Pledge to ‘expeditiously’ finalize postcrisis rules thwarted by quarrelling among members
Mary Jo White took the helm of the Securities and Exchange Commission vowing to “expeditiously” finalize its mountain of postcrisis rules. Two years later, that pledge has been thwarted by bickering among its five members.
The slow pace of progress has singled Ms. White out for criticism from both Republicans and Democrats, who have faulted her leadership or her approach to regulation and enforcement. The gridlock also has delayed the completion of some probes into financial misconduct.
“I have more stamina than anyone I know and need all of it for this job,” Ms. White told a colleague early in her tenure, referring to her demanding schedule, according to people familiar with the conversation.
“I am disappointed that you have not been the strong leader that many hoped for—and that you promised to be,” Senator Elizabeth Warren
While Ms. White, an independent, controls the SEC’s agenda, she has only one vote on enforcement and policy matters, meaning she must garner support from at least two fellow commissioners to garner a majority necessary to sign off on rules and enforcement actions.
When the SEC met privately in April to finalize a $12 million settlement with BlackRock Inc. BLK -0.20 % for allegedly failing to disclose a fund manager’s conflict of interest, SEC commissioner Daniel Gallagher objected, calling separate charges, which included a $60,000 penalty against the firm’s former chief compliance officer, misguided. BlackRock neither admitted nor denied the SEC’s findings.
The case was just one of five with dissenting votes within a few weeks, with Mr. Gallagher and Commissioner Michael Piwowar, both Republicans, objecting to actions against KBR Inc., Polycom Inc., financier Lynn Tilton and a real-estate fund affiliated with Goldman Sachs Group Inc., GS -0.37 % according to public records.
The SEC moved ahead with those cases without the backing of the full commission. Ms. Tilton is fighting the charges against her. The other three defendants agreed to settle the cases without admitting or denying the allegations.
“Historically, you have rarely had the kind of fractures among commissioners you are seeing now,” said former SEC enforcement director William McLucas, a partner at Wilmer Cutler Pickering Hale and Dorr LLP.
Ms. White declined requests to be interviewed. This account is based on interviews with government and industry officials and other people familiar with the behind-the-scenes interactions at the SEC as well as public statements.
Some financial-misconduct settlements have been held up as commissioners fight over whether companies should suffer additional curbs on their activities. A handful of controversial enforcement cases this year, like April’s settlement with BlackRock, have advanced along party lines at the five-member agency—a notable break from the unanimity the commission has historically shown in such matters.
The tensions have complicated the agency’s ability to hammer out agreements on how to address financial markets’ vulnerability to computer glitches, whether to tighten standards for certain financial advisers and executive compensation curbs.
Ms. White earned a reputation as a hard-nosed prosecutor intent on pursuing white-collar crime. But some Democrats say she has taken a less aggressive approach to Wall Street than other Obama administration appointees and lawmakers since taking the SEC’s helm.
For his part, President Barack Obama warned Congress against “unraveling the new rules on Wall Street” in his State of the Union address in January, and the following month, joined Massachusetts Democrat Sen. Elizabeth Warren in backing controversial new standards for financial advisers who recommend retirement-account investments. He warned “special interests” on Wall Street would “fight it with everything they’ve got.”
While Mary Jo White has advanced key post-crisis rules, several big-ticket projects remain uncompleted two years into her tenure.
Key regulatory accomplishments:
- Credit-rating firms: Stricter controls to ensure firms adhere to ratings standards
- Asset-backed securities: Greater transparency of loan-level data
- Volcker: Prohibition on banks making risky bets with own money
- Money funds: Structural changes to dampen investor flight
Initiatives in progress:
- Corporate governance: Disclosure of gap between CEO and employee pay; other rules
- Computerized trading: Registration for high-frequency trading firms; anti-disruption rule
- Derivatives: Bulk of rules for portion of swaps market overseen by SEC
- Consolidated Audit Trail: Multibillion-dollar computer system to monitor stock and options orders
While Ms. White has implemented a policy of forcing more defendants to admit wrongdoing in enforcement settlements, she has moved cautiously on punishments that many believe could destabilize a large financial firm, such as rescinding their ability to enter into certain businesses with clients. The SEC’s two Democrats, Kara Stein and Luis Aguilar, have publicly challenged the granting of reprieves, or waivers, to financial firms that repeatedly break the law as too lenient.
