President Obama’s two nominees to the Securities and Exchange Commission navigated their confirmation hearing before the Senate Banking Committee on Tuesday only to have David Vitter hold up their nominations.
The Republican from Louisiana is concerned about the SEC’s treatment of investors defrauded by Allen Stanford, who is accused of running a multi-billion dollar Ponzi scheme. Many Stanford victims live in Louisiana, according to a report in the Times-Picayune.
During the hearing, Republican nominee Daniel Gallagher pledged to make investor protection his top priority.
In an exchange with Sen. Robert Menendez, D-N.J., Gallagher, who was at the SEC during the financial crisis, said it was one of the most horrific experiences of his life and that he will do everything he can to ensure that it does not happen again.
Gallagher, a partner in the securities department at WilmerHale in Washington, D.C., began as deputy director in the SEC’s division of trading and markets in the summer of 2008, following stints as counsel to then-SEC commissioner Paul Atkins and chairman Christopher Cox.
Last month, President Obama nominated Gallagher, a Republican, to a five-year term, replacing commissioner Kathleen Casey, a Republican whose term expires in July.
The president also nominated commissioner Luis Aguilar, a Democrat who joined the SEC in July 2008, to a second term, also slated for five years.
In a follow-up question, Menendez asked Gallagher where, on a spectrum, he ranked investor protection. “I put it No. 1, Senator,” Gallagher said.
Questions about the financial crisis and its aftermath dominated the hour-long hearing, including queries about the commission’s rulemaking efforts under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Republicans, who have called for regulators to bolster their cost-benefit analyses of Dodd-Frank-required rules, probed the nominees about the economic impact of the rules, as well as whether they would curtail economic growth and job growth.
Democrats, who control the Senate but not the House, signaled their concerns about whether budgetary constraints have hindered the SEC’s ability to ferret out securities fraud and fulfill their Dodd-Frank rulemaking mandates.
In particular, Gallagher sought to reassure Democrats on the panel that he would not hamper the SEC’s enforcement division — a policy associated with his one-time boss, former chairman Cox.
“The agency needs to be seen as the cop on the beat,” Gallagher said. “You can’t have these negative perceptions about the agency.”
Both nominees sought to reassure Republicans they would remain sensitive to industry concerns about the burden of complying with Dodd-Frank rules.
In response to a question from GOP Sen. Richard Shelby of Alabama, Aguilar — also a former SEC staffer and securities lawyer — said weighing the costs and benefits of proposed Dodd-Frank regulations was an important part of the commission’s rulemaking process. He said he maintains an open-door policy and tries to listen to the views of all parties.
Gallagher echoed Aguilar’s concerns, saying it is “critically important” for the commission to weigh the economic impact of the proposed rules.
“It would be impossible to say you got the rulemaking right when the cost outweighs the benefits,” Gallagher said.
The Banking Committee could vote on the SEC nominees in the next few weeks, a source said.
Once the committee recommends the nominees to the Senate, lawmakers in that chamber must confirm them for the posts.
If confirmed and sworn in at the SEC, Aguilar and Gallagher would give the commission two Democrats, two Republicans and an independent. Chairman Mary Schapiro is an independent while commissioner Elisse Walter is a Democrat and commissioner Troy Paredes is a Republican.
