By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.
Gurbir Grewal, the new director of enforcement at the Securities and Exchange Commission (SEC), takes up his post today.
Let’s hope his tenure is longer than that of his predecessor, Alex Oh, who prior to joining the SEC was a partner at legal powerhouse Paul, Weiss, Rifkind, Wharton & Garrison. Oh quit the SEC gig five days after taking office. Oops!
I’ll return to the Oh matter below.
After the Oh debacle, SEC chair Gary Gensler was on notice that it would be prudent to find someone free of deep Wall Street ties to fill the enforcement position. From Reuters, U.S. SEC enforcement head resigns after five days on the job:
After her April 22 appointment, a group of advocacy groups wrote to Gensler saying they were “deeply surprised and concerned” by his choice.
“The SEC has failed the American people by repeatedly selecting Wall Street defense lawyers as Directors of Enforcement,” said Dennis Kelleher, Chief Executive Officer of Better Markets, a Washington group advocating for Wall Street reform.
“They come to the SEC with needless and unhelpful baggage, including crippling conflicts of interest regarding current and past clients as well as a mindset…ill-suited to being an aggressive enforcer,” he added.
Grewal arrives free of such conflicts from his previous position as New Jersey’s attorney general. He’s the first SEC director of enforcement since 2005 “without recent ties to corporate America,” according to Reuters, Wall Street enforcement to get tougher as SEC’s new top cop gets to work:
For two decades, the Wall Street watchdog has largely drawn its top enforcement cops from the white-collar defense attorneys bar, which critics say creates conflicts of interest that deter officials from properly punishing misconduct.
Instead, Grewal has spent the bulk of his career in public service, according to the SEC press release announcing his appointment:
As New Jersey’s Attorney General, Grewal heads the Department of Law & Public Safety, which employs more than 3,700 uniformed officers, 750 lawyers, and thousands of additional public servants, including investigators, regulators, and administrative staff. Before becoming Attorney General, Grewal served as Bergen County Prosecutor, the chief law enforcement office of New Jersey’s most populous county. Earlier in his career, he was an Assistant U.S. Attorney in the Criminal Division of the U.S. Attorney’s Office for the District of New Jersey, where he served as Chief of the Economic Crimes Unit from 2014 to 2016 and oversaw the investigation and prosecution of all major white collar and cybercrimes in the District of New Jersey. He also previously served as an AUSA in the Criminal Division of the United States Attorney’s Office for the Eastern District of New York, where he was assigned to the Business and Securities Fraud Unit. Grewal worked in private practice from 1999-2004 and from 2008-2010.
Now, I wouldn’t advocate an outright bar on distinguished members of the bar who’ve spent some or even much of their legal careers representing private clients from government service. There’s something to be said for employing a former poacher to be a gamekeeper – the rationale FDR followed in appointing notorious stock speculator Joseph P. Kennedy Sr. as the very first SEC chairman (see 431 Days: Joseph P. Kennedy and the Creation of the SEC (1934-35).
Alas, what we see at the SEC now – and in other top government legal positions at the Department of Justice (DoJ) – usually follows a revolving door pattern. Taking tough enforcement stances while in government service is not the ticket to spinning back into a lucrative private post.
Grewal enjoys a reputation as a tough prosecutor who won’t be afraid to take cases to trial. The Reuters description of the SEC’s soft enforcement stance as an exclusively Trumpian phenomenon had me chortling. Per Reuters, Wall Street enforcement to get tougher as SEC’s new top cop gets to work:
In contrast, the sources said, Grewal will be willing to pursue big companies and challenge them in court rather than settling for a fine, a common practice which Democrats say doesn’t deter corporate wrongdoing.
Jerri-Lynn here. Hello? Anyone hear of the Holder doctrine? As laid out by Eric Holder, who served in the DoJ during the last two Democratic administrations, most recently as Attorney General. Under the Holder doctrine, the DoJ eschewed criminal charges against companies and executives, and instead opted for negotiated settlements with de minimus parking ticket penalties. Just the cost of doing business (see these 2016 posts, Law Enforcement Losing War on White Collar Crime; and The Obamamometer’s Toxic Legacy: The Rule of Lawlessness.
As for the SEC the last time Democrats were in charge, take a look at two other 2016 posts, for details on what the reality was under chair Mary Jo White. Before and after her tenure at the SEC. White was a partner at white shoe law firm Debevoise & Plimpton (see News Flash: Mary Jo White Claims SEC Produces “Bold and Unrelenting Results”; and Mary Jo White Leaves Behind a Weakened SEC for Trump to Weaken Further). The takeaway: White’s SEC didn’t leave anyone quaking in their boots.
