“You don't want to mess with Mary Jo.”
That's what President Barack Obama said about his pick to run the Securities and Exchange Commission, Mary Jo White. The nomination of White, a former prosecutor who took on the terrorists behind the bombing of the World Trade Center in 1993 and the Mafia boss John Gotti, was meant to signal that the SEC would be getting tough on Wall Street.
CBS called her “Wall Street's new sheriff.” The Wall Street Journal said she would be “putting a tougher face on an agency still tainted by embarrassing enforcement missteps in the run-up to the financial crisis.” The New York Times said her appointment represented a “renewed resolve to hold Wall Street accountable.”
While White is a decorated prosecutor, she has spent the past decade vigorously defending — and billing by the hour — Wall Street's biggest banks, as a rainmaking partner at the white-shoe law firm Debevoise & Plimpton. The average partner at the firm was paid $2.1 million a year, according to American Lawyer; but she was no average partner, very likely being paid at least double that. Her husband, John W. White, is a corporate partner at Cravath, Swaine & Moore. He counts JPMorganChase, Credit Suisse and UBS as clients. The average partner at Cravath makes $3.1 million. He, too, was a former official at the SEC — he left Cravath to run the corporate division of the SEC starting in 2006 just in time for the run-up to the financial crisis. He left in November 2008, a month after the bank bailouts, to return to Cravath.
It seems Mr. and Ms. White have made a fine art of the revolving door between government and private practice.
So how conflicted is Mary Jo White? Let's count the ways.
They are well-documented: She was JPMorganChase's go-to lawyer for many of the cases brought against it relating to the financial crisis. She was arm-in-arm with Kenneth D. Lewis, Bank of America's former chief executive, keeping him out of trouble when the New York attorney general accused Lewis of defrauding investors by not disclosing the losses at Merrill Lynch before completing Bank of America's acquisition of the firm. (And let's be straight: empirically, Lewis did keep crucial information about the deal from investors.)
This is what she had to say about Lewis, in a court filing submitted on his behalf: “Some have looked to assign blame for every aspect of the financial crisis, even where there is no evidence of misconduct. This case is a product of that dynamic and does not withstand either legal or factual scrutiny.” It was a refrain she often made about her clients related to the financial crisis.
She also worked with Siemens, the German industrial giant, when it pleaded guilty to charges of bribery, paying a record $1.6 billion penalty.
And then, of course, there was John Mack. She worked for the board of Morgan Stanley during a now well-publicized 2005 investigation into insider trading that ended soon after she made a phone call to the SEC. Using her connections at the top of the agency, she dialed up Linda Thomsen, then the commission's head of enforcement, to find out whether Mack, who was being considered for Morgan Stanley's chief executive position, was being implicated. He ultimately wasn't.
All of White's previous engagements create not only an “optics” problem, but a practical, on-the-job problem. She will likely need to recuse herself from just about anything related to her previous work.
“I will not for a period of two years from the date of my appointment participate in any particular matter involving specific parties that is directly and substantially related to my former employer or former clients, including regulations and contracts,” is the language in an ethics pledge that she will have to agree to follow.
Some appointees, including Mary L. Schapiro, the former chairwoman of the SEC, recused themselves from any involvement in work that was related to a previous employer even after the two-year moratorium.
And then there is the issue of White's husband, who will have an ongoing role at Cravath, one the most pre-eminent firms in the country with the nation's largest corporations as it clients.
None of these conflicts get at another potential problem for White. The job of chairwoman of SEC isn't simply about enforcement; she has a deputy for that. The biggest challenge anyone who takes the job will have to confront over the next several years will be implementing and executing provisions of Dodd-Frank and working to regulate electronic trading — something that even the most sophisticated financial professionals, let alone a lawyer, often have a tough time understanding. She has zero experience in this area.
Of course, there can always be a value to inviting a one-time rival onto the team.
“I believe she is one of those people who will understand that her public role will be very, very different than her role as a defense lawyer,” Dennis M. Kelleher of Better Markets, a watchdog group, said. “I don't think she's going to be like so many others who don't get that they have a very different role when they hold high public office.”
“No question, she's said some things that are controversial and questionable,” Kelleher said. “Moreover, I hope and expect that she will be asked publicly about them in the confirmation process and that she will have convincing answers.”
Of course, if she is confirmed, we must all hope that she can put her previous client relationships behind her and work for her new client — us.