The nomination of Debevoise & Plimpton partner Mary Jo White as the next chairman of the U.S. Securities and Exchange Commission means that the agency will continue with an aggressive approach to Wall Street enforcement, financial regulation attorneys say.
White has a reputation of being smart, fair and, most importantly, a tough enforcer. As the first female U.S. Attorney for the Southern District of New York, she became known for taking down white-collar criminals, crime syndicate boss John Gotti and terrorists.
“You don’t want to mess with Mary Jo,” President Barack Obama quipped at the January 24 announcement of her nomination.
The White House intended to send that “get tough” message to Wall Street on Thursday. Not only did Obama announce his nomination of White, but he renominated another former prosecutor, Richard Cordray, to continue to lead the Consumer Financial Protection Bureau.
In the announcement, Obama said the nominees will help ensure the implementation of consumer protection and Wall Street reforms from Obama’s first term. “It’s not enough to change the law. We also need cops on the beat to enforce the law,” Obama said.
Obama mentioned a comment from “one former SEC chairman” who said White “does not intimidate easily.” Obama later added: “I am absolutely confident that Mary Jo has the experience and the resolve to tackle these complex issues and protect the American people in a way that is smart and in a way that is fair.”
A challenge for White will be balancing that prosecutorial background with a role with the SEC, first and foremost a regulatory agency, to achieve the right posture and tone going forward, said Thomas Gorman, a partner in the Washington office of Dorsey Whitney who specializes in SEC investigations.
“The selection of Ms. White can only be seen as a clear message to Wall Street and Main Street that there is a new, tough sheriff in town,” Gorman said.
Indeed, White’s background contrasts sharply with that of other recent SEC chairs, none of whom had experience as a prosecutor. Mary Schapiro, who led the agency from 2009 until she stepped down last month, was formerly CEO of the Financial Industry Regulatory Authority and previously served as chairman of the Commodity Futures Trading Commission. Christopher Cox, who led the agency from 2005-2009, had been a member of Congress and a corporate partner at Latham & Watkins, while the SEC’s previous head, William Donaldson, was CEO of an investment banking firm.
White’s nomination drew praise from consumer advocacy groups, Democrats on Capitol Hill and the most experienced lawyers.
“It’s hard to imagine a better chair for the SEC than Mary Jo White,” Stanford Law School professor Joseph Grundfest, a former SEC Commissioner, said via email. “Ms. White has extensive experience prosecuting fraud in the financial markets, and introduced the practice of using deferred prosecution agreements as a means of resolving large, complex fraud cases.”
Grundfest also noted that White headed up the internal investigation into violations of the Foreign Corrupt Practices Act at Siemens, the largest foreign bribery case yet documented.
White does have a background in financial industry, having served as a Director of the NASDAQ Stock Exchange. She would replace Elisse Walter, an appointee of George W. Bush who took over as chair in December when Schapiro announced she would step down from the position.
Rick Firestone, a partner in the Washington office of McDermott Will & Emery, said that White would bring an approach as SEC chair that would look for consensus among the commission. He said White will likely keep the same regulatory approach of former chair Schapiro and the direction of the current commission.
“I think she’s going to be a very balanced and reasonable and fair chairman, and I think that’s what the country needs,” said Firestone, a former associate director of the SEC’s Division of Enforcement. “Moreover, her extensive experience in private practice gives her balance and a deep understanding of Wall Street and the issues in our capital markets.”
New York State Attorney General Eric Schneiderman, an aggressive enforcer of Wall Street, said in a statement that her record of bringing white collar criminals to justice speaks for itself. “She is a tough, experienced prosecutor, which is exactly what the SEC needs right now to restore investor confidence,” Schneiderman said.
Schneiderman also praised the renomination of Cordray, calling him critically important to ensure that “consumers are protected, and our economy is not vulnerable to another financial meltdown.”
The nominations of White and Cordray will have to be confirmed by the Senate, and it was not immediately clear how the Senate would react to White’s appointment. Cordray’s appointment spawned one of the most contentious battles last year, and Republicans have announced their opposition.
Cordray was made head of the CFPB after Obama went around Republican opposition in the Senate in January 2012 and made a controversial recess appointment. The appointment is being challenged in the U.S. Court of Appeals for the D.C. Circuit. Cordray’s appointment expires at the end of the year.
Obama’s recess appointment came after Republicans in Congress steadfastly refused to consider Cordray’s nomination to head the new agency unless the CFPB was first radically restructured. Among the top demands: that the CFPB be turned into a five-member commission and made subject to the appropriations process rather than being independently funded by the Federal Reserve.
Senator Mike Crapo (R-Idaho), the expected ranking Republican on the Committee on Banking, Housing and Urban Affairs, called Cordray’s reappointment premature, given the outstanding concerns about the bureau. “Until key structural changes are made to the bureau to ensure accountability and transparency, I will continue my opposition to any nominee for director, as outlined in a letter signed by 45 Republican Senators to the president. If the president is looking for a different outcome, the administration should use this as an opportunity to work with us on the critical reforms we have identified to him.”
That Obama has renominated Cordray suggests a willingness to engage Republicans in Congress once again in the fight over the agency’s future. In addition, Cordray could be vulnerable if the D.C. Circuit rules that three other recess appointments made at the same time to the National Labor Relations Board are found to be illegal.
If confirmed, White would face an array of challenges in leading the SEC. The agency has been criticized for failing to go after more top Wall Street executives in connection with the financial meltdown, and for settling some cases on the cheap and without an admission of wrongdoing.
And the SEC has finalized just 33 of 95 rules it’s required to write to implement the Dodd-Frank Act. Among the major pieces still lacking – rules for swaps oversight under Title VII of the act and a final version of the so-called Volcker Rule, which includes a ban on banks making short-term trades for their own profit.
The SEC is also facing a lawsuit by business groups over its rules requiring companies to report whether their products contain four “conflict minerals” from the Democratic Republic of the Congo.
Dodd-Frank also requires certain hedge-fund and private-fund advisors to register with the SEC, giving the agency oversight over more than 1,500 new entities. Current SEC chairman Walter has said the agency “is not doing an adequate job of examining investment advisors,” and called the SEC “strikingly short-staffed,” in a December appearance at The National Law Journal’s regulatory summit.
Another issue is oversight money market mutual funds – ” ticking time bombs of systemic risk,” as Commissioner Daniel Gallagher put it in a speech earlier this month. Schapiro tried and failed to enact sweeping changes for how such funds are regulated.
Also, Enforcement Division head Robert Khuzami is leaving the agency at the end of the month. His successor has not been announced.
White, in a statement, said the nomination was a great honor, “and I’m excited by the opportunity to serve the public in such an important capacity.”
In the past year at the helm of the CFPB, Corday has overseen the roll-out of major new regulations covering all aspects of the mortgage industry and brought high-profile enforcement actions against credit card companies, including American Express and Discover, for deceptive marketing.
Cordray thanked Obama for the chance to continue on the CFPB. “We understand that our mission is to stand on the side of consumers – our mothers and fathers, sisters and brothers, sons and daughters – and see that they’re treated fairly,” Cordray said in a statement. “For more than a year, we have been focused on making consumer finance markets work better for the American people.”