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Mirabile Dictu! Obama Likely to Nominate Mary Jo White to Head SEC

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Obama’s likely nomination of Mary Jo White to head the SEC is such a departure from his normal picks that it is enough to make me believe in the claims that he plays 11 dimensional chess. There must be more here than meets the eye.

Mary Jo White is an esteemed former prosecutor known for her independence and toughness. Colleagues who know the New York bar describe her as “universally respected”. Via e-mail, Neil Barofsky was enthusiastic about the idea that she’d be nominated.

One negative is the fact that Obama has decided to nominate someone serious as the statute of limitations on securities fraud for misdeeds during the crisis has pretty much expired and after the horrific Jumpstart Obama’s Bucket Shops Act is law. So White would shut the barn door after the horse is in the next county. Second is that she might have more recusals than one would like. She represented Bank of America’s Ken Lewis in a civil fraud suit (but since that was Lewis personally, that alone should not create an impediment with Bank of America cases). Her role as former board member of NASDAQ might be trickier. The biggest potential fly in the ointment on the conflicts side is that her husband, John White, who headed the SEC’s corporate finance section under Chris Cox and was heavily involved in detailed Sarbanes Oxley rulemaking, and now that he is back at Cravath, has been lobbying against regulation.

The 11 dimensional chess angle may be that the Republicans will fight any appointment if it comes before June. Per the Wall Street Journal:

Some observers predicted the White House would have difficulty getting any SEC nominee through the Senate until Republican Commissioner Troy Paredes’s term expires in June, possibly creating an opening for a Republican. Nominees can stand a better chance at confirmation if they are paired with a member of the opposing party. The SEC currently has one empty seat.

That would mean the agency could face gridlock, delaying votes on controversial issues such as the “Volcker rule,” which limits risk-taking at U.S. banks.

The last cynical theory I can come up with is that Obama regards the SEC as so unfixable that it doesn’t matter if he appoints a superwoman, his corporate backers will still face no risk, and he can still say he put a strong person in place, which is all he can do. If so, we’ll see if Mary Jo White can prove that assumption wrong.

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46 comments

    1. jake chase

      Shows you what could happen with a few more independent federal judges. I wonder how whoever appointed this one feels about him now?

      1. jake chase

        consortiumnews.com has a different take on Judge Leon.

        I tried to supply the link but you can find it merely by googling ‘Judge Richard Leon’.

        1. LucyLulu

          Wow! Thanks Jake. Fascinating article. That’s the kind of journalism you don’t see much of anymore. I’m going to go back later and read some more of Parry’s work.

        2. Ms G

          Interesting, to say the least. And yet here he is more than a decade later excercising his Article III judicial power in a manner that seems to bespeak impatience with the results of regulatory capture (in the event, SEC).

    2. Nathanael

      In general, I think it’s a good thing when judges remember that they are not there to rubber-stamp what prosecutors do.

      In fact, judges have the right to empanel grand juries, and grand juries have the right to run prosecutions on their own, which is what they’re supposed to do when the DAs and federal prosecutors decide to let dangerous criminals go free. I haven’t seen a single judge do this yet, though.

    3. Ms G

      This is terrific.

      Judge Leon is striking at the modus operandi that corporations also use with Congress — “this regulation or that legislation would be unduly burdensome — or would cost way too much.” The key point is that you have government officials taking these naked assertions at face value and then failing to pass or repeal legislation, or failing to prosecute appropriately and establishing “customary gentlemen’s” ways of making “problems go away” (in ways that in effect gut the laws in question.) This is one of the key ways that our government representatives and officials fail us day in and day out — taking the bulls**t “it’s to burdensome” statements from the Lords of Kleptocracy and then telling us “sorry, nothing we can do because they say it’s too burdensome.”

      The entire transcription of the Judge Leon’s exchange with the SEC attorney and the Cravath attorney (for IBM) over the very elementary issue as to whether IBM (or the SEC) has and data to back up its claim of “too burdensome” is priceless. I’m posting a small piece of it just because it is so great.

