A Firm Elizabeth Warren Wants Examined for Statements on Fiduciary Duty Reform is Where the SEC’s Tainted Former Exam Chief, Andrew Bowden, Landed as General Counsel

My druthers would be not to have to again turn the focus on Andrew Bowden, particularly since the matter at hand may be the result of his senior management ignoring his advice. But if individuals and firms are not held accountable for questionable conduct, things will never change for the better.

Readers may recall that Andrew Bowden looked like a potential hero of financial reform who turned out to have feet of clay. He gave a brutal speech, by regulators’ standards, in May 2014, describing how more than half the firms in private equity were effectively stealing from investors or engaging in other serious compliance abuses. But distressingly, mere months later, Bowden was walking his bold talk back even though it was inconceivable that there had been any meaningful change.

In March of last year, at a conference at Stanford Law School, in the Q&A section, Bowden not only made fawning remarks about private equity profits and returns, which is a violation of agency rules (officials are prohibited from endorsing investments) but worse, said he’d really like his son to work in private equity. The questioner shot back, “I’d love to hire your son, by the way. That’s a deal.” Even though this exchange could be depicted as friendly banter, it was way too close to looking like soliciting a bribe.

Three weeks after we broke that story, The SEC’s Andrew Bowden: A Regulator for Sale?, Bowden resigned.

Ironically, yesterday the day that the SEC officials again visited the visited Stanford Law School. And yesterday was the day that David Sirota reported that the company at which Andrew Bowden is now genera counsel, Jackson National Life Insurance (“Jackson”), is under the hot lights for their statements about pending regulatory reform. The reason Elizabeth Warren called for a probe of Jackson, along with three other insurers, is that their bleating to regulators about how proposed rules would ruin their business contradicted what they told investors. SEC rules prohibit making misleading or false statements.

From Sirota:

U.S. Sen. Elizabeth Warren on Thursday requested a formal Securities and Exchange Commission investigation into four financial firms, asking the agency to evaluate whether they violated securities laws in an effort to thwart a federal initiative aimed at protecting investors.

At issue is the Obama administration’s proposed rule that would require financial firms to put customers’ interests ahead of their own when advising them on investment decisions…

In her letter to SEC Chairwoman Mary Jo White, Warren notes that as part of their pushback against the proposed rule, financial firms have filed official comment letters with the Department of Labor registering their opposition to the proposal, and asserting that it would harm their business. But the Massachusetts Democrat argues that the statements of opposition in some firms’ letters conflict with other statements in which they downplay the effect of the rule on their enterprises….

— Jackson National Life Insurance Company President James Sopha told the Labor Department that the fiduciary rule would “be very difficult, if not impossible for financial professional and firms to comply” with — and that firms would be “unable or unwilling to afford the high compliance costs” that would come with it. The next month, though, the head of National Life’s parent company, Mike Wells, told investors that Jackson would benefit from the rule. He said: “My view on this DOL issue is, we will weather it well. We’ll come out on the other side, advantaged again. And Jackson has the capabilities, relationship, distribution, to build whatever product is appropriate under that set and adapt faster and more effectively than competitors.”

Some may see Warren as caviling, but in fact public companies have been dinged for making inaccurate statements about proposed regulations. Again from the article:

Ann Lipton, a Tulane University Law professor, noted that regulatory matters in particular have been an issue when it comes to legal questions about false statements.

“Companies have gotten into trouble in the past by falsely saying that regulatory proposals weren’t going to have an effect, and if that’s what’s going on here, the company could be opening itself up to serious liability,” Lipton told IBT.

The grey issue here is whether these false statements rise to the level of being securities fraud. The test is whether investors would be likely to consider the information as significant in making an investment decision. In the case of Jackson, its parent is the British Insurer, Prudential PLC. While Jackson is one of the biggest life insurers in the US, it is not the biggest subsidiary of Prudential PLC. So the question becomes whether this issue would be material to Prudential Investors.

The statement of the head of the parent, Mike Wells, suggests that investors do consider it to be material. First, enough analysts are apparently asking that he felt he had to address the issue. Second, his statement was not along the lines of, “Look, it would be better for everyone in the industry from an economic perspective not to be subject to this rule, but from the perspective of all of our international activities, we don’t think this will have a meaningful EPS impact either way.”

And what does this say about Bowden and Jackson? It’s inconceivable that Bowden, as a former SEC senior officer, did not draft the letter to the SEC objecting to the proposed fiduciary duty requirement. Indeed, helping Jackson fight that rule was almost certainly a major, if not the, reason for him being hired. And as we’ve pointed out, the revolving door has come to entail industry getting its hands on top experts who have insight into the inner workings of agencies in order to vitiate and minimize the impact of regulation. So narrowly speaking, Bowden did exactly what he was hired to do.

