H/T ZeroHedge

EXECUTIVE SUMMARY: MARY JO WHITE, THE SEC, AND THE REVOLVING DOOR

The core purpose of the U.S. Securities and Exchange Commission (hereinafter “the
SEC”) is to protect outsiders from insiders. Founded in the wake of the Great Depression
in response to “a consensus that for the economy to recover, the public’s faith in the
capital markets needed to be restored,” the SEC is intended to ensure that
corporations and the financial sector treat everyone else honestly.1
As the SEC’s website summarizes the laws that gave it life,

The main purposes of these laws can be reduced to two common-sense notions:
???? Companies publicly offering securities for investment dollars must tell the
public the truth about their businesses, the securities they are selling, and the
risks involved in investing.
???? People who sell and trade securities – brokers, dealers, and exchanges –
must treat investors fairly and honestly, putting investors’ interests first.2

The SEC’s role is thus necessarily antagonistic to the interests of those entrenched
insiders who choose to seek the easiest and least ethical path toward profit. And the
SEC’s critical mission means that few if any regulators (other than the Chair of the
Federal Reserve) have more influence on financial regulation than Mary Jo White, the
Chair of the SEC.

President Obama’s 2013 nomination of Mary Jo White to this high profile position was
well received, and White was confirmed by the Senate by voice vote, viewed as
uncontroversial and well qualified.3 White’s voice vote (4/8/13) was merely two months
and one day after her nomination was formally sent to Congress (2/7/13),4 a rapid
confirmation unusual for a presidency that had been obstructed at historic rates.5
Mary Jo White’s quick confirmation seems to reflect the effectiveness of the framing of
White as a law enforcer. President Obama’s reference to White’s past service as US
Attorney for the Southern District of New York—“You don’t want to mess with Mary
Jo.”—has become iconic. The press reaction to the White nomination was filled with
expectations that White would serve as “Wall Street’s sheriff:”6 indeed, a Google search
for “‘Mary Jo White’ Wall Street sheriff” produces more than 26,000 hits.7 The New York
Times timeline on her career is entitled “Mary Jo White — From Prosecutor to Regulator:
Before President Obama named Mary Jo White to run the Securities and Exchange
Commission, she was the top federal prosecutor in New York,”9 despite the fact that
White spent more time at a Wall Street law firm than as a prosecutor.

Thus, when on June 2nd Senator Elizabeth Warren sent a 13 page open letter to Chair
White cataloguing why the Senator found the Chair’s time at the SEC thus far to have
been “extremely disappointing,”10 it sent shockwaves. This summary from Politico
accurately characterizes the reaction to Warren’s letter:
Wall Street and the White House had a swift and furious reaction to Elizabeth
Warren’s blazing attack on Securities and Exchange Commission Chair Mary Jo
White: Senator, you’ve gone too far. Defenders of White’s tenure at the
regulatory agency said Warren’s 13-page letter attacking the SEC chair raised
highly questionable points and badly mischaracterized the actions of a widely
respected former federal prosecutor.11

As this quote suggests, White’s reputation continues to play an outsized role in defenses
of White, even as observers at Bloomberg note that her “two-year tenure heading the
securities regulator has been marked largely by discord and paralysis rather than
accomplishments.”12 For instance, the June 8th Washington Post Editorial Board defense
of White’s time at SEC led by invoking White’s career in a way that gave the reader no
indication that White had ever worked for Wall Street:

MARY JO White is a rarity in Washington — a seasoned federal prosecutor, an
expert on securities law and a true independent, in both party registration and
attitude. Those attributes made her President Obama’s choice to chair the
Securities and Exchange Commission (SEC), the independent agency that
makes and enforces regulations for the financial industry.13

A deeper dig into White’s career indicates that not only has White’s tenure at the SEC
been troubling, it has been a disappointment very much in keeping with her
professional track record. Her defenders are right in one very important regard: White
has in fact led the SEC exactly as one might expect she would based on her career.
White’s career serves as an emblematic example of what is problematic about the
revolving door; indeed, she is also a proponent of the revolving door in her hiring and in
her personal statements. Her position on the SEC leads to an insolvable dilemma: her
lengthy and lucrative ties to Wall Street (Section A below) lead to justifiable calls for
frequent recusal, and her frequent recusals (see Section F) lead to frequent deadlock in
the commission, preventing adequate enforcement. White’s tendency to hire people
for high ranking jobs at the SEC who are likely to avoid stringently enforcing laws
protecting society from the dangers of the insiders and large banks for whom they will
go to work for next (see Section E) is emblematic of her ideology opposing strong white
collar criminal enforcement (see Sections (C) and (D)).

And perhaps nothing better illustrates the crisis of the revolving door at the SEC than
“The Pequot Affair,” (Section B) in which White played an important, albeit supporting
role. There, as throughout this report, White’s behavior fits the Washington DC adage,
“The scandal isn’t what’s illegal, the scandal is what’s legal.”14

As Chair of an Independent Agency that has both rulemaking power and ruleenforcing
responsibility, White has the opportunity to secure and deepen improvements
in financial regulation, or to scuttle much of the significant but imperfect progress that
has been made. An effective Chair of the SEC must have a mindset that is of, by, and
for the outsiders whom our laws seek to protect. Instead, White both embodies and
promotes the revolving door between government regulator and regulated industry
that empowers Wall Street insiders at the expense of investors and society writ large.
Society has an interest in an SEC that really plays the thus far mythical role of “Sheriff of
Wall Street” that President Obama promised White would create. We need
Commissioners of the SEC who do not embody the revolving door, who do not
represent insolvable recusal dilemmas, and who are not already eyeing a postgovernment
job working on or for Wall Street.

The false promise of the White era at the SEC can and should serve as a teachable
moment. Instead of returning again and again to the revolving door, pending and
future SEC Commissioner openings should be an opportunity to empower leaders from
more diverse backgrounds, such as public service, think tanks, or academia.

[…]

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