      =======

      “Well, IBM’s objection is it’s too burdensome,” Judge Leon says. “I want to see data as to why, for one of the largest companies in the world, this is too burdensome. Because I have nothing to support that, and neither do you. And the SEC, notwithstanding the fact it has nothing to support it, is taking the position it’s taking, just simply agreeing with IBM. I guess you want that $10 million judgment on your list of achievements this year at the SEC. Well, it’s not going to happen this year.”

      “You are going to need data because, if you don’t have data, how am I supposed to make a judgment as to whether it’s too big a burden?” Judge Leon asks.

      ====================

      It’s a great concept in a democracy of educated individuals with critical thinking faculties — when someone makes bald assertions ask them if they have data. What a concept!

      1. just me

        xxxxxx bookmark! (I wonder if that will work? I want to be able to find this again, it’s great. Thanks.)

  1. jake chase

    I would want to know more about who this ‘esteemed former prosecutor’ actually prosecuted before I began wildly cheering. Most of these prosecutors just beat up on tin horn con men manipulating penny stocks, and anybody buying those has only himself to blame for resulting losses.

    Which nest of thieves was she roosting in while representing Ken Lewis, and who was he accused of defrauding?

    1. Ms G

      You beat me to it. Thanks. Required viewing on the post’s topic. Listen carefully to what MJ White has to say regarding how a prosecutor should view/treat a corporations “business model”/”business practices.”

      1. LucyLulu

        Ms. G wrote: ” Listen carefully to what MJ White has to say regarding how a prosecutor should view/treat a corporations “business model”/”business practices.”

        Is this what you are referring to?

        First Whitehead, referring to her view of lack of sufficient expertise on part of prosecutors: (If you’re going to legislate reform by way of prosecution,) “You have to be right about that. You have to be expert about that. But I agree that if you actually dealt with what you considered to be the kind of transaction, the way it was structured that caused so many losses, that could abate the cry for scalps and handcuffs.”

        Then in response to Spitzer’s response to her, talking about massive regulatory failure, lack of enforcement of rules of basic fiduciary responsibility, and recidivism due to insufficient penalties, that prosecutors should be saying if you want out from under prosecution, you need to change your business model.

        “I think you’re presuming more knowledge and expertise on the part of the prosecutors. I mean, you do have, Lanny you go ahead and talk about this, I mean, you do have the option of a deferred prosection agreement, or a non-prosecution agreement against a company, where you can impose any condition you want to, that the company will agree to, if you’re certain about a broken business model, you know, and I would question whether you are, know enough to be certain of it, you could require that as a condition……I might know enough to do that.” (laughs)

        I’m not positive how to perceive this exchange but my impression was that she felt prosecutors weren’t knowledgeable enough about financial matters that they should be prosecuting……. though she was.

        Elsewhere, I read an article suggesting the SEC should hire out these cases to private firms on a contingency basis. It’s justification was that the SEC wasn’t sufficiently staffed to prosecute against the big bank’s army of lawyers who bury them in paperwork, esp. given budget cuts. It said the SEC was trying to justify their budget to House so was trying to rack up a bunch of financial penalties expediently as possible. Sounded like a good idea to me, some of these cases can bring large fines if successfully prosecuted so finding private litigators shouldn’t be a problem (think Citi).

        1. Ms G

          Short, and partial, answer (it’s late!): the quotes you execerpted, to me, telegraph that it is not the place of DOJ to prosecute any business-related practices that are “too hard to understand” and/or that business models tend to be “just” business models, not conduct susceptible to charges under federal fraud statutes.

          Also, there is no doubt at all that Mary Jo White is a first class lawyer.

    2. diptherio

      Neil Barofsky:[I owe] Mary Jo my life and my job.

      Mary Jo White: Be nice!

      I think that off-hand remark by White, while meant as a joke, is telling (i.e. please don’t remind people (bankers) that I’m responsible for you).

      1. Oliver Budde

        She gave Neil Barofsky his professional start; that is why he is not willing to criticize her appointment. So the statement in the article, that “[v]ia e-mail, Neil Barofsky was enthusiastic about the idea that she’d be nominated” needs to be discounted accordingly.

