Jay Clayton, President-elect Donald Trump’s nominee to lead the U.S. Securities and Exchange Commission, is hardly a high-profile figure outside the Wall Street deal-making circles in which he’s made his career. Unlike outgoing SEC Chairwoman Mary Jo White, Clayton, a partner at Sullivan & Cromwell, is not a litigator or a member of the white-collar defense bar.
But in the hours after Trump announced his choice on Wednesday, securities litigators and other lawyers who have worked with Clayton greeted his nomination with enthusiasm, saying it could usher in a new era for the agency.
Some also suggested that Clayton, like his predecessor, might look to his own law firm to choose the next SEC enforcement division chief.
Fraser Hunter Jr., vice chairman of the securities department at Wilmer Cutler Pickering Hale and Dorr and a former colleague of Clayton at Sullivan & Cromwell, called Clayton “supremely qualified,” adding that he has handled some of the leading corporate deals of the last 20 years.
Clayton has represented Barclays Capital, Goldman Sachs and others in multibillion dollar M&A and private equity deals and has also helped to settle claims with the government on behalf of financial clients. Representing Ally Financial, he was among a team of lawyers that reached a $25 billion settlement in 2012 between banks and 49 states and the federal government over mortgage servicing and foreclosure abuses. He also represented the underwriters in Alibaba Group’s record-breaking 2014 IPO.
While some critics have already pounced on the incoming administration for picking another Goldman Sachs and Wall Street ally, Hunter said that, historically, enforcement at the SEC is active under both parties.
“I expect while priorities might shift, you will see an active enforcement division,” he said, noting that the Reagan administration brought some of the government’s largest insider-trading cases. Since the financial crisis, the focus has been on financial market participants, including banks and broker-dealers, while the priority a decade ago was policing large public companies, Hunter said.
“I don’t think you can expect that banks will necessarily be favored simply because Jay may have represented banks in his practice,” Hunter said.
Another person familiar with Clayton’s practice noted that he has frequently represented companies in issuer work, not underwriter work. “It’s a Main Street practice,” the source said. Clayton previously ran Sullivan & Cromwell’s general practice group, which encompasses all areas except litigation and tax and makes up 60 percent of the firm’s lawyers.
Attorneys said they wouldn’t be surprised if Clayton, once confirmed, selects a former prosecutor at Sullivan & Cromwell to head the enforcement division, much as White chose a Debevoise & Plimpton colleague, Andrew Ceresney, to lead the division.
Hunter and others noted that Clayton has a number of experienced partners at Sullivan & Cromwell who are former federal prosecutors, including husband and wife Samuel and Karen Seymour, and Steven Peikin, who previously served as head of the Securities and Commodities Fraud Task Force in the Southern District of New York U.S. Attorney’s Office. Several attorneys praised Peikin as being eminently qualified for the role.
But one top securities lawyer pondered whether Clayton would buck recent tradition and choose a civil litigator or SEC career staff member to lead the division.
A New SEC?
Trump’s announcement Wednesday appeared to signal two potentially conflicting goals for the agency: undoing regulation while ensuring corporate accountability.
“We need to undo many regulations which have stifled investment in American businesses, and restore oversight of the financial industry in a way that does not harm American workers,” Trump said in a statement.
But the announcement also said Clayton will provide strong oversight of Wall Street and related industries and “robust accountability will be a hallmark of his tenure atop the SEC.”
In his own statement, Clayton said, “If confirmed, we are going to work together with key stakeholders in the financial system to make sure we provide investors and our companies with the confidence to invest together in America. We will carefully monitor our financial sector, as we set policy that encourages American companies to do what they do best: create jobs.”
Marc Powers, who leads Baker & Hostetler’s securities litigation and regulatory enforcement practice, called Clayton’s nomination a “refreshing” choice that signals “a more balanced mission” for the SEC.
Under White, Powers said, the agency overemphasized the enforcement division, which just one of five divisions at the agency. Now, he said, the SEC may place more focus on areas such as new offerings, capital markets and securities exchanges.
Powers welcomed Clayton’s lack of a criminal enforcement background and said it would be “very important that the chair and commission itself act in collaborative fashion with the industry it regulates, rather than as an adversary, which appears to be have been the approach over the last several years.”
Another prominent securities lawyer, who spoke anonymously because he regularly appears before the SEC, said he hopes Clayton will have a hand in rolling back some regulations from the Dodd-Frank Act and that the agency will stick to its mission of investor protection.
Some plaintiffs lawyers also hope Clayton would set a different tone than White, although for different reasons.
Jacob Zamansky, a plaintiffs attorney who represents investors in securities cases and arbitration, said Clayton appears to be “very qualified to be SEC chair,” but “it’s important that he listen to the view of investors.”
Zamansky said investors were disappointed with White, whom he described as too timid. He cited the agency’s failure to hold individual executives accountable for their roles in the financial crisis.
The most important issue facing investors, he said, is a new fiduciary duty rule for firms that advise retirement accounts, proposed by the Department of Labor.
“Investors want to hear his views on that rule before he’s confirmed,” he said. “That to me is a table setter for the administration and consistent with what Trump said during his campaign, that he’s for the working class.”
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