No, Virginia, lax enforcement of corporate crime and securities law violations can’t be laid at Trump’s feet. Going soft on Wall Street has been a bipartisan policy, whichever party is nominally in charge.
Back to Oh
Oh resigned as director of enforcement in April.In her resignation letter to SEC chair Gensler, according to Reuters, U.S. SEC enforcement head resigns after five days on the job:
Oh said a “development” relating to one of her previous cases would be “an unwelcome distraction to the important work of the Division.
This seems a but cryptic. Shortly later, in May, the matter became clearer, when U.S. federal district court judge for the District of Columbia Royce Lamberth imposed Rule 11 sanctions on Oh. According to Reuters in Judge sanctions Paul, Weiss and would-be SEC enforcer Alex Oh in Exxon case:
In his Wednesday order, [Judge Lamberth] admonished Oh and Paul, Weiss, Rifkind, Wharton & Garrison for calling opposing counsel in the Exxon case “unhinged” and “agitated and combative” without evidence during a February 2021 deposition.
“Ms. Oh has sincerely apologized for her conduct; Paul Weiss has also apologized. Both should have known better than to impugn another attorney’s character without reviewing the entire record. And neither should have made those accusations without evidentiary support,” the judge wrote. “The Court cannot allow such misconduct to occur without at least rebuking counsel.”
I’m not going to delve here into the details of the conduct that led Judge Lamberth to sanction Oh. Instead, I point interested readers to another Reuters account, which discusses the controversy at length, Sanctions decision against Paul Weiss, Alex Oh rests on unsettled ground. The judge’s sanctions order can be found here.
The Bottom Line
Can Grewal make the SEC feared and respected again? I guess we’ll just have to wait and see. I’m not the only one who will be watching closely. According to Reuters, Wall Street enforcement to get tougher as SEC’s new top cop gets to work:
Grewal, 48, landed the role running the 1,300-person SEC unit after predecessor Alex Oh quit days into the job due to issues related to her private practice work. Progressives, including non-profit the Revolving Door Project, pushed for her ouster, in a political fracas that will put pressure on Grewal to deliver results.
“Grewal’s background is very encouraging,” said Eleanor Eagan with the Revolving Door Project. “We will be watching.”
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The Biden admin is looking much better than I had dared hope WRT Wall Street adjacent appointments. Love to see the back of Agriculture Secretary Vilsack tho.
As Ronald Reagan’s director of personnel, Scott Faulkner, reportedly once said, “Personnel is policy”. This is a constructive appointment in my view, and the type I had hoped Gary Gensler would make at the SEC.
Be lax for a nice payoff awaiting when you leave Govt. service. Everyone in Govt. has a price.
That didn’t used to be the case. Reagan began the process of making it the case by infesting government bureaus, agencies, etc. with the kind of people who “have a price”.
Let’s try to remember how this works. Getting an administrator focused on enforcement is a good thing. Now he has to marshall his forces. Many in the upper ranks (those that who haven’t been demoralized and bolted) of the SEC have been punching the clock for years and looking forward to brunch. Fortunately, for the American people, there are not any good restaurants in that DC neighborhood. However, many assistant administrators and division chiefs are holdovers from recent past administrations. They are Government Service (GS). You can shuffle them around, but good luck firing them. Also, while the lower ranks may have enthusiasm for doing the right thing and have some great ideas, they have to filter through these featherbedding knuckleheads who have little interest in getting off their collective asses. These are the people who will write the FR’s (Federal Regulations). We can only hope that they are not all The Sons of Harvey Pitt. Keep your fingers crossed.
What kind of teeth does the SEC have? Can the SEC bring and prosecute a case — or do they depend on the Justice Department to prosecute a case? I am not clear on what regulatory agencies can do without support from the Justice Department after listening to Bill Black’s tales of woe. I am afraid there can be all kinds of great appointments to regulatory agencies, that generate all kinds of happy policy statements and good intentions signifying sound and fury, but “nothing would fundamentally change.”
Jesse Eisinger’s The Chickenshit Club is a very worthy read on this topic. I link to Amazon because it has a worthwhile excerpt of the first chapter.
The SEC has no teeth! They’re an administrative agency that has to make a referral of a criminal case to a prosecutor. And the just approved head of the Criminal division at DOJ is Kenneth Polite from the law firm of Morgan, Lewis & Bochius. His clients last year included JP Morgan Chase and Morgan Stanley. He’s deeply in debt; how will he survive on his government salary?
See today’s posting on Wall Street on Parade
Thanks for the information. That is what I thought. That means Biden can name all sorts of Democratic up-and-comers to make noises without worry that there might be some substantive actions.