President Obama's expected pick of former U.S. prosecutor Mary Jo White to be the nation's top securities watchdog is widely being taken as signaling a crackdown on Wall Street crime.
But there are red flags, in White's past statements and in her work for bankers as a lawyer in private practice, that raise some doubts about just how zealous an investor protector she will be.
Obama announced his nomination of White to head the Securities and Exchange Commission on Thursday afternoon. Wall Street reform advocates generally praised Obama's choice of White, who ran the U.S. Attorney's office for the Southern District of New York for nearly a decade. In what is arguably the country's most important prosecutorial post, White won convictions against the 1993 World Trade Center bombers, Mafia boss John Gotti and other high-profile defendants.
"Ideally somebody who has prosecuted terrorists and Mafia figures will be able to face down the trade associations" of the financial industry, said Bart Naylor, financial policy advocate for the non-profit group Public Citizen.
"Mary Jo White was a tough, smart, no nonsense, broadly experienced and highly accomplished prosecutor," Dennis Kelleher, president and CEO of Better Markets, a nonprofit group, said in a statement. "She knew who the bad guys were, went after them and put them in prison when they broke the law. That’s what must happen if integrity and investor confidence is to be restored in our securities markets."
But White has for the past decade represented banks and bankers as head of litigation at the New York law firm Debevoise & Plimpton. In more than 10 years as one of New York's most sought-after white-collar defense attorneys, White represented a long list of corporate titans, including former Bank of America chief executive Ken Lewis and, in 2005, Morgan Stanley, which hired her to vet John Mack, a prospective CEO.
In February 2012, White expressed doubts at a panel at New York University about whether banks had committed crimes ahead of the financial crisis. She warned against trying to prosecute "mistaken behavior, what is even reckless risk-taking."
Although she has represented many executives accused of financial crimes, White is not an expert on the inner workings of trading systems, a lack of knowledge that may not serve her well as the SEC struggles to keep up with rapid changes in increasingly complex financial markets.
"The problem with the SEC is that they don't seem to have a grip on" high-frequency trading and other major issues affecting modern financial markets, said Joe Saluzzi, co-head of equity trading at independent brokerage Themis Trading and a frequent critic of high-speed trading. "We're concerned about cleaning up the market, and we need the SEC to take the lead here."
Her background puts to question how aggressively White might prosecute financial fraud and enforce new rules under the Dodd-Frank financial reform law -- most of which have not yet been adopted by the SEC. But some people familiar with her past work as a prosecutor suggested White's background shouldn't be held against her.
"Having worked relatively closely with her in the last few years of the Clinton administration and being in a situation where I could observe what she was doing very closely, there is no doubt in my mind she will be very tough," said University of Maryland law professor Michael Greenberger, who had a top post at the Justice Department at the time White was a U.S. attorney.
Benjamin Hallman and Eleazar David Melendez contributed reporting.
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Before starting his career in public service, Commodity Futures Trading Commission chairman Gary Gensler spent <a href="http://www.cftc.gov/About/Commissioners/GaryGensler/index.htm" target="_hplink">18 years working at Goldman Sachs</a>. Gensler's work at Goldman has gotten him into some hot water as the top futures industry regulator. After MF Global imploded into bankruptcy on his watch, losing millions in customer funds, Gensler recused himself from the probe, citing his history at Goldman with Jon Corzine, MF Global's ex-CEO. <a href="http://www.huffingtonpost.com/2011/12/02/cftc-mf-global-senators_n_1125231.html" target="_hplink">Senators blasted Gensler</a> and accused him of trying to "avoid the heat."
Before serving as secretary of the Treasury under George W. Bush, Henry Paulson <a href="http://articles.chicagotribune.com/2011-06-30/business/ct-biz-0630-confidential-paulson-20110630_1_treasury-post-henry-paulson-goldman-sachs" target="_hplink">spent 22 years at Goldman Sachs</a>, eventually assuming the position of CEO. Paulson's ties to Goldman followed him to his new job: On multiple occasions in 2008, Paulson met with Goldman executives in informal contexts and <a href="http://blogs.reuters.com/felix-salmon/2009/10/20/the-secret-paulson-goldman-meeting/" target="_hplink">shared his opinions about the future direction of the economy</a>. On one occasion, Paulson reportedly <a href="http://www.bloomberg.com/news/2011-11-29/how-henry-paulson-gave-hedge-funds-advance-word-of-2008-fannie-mae-rescue.html" target="_hplink">explained to at least a dozen Wall Street higher-ups</a> that the government was considering a takeover of Fannie Mae and Freddie Mac, some two months before it actually came to pass -- thus giving everyone in attendance a chance to trade profitably on that knowledge before it became public. <em>-- Alexander Eichler</em>
U.S. Treasury Secretary Timothy Geithner never worked on Wall Street, but given his close relationship with the financial industry it's not surprising many thank he has. Before assuming his post as Treasury Secretary, <a href="http://www.treasury.gov/about/Pages/Secretary.aspx" target="_hplink">Geithner was president</a> of the Federal Reserve Bank of New York, a <a href="http://www.huffingtonpost.com/2012/05/13/elizabeth-warren-jamie-dimon_n_1513528.html" target="_hplink">Wall Street regulator that's been heavily criticized</a> for its cozy relationship with the industry. In 2008, during his time as New York Fed president, Geithner became aware that banks were rigging the Libor benchmark rate and recommended that London regulators address the issue, but most of Geithner's suggestions came <a href="http://www.huffingtonpost.com/2012/07/16/tim-geithner-libor_n_1674552.html" target="_hplink">essentially verbatim from banks</a>. Now <a href="http://www.huffingtonpost.com/2012/07/11/libor-rate-scandal_n_1664737.html" target="_hplink">more than 15 banks</a> are under investigation for rate-rigging and some critics are arguing that Libor rigging is one of the biggest financial scandals of our time.
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