Securities and Exchange Commission (SEC) head Mary Jo White is under renewed scrutiny Tuesday after Sen. Elizabeth Warren (D-MA) published a blistering 13-page letter to the commissioner listing the various ways in which she says White has failed to keep her promises to Warren and other senators since being sworn in in the spring of 2013.
“You have now been SEC Chair for over two years,” Warren’s letter says, “and to date, your leadership of the Commission has been extremely disappointing.”
Warren’s many criticisms fall into two primary categories. Most of them involve how the SEC enforces existing rules. Warren also offers stiff feedback on White’s influence on the agency’s work writing new regulations for corporate America.
When other agencies have taken a tough line over financial lawbreaking, Warren writes, White has played the good cop, slipping the crooks a care package to limit the fallout from their misdeeds. The SEC grants a special status to certain large, long-tenured firms that allows them to speed up their work by reducing their regulatory compliance requirements. When a company on that list breaks the law, it’s supposed to lose its special privileges. Such companies can apply for a waiver to stay off the naughty list. White had indicated publicly that she wanted to toughen the agency’s approach to waiver requests in cases where they might “’soften’ the impact of an enforcement action.”
But that’s exactly what the SEC decided to do when the Department of Justice forced several of the largest banks in the world to plead guilty to felony charges in May. Even though JP Morgan, Royal Bank of Scotland, Citigroup, and Barclays all admitted to criminally rigging currency exchange rates at the expense of clients and other investors, White’s SEC decided to spare the four banks on the list from increased regulatory scrutiny going forward. Since the fines levied against the banks were far too small to meaningfully dent their bottom lines, the SEC waivers arguably gutted the most meaningfully punitive consequences the felonious banks would’ve faced.
One commissioner named Kara Stein blasted the White-led agency’s decision publicly. Stein called the banks recidivists who have requested and received numerous SEC waivers in recent years despite repeated instances of misconduct. Progressive activist group Credo has asked President Obama to appoint two more SEC commissioners who share Stein’s more aggressive mindset toward the job. White has reportedly clashed so much with Stein internally that the latter commissioner does not allow White’s chief of staff into her office.
Warren’s letter blasts White for going back on her “strong words” on waivers by granting more than half of the total requests she’s fielded, even in criminal cases. The agency had not granted a waiver in a criminal case since 2005 prior to White’s appointment, the letter says.
Anger over a similar disconnect between White’s public proclamations and official actions animates Warren’s other complaints as well. She accuses White of failing to live up to her public promises to reduce the commission’s use of “neither admit nor deny” language in settlements of securities violations. The letter also notes a contrast between White’s comments downplaying concerns about her prior work defending Wall Street companies and the actual impact her conflicts of interest have had on the SEC’s work. White’s recusals in cases involving either her own former clients or her husband’s current clients have “raised the specter that companies might seek to hire your husband’s firm to ‘neutralize’ you,” Warren wrote.
The other category of frustrations in the letter involve White’s role in crafting the future of financial regulation. Warren accuses White of slow-walking rules for public companies to disclose the ratio of their CEO’s pay to that of their median employee and of knowingly misleading the senator about the expected completion date of that rule. The CEO pay ratio rule was mandated by the 2010 Dodd-Frank law, but five years later the rule is still as much as 10 months away from being finished. The U.S. Chamber of Commerce has loudly opposed the pay disclosure rules, claiming that it would cost too much money to do the math involved.
On other regulatory projects such as campaign finance rules and disclosure requirements for Wall Street companies that sell securities to public pension funds, Warren accuses White of actively quelching needed reform. White came on board as the SEC was weighing an aggressive version of a Dodd-Frank rule requiring firms to provide more information to the people who buy products like mortgage-backed securities. A month after she was sworn in, Warren writes, “the SEC named an industry insider who had publicly opposed a strong rule to lead the group writing that rule.” The result was a toothless version of the idea, as Reuters detailed in April.
When White was first announced as the next SEC head, her blend of industry experience and personal toughness was presented in a New Yorker profile as reason to think she might bring just the right balance of public-interest fierceness and industry-sympathetic moderation. An outright populist in the SEC, the thinking went, could upset the industry’s function to such a degree that securities markets would freeze up, damaging the economic security of working people far from Wall Street. And an industry lapdog would allow recent history to repeat itself, undermining Dodd-Frank rulemaking and paving the way for a rehash of the real estate crisis that turned into a global recession when bankers’ wagers on housing securities went bad all at once. Like a bowl of porridge in a fairytale, White was supposed to be just right.
But barely two years into the job, she has completely lost the trust of the most prominent financial industry populist in mainstream American politics. “I am disappointed that you have not been the strong leader that many hoped for — and that you promised to be,” Warren wrote Tuesday. “You appear to have broken those promises.”