Trump Selects Jay Clayton, S & C Partner, to Head SEC

By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She now spends most of her time in Asia researching a book about textile artisans. She also writes regularly about legal, political economy, and regulatory topics for various consulting clients and publications, as well as scribbles occasional travel pieces for The National.

President-elect Donald Trump has announced the selection of Jay Clayton, a general practice partner at the white shoe law firm Sullivan & Cromwell, to serve as chair of the Securities and Exchange Commission. Unlike his immediate predecessor, Mary Jo White, Clayton’s not a litigator, but a corporate law specialist, with a broad practice, who has worked on capital offerings (including the AliBaba IPO) and mergers and acquisitions (for clients including Ally Financial, Barclays Capital, Bear Stearns, Goldman Sachs). He has also represented clients on regulatory and enforcement matters matters before various agencies, including the Department of Justice (DOJ), the Department of Housing and Urban Development (HUD), and the Federal Housing Finance Agency (FHFA).

From the Trump press release announcing the nomination:

Clayton will play an important role in unleashing the job-creating power of our economy by encouraging investment in American companies while providing strong oversight of Wall Street and related industries. Robust accountability will be a hallmark of his tenure atop the SEC, and the financial security of the American people will be his top priority.

“Jay Clayton is a highly talented expert on many aspects of financial and regulatory law, and he will ensure our financial institutions can thrive and create jobs while playing by the rules at the same time,” said President-elect Trump. “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.”

“I want to thank President-elect Trump for the opportunity to serve as SEC Chairman,” said Jay Clayton. “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.”

Mainstream White Shoe Pick

In making many of his previous Cabinet appointments, Trump has prized early loyalty above all else, and has appointed Republicans on the verges of the party. By contrast, Clayton is a surprisingly conventional pick to chair the SEC.  S & C trains its lawyers to be generalists who practice within broad practice areas, and a partner from this firm has precisely the subject matter expertise necessary to head this agency.  Clayton is only one of the most recent of a long line of Big Law partners to be nominated for such a role. Further, while Clayton’s campaign finance contributions suggest that he might lean Republican, he appears to be neither a doctrinaire Republican party nor Trump partisan. The New York Times Dealbook column reports he’s “donated to Mitt Romney and Mr. Obama in previous presidential elections and to Jeb Bush’s primary campaign in 2015, according to public records.”

Full disclosure: I was an associate at S & C, also in the general practice group — although I left the firm a couple of years before Clayton arrived. I neither know him personally nor by reputation– so, I’m afraid, I can’t offer up any anecdote or any apt sobriquet that reveals his character or provides any insight as to how he might behave if confirmed. As readers might well recognize, one often has a bit of a love-hate relationship with an ex-employer: guilty as charged. I freely confess to my ancient S & C connection– now more than two decades old– so that readers might be alive to any bias embedded herein– either pro-or anti.

Previous Experience

Save for a post-law school clerkship with federal district court judge Marvin Katz, Clayton has been an S & C lifer, with no prior government experience. As a partner in what S & C calls “general practice”– and the rest of the world calls corporate law– his job has been to ensure the companies comply with the plethora of laws and regulations that apply to capital markets and  mergers and acquisition activities, and to engage in negotiations with  regulatory agencies that have launched investigations– including enforcement actions–  into various activities of his clients.

I object– rather strenuously in fact– to the lazy claim much of the media is making that the appointment of non-litigator Clayton to be chairman of the SEC signals a willingness to go easy on enforcement and eschew rule-making, compared to the agency’s record under Mary Jo White. Reason: Any journalist that bothered to examine the record would see that despite the snake oil White herself peddled– including the ridiculous claim that the agency produced bold and unrelenting results during her tenure– her record was rather weak. Pathetic, actually. So pathetic, in fact, on both the rule-making and enforcement side, that Senator Elizabeth Warren called for her firing as SEC chair.  In that position, White succeeded Mary Shapiro, who compiled a similarly lackluster record while presiding over the agency from 2009-2012.  So suggesting that Clayton is going to weaken some fortress SEC is ludicrous.

As I’ve written previously in this post, the SEC’s  rule-making record under White has been dismaying. In that earlier post, I quoted extensively from a David Zaring commentary in MarketWatch:

The SEC didn’t pass many substantive rules during White’s tenure, couldn’t get unanimity on the rules it did pass and left the controversial regulations to other regulators.

White’s agency continued to implement Dodd Frank, of course, but missed plenty of deadlines before rules required by Congress were promulgated.

