The U.S. Securities and Exchange Commission (S.E.C.) is about to undergo a significant change under President Donald J. Trump. On Monday, November 14, 2016, Mary Jo White announced her plan to step down from her post as the 31st Chair of the S.E.C. Not long after her announcement, then-President-elect Trump nominated Wall Street lawyer and Sullivan & Cromwell LLP partner Jay Clayton as her replacement. According to The Wall Street Journal, Clayton is a “180 from [former] Chair Mary Jo White.” ((Dave Michaels & Liz Hoffman, SEC Pick Jay Clayton is a 180 From Chairman Mary Jo White, Wall St. J. (Jan. 4, 2017), https://www.wsj.com/articles/president-elect-trump-to-nominate-jay-clayton-securities-and-exchange-commission-chairman-1483545999.))
To understand the S.E.C.’s shift in leadership, it is helpful to examine the backgrounds of White and Clayton. White graduated from Columbia Law School in 1974, clerked at the U.S. District Court for the Southern District of New York, and served as a prosecutor as an Assistant U.S. Attorney, Chief Appellate Attorney of the Criminal Division, and U.S. Attorney for the Southern District of New York. Following her service as a prosecutor, White served in the litigation department at Debevoise & Plimpton LLP. ((Biography: Mary Jo White, SEC.gov, https://www.sec.gov/biography/white-mary-jo.))
Then-President Obama believed that White had the ideal background to succeed at the S.E.C., stating, “[i]t’s not enough to change the law, we also need cops to enforce the law.” Obama emphasized how White had “brought down [famed criminal] John Gotti and had prosecuted the terrorists behind the 1993 World Trade Center bombings. ((James Surowiecki, Mary Jo White’s Task, New Yorker (Jan. 24, 2013), http://www.newyorker.com/news/news-desk/mary-jo-whites-task.)) In the wake of 2008’s Great Recession, Obama believed that White’s history as a tough prosecutor would serve her well in cracking down on the financial industry.
As for Clayton, he received his Juris Doctor from Penn Law in 1993, followed by a clerkship at the U.S. District Court for the Eastern District of Pennsylvania. ((Lawyers: Jay Clayton, Sullivan & Cromwell LLP, https://www.sullcrom.com/lawyers/Jay-Clayton.)) Soon after, Clayton began working at Sullivan & Cromwell LLP, where he eventually was named partner. His work at Sullivan focused on M&A, capital markets, corporate governance, and financial services. Clayton has represented financial institutions such as Barclays, Goldman Sachs, and Ally Financial among others. ((Id.))
After nominating Clayton, President Trump stressed Clayton’s industry experience, stating “[Clayton] is a highly talented expert on many aspects of financial and regulatory law. . . and he will ensure our financial institutions can thrive and create jobs while playing by the rules at the same time.” ((Michaels & Hoffman, supra note 1.)) Similar to Trump’s campaign platform, Clayton has previously ridiculed the Obama administration’s stance on financial regulation, calling it “zealous” enforcement of laws that “caus[e] lasting harm to the competitiveness of U.S. regulated companies and U.S. capital markets.” ((Id.))
The major difference between these two individuals is that White was known as a fierce prosecutor, while Clayton is described as a “dealmaker”. ((Id.)) While many citizens associate the S.E.C. with regulations of the financial industry, this is not the agency’s only goal. The S.E.C. has a broad mission comprised of three components: (1) to protect investors through the implementation of laws and regulations; (2) to maintain fair, efficient, and competitive markets; and (3) to facilitate capital formation. ((Cary Martin, Private Investment Companies In The Wake Of The Financial Crisis: Rethinking The Effectiveness Of The Sophisticated Investor Exemption, 37 Del. J. Corp. L. 49, 49 (2012).)) Consequently, it appears that White came into office with component #1 as her strength, Clayton comes into office with component #3 as his strength, with the advantage regarding component #2 being less apparent.
Yet after digging deeper, Clayton arguably has the advantage regarding component #2. Since finishing his clerkship in the 90’s, Clayton has been immersed in securities regulations and corporate governance issues. He has represented acquirers, acquirees, issuers and lenders. He has seen has seen what is fair and efficient within the market, and knows what level of regulation will create ideal levels of competition. When White came into office, industry commentators were up front in acknowledging that “the one concern about White from a practical point of view is that she [didn’t] have much hands-on experience with financial markets.” ((Surowiecki, supra note 3.)) When then-President Obama nominated White, he must have seen something, despite her lack of experience, that made her a worthwhile candidate. Her supporters believed that “her tenure at Debevoise undoubtedly made her more familiar with regulatory issues” and that “her history as a prosecutor suggest[ed] that any concerns about her going soft on Wall Street [were] misconceived.” ((Id.)) While it would not be fair to call White “inexperienced” when she arrived at the S.E.C., it is evident that Clayton possesses more experience in the financial markets than his predecessor did when she arrived in 2013. It is that breadth of experience that arguably gives Clayton an advantage in promoting the second component of the S.E.C.’s mission statement when compared to White in 2013.
The fact that Clayton enters his post at the S.E.C. as a more qualified candidate than White did is encouraging, but does not guarantee a successful tenure. It will be interesting to see how Clayton uses his dealmaking and industry experience to the advantage of the American people. With Clayton’s appointment, Jonathan Macey, a professor at the Yale Law School, believes that the Trump administration has created a “strong positive signal [that] the economy is a top priority of [Trump], and that the S.E.C. will work together with Main Street to meet the country’s economic goals of full employment and healthy growth.” ((Trump to Nominate Wall Street Lawyer Clayton to Lead SEC, Newsmax (Jan. 4, 2017) http://www.newsmax.com/Finance/Economy/jay-clayton-donald-trump-sec-chairman/2017/01/04/id/766761/.)) Overall, Clayton’s success will hinge on his ability to separate his former professional goals from his new duties to accomplish the three components of the S.E.C.’s mission statement. If his previous professional success is any indication, the S.E.C. is in for a successful run under Jay Clayton.
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