conflicts that are likely to arise when White is in a position to affect the interests of her husband’s clients, especially after the “cooling off” period is over.
There are also questions about White’s approach to the SEC’s regulatory and enforcement work.
Little is known about her position on the most pressing regulatory issues confronting the SEC, such as the agency’s oversight of electronic trading, its implementation of the 2010 Dodd-Frank Act, or its debate over tighter rules for money market funds.
On at least one issue, it appears White represented major firms that were trying to weaken a potentially important SEC investigative tool.
Dodd-Frank gave the SEC new powers to reward tipsters who blow the whistle on companies or individuals who defraud investors. As the SEC drafted a rule to implement the program, many large companies went on the attack.
In late 2010, the SEC received a letter from General Electric, Google, Honeywell, JPMorgan, Microsoft, and Northrop Grumman. The companies wanted to roll back some of the most important features of the proposed whistleblower program. They suggested that employees should be required to report any suspected fraud internally—in other words, to their employers – before they could qualify for an award. Furthermore, they said, the SEC should ensure that “companies are provided with notice of whistleblower complaints about them and with the information from the complaints necessary for the companies to conduct their own inquiries.”
For more information, the letter referred the SEC to lawyers at Debevoise—one of whom was Mary Jo White.
If White becomes SEC chairman, will she be able to support the whistleblower program that her clients once opposed?
And what about the SEC’s enforcement work? Despite her background as a prosecutor, White’s commitment to enforcement has come under scrutiny.
At one point, for instance, White was reviewing whether Debevoise should hire an SEC enforcement lawyer. Here’s what she told the SEC’s Inspector General about the lawyer’s reputation as an aggressive enforcer, according to Rolling Stone:
I think and as a former prosecutor, sometimes people refer to me as Attila the Hun. I understand how people can get a reputation sometimes.We were trying to obviously figure out whether this was something beyond, you always have a spectrum on the aggressiveness scale for government types and was this an issue that was beyond real commitment to the job and the mission and bringing cases, which is a positive thing in the government, to a point. Or was it a broader issue that could leave resentment in the business community or in the legal community that would hamper his ability to function well in the private sector?
As Rolling Stone highlighted, White said bringing cases was “a positive thing . . . to a point.” That begs the question: What is that point?
As SEC Chairman, will White spur the agency to pursue more aggressive enforcement actions, or will she be too busy worrying how those actions might “leave resentment in the business community”?