Its farthest-reaching initiative, the revisions to the oversight of money-market funds, was something forced upon the agency by other financial regulators, rather than something the SEC itself seemed interested in doing.

Imposing fiduciary obligations on financial advisers was a matter left to the Labor Department, after the SEC curiously elected to eschew doing something about an industry over which it had an excellent claim to regulate.

The agency has done nothing to oversee high-frequency trading and nothing on a potential — and much wished for by the left wing of the Democratic Party — rule on the disclosure of corporate contributions to political candidates.

As I then summarized the state of play:

Why does this matter? Well, Trump has promised to roll back Dodd-Frank. Some have questioned whether he can effectively do this: short answer, with the co-operation of a Congress in which Republicans hold majorities in both houses, he can. But his ability to unravel the entire multi-faceted Dodd-Frank regulatory program would be seriously complicated if the SEC had managed to complete rule-making procedures mandated previously by Congress, according to statutory deadlines, and had firm regulations now in place.

And in fact, it’s not out of the question that some if not many in the industry might prefer certainly, and not advocate scuttling of some regulations– particularly the more wishy-washy ones– rather than lining up wholeheartedly behind a program of wholesale regulatory rollback. In that case, the securities law regulatory framework would be in far better shape if White’s SEC had managed to meet its regulatory responsibilities, and had finished the rule-making procedures with which it had been charged, than is the current situation where serious tasks remain incomplete).

Turkeys Don’t Vote for Thanksgiving

I’m going to go out on a limb here (irony alert), and suggest that Clayton won’t won’t smash the securities law framework or necessarily go especially slow on enforcement– especially compared to the existing White/Shapiro baseline–  precisely because he’s come from S & C– one of the leading law firms in the country, with an unparalleled securities law practices. Such a firm wouldn’t want to see the securities framework dismantled or appreciably diminished. Why? Well, that’s how its lawyers make their money: by advising clients how to comply with the law. If any significant element of the securities law framework is dismantled– there goes a huge chunk of S & C’s raison d’être. For a former S & C partner to willy nilly trash securities laws would be akin to a turkey voting for Thanksgiving.

Crucially, how serious the SEC is about enforcement will depend on who is appointed to be director of enforcement, and how serious the DoJ is about targeting and investigating white collar and corporate offenses, and trying cases when evidence of wrongdoing is uncovered.

I should also point out here that although an SEC chair has great power to shape the agency’s agenda, many of the more far-reaching reforms Trump has hinted at would require legislation.

Now, Trump does appear to be dead serious about regulatory reform– in particular, rolling back Dodd-Frank– although like many aspects of Trump policy, exactly what he means by that is vague, often inconsistent, and not completely clear. He has indeed recently appointed activist investor Carl Icahn to serve as a special adviser on regulatory reform. Icahn will advise in an individual capacity, so as to skirt federal conflicts of interest and disclosure requirements, and will not hold any official federal or special government position. I should point out– as the piece cited immediately above explores at greater length– Icahn himself is not reflexively or completely anti-regulatory in the securities law area, and unsurprisingly, favors expanding disclosure regulations that benefit his business model.

Based on what we know now, however, in selecting Clayton over Paul Atkins– a member of his transition team and a past SEC commissioner– Trump went with a more mainstream entity with no  prior strong public views on the appropriate level of regulation. This stands in contrast to Atkins, who served as an SEC commissioner from 2002-2008, and was particularly outspoken, as reported by the Wall Street Journal, in denouncing what he described as large fines levied against companies, arguing that these punished shareholders rather than the companies. Atkins is serving as a member of Trump’s transition them and is reportedly in line to be put forward as vice chairman of the Federal Reserve.

It’s difficult to compare a relative unknown with someone who has a  public service record that includes well-known public statements on securities law. Among the measures Atkins is currently reportedly promoting, according to a report in Fox Business, is a measure to neuter New York’s Martin Act, a 1921 state statute that predates the federal securities law framework and  that crusading New York state attorneys general– such as Eliot Spitzer– have relied on to take on Wall Street abuses.  State “Blue Sky” laws are also under scrutiny. Details on these discussions have been scant, but current New York state attorney general Eric Schneiderman has taken them seriously enough to describe such proposals as “deeply troubling”.  The Atkins record is far more radical than anything I’ve seen Clayton has thus far proposed.

