With speculation rife that a former federal prosecutor may be tapped to become the next SEC chairman, investors and businesses are reacting cautiously to the prospect of a new law enforcement regime on Wall Street.
Press reports indicated that President Barack Obama plans to nominate Mary Jo White, a former U.S. Attorney in New York and now a litigation partner with Debevoise Plimpton LLP .
Securities lawyers and career bureaucrats have typically occupied the position. If White is nominated, it would be the first time a former prosecutor has headed the agency.
White didn’t respond to a request for comment.
Because of her reputation for being tough on criminals, observers said the White House is trying to signal to the market that it wants to go after white collar crime.
White got a conviction on Mafia boss John Gotti, successfully prosecuted Ramzi Ahmed Yousef for the 1993 World Trade Center bombing, and pursued a criminal investigation into how Marc Rich, a hedge fund manager convicted of tax evasion, got a pardon from then President Bill Clinton.
Barbara Roper, director of investor protection at the Consumer Federation of America said if White is nominated, it would respond to two criticisms of the Obama administration: its soft enforcement against executives blamed for causing the 2008 financial crisis and the lack of diversity in the president’s nominations at the outset of his second term.
“By all accounts, Ms. White was a smart and aggressive prosecutor in her day, and that’s great as far as it goes,” Roper said.
But Roper said White is a “blank slate” on securities regulation.
“Given that two-thirds of the Dodd-Frank rules and all the JOBS Act rules remain to be written, I think we need an SEC chairman who is absolutely committed to adopting tough and effective rules to safeguard the financial system and to protect the investors who supply the capital on which our markets depend,” Roper said.
Aside from supervising her staff in prosecuting white collar crime during her decade as a federal prosecutor, White has no background on regulatory matters. Her husband, John White, now a partner with Cravath, Swaine Moore LLP, headed the SEC’s Corporation Finance Division from 2006 to 2008.
According to Roper, the somewhat weak regulatory background will place more importance on White’s senior staff appointments.
An official with a business lobbying group who wished not to be identified said the prospect of a career prosecutor at the head of the SEC “sends a signal” that the White House wants the agency to be “more enforcement focused.”
Other observers said that as important as the selection of the SEC’s chairman may be, the agency’s most important issue—funding—must be resolved before it can be fully effective.
Currently, the SEC’s budget is appropriated by Congress although its funds come from fees from public companies and the securities markets and not taxpayers. The $1.57 billion budget for fiscal 2013, which ends in September, is consider too small by many investor advocates.
Many former SEC officials have argued for Congress to enact legislation that would let the agency set its own budget, which would give it more latitude in enforcing regulations and expanding its oversight of the financial markets.
Kurt Schacht, a managing director with the CFA Institute, said his organization would be happy to see Chairman Elisse Walter stay in her role, although it was widely expected that Walter will step down before the year ends.
“Barring that, we’d hope to see a person that can effectively take on the most significant issue facing the SEC, adequate funding,” Schacht said. “Everything else, including effective enforcement, flows from that. If that budget issue is unresolved, whomever takes the reins is greatly handicapped.”
- REPORT: Prosecutor Who Oversaw Case Against Square and Samet Possible Appointee to SEC (gestetnerupdates.com)
- Mirabile Dictu! Obama Likely to Nominate Mary Jo White to Head SEC (nakedcapitalism.com)
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