President Trump’s pick to be the United States’ top stock market regulator has been described as a “fox guarding the henhouse.” But the predator analogy might not be appropriate because he would be napping for much of the time, according to ethics rules and his job history.
SEC Chair-nominee Jay Clayton would have to recuse himself from a wide range of cases involving heavy-hitters in the financial industry, he admitted on Thursday, before the Senate Banking Committee. As a partner at a well-heeled law firm, Clayton would not be able to rule on a range of enforcement actions for two years—almost half of an SEC chair’s term.
“If President Trump wanted to make sure that the SEC would have a hard time in going after his Wall Street friends, it seems to me you would be the perfect SEC chair,” Sen. Elizbaeth Warren (D-Mass.) told Clayton. “You can’t vote to punish some of the biggest names on Wall Street.”
Clayton is currently a partner at Sullivan & Cromwell, a Manhattan-based outfit with numerous clients in the banking and securities industry. Among his specialties are “regulatory and enforcement proceedings.” Clients he has represented include Goldman Sachs, Deutsche Bank and UBS.
“Any reasonably strategic company that wanted to try to avoid an SEC enforcement action could simply hire Sullivan & Cromwell to represent them before the agency,” Warren said. “And then you couldn’t vote for enforcement against that company.”
Warren also repeatedly brought up the matter of chair recusals during the Obama administration, criticizing the many required recusals by former SEC Chair Mary Jo White.
The nominee confirmed to Warren that he wouldn’t be able to rule for two years on any matter involving Sullivan & Cromwell, Goldman, Deutsche or UBS. He insisted, however, that this would not necessarily result in a dearth of enforcement by predetermining 2-2 votes.
Warren replied that the five-member commission is often deadlocked, and that Republicans often push back on enforcement actions. Without a majority, she noted, the SEC cannot move to punish malfeasant firms.
Clayton, who isn’t a registered Republican, pushed back on the claim. He also repeatedly stated that he has “zero tolerance for bad actors.”
Warren, however, replied that the data on votes didn’t bolster Clayton’s claim. And when asked later about a recent move by acting chair Michael Piwowar—to reduce enforcement division subpoena power—the nominee said he wasn’t sure more SEC investigative authority helps to protect investors.
“I don’t know the answer to that question,” he told Sen. Bob Menendez (D-N.J.).
“Really?” Menendez replied. “It seems to me we’re going to largely deter and delay investigations,” the lawmaker added.
“Those are good questions,” Clayton said.
“I’m looking for good answers,” Menendez replied.
Clayton also expressed skepticism, when asked by Sen. Catherine Cortez-Masto (D-Nevada) about lowering the threshold for prosecuting bank executives.
The freshman senator had asked the nominee about possible legislation that would only require US Attorneys to demonstrate executives were reckless, stripping away the need for them to prove intent and advance knowledge of misbehavior.
“I’m not sure about that,” Clayton replied. “It’s not something I’ve really thought about, but it strikes me as a big step.”
In the build-up to Thursday’s hearing, progressive lawmakers and activists denounced Trump’s decision to pick Clayton as the next SEC head. Sen. Bernie Sanders (I-Vt.) appeared alongside Warren, on Wednesday, at a Capitol Hill rally hitting out at Clayton.
“Mr. Clayton has spent his career providing get-out-of-jail-free cards to Wall Street executives,” Sanders said.
In January, shortly after his nomination was announced, Clayton was described as a “fox guard[ing] the henhouse on Wall Street” by Adam Green, the co-founder of the Progressive Change Campaign Committee.
“This is yet another example of Trump betraying his own voters by turning over our economy to giant corporations and Wall Street at the expense of American working families,” Green said.