Goldman Connection: Cause for Concern

One point I do find more problematic is that Clayton is yet another Trump appointee with a strong Goldman Sachs connection. Despite making considerable political hay during the presidential campaign over Hillary Clinton’s Goldman Sachs connections and speeches, Trump has made unseemly haste in tapping alumni and affiliates of the Vampire Squid for White House and Cabinet appointments. These include: former Goldman executive Steven Mnuchin, Trump’s choice to lead the Treasury Department; Steve Bannon, a former Goldman investment banker named as a senior counselor to Trump; and former Goldman President Gary Cohn, who will run the National Economic Council (the economic analogue to the National Security Council in the West Wing, initiated under Richard Nixon, revived under Bill Clinton  and headed by Robert Rubin, former co-chair of Goldman, who subsequently became Treasury Secretary);

For those who are unaware of the long and intertwined S & C-Golman connections, their embrace goes beyond Clayton’s representation of Goldman on some key legal matters– that link is so obvious that even Matt Yglesias noticed it in this article from yesterday.

As the Wall Street Journal notes, “Sullivan & Cromwell is a key outside legal adviser to Goldman and is more closely associated with Wall Street than perhaps any other law firm, though Mr. Clayton’s focus has largely been around capital markets.”  The Goldman-Sullivan special relationship is longstanding and well-known to most on Wall Street, including the legions of S & C and Goldman alumni.

The same Journal piece also recognizes, “Unlike some of its competitors, Sullivan & Cromwell doesn’t have a reputation for feeding the SEC’s revolving door. More of its alumni land in corporate roles than in top government jobs.” Part of the reason most S & C partners stay put is that virtually no other law firm would compensate them as lavishly.  In those rare instances when a partner jumps ship, it’s for a corporate position– which sometimes in-house positions at guess where? IIRC, former partner Robert Katz was the first ever S & C partner to leave the firm for another legal job– but he didn’t stray far, walking up Broad Street S & C’s offices at number 125 to a position as Goldman Sachs’ general counsel at what were then Goldman’s old offices at number 85. Later, partner Gregory Palm made the same journey, to the same job, as subsequently did partner Esta Stecher, with a prior detour to head Goldman’s tax practice. Both Palm and Stecher currently serve on Goldman’s management committee.

Previous Writing

Just a few final points.  First, Clayton seems to be such a surprise pick to head the SEC that the first press accounts are stretching to come up with criticisms. One such criticism stems from a 2011 article he co-authored on the Foreign Corrupt Practices Act (FCPA)  entitled, “The FCPA and its Impact on International Business Transactions – Should Anything be Done to Minimize the Consequences of the U.S.’s Unique Position on Combating Offshore Corruption?” But, to put this in context, Clayton chaired a drafting committee comprised of members of the Committee on International Business Transactions of the New York  City Bar Association– suggesting that this perspective was not exactly a minority or  offbeat project.  I’m also not sure that the committee’s conclusion is particularly recherché or controversial:

While accepting and fully embracing the ultimate policy goal of the FCPA—the prevention of corruption worldwide—the purpose of this article is to call for an assessment of (1) the ability of the United States to achieve that goal unilaterally and (2) the direct and indirect costs of continuing such an effort. This paper has identified several factors, including the incentives of the various participants and the decrease in the relative importance of the U.S.-regulated companies in the international marketplace, that strongly and clearly suggest that the United States cannot continue to do it alone. The costs of pursuing such an approach are substantial and, in certain cases, irreversible and, consequently, a realignment of the U.S. position in the global anti-bribery enforcement regime is necessary (p. 26).

And also, I should also point out that many commentators– including yours truly, a writer not  known for being a corporate stooge (or at least I so hope) — have criticised the DoJ’s focus on FCPA violations, at the expense of more serious systemic abuses closer to home.  See my November post on this issue, in which I quote from a speech by assistant attorney general Leslie R. Caldwell:

This is why the fight against international corruption has been, and continues to be, a core priority of the Department of Justice. It has been a core priority for the Criminal Division, and our commitment to the fight against foreign bribery is reflected in our robust enforcement record in this area, which includes charges against corporations and individuals alike from all over the world. Since 2009, the Criminal Division’s Fraud Section has convicted more than 65 individuals in [FCPA] and FCPA-related cases, and resolved criminal cases against more than 65 companies with penalties and forfeiture of approximately $4.5 billion.

Allow me to quote from that November post at length, beginning with the section that discusses the Caldwell quotation immediately above:

Sounds reasonable, right? I mean, after all, no one would come right out in favor of more international corruption?