Ms. Warren on Tuesday criticized Ms. White’s tenure as “extremely disappointing,” saying the chairman had failed to advance certain Wall Street compensation rules and been too lenient in punishing financial companies that repeatedly break the law.
“I am disappointed that you have not been the strong leader that many hoped for—and that you promised to be,” Ms. Warren wrote in a letter, pointing to the SEC’s failure to finalize a 2010 Dodd-Frank rule requiring that companies disclose the pay gap between chief executives and their employees.
Ms. White, in a statement on Tuesday, defended her record and called Ms. Warren’s charges “unfortunate” and a “mischaracterization of my statements and the agency’s accomplishments.” Ms. White pointed to the agency’s “record year in enforcement and the Commission’s efforts in advancing more than 30 congressionally mandated rulemakings and other transformative policy initiatives to protect investors and strengthen our markets.“
While the SEC has made progress on a backlog of unfinished rules required by the Dodd-Frank law, about one-third of the law’s mandates remain incomplete. Some of those rules have languished despite staff recommendations for how the commission should proceed, former officials said.
Previous SEC chairmen including Mary Schapiro and Harvey Pitt say despite the gridlock, Ms. White has managed to advance complex measures addressing difficult, unresolved problems at the heart of the financial crisis. They include long-delayed rules to rein in risks in the money-market mutual-fund industry that stymied the agency for years.
In 2014, Ms. White’s first full year at the helm, the agency voted to finalize just seven rules, excluding certain updates to its regulatory filing system, technical amendments or temporary implementation delays to rules. That compares with an average of nearly 17 each year in the preceding decade, marking the slowest rate in at least the past decade, according to an analysis by The Wall Street Journal.
Small policy initiatives have tied the commission in knots. For nearly seven months, the SEC debated who should serve on an advisory committee to weigh proposed initiatives and rule changes about how the stock market functions.
After complaining to Ms. White that they had no voice in choosing the panelists, commissioners were each allowed to pick their own candidate last July. At one point, Mr. Piwowar, a Republican, objected to the proposed appointment ofRoger Ferguson Jr., the chief executive of asset-manager TIAA-CREF, citing Mr. Ferguson’s previous role as vice chairman of the Federal Reserve. Mr. Piwowar has repeatedly criticized the central bank, saying it doesn’t understand the capital markets and investment products. Mr. Ferguson was dropped from the slate by the time the committee was announced earlier this year. Through a spokesman, Mr. Ferguson declined to comment.
Ms. White’s relationship with Mr. Piwowar got off to an uneasy start in 2013, when he publicly criticized the same pay-gap rule that Ms. Warren referenced in her letter Tuesday. But, unlike Ms. Warren, Mr. Piwowar blasted the SEC for even taking up the Dodd-Frank requirement, saying the “shame from this rule should not be put on the CEOs, it should be put on the five of us who would be voting on this proposal.”
Ms. White later told Mr. Piwowar she thought his remarks at the SEC’s open meeting were “embarrassing” to the commission, according to people familiar with the conversation.
Perhaps the biggest source of tension has been over enforcement issues. Under Ms. White, the SEC has brought a record 755 enforcement actions in the latest fiscal year. Yet she has found herself battered on both sides, with Republicans opposing some of her attempts to bring cases that involve policing violations not targeted in the past and Democrats saying she is too soft on repeat offenders.
Just less than one-third of high-profile cases the SEC has filed with administrative law judges between November and April drew dissents from the agency’s two Republican commissioners, according to a Wall Street Journal tally.
In the BlackRock matter, Mr. Gallagher didn’t believe the SEC’s case, alleging a portfolio manager failed to disclose a conflict of interest, was strong, and that suing a chief compliance officer “sent the wrong message,” according to people familiar with his thinking.
Later that week, Mr. Piwowar, who also voted against the BlackRock settlement, dissented in a first-of-its-kind case that charged a real-estate investment firm affiliated with Goldman Sachs with inaccurately counting its shareholders and thereby failing to file public reports.