By Michael Smallberg
Mary Jo White—President Obama’s nominee to serve as chairman of the Securities and Exchange Commission (SEC)—said at her confirmation hearing today that the investing public need not worry about her history of defending companies from the government.
But her explanation was less than reassuring. If potential conflicts of interest don’t disqualify this former corporate lawyer from doing the job of SEC chairman, her testimony showed, that’s largely because federal ethics rules are so permissive.
White isn’t worried about her ability to participate in the SEC’s work, she said, in part because she’s “not recused from any SEC rulemaking matters or policy matters.”
POGO and others have raised concerns about White’s past and her potential ethical entanglements as SEC chairman. After serving as U.S. Attorney for the Southern District of New York, White spent a decade as a defense attorney at Debevoise & Plimpton, a high-powered white-collar firm, where she represented companies such as JPMorgan, UBS, and General Electric.
As head of the SEC, White may soon be in a position to work on issues affecting her former clients. Either she’ll be allowed to work on those issues—despite the appearance of a conflict— or she’ll have to recuse herself, which could limit her effectiveness as SEC chairman.
In fact, White confirmed today that she can participate in SEC business affecting her former clients, as long as the work involves industry-wide regulations.
Her comments reflected a wrinkle in the ethics rules for new government employees that POGO highlighted in a recent report on the SEC revolving door:
The [ethics] rules state, for instance, that a new agency employee may not be able to work on a “particular matter involving specific parties”—e.g., “contracts, grants, licenses, product approval applications, investigations, [or] litigation”—if it is likely to affect a former employer or client. However, the definition of “particular matter involving specific parties” does not cover “rulemaking, legislation, or policy-making of general applicability.”
“A person entering government service from a bank…must wait a year before participating in a government bailout of that same bank, but may, without waiting a year, immediately draft regulations affecting banks in general,” Richard Painter, a professor at the University of Minnesota Law School, wrote in a 2009 book. Likewise, he added, “[s]omeone who has been paid to urge the SEC to write a particular rule a certain way” could then “go into the SEC and shortly thereafter help write the same rule.”
At least some of White’s past Debevoise clients have a stake in pending SEC regulations that must be approved by the agency’s commissioners.
Last year, for instance, the SEC and other regulators received a letter from JPMorgan—one of White’s former clients—raising concerns about the Volcker Rule. Regulators are required to implement the rule under the Dodd-Frank Act to restrict the bets that federally insured banks can place in the financial markets. In its letter, JPMorgan argued that “the statute is so flawed that it will be impossible to implement in a way that does not impose unacceptable costs on our economy and financial system.”
The Wall Street Journal recently reported that regulators may not finish the Volcker Rule until later this year.
At this morning’s hearing, several members of the Senate Committee on Banking, Housing, and Urban Affairs raised concerns about White’s potential conflicts, as well as those relating to her husband, a white-collar defense attorney and former SEC official.
“If confirmed, what steps will you take to address potential conflicts of interest between your duties as SEC chairman and [your] past work on behalf of clients, as well as potential conflicts with respect to your husband’s work?” asked Committee Chairman Tim Johnson (D-SD). “How will these steps affect your ability to participate in the Commission’s enforcement actions or other SEC matters?”
White assured the Committee that she had gone through a thorough vetting process with the White House, Office of Government Ethics, and SEC ethics office to “be certain that there were no conflicts that could be problematic or limit my ability to function effectively as SEC chair.”
“I’m very scrupulous about these issues,” she added.
“Nobody questions your integrity or your aggressiveness or your toughness,” said Senator Sherrod Brown (D-OH). “But we need some reassurance...[about] the culture you’ve come out of the last ten years, I assume both socially and professionally.”
“What have you done the last decade that ordinary investors can look at and be assured that you will advocate for them?” Senator Brown asked.
“When you’re a lawyer, you represent different kinds of clients and you are ethically bound to represent them to the best of your ability, and I’ve done that,” White responded. “That does not change me as a person. It doesn’t mean I embrace the policy thoughts of any of my clients in particular. I think the public investor should know that I am their advocate.”
“If I’m confirmed,” White added, “the American public will be my client. And I will work as zealously as is possible on behalf of them.”
But what else could she say? That she would not work on behalf of the American public? Maybe she does not identify or sympathize excessively with her former clients, even after spending ten years working on their behalf. But the danger is that she does.