Securities And Exchange Commission Revolving Door Spins For Mary Jo White

January 22, 2013

Mary Jo White (C), Federal Attorney for the So...

Mary Jo White (C), Federal Attorney for the Southern District of New York, flanked by James Kallstrom (L), New York FBI Director and Howard Safir (R) New York City Police Commissioner, talks to reporters after hearing the jury deliver guilty verdicts in the World Trade Center bombing trial of Pakistani Ramzi Yousef and Jordanian Eyad Ismail 12 November outside Federal Court in Manhattan. Yousef and Ismail were found guilty of their roles World Trade Center bombing which killed six and injured some 1000 people, in February 1993. (Image credit: AFP/Getty Images via @daylife)

Ah, yes, it's silly season again inWashington, DC, as the in-with-the-new and out-with-the-oldchange of administration and Congress doesn't quite accomplish either of those often desirous goals, and we wind up with a  poison-the-new and recycle-the-old.

Important jobs are doled out to unqualified campaign contributors. The old guard of hanger-ons and consultants once again line up at the trough.

It's not pretty. It's not the way government or regulation should work.

In recent days, the press has been aflutter with the story that President Obama will nominate former United States Attorney ("USA") Mary Jo White to replace Mary Schapiro and Elisse Walter as the Chair of the United States Securities And Exchange Commission ("SEC"). White was the USA for the Southern District of New York ("SDNY") from 1993 to 2002, and returned to the law firm of Debevoise & Plimpton LLC as a litigation partner. Given that pedigree, many hear the whir of the infamous revolving door between federal service and the major law firms.

In response to a number of press inquiries about my take on this nomination, I see much promise. White has superb qualifications.  The questions are whether she:

  • understands the turf to be regulated,
  • has insight into what needs to be jettisoned and retained at the SEC, and
  • wants to accumulate a record of notable accomplishment or merely to burnish a resume in anticipation of returning to private practice.

Only time will tell.

I'm a 30-year veteran regulatory lawyer. I'm also known as an industry gadfly and vocal critic of ineffective regulation and incompetent regulators. Not exactly the kind of guy who will get a phone call from White asking for my suggestions. All of which is fine by me. Nonetheless, since no one is asking, howsabout I simply toss in my two cents and offer my unwanted opinion?

On the plus side of White's balance sheet is that she was an aggressive SDNY USA, which is the foremost district for prosecuting Wall Street. White has always been known as a pit-bull. Without a doubt, this is someone with the chops to get the job done, if she is inclined to bite down and chew.

On the negative side of the balance sheet, White has those eyebrow-raising troubling ties: the former role as a Director on the NASDAQ stock exchange and her law firm's many financial institution clients. Other respected lawyers such as Harvey Pitt and Robert Khuzami came to the SEC in various roles after having revolved from the public to the private sector  and back again - and left the SEC amid many questions and a sense of not having fulfilled expectations. How one confronts the challenges of regulation makes all the difference as to whether a career as a regulator only initially flounders in response to the need to learn the ropes - or ultimately founders because one could not navigate the dangers.

If White has one thing going for her, it's that her experience running a local district USA's office should have inculcated her with a respect for local, neighborhood policing over the burdensome centralized management of a faraway bureaucracy in Washington, DC. If the Department of Justice has had an historic strength, it is that it has been blessed with a local network of Federal Bureau of Investigation and USA offices. Such a posture permits many cases to be developed locally and prosecuted by folks who know the turf. I hope that White will keep that in mind and shift more resources from Washington, DC to the regional offices.

White should also recognize that the SEC faces the same talent pool issues as do all federal bureaucracies: Is it preferable to hire some Ivy Leaguer from a white-shoe law firm for three years or to reward and cultivate the hard work of an SEC employee seeking to make a career in regulation?  The choice is not either/or. The smart course is to blend folks with the Street chops from the private sector with those who have made it a career at the SEC.  Sadly, that has rarely been the case, with far too many choice appointments going to outsiders whose lasting legacy at the SEC has been to wreck havoc upon the regulator. Then, while the flames build and the smoke billows, these hotshots return to private practice, where their law firm represents the respondents and defendants that they had only recently prosecuted.

I would urge White to depart from the SEC's pathetic history of having a bark worse than its bite - an unfortunate legacy that was added to by departing Enforcement Director Robert Khuzami, who came to his office with a resume remarkably similar to that of White's, if only a bit lesser in achievement.  Although Khuzami started his tenure with great promise and should be credited with undertaking an overhaul of many aspects of the SEC's ponderous bureaucracy, Khuzami's legacy was undone by his opposition to federal Judge Rakoff's desire for some admission of liability by settling defendants.

Khuzami admirably modernized how cases are investigated and prosecuted by the SEC, but he failed to understand that the SEC's settlement protocols are outdated and dangerously counter-productive. It seemed as if Khuzami feared the consequences of imposing truly meaningful sanctions upon Wall Street's misconduct.  As with far too long a line of his predecessors, Khuzami seemed to believe that one's success in regulation should be judged by the total dollar amount of fines collected or the financial industry careers short-circuited by bars.  Far more innovation and creativity was required.  For too many of Khuzami's targets, the downside of misconduct was simply the cost of doing business in writing out a check - the dollars of which were often paid from the pockets of public shareholders.

Finally, let me refer Mary Jo White to my closing comments in "The Damnable Politics of Regulation" (Street Sweeper, April 26, 2011):

After some three decades on Wall Street, I've realized that it's rarely the regulatory investigators, examiners, or staff attorneys to blame (sometimes, "yes," but not overwhelmingly so). More often than not, the blame for failed regulation falls squarely in the lap of those in charge because they often set unrealistic agendas and  have little feeling for the limits of their staff and budget. Then, after the damage is done, they resign for a cushy job and leave behind the rubble of failed policies and overly ambitious plans - rubble that someone else, always someone else, has to clean up.

Where does all of this leave us? Well, pretty much where we're always left. At the mercy of special interests and victimized by politicians and regulators unable to get out of their own way. Alas, we are forever undone by the politics of regulation.

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