But when we unpack it, we butt up against a few problems. First, to quote my contact the white collar defense specialist again. The lack of an effective DoJ deterrent has enormously complicated his practice and his ability to get his clients to understand and act on prudent legal advice. “What I’ve seen happening more and more in the last couple of years is the chairs of audit committees of major companies openly mocking the DoJ’s enforcement capability.” This leads the companies to pursue courses of action that they wouldn’t dare to undertake if they worried that the DoJ would aggressively pursue securities law violations.

Where does this leave their lawyers? Well, it often means that they must either moderate their advice, or risk losing their clients. Clients who want to do something will resist their impulses and continue to listen to what they hear as their lawyers crying wolf only for so long. Eventually, the less scrupulous among them are going to ignore the contrary advice, or get another lawyer. The lack of effective enforcement at the DoJ hinders the efforts of the best, most prudent, and most ethical members of the legal profession to practice law as we would want them to.

So, what happens instead? Well, the most scrupulous of them will continue to give what they regard as sound legal advice (even if what some privately call the Department of Jokes does not enforce the law in a way that lends credence to that approach). But that means they often have to develop new areas of expertise when their clients beat a path away from their doors. “We have to act sometimes as shoe salesmen, flogging competence in FCPA violations, that occur in subsidiaries or with foreign suppliers,” says my white collar defense specialist contact. “This work leads us to countries and legal systems we don’t know well, to uncover chickenshit violations that occur far from home.” Far better, he believes, would be for the DoJ to focus on law-breaking that occurs in the United States, as that could be effectively deterred by the agency refocusing its enforcement priorities. Now that would be a legacy we could all believe in.

So, given what I just wrote about the FCPA a couple of months ago, it would be rather unseemly to call for the tarring and feathering of Clayton merely for co-authoring an article about FCPA deficiencies.

Finally,  I also noticed that Clayton has an interest in cybersecurity issues. In reading ‘Ten Commandments’ of Cyber Security Can Enhance Safety yesterday– an articIe he coauthored with a half dozen other co-authors —  I couldn’t help but think how the 2016 presidential election might have turned out differently if Hillary Clinton and members of her staff had followed some its recommendations (and perhaps if some of those staffers had challenged their fearless leader to do the same), especially the bulleted points under commandment one, Develop and Practice Strong Cyber Hygiene:

  • Conduct full background checks of personnel to mitigate “insider” threats.
  • Implement robust passwords or other advanced means of multi-factor authentication.
  • Ensure security of computing and communication devices, especially when traveling abroad.
  • Train employees on email etiquette and “spear-phishing” schemes.
  • Keep personnel up-to-date as to relevant incidents, causes and consequences.
  • Increase and demonstrate cybersecurity common sense as part of performance reviews.
  • Utilize surveillance and malware detection and “detonation” software.
  • Assess the security needs for encrypted phones, laptops and smart devices.

Bottom Line

Jay Clayton would probably not be my first choice to fill one of the three vacant spots as SEC commissioner– especially the crucial chair’s position.  Nor would he, I suspect be Senator Elizabeth Warren’s top pick, either. But he’s a well-qualified, perfectly respectable pick for a Republican SEC commissioner. And although I have by no means conducted thorough and systematic research in the short time since his nomination was announced, at least based on his public record, he seems to hold the sort of considered, cautious, middle-of-the-road positions that cause one to be relied on as a trusted legal adviser to the country’s largest companies and financial firms. In other words, William O. Douglas he aint.

Trump considered– and rejected, at least so far– candidates I would have found to be far worse.  He’ll have the opportunity to propose some of these candidates to the two unfilled commissioner positions– but not to the crucial chair position (if Clayton gets confirmed).

Meanwhile, the President-elect has put forward  other Cabinet nominees– Steven Mnuchin (Treasury),  Scott Pruitt (EPA), and Jeff Sessions (DoJ), who pose much more serious threats.  I suggest congressional Democrats should get their act together and focus their attentions on defeating these more problematic appointments.

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21 comments

  1. ozajh

    On the face of it, this would appear to be one of the least objectionable of Mr Trump’s selections. (I am admittedly commenting from a long way outside the USA, and with no real knowledge of the area.)

    I would concur with Ms Scofield that the Democrats should not expend much energy opposing Mr Clayton’s appointment, unless of course they intend to adopt the Republican approach of furiously opposing ANY choice made by their political opponents.

