Mary Jo White built a well-oiled machine: Go to the biggest financial services firms in the nation and tell them that if they turn over hundreds of billions of dollars of their shareholders’ money, wrongdoers can avoid prosecution. And, in order to convince the American people that the SEC is being tough on crime and deserves its growing budget, destroy little guys over late forms and other de minimis infractions by forcing them to face unwinnable hearings in front of in-house SEC ALJs (in-house administrative law judges).
It was brilliant and everybody wins (everyone in Washington, at least). Congress can say it’s making Wall Street less corrupt. The SEC can say it’s catching bad guys. The U.S. Treasury gets hundreds of billions of dollars without having to raise taxes. Everybody wins, that is, except for the people whose 401(k)s or pension plans own shares in the companies that paid off the government to avoid prosecution.
Whose money do you really think went into the Treasury? I’ll give you a hint: If it came off the balance sheet of a corporation, it came from the owners of that corporation, i.e. its shareholders. In other words, if you own any large-cap mutual funds, have a public or private pension, or are living off the income from a portfolio of stocks, it quite likely came from you.
Who wouldn’t hand out someone else’s money to avoid going to jail?
So when you read about her speech-making activities, please keep all this in mind.
SEC Chair Calls For Further Expansion Of Agency Power
Law360, New York (November 18, 2016, 3:46 PM EST) — Departing U.S. Securities and Exchange Commission Chair Mary Jo White praised the agency’s expansion of its enforcement efforts during her tenure in a speech Friday, but urged lawmakers to consider new laws that could further strengthen the agency’s power after she steps down in January.
White, who announced Monday afternoon that she will leave the SEC when President Barack Obama leaves office, told attendees at a talk held by the NYU School of Law that the agency has pursued a “bold and unrelenting” enforcement agenda under her guidance as chair, but said white-collar enforcement could be made even stronger.
She suggested a number of reforms, including tightening laws to hold senior executives liable for corporate wrongdoing and increasing the penalties the SEC can recover, noting that the civil securities agency doesn’t have the same authority to jail wrongdoers that she enjoyed while U.S. attorney for the Southern District of New York.
“I do miss that power, but no one seemed that anxious to give it to me while I was in Washington — I think Preet didn’t want to give it to me either,” White joked, referring to current Manhattan U.S. Attorney Preet Bharara.
White, still the only woman to have served as U.S. attorney for Manhattan, served in the post from 1993 to 2002, building a name for herself after winning convictions against the 1993 World Trade Center bombers, Mafia boss John Gotti and other high-profile defendants. She came to the SEC in April 2013, leaving her post as head of litigation at Debevoise & Plimpton LLP.
In Friday’s speech, White recalled that at her confirmation hearing she had pledged to “pursue a ‘bold and unrelenting’ enforcement agenda,” and said that she felt the agency had “really delivered on that promise.” She highlighted enforcement efforts and new policies, including a policy she implemented to require admissions of wrongdoing in certain settlements, and said the enforcement program is “bringing about new, demonstrable benefits for investors.”
But White acknowledged that “strong enforcement and deterrence can — and should — always be made stronger,” recommending a number of legislative changes.
“As I often said when I was the U.S. attorney in Manhattan, white-collar crime is no place for timidity,” White said. “Although we have enhanced SEC enforcement in major ways, I am the first to say that there is still more work to be done to further strengthen white-collar enforcement.”
First, White said, legislators and regulators should “think outside the box of current laws” if they want to impose more liability on executives and officers for wrongdoing committed by junior employees.
White suggested lawmakers look to the “Senior Management Regime” implemented in the United Kingdom in March, which she said makes it easier for law enforcement authorities to hold top brass accountable for misconduct that occurs within their purview even if they weren’t involved in the violations themselves.
Changes to compensation systems could also motivate good behavior among executives, White said, pointing to an approach floated by Federal Reserve Bank of New York President Bill Dudley that would require financial institutions to defer a portion of executive compensation as a kind of “performance bond.”
“Given the seemingly intractable persistence of serious corporate wrongdoing, the time for deciding whether to impose greater accountability, by expanding the reach of our laws, would seem to be at hand,” White said.
The SEC’s penalty authority could expand, White said, arguing “current law too narrowly limits the amount of penalties that the SEC can seek and recover” because the agency can only assess penalties based on ill-gotten gains or statute, rather than the amount of investor losses.
“Even civil litigants have the ability to obtain recoveries based on investor losses,” White said. “Surely, Wall Street’s cop on the beat should also have that authority.”
The Financial CHOICE Act introduced over the summer by Rep. Jeb Hensarling, R-Texas, does include provisions to add “real teeth” to the agency’s penalty authority, White acknowledged, although she called the bill’s goal of repealing most of the Dodd-Frank Act “otherwise very worrisome.”
White also stated her opposition to bills currently pending in Congress to modernize the Electronic Communications Privacy Act, the law governing how law enforcement can obtain emails from internet service providers, which would require a criminal warrant to request such communications.
The SEC currently obtains emails from ISPs using subpoenas, and as a civil agency lacks the ability to issue criminal warrants. White said the ECPA updates currently on the table would harm “the ability of the SEC to protect our nation’s citizens from securities fraud.”
She also responded to criticism of the SEC’s administrative process, which has been the subject of numerous constitutional challenges. White disputed claims that the administrative courts lack due process, noting that the agency recently adopted changes to give respondents additional time and discovery, and said the in-house proceedings offer a “fair and efficient way to determine liability.”
“We should — and will — fight efforts to roll back our authority to bring these important proceedings to protect investors in our markets,” White said.
–Editing by Orlando Lorenzo.
