“The more things change, the more they remain the same” (Plus ça change, plus c’est la même chose) is an old French expression that conveys the pessimism of established practices. This is especially evident in the phrase plus ça change that “indicates a certain disillusionment or resignation regarding whatever is being talked about. A company makes all kinds of policy changes, for example, but the personnel issues are unaffected,” according to a French language site.
This expression also describes the SEC and its regulatory capture by the financial services industry. Based on a new study from the Project on Government Oversight, 419 former SEC staff members filed almost 2,000 disclosure statements saying that they intended to represent new employers or clients before the SEC to use their departmental connections and insights to influence SEC decisions and rulemaking.
This “revolving door” is certainly not new. President Dwight Eisenhower described the military-industrial complex in his farewell speech in January 1961, but he never intended to prevent it. He merely described it as the new reality of the post-World War II defense industry. Subsequent political scientists described the phenomenon of “regulatory capture” as the lobbying industry grew and became more powerful than government. And while regulatory capture includes all major U.S. industries, the most powerful lobby in Washington is financial services.
So it should not be surprising to hear that the SEC, which has more lawyers per capita than the U.S. Justice Department, has turned into a training ground for securities lawyers who want to build their careers in the private sector after slumming a few years at the SEC. After taking this pay cut, former SEC lawyers and staffers can then make up for the lost income by signing on with large banks and investment firms and receiving large signing bonuses and larger salaries.
Given this reality, it should not be surprising that the SEC remains the public stage where the drama on the theme of individual investor protection remains under the spotlight, even as off-stage intrigues develop to derail any individual investor reforms. Some have argued that the SEC’s entire regulation approval and enactment process, which can go on foe years, is prejudiced against the interests of individual investors. Among the best examples of this are the 30-year-long debate on revenue sharing and the 20-year-long debate on 2b-1 fees. In both cases, these practices have been assailed by academics and some intrepid industry advocates as being the source of conflicts-of-interests and unnecessary hidden fees, yet they both continue unimpeded.
The SEC’s New Message: Forget Reform
So with this as a backdrop, any SEC chairperson should be viewed as a theatrical director rather than a public servant, who must go through the administrative motions in order to protect the illusion that individual investors have any chance of being protected from predatory industry practices.
This may be the case for the new SEC chairwoman designee, Mary Jo White. White was not chosen as someone who can confront entrenched anti-investor practices. Rather, her most recent expertise became evident in her role in derailing of former-SEC staffer Gary Aguirre’s investigation into an insider trading incident involving future Morgan Stanley CEO John Mack. “While representing Morgan Stanley at Debevoise and Plimpton, White played a key role in this inexcusable episode,” according to Matt Taibbi, writing in Rolling Stone magazine.
There were some very powerful political forces at work here and White used her influence to kill the investigation. Additional material from reporter Taibbi, posted by attorney Dale Ledbetter of Ledbetter & Associates, found that the case clearly showed White’s disregard for SEC staffers and their entire investigative process.
According to Taibbi, “White, who was representing Morgan Stanley in this affair, went over Aguirre’s head to talk directly to then-SEC enforcement chief Linda Thomsen about ‘reviewing’ the case. After Aguirre was fired and the case against Mack went away, the official responsible for terminating the case, Aguirre’s boss Paul Berger, was given a lucrative, multimillion-dollar job with Debevoise and Plimpton, closing the circle in what looks like a classic case of revolving-door corruption.”
As for the former SEC investigator who developed the insider trading case, White helped him get fired. According to Rolling Stone Reporter Taibbi, “Aguirre was subsequently deemed a pain in the ass for complaining about this (the way documents and communications were being managed) and fired. The SEC subsequently paid Aguirre a record $755,000 wrongful termination settlement.” So much for being a diligent SEC investigator.
Now, in yet another baffling appointment from President Obama, White is slated to head the SEC. Her appointment will only formalize Washington’s revolving door protocol. It will also put the big chill into SEC staffers who wants to pursue investigations that involve big names and large amounts of money. This will be another bad four years for individual investors who expect any basic protections from the SEC.