  2. alex morfesis

    Well…the swamp is just getting some fresh water…no draining available…every president should be given enough rope to hang himself…trump and his trumpettes should be allowed 9 months…

    certainly Goldman is subject to community reinvestment act tweeking but the usual klown organizations have taken up all the air with nonsense arguments that regulators can file 13 with glee…

    If enterprises and govt entities were required to disclose derivative positions with notional values and trigger or expiration timeframes we might find some value in sec disclosures, but most filings today are toilet paper…a better adjustment to markets would be to break up s&p moodys and the big 4 (?3?) Accounting firms…

    Until that happens everything else is window dressing and fiduciary theater

  3. diptherio

    I’m curious if he’s getting a bonus from S&C for taking a gov’t position, as is apparently the practice at Golden Sacks, iirc.

  4. NoGig

    Balderdash! Readers should be aware that propaganda can and does emanate from all sides.

    Present criticism of Sen. Jeff Sessions for DOJ rests on specious accusations from THIRTY years ago (when under consideration for federal judgeship). Yes, that’s right — specious accusations from THIRTY years ago.

    Meanwhile Jeff Session is currently recognized as a strong voice against corporate replacement of US workers with imported foreign labor. Programs that corporate Republication and Clinton “Democrats” (including Obama) have recently and significantly expanded to now include visas such as the OPT, L-1, H-4, H-2, etc. Hell, Clinton’s State Department even established a highly illegal “B-1 visa in lieu of H-1B” for use by the US Embassy in India.

    There seems little doubt the fingers now pointing at Jeff Sessions emanate from Clinton “Democrats” or their corporate sponsors. I recognize Jeff Sessions as a good and honest man working to best serve his country and its citizens. No one should be deceived by false aspersions — or their source.

    1. Lambert Strether

      Got a link on why they’re specious?

      Sessions had the stones to go into the locked room, read the text of the TPP, and talk about it on the Senate floor. Kudos to him. But “a good and honest man working to best serve his country and its citizens”? Let’s not over-egg the pudding.

      1. NoGig

        That was thirty years ago — people change. Sessions is one of the precious few (in either party) blocking the globalist push to import labor at will. And no way should he be painted with the same brush as blood-sucking, sociopaths like Mnuchin.

        Pertinent questions might be if you believe tech lobbyists carry weight in the Democrat party? And, when looking at the list of Trump nominees, how you think his name ended up on the short list of those to fight?

        In my opinion, the reason Session is on that list (and likely inherited to yours) is in servitude to corporate interests over those of our citizens.

      2. David Troutman

        Hi Lambert,
        I read NC daily. Just very good, the whole thing. I have one small complaint. It seems to be prevalent, at least among some of NC’s contributors, including you, to use the following terminology to express that “the man has courage”, or “the man should try to be more courageous” or whatever is appropriate in the context. There is a tendency at NC to speak of “the stones”, as in “Sessions had the stones to….” I have been noticing this expression, or some version of it, more and more in the last 4 weeks or so. It may have been there before, and is just starting to bother me now. But it reminds me a little of the criticisms levied at traders for using an ultra-macho language. Throwing in an occasional “stones” is far from ultra macho, but is in the same general family.
        I am not sure why it bothers me or why it has started bothering my recently. I am not particularly PC and can easily tell non PC jokes to the boys. But this is a public forum, and there is something sexist about this metaphor. To say that XXX (a woman) should grow a pair…. yeah, I find it pretty irritating to read. And, linguistically, it implies, of course, that courage is a male trait. Which, in my experience, it is not. It is a human trait.
        I would encourage NC to eliminate this particular metaphor. :-)
        regards,
        David Troutman

    2. John Zelnicker

      @NoGig -January 5, 2017 at 1:24 pm – Jeff Sessions is my Senator and lives in Mobile, as I do, and the charges against him when he was considered for a federal judgeship were not in the least specious, they were accurate and based on first person witnesses and the public record. I remember the controversies in which he was involved. In addition to evidencing his racism by using derogatory terms when referring to African-Americans, even to their faces, he wasted time prosecuting voter fraud that didn’t exist against a few black voters, when there was some evidence that white voters and/or election officials had manipulated the results of an election. Alabama is notorious for having registered voters whose residence is the local cemetery.

      His willingness to talk about the TPP in open session of the Senate, in spite of the confidentiality rules placed on it, was certainly courageous, and I admire him for that. I am also in favor of his position against the use of foreign workers to replace qualified American ones. But, these points just prove that no one is all good or all bad.

