Counterparties: Struggling with Enormous Conflicts
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Sometimes it takes a 59-page, 274-footnote study to confirm the obvious. The endless revolving door between the SEC and Wall Street makes it harder for the SEC to police companies, according to a new report from the Project on Government Oversight, which details just how many former SEC employees go on to get jobs defending clients against the agency:
From 2001 through 2010, 419 former SEC employees filed at least 1,949 disclosure statements saying they planned to represent clients or new employers in matters pending at the SEC. One former official filed 46.
The report points to the failure of money market regulation as a case study of how industry influences the SEC. Much of the blame has been put on SEC Commissioner Luis Aguilar, who is a former executive at the money manager Invesco. For what it’s worth, Aguilar appeared to soften his stance a week prior to Mary Schapiro’s departure. While the report highlights his role, it also notes that former SEC officials, including Karrie McMillan, who ran the agency’s investment management division, are now working for money market fund managers.
The SEC’s conflict problem, as the WSJ reported last week, is baked-in: commissioners must recuse themselves from cases related to previous employers or clients. Not only must a majority of the agency’s five commissioners approve enforcement cases, but a quorum of three commissioners (right now there are only four) is required for any case to move forward. Commissioners are restricted from voting on cases involving past employers or clients.
The nominee to be the new head of the SEC, Mary Jo White, in many ways personifies these criticisms. Matt Taibbi finds what he believes is evidence of White’s conflicts in a 2007 deposition, where she said that a regulator’s desire to bring cases is a “positive thing… to a point”.
And Andrew Ross Sorkin examined White’s previous legal defending JP Morgan, Bank of America, former Senator Bill Frist (then accused of insider trading), and former-Morgan Stanley CEO John Mack. And that’s just the financial clients. There’s also a whole suite of international corporations on White’s client roster, as the FT’s Shahien Nasiripour writes. Given her list of former clients, White may limit the number of cases she greenlights simply by following her agency’s own rules; Sorkin concludes that “White’s previous engagements create not only an ‘optics’ problem, but a practical, on-the-job problem”. – Ben Walsh
On to today’s links:
Apple is experimenting with “wristwatch-like devices made of curved glass” – Nick Bilton
The only analyst to come close to calling Apple’s peak owns his own firm and gets paid for accuracy - NYT
Where are the customers’ yachts? Private equity edition – Matt Yglesias
Dell’s largest shareholder may oppose plan to take the company private – NYT
Art Cashin on the economic and geopolitical implications of the Chinese zodiac – Business Insider