        When Khuzami took the job of SEC enforcement director in 2009, he recruited his good friend Lorin Reisner, from White’s firm Debevoise, to join him at the SEC as his deputy. A little over a year ago Reisner was hired by Preet Bharara (who is in White’s old job) to head the criminal division of the US Attorney’s office in Manhattan. If White now gets to head the SEC, Debevoise and its clients will be the main beneficiaries, not we the people.

        Has she made ANY noises whatsoever suggesting that unpunished financial criminals roam the land? I’m not aware of any. Make no mistake; she is another Shapiro, another Khuzami, another “pretend advocate” for the people, and nothing more.

        1. LucyLulu

          Here is advice she gave to prosecutors last year about going forward given public anger over lack of prosecutions after the 2008 GFC:

          “In recent years, the SEC has been faulted by lawmakers, judges and investors for failing to bring more cases related to the financial market turmoil of 2008. White said last year that prosecutors shouldn’t allow public anger to influence investigations.

          “You should be aggressive where there is a crime,” she said at a New York University School of Law event in February 2012. Prosecutors must not “fail to distinguish what is actually criminal and what is just mistaken behavior, what is even reckless risk-taking, and not bow to the frenzy.”

          Also, in same article, re: her defense of Mack:

          “White also surfaced in an SEC controversy in which she worked on behalf of Morgan Stanley to vet John Mack as a new CEO of the investment bank. White sought information in 2005 from then-SEC enforcement director Linda Thomsen about what an SEC insider-trading probe of Mack and hedge-fund manager Pequot Capital Management Inc. revealed about Mack’s involvement.

          An SEC inspector general’s report issued in 2008 questioned whether Thomsen should have shared information about a potential target with White. The SEC later informed Mack and Pequot that it had closed the investigation and wouldn’t pursue any action against them.”

          There is a comment and link in post below about Khuzami offering to share information with all defense lawyers about potential prosecutions. (Post by Yves on Taibbi article???)

          http://www.accountingtoday.com/news/Former-US-Attorney-Mary-Jo-White-SEC-Chair-65401-1.html

        2. LucyLulu

          Yes, ACaseOfAmnesia supplies the link to post by Yves a few comments below about Khuzami’s “brazen” offer.

        3. LucyLulu

          Also, first quote is from NYU Law event linked to above by keepon. (I’m listening to the youtube video right now. Thanks, keepon.)

        4. Yves Smith Post author

          You do not know that and Mary Jo White is universally respected in the New York bar. I know prosecutors (several, nothing to do with Barofsky) who have complete confidence in her ability to aggressively defend the position of whatever side she is asked to take on. I am and remain skeptical of Elizabeth Warren. I know tons of lawyers in NYC, many of whom have had dealings with White. The odds of her being effective are vastly higher than with Warren.

          I think the 11th dimensional chess issue is much simpler: Obama will put her up before June and she will be filibustered. Then he has a clear path to get a toady in.

          1. just me

            I don’t know 11th dimensional chess, but I remember Becket — when King Peter O’Toole appoints his servant/friend Thomas Becket (Richard Burton) to be Archbishop of Canterbury as a way of capturing church support, but once there Becket instead finds God / serves the interests of the church against his old friend and master.

            Everything is so upside down now and all the words have been legally turned inside out — am I hoping or does it even make sense to hope for a “come to the Constitution” moment?

    3. LucyLulu

      Perhaps a bit OT, this post is about Mary Jo Whitehead, but this statement bears a comment:

      Lanny Breuer at 10:45: “I just don’t accept the fact we haven’t done anything. I admit that when you’re in New York and you’re focusing on Wall Street you may lose sight but if you look at what’s gone on over the last three years, we have indicted thousands of people for mortgage related fraud, we just have. We have created….we have indicted and convicted multi-billion dollar investment fraudsters all over the country.”

      Thousands??? Of multi-billion dollar fraudsters????

      Can you please supply a list, Counselor?

      1. Ms G

        Did you catch the priceless moment when Barofsky says that the next topic will be (something like) conflicts of interests and the revolving door, and the camera is on Breuer (of the Covington-DOJ club) … the scrunching and tensing of his face and upper body (the rest wasn’t visible) was so obvious and at odds with the talk-point nothing-to-see-here comment he delivered verbally on the subject.

  2. MIWill

    ‘What’s that lying in the grass? Is it a snake?’