      Nevertheless, Jefferson Beauregard Sessions is a born and bred Southern racist and if he is less outspoken about it now, I can assure you that he has not changed his character in this matter.

      And, just for the record, I am not now, and I have never been, a Clinton “Democrat”.

  5. geoff

    I thought Sullivan & Cromwell rang a bell. It’s the firm that gave the Dulles brothers, John Foster (Eisenhower’s Sec. of State) and Allen (CIA Director) their start. They are extremely well-connected, and have been for a very long time.

  6. JTMcPhee

    Pardon the armchair skepticism — well, at one point I sat in an ergonomic office chair in one of those big law firms, after some time as a federal regulatory attorney, so this is not totally bystander whining — but can I highlight this bit, and add some cavils?

    his job has been to ensure the companies comply with the plethora of laws and regulations that apply to capital markets and mergers and acquisition activities, and to engage in negotiations with regulatory agencies that have launched investigations– including enforcement actions– into various activities of his clients.

    While with the US EPA, I dealt with corporate counsel and outside “white shoe ” attorneys for a few years, 1978-1990. I would maintain that the advice both sets of lawyers gave to the corporate entity and the C-Suite-ers was less “how to comply,” certainly with the apparent intent of what used to be called “police powers laws” regarding public health and safety, than “how to skate up the the very edge of noncompliance, and well over it, and then “negotiate” with the various enforcement agencies to obfuscate and diffuse any liability via “every trick in the book.” My first job out of law school was as enforcement attorney for the IL Attorney General’s office, where in one salient case an high-powered white-shoe named Tom Gottschalk told a state judge and later a federal judge that suckering Oldsmobile loyalist buyers into buying “Rocket V8s” with inferior Chevy engines and crappy transmissions in them was, even though a violation of the former Moss-Magnusson Federal Warranty Act and various consumer protection statutes and possibly criminal laws too, just a “valid business decision of General Motors,” and thus could not possibly be actionable. Both judges actually spoke up in hearings where this “defense” was tendered, and reminded Gottschalk (performing for senior VPs and house counsel in attendance) that “Engine Charlie” Wilson, former head of GM, had been dead quite a few years, and it was no longer “res ipsa” that what is good for GM is good for the country.” On the way to eventually laying a slap on the wrist of the corporation.

    (what Wilson is quoted as saying: “For years I thought what was good for our country was good for General Motors and vice versa. The difference did not exist. Our company is too big. It goes with the welfare of the country.”) Charles Erwin Wilson http://www.searchquotes.com/quotation/For_years_I_thought_what_was_good_for_our_country_was_good_for_General_Motors_and_vice_versa._The_di/184382/

    Corp lawyers, inside and out, work to minimize the scope of investigations by all sorts of means, including trips to the executive and legislative branches that also often involve ‘suggestions’ to change ‘the law’ or “rein in the reckless prosecutors,” and whining about the Guvmint’s relatively infinite resources (totally false meme) being used to beat up on the “poor fragile corporation” and the corpo officers who “didn’t know about any of this.” And offering, eventually, if the matter is going against them, “cutout” payoffs in the form of “settlements” that give the enforcement people a “scalp” (copy of big check for millions, which is often pennies on the dollar and does nothing to deter or make restitution and involves NO admissioins of fault and insulates the corp officers from any personal liability.) And ambitious and maybe lazy and/or incompetent DoJ and state and fed agency attorneys, and private often “class action” or citizens suit counsel, will go along, for all kinds of reasons, venal and from exhaustion, and so forth.

    This guy may be an “expert,” with lots of experience mucking around in the swamps of obscure statutory and regulatory language and “precedents” and the arcanae of the “hidden law” of policies and protocols and regulatory-interpretation memos and private letters and enforcement strategies and such, which can be effectively invoked to forestall the bureaucratically minded decision chains that are supposed to drive enforcement of general welfare laws. The guy who plucks the feathers and chops the heads off and guts Thanksgiving turkeys for Butterball and injects the carcasses with that “secret sauce” is also an expert. Though his credentials are much less “impressive.”

