Hundreds of U.S. Securities and Exchange Commission lawyers and examiners face new obstacles to cashing in on their agency experience under an expanded ethics rule to take effect in January.
The change targets the practice of regulators moving to jobs at law firms and investment banks where they capitalize on their SEC relationships. The ethics rule, which previously affected only the most senior officers, will now be applied to everyone who earns more than $155,440 a year, according to a copy of an agency announcement.
The employees will be banned from contacting old colleagues for one year after leaving the SEC when the policy becomes effective in January. Commissioners and division directors have long faced such limits.
The rule “places us on even footing with our peer regulators and adds an additional layer of protection against even the appearance of impropriety when former employees take on new jobs,” Shira Pavis Minton, the SEC’s top ethics official, wrote in the announcement.
Law firms and investment banks regularly recruit top aides to SEC commissioners, enforcement attorneys and examiners of broker-dealers to help defend against investigations and advise on compliance. More than 400 SEC alumni filed disclosure statements saying they planned to represent clients before the agency from 2001 to 2010, according to a recent report by the Project on Government Oversight, a non-profit government watchdog group.
Former SEC officials who have been affected by the ban include ex-enforcement chief Robert Khuzami, who is now working at Kirkland & Ellis LLP, and former SEC Chairman Mary Schapiro at Promontory Financial Group LLC.
Outside the agency, most U.S. government personnel earning more than $155,440 a year have long been covered by the one-year restriction. Ten years ago, the SEC won an exemption for some workers designed to make regulators’ jobs more attractive.
In 2011, the SEC’s inspector general criticized the exemption in a report about a former official who left the agency to work for a high-frequency trading firm. The SEC asked the U.S. Office of Government Ethics to remove the exemption shortly after the IG’s report because it was no longer necessary, John Nester, an SEC spokesman, said in an interview.
Some former SEC officials say the new policy will hurt mid-level attorneys whose value to a new employer is limited if they can’t interact with the regulator. In particular, it will limit the opportunities for enforcement attorneys to move to the defense bar, where they would need to interact with the SEC, said Stephen J. Crimmins, a partner at K&L Gates LLP and former SEC enforcement lawyer.
“If any law firm was evaluating a middle-management SEC employee and was being told they could not have any interaction with the SEC for a year, it would definitely be a negative in a hiring decision,” Crimmins said. “By artificially imposing restrictions like this, it makes it harder for the SEC to recruit experienced talent.”
To contact the reporter on this story: Dave Michaels in Washington at email@example.com