After critics said that the appointment of Joseph P. Kennedy as the first chairman of the Securities and Exchange Commission was like putting the fox in charge of the henhouse, President Franklin D. Roosevelt is reported to have responded, “Set a thief to catch a thief.â€
The choice of Mary Jo White as the next S.E.C. chairwoman will not elicit the same comparisons. Rather, it may be analogous to binging a bazooka to a knife fight.
As a former United States attorney in Manhattan, Ms. White has a strong law enforcement background. Her appointment likely means that the S.E.C.’s close working relationship with the Justice Department will continue. In addition, her former office in Manhattan has taken the lead in a number of insider trading prosecutions, so that issue is likely to remain a focus.
After leaving public service, Ms. White also spent more than 10 years as a leading white-collar defense lawyer. That means she has also been privy to how firms and individuals respond to government investigations. In that sense, she is a bit like Mr. Kennedy and should already know many of the tricks of the trade.
In private practice, Ms. White was not a well-known trial lawyer. Instead, her work appears to have been mostly beneath the radar, representing clients in cases that did not make headlines by being played out in front of a jury.
This is actually a testament to her e! ffectiveness. Most white-collar defense lawyers do their best work far from the public spotlight by keeping a client from being accused of a violation and, when necessary, working out a resolution to keep negative publicity to a minimum.
One controversy may re-emerge, however. In 2005, Ms. White sought information from the S.E.C.’s director of enforcement about the status of an insider trading investigation involving John J. Mack. At the time, Ms. White was legal counsel to Morgan Stanley, and the firm was considering whether to reappoint Mr. Mack as its chief executive. It did not appear tha she did anything improper by using her contacts with the agency to gather information, though some may dredge up the issue during her confirmation hearing.
As chairwoman of the S.E.C., Ms. White can be expected to continue the program of aggressive enforcement of the securities laws set by her predecessor, Mary L. Schapiro, in response to the fiasco over Bernald L. Madoff’s Ponzi scheme. Among her first appointments will be a director of enforcement to replace Robert Khuzami, who stepped down in January.
There is a strong likelihood the next enforcement director will have a prosecutorial background. Mr. K! huzami wo! rked for Ms. White in the United States attorney’s office.
Prosecutors like to deal with members of the same club, so it would be a shock if an appointee did not have experience in the Manhattan office Ms. White led, and perhaps even someone who worked for her. As a result, the S.E.C. is likely to continue to adopt tactics employed by federal prosecutors, including deferred and nonprosecution agreements.
The S.E.C.’s enforcement role is likely to be enhanced by Ms. White’s appointment. But she is likely to have to focus her attention much more on the agency’s regulatory role, where the impact of the S.E.C. can be much greater. The S.E.C.’s civil charges generate headlines, but it is the agency’s rules that affect how the financial markets operate on a daily basis.
Two of the most important issues facing the agency are regulations governing money market funds and the Volcker Rule. Ms. Schapiro tried, and failed, to adopt additional restrictions on money market mutual funds that hold more than $2.7 trillion in assets. Whether Ms. White will be able to devise a compromise with her fellow commissioners to protect the funds from a “run on the bank†that almost occurred during the financial crisis will be a crucial test of her leadership.
The Volcker Rule, intended to prevent banks from making risky speculative investments with their own money, involves taking coordinated action with a number of other agencies, even as Congress looks over the S.E.C.’s shoulder. Just getting the rule adopted will be a major challenge.
Unlike a prosecutor, the S.E.C. leader does not always set the agenda or exercise control over how the process will unfold. Moreover, much of the work in law enforcement takes place well outside the public eye, especially in an investigation that is often not e! ven ackno! wledged by the government.
Ms. White is no stranger to controversy, having dealt with a number of prominent cases as a prosecutor, including the investigation of the pardons issued by President Bill Clinton on his last day in office. But serving as the chairwoman of the S.E.C. will be different from anything she has done before. She will be at an agency subject to a host of laws that make much of her work transparent.
Like any good lawyer, Ms. White will have to adapt to these new circumstances while dealing with a host of competing constituencies both at the agency and on Capitol Hill.