So we have some open questions. The execs at the parent company could not discuss the implications of the pending rule change with investors without getting input from the sub. One would also think the legal team at the parent would be aware of Jackson’s strategy with the SEC, at least on a general basis. So this looks likely to be the parent choosing to blow off SEC requirements in talking up its stock to investors; they are unlikely to have involved Bowden directly in preparation of the investor remarks. But the fact that no cared to work this issue through more carefully speaks volumes about the culture at Prudential PLC. If Jackson says in all seriousness, that (horrors) having their agents be subject to a fiduciary duty would wreck their business, and there’s no reason to think that Bowden’s letter does not represent what Jackson management believes, then how can anyone, most important the SEC and customers, believe the parent’s pious claim that Jackson adopt the new rules with alacrity and enthusiasm, even if only to get a competitive advantage? Bowden’s letter reveals the course of most profit is to find clever ways to skirt the new regs instead.

In the stone ages of my youth, public companies, particularly those in regulated industries, accepted that they’d have to navigate through the rules or get them changed rather than ignore them and see if anyone would sanction them. Even worse, former regulators are actively enabling this behavior. As we showed last year, there are plenty of examples of ex-SEC officials who are openly contemptuous of the agency and are helping to promote a culture of lawlessness. So Warren’s persistence in naming and shaming is an effort to move public opinion and create a powerful counter to this concerted effort to define deviancy down.

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  1. HotFlash

    If only there was someone who could appoint a tough and public-minded regulator as head of the SEC!

  2. diptherio

    For the record, I am also openly contemptuous of the organization. They exist, by and large, to provide cover for the criminals they’re supposed to be disciplining. What else, besides contempt, can one possibly feel?

  3. Vernon Hamilton

    But you aren’t contemptuous of the SEC’s mission, as those former employees and their new friends evidently are.
    The fact that the SEC is currently in the hands of enablers is deplorable, not the fact that we have an SEC.

  4. susan the other

    What sitting-duck investors need is an honest alternative. I’m thinking pension funds here, but individuals too. An alternative that eliminates abuse of fiduciary obligations from the start. And the only entity with the power to offer such an alternative for pension funds is the government because it can guarantee against losses and has the deep pockets to create secure investments, like treasuries. The government should have been protecting pension funds all along, speaking of fiduciary duties. But blew it off and encouraged PE disgraces where ever they occurred. In the chain of securitization used by PE, banks also play a critical role, letting the PE firm socialize its losses by dumping them on disengaged investors – and doing so without fiduciary obligation at all – simply by doing business with those firms in an IBGYBG manner. When the economy has gone up in smoke, it’s hard to justify any PE business at all.

  5. JerryDenim

    Liz Warren continues to impress. I’m sure she must feel a bit like the Lone Ranger most days. She’s surrounded by guard dogs that won’t bark and others that want to actively assist the robbers with their looting. I hope Sanders can win and send in the calvary to clean house. Bill Black as A.G. or SEC head? Now that would be fun to watch.

  6. phichibe

    Yves writes “In the stone ages of my youth, public companies, particularly those in regulated industries, accepted that they’d have to navigate through the rules or get them changed rather than ignore them and see if anyone would sanction them.”

    I’m afraid that Sandy Weill proved this works all too well when he broke Glass Steagal by having Travellers Insurance buy Citigroup and dared the Clinton administration to do anything about it.

    There’s a new book out by Wendell Potter and Nick Penniman, authors of Nation on the Take: How Big Money Corrupts Our Democracy and What We Can Do, that claims one of the principal motives behind Clinton and Gore’s founding of the Democratic Leadership Council in the late 1980s was to have a business-friendly group within the Democratic Party that could solicit campaign funds from previously Republican-only donors like finance and pharma. The rationale was that campaign contribution from organized labor were on a death spiral and the Democrats needed a new source of money. I’ve long been a critic of the DLC but I never realized the cynicism and intellectual opportunism that lay behind its creation. Gore rhymes with whore, but it was Clinton who put on the fishnet stockings and got into bed with Wall Street. No wonder Robert Rubin was his consiglioro (the same Rubin who, when he resigned as Treasury Secretary, joined Travelers/Citi as a $10 million/yr “non-executive” president, whatever that meant).

    If any NK have the time to read this book and give us a report I’d be grateful as right now I’m too jammed to do it. Sounds like a great (if depressing) read.

    Cheers (or not)


  7. Skip Intro

    I’m imagining Warren at the chess board. When the SEC investigates (check), the officers will have to aver that they told the investors the truth, and thus that they knowingly submitted false testimony (mate).

  8. VietnamVet

    When I began my almost 40-year career as a mid-level cog in a federal regulatory agency, there was the revolving door, the costs of compliance and stability. Prices and policies were set through Congress and hearings without the parties directly talking together committing fraud. If errors or crimes were publicized, they were fixed. This changed with the inauguration of the Obama Administration. The Elite no longer fear of going to jail. Laws and regulations are ignored. Fines are the cost of doing business. The basic outcome is that it is now everyone for themselves. Without government protection, the middle-class is just as vulnerable to exploitation as the poor. No amount of propaganda can hide this fact. Only the return of the rule of law for all can set it right.

    1. Boaty McBoatface

      Forgive me if this is a silly question, but why did this change occur when Obama came to power?

      Is he owned? Different enforcement philosophy? Afraid he’ll crash the economy like Holder said? Doesn’t believe in prosecuting white collar crime? I’ve been trying to understand it for 7 years. What the heck is it?

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