Tough-as-Nails Prosecutor White to Tackle SEC Policy Battles

In nominating former U.S. Attorney Mary Jo White to run the U.S. Securities and Exchange Commission, President Barack Obama said he was sending a signal that the regulator would be tough on Wall Street.

“You don’t want to mess with Mary Jo,” Obama said as he introduced her at the White House.

Political messages aside, White’s experience as a prosecutor may provide little help with the most pressing and contentious issues at the SEC, which are on its policy-making side. They include disputes over how to regulate money market funds, streamline initial public offerings, write the Volcker rule ban on banks’ proprietary trading, and fend off crises in fractured markets dominated by high-speed trading.

“The challenge for Ms. White will be to balance the fact that the SEC is first and foremost a regulatory agency with her prosecutorial background,” Thomas Gorman, a former SEC attorney who is now a partner at law firm Dorsey & Whitney LLP, said in an e-mail.

Brian Gardner, senior vice president for Washington research at Keefe, Bruyette & Woods Inc., said her learning curve may slow down policy making.

“Ms. White has limited experience with corporate finance and market structure issues as well as issues such as the Volcker rule and money market fund regulation,” Gardner said yesterday in a note. “We expect little action in the near term on issues like high-frequency trading as we expect Ms. White will need to do some on-the-job training before proposing new policies.”

‘Great Catch’

John Olson, a securities lawyer and partner at Gibson, Dunn & Crutcher LLP, said White was a “great catch” for the White House. Olson said her lack of experience with market regulation means she will have to learn the commission’s regulations for overseeing exchanges and derivatives.

“That’s all going to be learning-curve stuff for Mary Jo,” Olson said. “As an experienced prosecutor and trial lawyer, you have to learn cases and new areas of the law all the time.”

White’s nomination has left the SEC’s constituencies --from Wall Street to investor advocates -- looking ahead to her as- yet-unscheduled Senate confirmation hearings where they will hear her views on the 2010 Dodd-Frank Act and the Jumpstart Our Business Startups Act for the first time.

While White is “clearly qualified” for the job, “we’re interested to see what her thoughts are on Dodd-Frank,” said Scott Talbott, senior vice president of public policy at the Financial Services Roundtable, a Washington-based trade group for large banks and insurance firms.

Agency’s Image

If confirmed, White, 65, would inherit an agency that has been faulted for not pursuing more top executives for conduct related to the financial market turmoil of 2008 and for failing to forge consensus on new rules mandated by Congress. Former officials said her stature in the legal community will help re- establish the agency’s image as a tough and competent regulator.

“She is independent, she has great integrity and she is going to do the right thing,” said Harvey Goldschmid, former Democratic commissioner at the SEC who is now a professor at Columbia Law School. White, who was a student of Goldschmid’s, “isn’t going to put up with nonsense from any corner of Washington or the business community,” he said.

One of the first marks White would be able to make on the agency would be the people she chooses to fill top posts that are currently open, including the heads of enforcement, market oversight and disclosure policy.

Attracting ‘Talent’

Outgoing SEC Enforcement Director Robert Khuzami, in an interview with Bloomberg Television’s Peter Cook for the program “Capitol Gains” airing January 27th, said White “will attract a great deal of talent to the agency.”

White, a partner at law firm Debevoise & Plimpton LLP in New York, has served on the board of the Nasdaq Stock Market Inc. (NDAQ) As U.S. attorney for the Southern District of New York from 1993 to 2002, she became a leading terrorism prosecutor, winning the conviction of four followers of Osama bin Laden for the 1998 bombings of two U.S. embassies in Africa.

Under her direction, prosecutors won convictions for the 1993 World Trade Center bombing and a failed plot to blow up the United Nations headquarters and other New York landmarks. During that time, she supervised Khuzami as well as George Canellos, his deputy.

Obama said her nomination will ensure the laws and rules put in place after the financial crisis are used to protect investors and families.

Law Enforcement

“It’s not enough to change the law, we also need cops on the beat to enforce the law,” Obama said.