    ‘It looks like … I think it’s the eleventy dimensional bar.’

  3. diptherio

    Hmm…former NASDAQ board member and her hubby is lobbying for financial de-regulation . I predict that she does exactly jack-squat at the SEC. Obama certainly would not appoint her if there were any chance that she might actually clean things up. Odds are heavily stacked in favor of her turning out to be nothing more than window-dressing for the administration.

    Hopefully, all of us cynics will turn out to be wrong, but in politics, of course, the rule of thumb must always be guilty-until-proven-innocent. Time will tell if she’ll do anything about Wall Street’s version(s) of John Gotti, but I ain’t holdin’ my breath.

  4. Fraud Guy- Also

    I also don’t see any reason to celebrate this potential appointment.

    She has spent the last 10+ years at Debevoise defending people accused of white collar wrong-doing. Presumably, her unique contribution to defending people is her ability to meet with her former U.S. Attorney Office colleagues and, in a motherly way, offer some “career advice” that the matter at hand is not the one that would be wise for the prosecutor to bet his/her career on. This is an essential mechanism of our legal system’s corruption.

    Mary Jo’s recent career has been a riff on on Obi Wan Kenobi’s when he uttered the immortal words to Imperial Storm Troopers, “These aren’t the droids you’re looking for.”

    1. jake chase

      Ten years? It seems like only yesterday when she was the great female hope of the ‘law enforcement only needs the right people’ crowd. Wonder what percentage of today’s financial and corporate crooks she hasn’t represented?

  5. YankeeFrank

    Yeah Yves, I’m afraid you are looking too hard for some good news to feed to us. I don’t blame you, its a wasteland out there. But this White character will do nothing to rock the boat in any real way, just like she has her whole career. For if she had tried to really rock the boat, she wouldn’t have a career to speak of. Its really that simple these days. Tell me what juicy offers Barofsky is getting in the mail these days?

  6. Hugh

    Mary Jo White is a corporate fixer. As I wrote in the links for yesterday, she was up to her eyelids in the Gary Aguirre firing at the SEC. Aguirre was still in his probationary period at the SEC when he made the mistake of investigating some high level corporate frauds which involved powerful, well-connected people. White basically got the investigation scuttled and Aguirre fired.

    Debevoise and Plimpton where she is a partner is one of the those “very prestigious”, that is connected out the kazoo, firms specializing in corporate litigation. That is they specialize in making the problems of their rich corporate clients go away. Their relationship to ordinary Americans is as distant as that of Harry Lime high up in the giant Ferris wheel in the Third Man looking down at pedestrians:

    Victims? Don’t be melodramatic. Look down there. Tell me. Would you really feel any pity if one of those dots stopped moving forever? If I offered you twenty thousand pounds for every dot that stopped, would you really, old man, tell me to keep my money, or would you calculate how many dots you could afford to spare? Free of income tax, old man. Free of income tax – the only way you can save money nowadays.

    As for the New York bar being crazy for White, all I have to say is that they were also enthusiastic about Michael Mukasey, Gonzales’ successor as Attorney General. He was supposed to be a conservative, by the book judge who it was predicted would rein in the Bush Administration’s wild disregard for the law and Constitution. He didn’t even make it through his hearings before he was endorsing torture and went on to back every single Bush era excess and illegal program.

    1. Ms G

      Hugh, thank you for the Harry Lime vignette and quote — how the .01% and their lackeys (e.g. MJ White, Debevoise, et al.) view the 99%.

    2. Oliver Budde

      In case it’s not clear to everyone, the Gary Aguirre matter that Hugh describes here in his first paragraph pertains to the same episode that LucyLulu excerpted from the Accounting Today website in her comment above, repeated here for convenience:

      “White also surfaced in an SEC controversy in which she worked on behalf of Morgan Stanley to vet John Mack as a new CEO of the investment bank. White sought information in 2005 from then-SEC enforcement director Linda Thomsen about what an SEC insider-trading probe of Mack and hedge-fund manager Pequot Capital Management Inc. revealed about Mack’s involvement.

