Your humble blogger was surprised when Obama nominated Mary Jo White to head the SEC, since her reputation as a tough prosecutor is at odds with Obama’s well established pattern of catering to banks (the fact that he gives them only 97% of what they want is nevertheless offensive enough to their tender sensibilities). I surmised that there had to be an angle here, and I figured he was up to one of his old 11 dimensional chess tricks. The Wall Street Journal pointed out that the timing of her nomination was off, and that alone could be fatal:
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.
But she was approved, and this was even with tough-on-banks types who had worked with her personally, like Neil Barofsky and Dennis Kelleher, being enthusiastic about her nomination. So what gives?
Now I’m not as put off as many are by her picking people who’ve been effective on behalf of corporations to be on her team. Sadly, just as Willie Sutton robbed banks because that’s where the money was, you pretty much have to go to Corporate America to find people who could wrestle them to a standstill (Barofsky himself being a possible exception). Now that does not mean that they will, by a long shot. But it’s not uncommon in deal land for attorneys to land new clients because they outmaneuvered the other side and the client figured it out and decided he better have that sonofabitch on his side of the table next time. And White at her confirmation hearing committed to “to further strengthen the enforcement function of the SEC” in a “bold and unrelenting” manner. The most encouraging sign is that DC law firm Arnold and Porter seems to take what White says at face value in an advisory to clients (hat tip Harvard Law School Forum on Corporate Governance and Financial Regulation):
These recent statements by White and other SEC officials, along with White’s reputation, suggest that there may be a strong enforcement effort in the coming years – and the Obama administration’s budget proposal for FY 2014, which was released on April 10, 2013, indicates that the SEC likely will have the resources it needs to support this effort.
So why would the Senate Republicans not have balked? Well, it looks like she’s willing to carry their water, at least on some issues.
White’s first move looks to be to approves something so rancid that outgoing SEC chairman Mary Shapiro refused to touch it, concerned that it would taint her legacy. From Bloomberg (hat tip Ann S):
U.S. Securities and Exchange Commission chairman Mary Jo White is pushing to adopt a rule allowing hedge funds to advertise in a move consumer advocates say could fail to protect unsophisticated investors, according to two people familiar with the matter.
White, who became SEC chairman on April 10, has suggested the commission pass the existing plan without major changes and add additional protections later, said the people, who declined to be identified because the deliberations are private. The approach would placate congressional Republicans who have complained the SEC has slow-walked the rule, which was required to be completed by July 2012…
The rule would lift the ban on “general solicitation,” or using advertising to market investments in hedge funds, startups and other firms. The ban dates to the passage of the first federal securities laws in 1933, said Brian J. Lane, a partner at Gibson, Dunn & Crutcher and former director of the SEC’s corporation finance division.
Shapiro had been initially in favor of allowing for general solicitation until an advisory committee recommended unanimously against it. The four commissioners have since been divided along party lines, with the Democrats wanting to introduce more consumer-protection measures.
The most charitable interpretation one can make is that Shapiro decided she needed to give Republicans this bone in order to get approved (and remember, the SEC is subject to Congressional appropriations, so getting into a pissing match this early could lead to budget cuts which would further weaken the SEC). Bloomberg again:
Approving the regulation would allow White to make good on a promise she made in her Senate confirmation hearing to prioritize rules mandated by the Jumpstart Our Business Startups Act, which was designed to boost capital-raising and job creation.
The sneaky bit here is that by arguing for speed, the Republicans were arguing for implementing the no restriction provision as is. A rewrite would be contentious and therefore take time.
As one Mary Jo White fan said by e-mail:
Ugh. Can’t imagine why she’d want to come out of the gate w/a 3-2 vote, where she’s siding w/the Republican commissioners.
Now enough hue and cry over the rule could give White the pressure or air cover, depending on how cynical you are about her, to be a bit more, um, judicious.
In and of itself, White’s move to appease Republicans isn’t fatal. But it also is clearly not a good sign either. Stay tuned.