The Revolving Door at the SEC

03/06/2015 04:43 pm ET | Updated May 06, 2015

Business enterprises have evolved or morphed from small private companies into large independent, semi-sovereign publicly traded corporations, unrestrained by national and state governments and civil society. As early as 1932, British economist John Maynard Keynes warned us of "individualistic capitalism" and the growing danger of large powerful corporations.

Likewise, in 1939, two corporate attorneys, Berle and Means, writing in their classic The Modern Corporation and Private Property, expressed their concern that by 1920, economic power had become concentrated in the small class of professional corporate managers, fearing that they were insulated not only from legal owners but from civil society, and if unchecked, could have very negative consequences for democratic institutions and the economy.

More specifically, they wrote, that these authoritarian corporations had the power to build and destroy communities and to generate great productivity and wealth, but they also could control the distribution of wealth, without regard for those who "elected" them (the stockholders) or for those who depended on them (the larger public).

Keynes, Berle and Means' prophetic words understated what is now so obvious, and that is, that large corporations not only control the economy, they manipulate, if not control, the entire political process. Simply put, their ability to spread considerable amounts of cash within the U.S. political system by massive political contributions and lobbying has created an institutional framework for materialistic self-interest to dominate government and stifle any semblance of regulation.

As an investment adviser and shareholder advocate, the most devastating example of corporate power, is the ability of large corporations, especially financial institutions, to hire former regulators to lobby the Securities and Exchange Commission (SEC) on behalf of their bank clients.

At the same time, many lawyers who worked for legal firms lobbying the SEC, are being appointed or hired as regulators. So, you have the same group of lawyers working for financial institutions, as well as the SEC that regulates them.

For example, the high powered SEC lawyer lobbying firm of Morrison Foerster has as its Corporate Finance Partner, Marty Dunn, who spent 20 years as the SEC's Chief Counsel, Deputy Director and Acting Director of the agency's Division of Corporate Finance. As a former partner in the Washington D.C. lobby firm of O'Melveny & Myers LLP, he was able to use his influence within the SEC in 2013 to gain favorable SEC staff ruling to allow JPMorgan Chase to omit a shareholder resolution from the proxy ballot requesting the bank to adopt policies to prevent money laundering at the bank. This is a bank that has a long record of questionable payments overseas and the office of the comptroller citing the bank for "critical deficiencies" in its anti-money laundering controls.

The revolving door goes all the way to the top of the SEC. The former SEC Chair, Mary Shapiro, when she retired was hired by Promontory Financial Group, a D.C. consulting and lobby firm founded by the former Comptroller of the Currency (OCC). In addition to Shapiro, more than one-fourth of the company's 400 employees are former regulators, with about 5% coming from the OCC, including the former OCC chief counsel (whose position at the OCC was immediately filled by a Promontory managing director).

President Obama replaced Shapiro with Mary Jo White. She and her deputy, Andrew Ceresney, worked for the law firm of Debervoise & Plimpton, and had to recuse themselves from any enforcement or other issues involving JPMorgan Chase. White worked as the defense lawyer for JPMorgan Chase and Bank of America's former chief executives. She also has to recuse herself from at least ten investigations into clients of Cravath, Swaine & Moore, and at least four more that personally involved her husband, John White, another lawyer, who works for the firm, also representing large corporations that are regulated by the SEC.

The revolving door also works for many other federal regulatory agencies in Washington, D.C., that one columnist cleverly wrote:

"Washington today resembles something like the end of 'Animal Farm.' People move from one side of the table to the other and up and down the Acela Corridor with ease. An outsider looking in at a negotiating table would glance from lobbyist to staff member, from colleague to former colleague, from pig to man and from man to pig and find it impossible to see which is which."