      An SEC inspector general’s report issued in 2008 questioned whether Thomsen should have shared information about a potential target with White. The SEC later informed Mack and Pequot that it had closed the investigation and wouldn’t pursue any action against them.”

      In summary: Aguirre had strong evidence of wrongdoing by Mack, White intervened, the Mack investigation was closed immediately thereafter, and Aguirre was fired. (Years later, Aguirre won $755k in a wrongful termination suit against the SEC, but the Mack investigation was not reopened.) Matt Taibbi wrote this up in 2011 (and this was the subject of Yves’ 2011 piece referenced by ACaseOfAmnesia in his/her comment above): http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216.

      1. LucyLulu

        Thanks, Oliver, for prompting me to go back and re-read Taibbi’s article (and your earlier post). I’m a little slow sometimes, or more accurately, have a lousy memory for names, but I’ve finally put all the pieces together to this “mystery”.

        I guess I was hoping the SEC would finally get a good cop on the beat for a change, sigh………

      2. Yves Smith Post author

        I spoke to someone who is a law professor, securities law expert and not at all soft on banks or securities fraud (as in he has advised some Occupy Wall Street subgroups informally and I have separately written to him on and off).

        He says Taibbi and you were all wet on this one, didn’t understand the statutes and case law at all. The story had gone cold by the time I heard this, so I didn’t bother taking a pot shot at the story. I am too busy on a current pressing piece to contact the professor and have him repeat his logic and case citations. But if this is what your negative view is based on, you’ve got no smoking gun.

  7. LucyLulu

    My impressions after listening to Mary Jo Whitehead speak and reading about her prosecutorial and defense successes:

    She is an excellent attorney, no matter which side of the fence she falls upon and works diligently to either prosecute her case, or defend her client, as the case may be. The last ten years she has worked defending corporate clients. As a defense attorney, she is obliged to provide the most vigorous defense she can, whether her client is guilty or not. As somebody who ends up in the public media, providing vigorous defenses might include making public relation type statements to support her private clients in general. Were she to revert back to working to protect public interests, she might well switch to again just as vigorously defending public interests. Some attorneys choose to stick with one side or the other, unable to ethically live with either the moral dilemmas posed by being a diligent prosecutor or defense attorney, or end up switching at some point (and even more choose neither). Our system of justice certainly requires that we have attorneys to provide both skillful prosecutions and defenses. Some can resolve any personal ethical conflicts posed by either side. She may well fall into this category. If so, her recent experience and knowledge would make her exceptionally qualified.

    I’m not convinced she won’t do a good job. As far as prosecuting the crimes that caused the GFC though, that ship has probably already sailed. However, since the banks haven’t changed their business models, if she isn’t now a shill for the financial industry, there should be enough cases to keep her busy. If she is appointed to head the SEC, we’ll just have to wait and see what happens. Recall though that the SEC can not bring criminal cases, only civil cases. Criminal cases require intervention by the DOJ, and the DOJ, under Eric Holder, who has decided to stay on for Obama’s second term, has made it abundantly clear that they believe that executives at TBTF are also TBTJ.

    1. Hugh

      The first rule of reform is to hire a reformer. If you are a Prohibitionist, you have to question the efficacy of hiring a lawyer representing the liquor industry.

      White has ten years of institutional relationships within her law firm, on the Street, and with current and former clients. There is no way she comes to the SEC with a blank slate.

      Then there is White’s disturbing habit of trying to improperly influence investigations and not just that but in both the Oxycontin case (I mentioned in yesterday’s links) as well as Aguirre in the Pequot case, it looks like she used her pull to try to get those in government who went up against her clients fired. That paints a very different picture than that of an impartial lawyer willing and able to argue either side of a case in a court of law.

      1. LucyLulu

        I was thinking more along the lines of a Joseph Kennedy, perhaps.

        I did some digging into the Purdue case since I’m pretty familiar with the oxycontin issues. Whitehead represented one of the executives charged, Howard Udell, general counsel for Purdue. It was a plea, and there was no evidence as to his involvement in the stipulated facts. He was an old man in ill health with previously an impeccable record that everyone liked and had glowing things to say about. The misdemeanor carried a maximum 1 year sentence and she requested he not be incarcerated (he did have to pay an $8M disgorgement fine, though the company picked up the fines of all the executives.) His son had worked as an asst attorney general under White from 1999 to 2003, which is how I presume how White became involved with Udell (and Udell’s son is now also in private practice with a hot shot client list in NYC, defending many SEC/financial cases, hmmmm…..). Honestly, I didn’t find anything egregious about this case. Lawyers talk to the other side all the time, and are certainly free to request leniency for their clients.

