President Obama has announced Mary Jo White as new head of the Securities and Exchanges Commission, focusing on her past position as US attorney and her reputation as a tough prosecutor. Since the SEC oversees the operations of many Wall Street activities, this person is someone whom the public would look to to ensure that the rules are followed and that the rights of ordinary investors are protected from the predators who run the big banks and investment houses and which have so far failed at the task.
So will White be a new broom that will clean up the mess? I doubt it. Given that Obama’s people Eric Holder and Lanny Breuer in the Department of Justice have been so reluctant to aggressively prosecute the big fish of Wall Street who were responsible for the financial collapse of 2008 that ruined so many people while they escaped unscathed, what are the chances that he sought a person who would do that to head the SEC?
White seems to be of the Breuer variety, someone who goes back and forth between working for the government and working on behalf of the companies that the government is supposedly overseeing. Her mindset seems to such that she too will not seek to put major Wall Street executives behind bars.
But it’s her more recent stint as a private-sector lawyer that alarms some investor advocates, specifically her defense of some Wall Street titans. In November, JPMorgan settled with the SEC. Years earlier, White represented Ken Lewis, then chief executive of Bank of America, as he faced a civil fraud lawsuit.
During a recent event at the New York University School of Law, White, 65, delivered a measured assessment of how aggressively prosecutors should pursue Wall Street, telling the crowd that it’s important to “distinguish between what is actually criminal and what is just mistaken behavior, what is even reckless risk taking” and “not bow to the frenzy” that demands handcuffs on Wall Street executives.
Of course she does not want to put Wall Street executives in handcuffs, although that is what the government aggressively seeks to do with almost every other category of crime. After all, such people are her friends and clients and possibly future employers. The fact that Obama picked her soon after she made such a statement is telling. The government has effectively granted this special class of people immunity from prison, and thus practically guaranteed that there will be little change in the way they do business. The government prefers to put in jail high-profile individuals like Martha Stewart and Bernie Madoff who are not part of Wall Street because in the public’s eye these are the elite and such actions provide cover for the fact that the government is shielding the real elite, the top people at the big financial institutions like Goldman Sachs, Morgan Stanley, JP Morgan Chase, Citigroup, Bank of America, and the like.
Matt Taibbi also thinks that her selection indicates a sell-out. He says that after being US attorney, White has been working for more than a decade at the elite law firm Debevoise and Plimpton that specializes in defending big Wall Street firms. He points to her role in a specific case. While working for that firm, she was instrumental in squelching an SEC investigation by Gary Aguirre into future Morgan Stanley CEO John Mack’s role in insider trading, the very crime for which the government threw the book at Martha Stewart even though her actions were small potatoes in comparison.
Taibbi details how that one case that provides a classic example of the revolving door that breeds corruption.
It didn’t take long for Morgan Stanley to work its way up the SEC chain of command. Within three days, another of the firm’s lawyers, Mary Jo White, was on the phone with the SEC’s director of enforcement. In a shocking move that was later singled out by Senate investigators, the director actually appeared to reassure White, dismissing the case against Mack as “smoke” rather than “fire.” White, incidentally, was herself the former U.S. attorney of the Southern District of New York — one of the top cops on Wall Street . . .
Aguirre didn’t stand a chance. A month after he complained to his supervisors that he was being blocked from interviewing Mack, he was summarily fired, without notice. The case against Mack was immediately dropped: all depositions canceled, no further subpoenas issued. “It all happened so fast, I needed a seat belt,” recalls Aguirre, who had just received a stellar performance review from his bosses. The SEC eventually paid Aguirre a settlement of $755,000 for wrongful dismissal.
It got worse. Not only did the SEC ultimately delay the interview of Mack until after the statute of limitations had expired, and not only did the agency demand an investigation into possible alternative sources for Samberg’s tip (what Aguirre jokes was like “O.J.’s search for the real killers”), but the SEC official who had quashed the Mack investigation, Paul Berger, took a lucrative job working for Morgan Stanley’s law firm, Debevoise and Plimpton, just nine months after Aguirre was fired.
The fact that White may at one time have been a tough prosecutor is of little value. Once you have joined one of these high-priced law firms that defend major clients who are themselves involved in all manner of dubious practices, you are hopelessly compromised. You can never go back to being a principled defender of the public good because you have become a member of the in-group of Wall Street and government insiders who protect and do each other favors. What are the chances that you will poison the well that you drink from by aggressively going after those whom you will seek to rejoin once your stint in government ends? It is like losing your virginity. You can never get it back.
Once again, I would be absolutely delighted to be proven wrong.