The SEC, established in the 1930s to oversee Wall Street, has civil enforcement powers; criminal cases like the ones White oversaw in the U.S. attorney’s office are handled by the Department of Justice.

Still, with her law-and-order background, lawmakers indicated that she wouldn’t have trouble winning approval in the Democrat-controlled Senate.

“Mary Jo White is a fearless, tough-as-nails prosecutor with the knowledge of industry to keep up with the markets’ swift innovation,” Senator Charles Schumer, a New York Democrat, said in a statement. “She will easily be confirmed.”

Senator Jack Reed, the Rhode Island Democrat who heads the Banking subcommittee that oversees the agency, said White was “a strong pick.”

White’s ‘Vision’

“I look forward to having a discussion with Ms. White about her vision for implementing Dodd-Frank, regulating computerized trading, and strengthening accountability, transparency, and investor protections on Wall Street,” Reed said in a statement.

For their part, Republican lawmakers were non-committal. Senator Bob Corker of Tennessee said he wants to make sure White is “committed to working with Congress on technical and policy improvements to Dodd-Frank.”

Representative Jeb Hensarling of Texas, chairman of the House Financial Services Committee, said he’s “particularly interested to learn during the confirmation hearings how quickly she plans to finish the SEC’s delayed work on the bipartisan JOBS Act that Congress passed almost a year ago.”

One potential point of contention will be her work as a lawyer for some of Wall Street’s biggest names. She represented former Bank of America CEO Kenneth D. Lewis during an SEC probe of claims that Charlotte, North Carolina-based bank didn’t disclose bonuses that Merrill Lynch & Co. paid to executives before buying the brokerage. The bank settled the claims for $150 million; Lewis wasn’t accused of wrongdoing.

Defending Corporations

In 2011, White was hired by News Corp. (NWSA) to defend its independent directors against claims related to the company’s role in phone hacking by News of the World, its former U.K.- based tabloid.

Jeff Connaughton, who was chief of staff to former Delaware Democratic Senator Ted Kaufman and is the author of “The Payoff: Why Wall Street Always Wins,” said it’s an open question whether White has been “culturally captured” by her decade-long stint as a defense attorney for Wall Street banks and other corporate clients.

“There is no reason in the world why she shouldn’t be able to transform back into a tough-as-nails prosecutor,” said Connaughton. “But as we too often see in Washington, there can be cultural baggage. The question is whether she leaves those bags behind.”

Prosecutorial Zeal

White has yet to display the same kind of prosecutorial zeal for financial crimes as she brought to terrorism. In one public appearance last year, White argued that prosecutors shouldn’t allow public anger to influence investigations.

“You should be aggressive where there is a crime,” she said at a New York University School of Law event in February 2012. Prosecutors must not “fail to distinguish what is actually criminal and what is just mistaken behavior, what is even reckless risk-taking, and not bow to the frenzy,” she said.

White also surfaced in an SEC controversy when she worked on behalf of Morgan Stanley (MS) to vet John Mack before he was named CEO of the investment bank. She sought information in 2005 from then-SEC enforcement director Linda Thomsen about what an insider-trading probe of hedge-fund manager Pequot Capital Management Inc. revealed about Mack’s involvement.

An SEC inspector general’s report issued in 2008 questioned whether Thomsen should have shared information about a potential target with White. The agency later informed Mack and Pequot that it had closed the investigation and wouldn’t pursue any action against them.

Third Woman

White would be the third consecutive woman to head the SEC. Mary Schapiro stepped down from the SEC’s top job last month and was succeeded by Elisse Walter, who spent the past four years at the agency as a commissioner. Walter was able to become chairman without going through a second Senate confirmation and can stay on the commission through the end of this year.

White’s husband, John W. White, was head of the SEC’s division of corporation finance from 2006 to 2008 under Republican SEC Chairman Christopher Cox. White is now a partner at law firm Cravath, Swaine & Moore LLP.

To contact the reporters on this story: Joshua Gallu in Washington at jgallu@bloomberg.net; Robert Schmidt in Washington at rschmidt5@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net

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