        As general background to the oxycontin case, which I began first hearing about in the late 90′s when I lived in KY, as Appalachia was the first place problems appeared, Purdue first marketed timed-release Oxycontin as a safer alternative to oxycodone/percodan. There was (and is) a need for pain relief for chronic pain patients, and doctors tended to under-treat pain out of fear of addiction, esp. non-terminal pain. Oxycontin was alleged to be less attractive to addicts due to the time release having less of a peak/valley effect, thus causing a minimal euphoria/high. And while physical dependency (vs. addiction) couldn’t be avoided with use of any duration, their claims were true, assuming the tablets weren’t crushed and the medication was taken only in the dosages prescribed. However, addicts don’t take medications as prescribed, and the tablets WERE crushed (and snorted or injected) and taken by the handful, and fatalities occurred. The basis of the suit however was that Purdue became aware (with emails as proof) of the problems around 2001 and ignored them. The drug was a huge profit-maker.

        Today, it remains on the market but they have changed the formulation to a non-crushable form. Instead it breaks into large chunks and if mixed with water, becomes a thick, goopy gel. And it is still abused, as are long-acting forms of fentanyl (patches) and morphine. Addicts are quite determined when it comes to ensuring a supply.

        Documents for U.S. v. Purdue Frederick Co., Inc.

        I didn’t delve into the Aguirre/Pequot/Mack case, but based on what you reported, which was more detailed than the oxycontin affair, I found it quite disconcerting.

        1. jake chase

          Joe Kennedy? I believe he was SEC Chairman for two years, during which time nothing happened of any importance. His appointment was a sop to Wall Street, and it set the stage for the toothless agency which has nothing to its credit in 75 years except perhaps the Public Utility Holding Company Act.

          The second Chairman was Harvard professor James Landis, who evaded income taxes for ten years and then mysteriously drowned in his own pool before the law could take its course.

          If you lined up all the SEC Chairmen in history you would have a Saturday Night Live chorus line. My personal favorite was Hamer Budge (or is it Homer?)

          1. Yves Smith Post author

            Please don’t make crap up here.

            Anyone who knows the history of the SEC knows that Jack Kennedy is widely seen as being enormously effective as the first head of the agency. I’m too busy to debunk this nonsense, but don’t volunteer counterfactual opinions.

        1. Yves Smith Post author

          Everyone I know (and these are current prosecutors) think White is a litigator’s litigator. She’s super aggressive on whatever side she takes. So if she’s on the corporate side, she’ll push for every advantage. WTF do you expect her to be doing???? She’s at a corporate law firm. Of course she’s supposed to be pursuing their objectives. You want her to be operating against her clients?

          Look, I believe in skepticism, but this is now looking like NC cognitive bias.

          1. Hugh

            You seem to be saying she’s a hired gun. Well, a corporatist administration looks like it might want to hire her. So who do you think she is going to be working for? The corps or us?

            We have seen this before, with Mukasey, with Holder. They were supposed to go in, clean house, and restore credibility to Justice, because they too despite their backgrounds were styled as having their primary allegiance to the law. We’ve seen how that worked out.

            As for White, she spent her years after being a USA defending corporations at one of the cushiest law firms in the country precisely during the time of the biggest financial frauds in human history. You say she is a litigator’s litigator. Well, we know where she chose to do her litigating. It’s not exactly like she was forced to work at Debevoise. She could have used those considerable legal skills of hers fighting for the damagees rather than the damagers, but she didn’t.

            What I see is a successful prosecutor turned bigtime corporate lawyer with not a whiff of reformism about her for years and some unresolved instances of improper conduct still surrounding her being considered for the top job at the SEC by an administration that treats even the suggestion of reform as anathema. I do not see anything in this that indicates White will in any sense be a reformer.

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