Wall Street has a new top watchdog, but it isn't clear whether she will be in the room as her agency makes key decisions about whether to pursue some of the financial sector's biggest stars.
Mary Jo White, a former federal prosecutor who has spent the last decade as a lawyer defending banks, was confirmed by the U.S. Senate on Monday as the new head of the Securities and Exchange Commission. White pledged not to participate in SEC decisions for one year in matters involving former clients, which include Bank of America, JPMorgan Chase and Morgan Stanley. She also vowed not to return to the New York law firm Debevoise & Plimpton.
Foremost among the tough decisions the SEC will likely have to make in the next year: whether to sue JPMorgan Chase executives, including CEO Jamie Dimon, for false statements as the $6.2 billion "London whale" trading loss unfolded. White represented JPMorgan Chase, the nation's largest bank, from 2010 through 2012 in a range of financial crisis-related cases. Though White hasn't said for sure in what instances a past relationship will prompt her to recuse herself, it seems likely that any high-profile enforcement matter involving the megabank will be made without her input for the next year.
White, a respected former federal prosecutor, takes over an agency with a reputation damaged from its failure to sound warning on risk-taking in advance of the financial crisis, and for failing to catch Ponzi-king Bernard Madoff. The agency has taken some steps to rehabilitate its image, with its enforcement division bringing more cases and winning more big-dollar settlements than ever.
Critics contend that the SEC, the agency that regulates Wall Street, still hasn't done enough to hold accountable those responsible for the housing bubble and economic crash. Though the agency has brought cases that target Wall Street banks, it has largely avoided charging top executives. The SEC is a civil law authority, which means it has the power to sue, but not to bring criminal charges.
In a recent Senate hearing, White promised that "no institution would be too big to charge." She also said she would pursue a "fair but bold and unrelenting" enforcement policy. She said she will step aside when matters involving former law clients come before her.
“I think the public investor should know that I am their advocate,” White said during her confirmation hearing. “If I’m confirmed, the American public will be my client. And I will work as zealously as is possible on behalf of them."
Though it fell short of asserting that any securities laws were broken, a recent report by the Senate Subcommittee on Investigations left little doubt that its authors felt that JPMorgan's top officers failed on the job. Sen. John McCain (R-Ariz.) said the London Whale trade was not the action of "rogue traders" and bank "superiors were well aware of their activities."
White may also have to bench herself during a forthcoming arbitration involving exchange operator NASDAQ and several large banks. The banks, including former White client UBS AG, have argued the stock exchange should be liable for bank losses during Facebook's botched initial public offering.
Other former clients whose actions might come into the SEC’s purview include General Electric, Microsoft, Deutsche Telekom and Verizon. And these are just the clients White has publicly revealed. In her financial disclosures, White mentioned three clients she could not name, citing attorney-client privilege.
It remains to be seen if White would excuse herself from cases involving Deloitte, one of the largest accounting firms in the world. Deloitte, a White client, audited 920 publicly-traded American companies in 2011, according to the company’s latest annual filings. In December, the SEC sued Deloitte’s Chinese unit for obstructing a fraud investigation.