    I am realistic enough to know that this apparently is the very best us humans can do, given how we seem to be programmed and how that programming accumulates to produce the catalog of actually effective incentives that govern things, here in the dying empire and ever less hospitable planet, under the cloud of combusto-consumption culture, where the wealthy almost very literally own EVERYTHING including the “legitimacy” of the Guvmint. Kind of leaves one with not so much to hope for, except to die a natural, un-accelerated death before the last shoe drops…

    1. Steve C

      Even so, it’s still in a white shoe firm’s interest for DOJ and other enforcers to take their jobs at least moderately seriously. It’s good for business.

      1. JTMcPhee

        I thought so too, when I was an enthusiastic young lawyer. Got to watch a variety of enforcement programs including criminal enforcement of the several main environmental laws, either and fade. Maybe the grift just moved to other “programs…” not antitrust or banking or securities…

  7. Dimitri Lascaris

    I too was an associate at Sullivan & Cromwell approximately 20 years ago, and like you, I do not know Clayton personally. That said, I think it is naive to hope that an attorney who has devoted his entire career to protecting the interests of powerful corporate clients — and who was richly compensated in the process — will be inclined to enforce the securities laws vigorously. I am not suggesting that Clayton will be worse than White or Shapiro, both of whom were pathetic enforcers of the securities laws. I am suggesting only that the SEC under Clayton is highly likely to continue its inglorious tradition of lax enforcement.

    1. Jerri-Lynn Scofield Post author

      Hi Dimitri– I think we may have overlapped at S & C. I believe I remember your name. I didn’t mean to suggest in any way that Clayton is likely to be an aggressive enforcer of the securities law. I agree with you that would be naive. (I considered discussing in my piece how working for corporate clients for your whole life develops a sort of mindset that would be very difficult to shake off even once one’s role shifts to being that a regulator– as you rightly point out. I didn’t raise that point, due to lack of space, but I perhaps should have found room in the piece to make it.)

      The takeaway that I wanted to leave readers with is that Clayton is unlikely to go all Samson on us, and destroy the securities law temple, as to do that would rob securities lawyers of their daily bread, their raison d’être. I think his background and experience, combined with the type of temperament that gets you elected to an S & C partnership, and the wee bit of circumstantial evidence we have (e.g., his campaign contributions), supports that conclusion.

      And also, of course, I do want to reiterate that Clayton looks to be far better than some of the alternatives, such as Paul Atkins.

      On enforcement, much will depend on who is selected to be director of enforcement.

      1. JTMcPhee

        Re White Shoes and securities “regulation:” Just a thought – how would enforcing “with Viggah” the (already weakened) securities and fraud laws “rob securities lawyers of their daily bread”?

        Is it the case, then (my cynical mind asks) that all or most of that “bread” gets “earned” for figuring out “Mossack Fonseca”-style and -class “work-arounds?” How to fudge required reporting and accounting information to be “not so far in violation of the law and GAAP” as to reach pitchfork-pitch level? Lofting sucker-punch IPOs and fee-generating LBOs and the rest of the Alphabet Gallery of Transactions? Lobbying ever laxer slacker “rules” for stuff like the Derivative Cloud that darkens the skies above the Real Economy that us ordinary people have to try to live in, while so many people aspire to join the looting and serve the Rulers by crapifying EVERYthing and battering those not equally “privileged” to have a job (however tenuous) amongst the abusers?

        So the “daily bread” is not earned by advising the Sharks and Tapeworms and Vampire Squids on what they need to do to rein in their looting impulses to fit in the very elastic bag called “the law”? Or only a pretty tiny fraction of it — the “Grinders” generating all those Memorandums of Law, figuring out the edges and corners and weak points, while the Finders and Minders sup and golf and fly off to far places with even less “police power,” https://en.wikipedia.org/wiki/Police_power_(United_States_constitutional_law), than here in the shell of an Empire?

        I became a nurse in part to do penance for my years as a lawyer with a Big Firm that has since been swallowed, and swallowed again, by even Bigger Firms… The Telling Wonderful Prequel: https://www.youtube.com/watch?v=aSO9OFJNMBA

  8. rusti

    Matt Taibbi posted a provocatively titled piece “most conflicted SEC chair ever” shortly after this one:

    What makes this situation somewhat unique is the fact that this incoming SEC chief is also married to a broker at Goldman Sachs – his wife Gretchen is a wealth management advisor. This means that a significant portion of Clayton’s family income while in office will presumably be coming from a company he is charged with policing.

    The Yglesias article and (laughable) WSJ article omitted this point, but it seems pretty tough to hold out any shred of optimism after seeing that.

