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Securities Law

Obama Nominates Mary Jo White For SEC Chair

JAN 24, 2013 4:48pm ET
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President Obama nominated Mary Jo White to become chairman of the Securities and Exchange Commission Thursday, prompting several market insiders to say he is signaling his intent to address white-collar financial crime during his second term.

But the nomination of White, a leading criminal defense lawyer and former U.S. attorney for the Southern District of New York, raises questions about the SEC’s direction, and whether the commission will pursue the reforms recommended in its July report on the municipal market.

“The level of experience and background that has most recently been in the [SEC’s] office of the director of enforcement, now will be at the top of the commission,” said Paul Maco, an attorney at Bracewell & Giuliani LLP and former head of the SEC’s muni office. “It’s a signal of how the Obama administration will look at financial markets in the second [term].”

“We are getting someone who is a tough-as-nails prosecutor,” said one source who declined to be identified. “It shows the desire to continue the strong enforcement message of the SEC.”

White, who heads Debevoise & Plimpton LLP’s litigation department, has been a white-collar criminal defense attorney at the firm for 10 years and has represented high-profile clients like former Bank of America CEO Kenneth Lewis, who was charged with civil securities fraud by New York Attorney General Andrew Cuomo.

From 1993 to 2002, she was U.S. Attorney for the Southern District of New York, where she prosecuted Omar Abdel Rahman, who conspired to bomb the United Nations, and Ramzi Yousef, who helped plot the 1993 World Trade Center bombing. Earlier, White was first assistant U.S. Attorney and acting U.S. attorney for the Eastern District of New York, helping convict mob boss John Gotti.

White was also a director of the Nasdaq stock exchange and worked at Debevoise two other times — in the 1970s and again in the 1980s. Her husband John White was director of the SEC’s division of corporation finance from 2006 to 2008.

If confirmed by the Senate — which sources say is likely —  White will succeed Elisse Walter, who took over as chairman from Mary Schapiro in December 2012.

The SEC did not respond to a request for comment, but sources expect Walter, who spearheaded the SEC’s muni report, will remain a commissioner. Her term ended in June 2012, but she can stay in the position 18 months after her term expired, or until the end of December.

Elisse will continue pushing the recommendations in the report, which all five commissions approved, sources said. The report recommended that the SEC receive legislative authority to regulate issuers’ disclosures and called for the SEC to take regulatory actions to improve disclosures, such as updating interpretive guidance and amending Rule 15c2-12. The report also called for new rules or rule changes aimed at improving pre- and post-trade transparency.

“[The report] is still poised for Chairman Walter to push it as far as she wishes to,” said Maco.  He added many of the recommendations can be completed under the SEC’s existing authority. “There’s a lot to be done in their own house,” he said.

But muni reform will require support from White, who’s experience as one of the nation’s leading prosecutors distinguishes her from other recent SEC commissioners like Walter and Schapiro, who were more regulatory-focused, some sources said.

White, in an attempt to make the most of the SEC’s limited resources, may chose to focus more on addressing issues in the corporate market, and less on muni market issues, according to one source.

He said corporate fraud tends to have greater negative impact on investors than misconduct in muni market.

Mike Nicholas, chief executive officer of Bond Dealers of America, said White’s nomination could bring the SEC one step closer to completing a host of outstanding regulatory issues stemming from the Dodd-Frank Act. “The sooner that we get somebody in there that is a permanent replacement [to Schapiro], I think the better off we are in terms of advancing some of the stalled issues,” Nicholas said.

Those issues include the municipal advisor definition, which the SEC has said it expects to finalize early this year, the so-called Volcker Rule, which would restrict proprietary trading at banks, and rules that would place a fiduciary duty on dealers that provide advice to retail clients, Nicholas said.

Jay Goldstone, chair of the Municipal Securities Rulemaking Board, said White’s “expertise and reputation as a strong enforcer of federal securities laws aligns well with the MSRB’s mission to protect municipal securities investors and state and local governments.”

The MSRB will continue to work with Walter, who “will continue to be a leader in the ongoing effort to improve disclosure practices in the municipal securities market,” Goldstone said.

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A recent phenomenon is the emergence of bonds with shorter call protection as funding alternatives for municipalities. However, the shorter call protection also dampens the potential upside for investors, which in turn reduces the price they are willing to pay.

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