By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She now spends much of her time in Asia and is currently 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.
If recent reports in the New York Times, 2 Expected to Be Named to S.E.C. Enforcement Role, and the Wall Street Journal, SEC Chairman Plans to Hire Steven Peikin to Run Enforcement Division, are correct, partners at one white shoe law firm Sullivan & Cromwell (S &C), will soon be in place as the new top guns at the Securities and Exchange Commission (SEC), replacing partners from another white shoe firm, Debevoise & Plimpton, who held the same roles during the previous administration.
To be a bit more specific, former SEC chair Mary Joe White stepped down from that role at the close of the Obama administration, followed by her enforcement team, and has now returned to her Debevoise partnership, as I discussed in Mary Jo White Leaves Behind a Weakened SEC for Trump to Weaken Further, and now the new chair, Jay Clayton, formerly an S & C partner, seeks to install his own enforcement team.
Depending on how you look at it, this swap of one set of white shoe lawyers for others might be either a good or a bad thing. Franklin Delano Roosevelt appointed reputed stock manipulator Joe Kennedy as the SEC’s first chairman, apparently subscribing to the theory that the fox is best suited to guard the henhouse– but the early success of that agency also rested on the involvement of two talented lawyers, William O. Douglas and Abe Fortas. And no one’s yet suggested that either pulled their punches in their work for the SEC.
Reportedly, Clayton also intends to appoint Steven Peikin, who’s currently an S &C partner, alongside Stephanie Avakian, the agency’s acting enforcement director and a former white-collar defense lawyer, as co-directors of enforcement, in a move intended to dilute the S & C concentration at the highest SEC echelons, since potential client conflicts might otherwise hamstring SEC action. (SEC ethics rules bar Peikin for one year from supervising any cases that affect other S & C clients, and Clayton also is subject to similar conflicts constraints).
Avakian is currently the SEC’s acting enforcement director and a former partner at Wilmer Hale, who has served a sufficient tenure the SEC not to be barred by conflicts involving former clients from involvement in any agency matters. According to the NYT account cited above:
[She] joined the securities regulator three years ago as the deputy director of enforcement under Andrew J. Ceresney. After the presidential election, when Mr. Ceresney left the agency for the law firm Debevoise & Plimpton, Ms. Avakian assumed his role on an acting basis. Earlier in her career, she was a lawyer in the S.E.C’s enforcement division, working in the New York office.
The decision to appoint co-directors of enforcement is not unprecedented, as reported by the WSJ article cited above:
Former SEC Chairman Mary Jo White, who stepped down in January, also recruited co-directors of enforcement when she took over leadership of the regulator. The move made it easier for her choice as enforcement director, Andrew Ceresney, to join the agency because he, too, faced the need to recuse himself from working on cases that involved clients of his former law firm, Debevoise & Plimpton LLP. Ms. White also worked at Debevoise & Plimpton before taking over the SEC, which she ran from 2013 to early 2017.
Potential Vampire Squid Conflicts
Now, as a former Sullivan & Cromwell associate, I’m well aware of the close relationship between that firm and the vampire squid, as I discussed at length in this post, Trump Selects Jay Clayton, S & C Partner, to Head SEC. In that post, I concluded:
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.
Equally, I see no reason per se for opposing the Peikin appointment, a well-respected litigator, with ample securities law experience. I should mention that I share with him another connection beyond the tenuous S & C one, as we were both members of the Harvard Law School class of 1991. Although I can’t claim to know him well– and in fact, I can’t remember ever exchanging any words with him– we were in the same first-year section, meaning we took all our basic first year law classes together. But so did about 150 other people. And I certainly haven’t kept up with Peikin’s career. I do know, from my previous experience as an associate at Sullivan & Cromwell, that an attorney must be highly competent to be hired laterally– especially as a partner– as the firm prefers to hire, train, and promote its own.
Peikin’s campaign contributions suggest he’s not a Republican stalwart, and may not even be a Republican, as reported in the NYT piece cited above:
Mr. Peikin has been a sporadic contributor to political candidates, but in 2008 he gave money to Barack Obama’s first presidential campaign and in 2013 donated money to Senator Cory Booker, the New Jersey Democrat.
Prior to being an S & C partner, as an assistant US attorney, he successfully prosecuted investment banker Frank Quattrone (although an appeals court later overturned that conviction), and was involved in the also successful prosecution of WorldCom CEO Bernard Ebbers, according to the WSJ article cited above.
Two Questions for the Next Appointees as co-SEC Directors of Enforcement
Neither the appointment of Peikin nor Avakian is subject to Senate confirmation. Given some of the other crazy appointments made during the Trump administration, I cannot see any real reason for opposing either appointment, as clearly each has the background and expertise to serve as a co-director of enforcement.
Nonetheless, one big issue facing the SEC is whether it will continue to be regarded as a paper tiger in enforcement matters– as the agency’s reputation has clearly slumped in the nearly three decades during which I’ve been monitoring it. And within this context, there are two key questions I’d like to pose to each of the reported appointees- although I realize these are purely within the realm of a thought experiment, and there’s no real venue where I– nor anyone else for that matter– could actually pose these questions. Nonetheless, I would like to know what positions each holds on the following two key issues.
(Just a reminder to readers, that on the eve of Clayton’s confirmation hearings, I posted the following comprehensive post, Taking on Trump’s Agenda: Nine Tough Questions for SEC Chair Nominee Jay Clayton on the Eve of His Confirmation Hearings.)
1. No Admit/No Deny Settlements.
First, Mr. Peikin/Ms. Avakian, what is your position on so-called no admit/no deny settlements? As you’re well aware, these are settlements in which a defendant agrees to a significant cash payment to settle a legal action but neither affirms nor denies culpability. This is a complex issue that’s ripe for further discussion, with several key issues and concerns outlined in a paper due soon to be published in the Minnesota Law Review by Verity Winship & Jennifer K. Robbennolt, entitled Admissions of Guilt in Civil Enforcement.
Many critics have challenged this policy, including most prominently, Senator Elizabeth Warren and federal district court Judge Jed Rakoff, arguing that such settlements fail to promote accountability, and instead foster an environment where fines and penalties are merely regarded as a cost of doing business, rather than having any significant deterrent effect. What will be your policy with respect to such settlements?
2. Targeting Individuals Rather Than Corporations.
In his confirmation hearings, new SEC chair Jay Clayton suggested that a more effective approach to future securities law enforcement would be to target individuals rather than corporations. Could you spell out further what such an enforcement policy would look like? Do you agree with this approach? How would this approach accord with (or differ from) from the policy articulated in the memo authored by then-Deputy Attorney General Sally Quillian Yates in September 2015 that was intended to increase accountability for corporate wrongdoing? While understanding that the SEC lacks authority to pursue criminal charges as the Department of Justice can, it seems that the Yates policy has not had an appreciable impact on white collar crime (as discussed here, Law Enforcement Losing War on White Collar Crime). So, how and why would you expect results to differ if the SEC were to step up enforcement against individuals for civil matters within its purview? Do you believe targeting individuals would have a significant deterrent effect compared to pursuing corporations?