    More of its alumni land in corporate roles than in top government jobs.” Part of the reason most S & C partners stay put is that virtually no other law firm would compensate them as lavishly.

    Why does someone like Clayton (or even White) take a job like this at all? I presume it has more to do with making a name for oneself inside the Beltway rather than any sense of patriotism?

  9. Jerri-Lynn Scofield Post author

    Re the GS connection: one other thing I didn’t cover in the post is that the SEC does have ethical rules, which oblige the higher-ups to recuse themselves from matters directly affecting firms that pose an obvious conflict of interest for them. So, the combination of Clayton’s past work for GS, plus his wife’s employment status, plus no doubt other factors I can’t think of off the top of my head, all taken together probably mean that Clayton would have to recuse himself from certain types of matters (directly) affecting Goldman– the scope of this depends on the precise details of the conflicts rules.

    Note that these rules are far from perfect, and as Yves has pointed out in the case of Robert Khuzami and the SEC’s past failure to go after Deutsche Bank properly, are sometimes ineffective– as ostensible recusal often prevents an area from being effectively regulated/investigated/policed properly.

    Some possible reasons to take such a job: boredom– the government job does offer new intellectual challenges. Plus a desire to escape the punishing always-on-call life of being a Big Law partner. I know, I know, cry me a river, but these people make too much to quit, but not enough to allow them to leave and continue to live what is regarded as the life they believe they’re entitled to. Taking time out for high-level government service doesn’t reduce their future earnings stream– in fact, it enhances it– but I think the hours one would expect to work as head of the SEC are far fewer than that of an S & C partner at Clayton’s level.

    Also, there’s a bit of a status thing going on– law firm partners are at the beck and call of clients and must be responsive to them, and I suppose being chair of the SEC means one doesn’t have to worry about serving clients and one might enjoy being king of the hill for a while.

    Finally, there’s lots of law firm-related pressure attached to being a Big Law partner: e.g., worry about hitting targets, firm politics, etc., and I imagine it would be a relief to get away from all of that for a bit.

    1. JTMcPhee

      …and as Jerri-Lynn no doubt knows, there is the annual activity known in the firm(s) I worked for as “whining for dollars,” the Great Shoot-Out where partners claim their slabs of the Hourly Billing Carcass…We had one partner who claimed he billed something like 4,600 hours. Almost lost a couple of clients who he dared to treat to the explanation that he was so smart that he could be thinking about and working on THREE CLIENTS’ MATTERS at the same time! Corruption, Bezzle, Fraud (just a subset of the others) is pretty much universal.

      Interesting. When I graduated from law school in 1976, advertising by firms and lawyers was “unethical” and proscribed, except in the most decorous manner. Lots of manipulation and lobbying and corruption and reference to the First Amendment and suchlike led to that silliness being blown away.

      And the only form (other than government, sole practice and house counsel) of legal practice allowed was the partnership, where each partner was strictly, jointly and severally liable for the acts of each of the other partners as well as his or her own. And only attorneys could be part of the business entity. That was back when there was a smidgen more “rule of law,” and the ethical rules that sort of guided the practice had a lot more Biblical (Old Testament) flavor and bite to them. Nowadays, they don’t even call them “ethical rules” or “rules or codes of professional responsibility” — now it’s this:

      The ABA Model Rules of Professional Conduct, created by the American Bar Association (ABA), are a set of rules that prescribe baseline standards of legal ethics and professional responsibility for lawyers in the United States. They were promulgated by the ABA House of Delegates upon the recommendation of the Kutak Commission in 1983. The rules are merely recommendations, or models, (hence the name “Model Rules”) and are not themselves binding. However, having a common set of Model Rules facilitates a common discourse on legal ethics, and simplifies professional responsibility training as well as the day-to-day application of such rules.

      Anyone paying any attention knows that any “unethical conduct” has to be massively offensive and “egregious” to result in any kind of even gentle sanction, let alone disbarment or cooperation with criminal prosecutions… The worst sin is messing with your client’s money, what a surprise… And conflicts of interest? Hey, waivers and Chinese Walls will take care of any steeenkin’ “conflicts…”https://en.wikipedia.org/wiki/American_Bar_Association_Model_Rules_of_Professional_Conduct

  10. Bart Naylor

    Questions 1.Why Clayton? S&C has 700 attorneys? HR Cohen mentee? 2. S&C was HSBC attorney in money laundering case. Did they concoct the TBTJ/contagion defense that Bernanke/Geithner/Holder either bought or used?

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