Obama’s SEC Pick Wary of Zealous Wall Street Prosecutions
As Manhattan’s top federal prosecutor during the 1990s, Mary Jo White could have sought the corporate equivalent of the death penalty: indicting Prudential Securities Inc. for fraudulently marketing $8 billion in ruinous energy partnerships to small investors.
Instead, Prudential’s attorneys pressed White, who had earned notice as an aggressive litigator in terrorism and organized crime cases, to consider something less punitive. She ultimately accepted, agreeing to a $330 million fine and placing Prudential on probation, allowing it to avoid criminal charges.
“We persuaded them there was an unacceptably high risk that charging Prudential Securities would lead to significant losses for the innocent shareholders,” said Scott Muller, a New York defense attorney who represented Prudential. “What she avoided was inappropriate collateral damage.”
How White handled the Prudential case belies her notoriety as a brass-knuckle prosecutor -- a reputation stoked by President Barack Obama last month when he nominated her to be chairman of the U.S. Securities and Exchange Commission.
Obama picked her to lead an agency that’s been criticized by lawmakers, consumer groups and jurists including U.S. District Court Judge Jed Rakoff for bringing few cases against top executives of major banks in the wake of the 2008 credit crisis and for settling enforcement cases without requiring a defendant to admit guilt. “You don’t want to mess with Mary Jo,” the president said.
White’s record on white-collar cases reveals a more practical streak. Her invention of corporate probation, or deferred prosecution, in the Prudential matter was later copied by scores of U.S. attorneys seeking punishment for a company without going to trial.
Since stepping down as U.S. Attorney for the Southern District of New York in 2002 and returning to practice as a Wall Street defense lawyer, White, 65, has spoken out against what she called a “feeding frenzy” of enforcement after financial scandals.
Defense lawyers and former colleagues in the prosecutor’s office say the Prudential case and White’s comments don’t indicate she would pull punches on corporate wrongdoing.
“She is ethical and smart and she doesn’t come with a bias,” said Sara E. Moss, who worked with White as a prosecutor during the late 1970s and is now general counsel of The Estee Lauder Cos Inc. (EL) “She would be an incredibly zealous public servant for the SEC.”
As a young federal lawyer, White was competitive in the courtroom as well as on the office’s women’s basketball team, where she was a scrappy 5-foot forward. Later, as Manhattan’s leading terrorism prosecutor, she battled Washington to keep control of terror cases, including those stemming from the Sept. 11 attacks.
While New York has always been the premier base for prosecuting Wall Street fraud, White doesn’t have a record on financial regulation. Seven of the last eight SEC chairmen have been securities lawyers or had careers on Wall Street.
“Where she’s going to be more challenged is in areas that are not as familiar to her, dealing with the complexities of market regulation and the disclosure regime,” said John F. Olson, a partner at Gibson, Dunn & Crutcher LLP who has known White for 20 years.
White, who declined to comment for this story, has met in recent weeks with other SEC commissioners, said Luis Aguilar, one of the commission members. She will be expected to be conversant on a complex array of regulations and thorny questions about the structure of securities markets when she appears before the Senate Banking Committee.
That hearing may be scheduled for the week of March 11, according a Senate aide who asked not to be identified because a final date has not been set.
“She will throw herself into this,” Moss said. “She works around the clock, and she’s never really stopped doing that.”
Over 38 years, White has rotated between two homes as a lawyer: the midtown Manhattan headquarters of Debevoise & Plimpton LLP and the downtown base of the U.S. attorney’s office.
At Debevoise, which counts former Attorney General Michael Mukasey as a partner, her clients have included Wall Street banks such as JPMorgan Chase & Co. (JPM), Morgan Stanley (MS), and UBS AG. She also represented former Bank of America Corp. Chief Executive Officer Ken Lewis during an SEC probe of bonuses paid to Merrill Lynch & Co.’s executives before Bank of America bought the brokerage.
White’s salary at Debevoise last year was $2.4 million, according to her financial disclosure report. Investor advocates have been uneasy with her recent career as a Wall Street defense attorney, even as they respect her bona fides as a prosecutor.
“The real question will be, can she switch her hat, and start to represent the public rather than the business community she’s been representing for the last 10 years?” said Lynn Turner, a former SEC chief accountant who is active in many regulation debates.
In a Bloomberg Radio interview in 2003, White said she worried about a “feeding frenzy of enforcement” after the scandals at Enron Corp. and WorldCom Inc. came to light. She made a similar observation last year about state and federal prosecutors filing separate lawsuits related to the financial crisis.
“There is still jockeying for position,” she said in a panel discussion hosted by the Practicing Law Institute. “It feels like a frenzy.”
White also has said that deferred prosecution, which she pioneered in the Prudential case, has been abused. Beginning in 1999, the Justice Department instructed prosecutors they could consider harm to shareholders and innocent employees when deciding whether to charge a company.
Instead, some government lawyers used deferred prosecution only to “show results” when they shouldn’t have brought charges at all, White told the newsletter Corporate Crime Reporter in 2005.
“Some offices really didn’t have the evidence to indict a company, but they would threaten them with prosecution and then offer a deferred prosecution if the company cooperated,” said Shirah Neiman, who was White’s top deputy in the U.S. attorney’s office in the 1990s. “She sort of rued the day we came up with this idea.”
Since 2009, the Justice Department has used deferred prosecution to resolve cases against ING Groep NV (INGA), Barclays Plc (BARC), Credit Suisse Group AG, HSBC Holdings Plc (HSBA), Standard Chartered PLC (STAN) and Royal Bank of Scotland Group Plc.
“This culture of resolving complex cases pursuant to deferred-prosecution agreements is creating a culture of impunity within the financial services community,” said Jimmy Gurulé, a law professor at the University of Notre Dame who served as the Treasury Department’s undersecretary for enforcement from 2001 to 2003.
The SEC also has been faulted for the way that it settles cases short of going to trial. The commission’s settlements typically don’t require a defendant to admit or deny guilt. Rakoff, the federal judge, faulted that policy in 2011 when he rejected the agency’s proposed $285 million settlement with Citigroup Inc. over claims the bank misled investors in a financial product linked to risky mortgages.
Neiman said White will likely take a fresh look at that practice. Prosecutors in the southern district pushed for companies to admit liability because it would help financial- fraud victims recover losses in private litigation.
“She is in a unique position coming from the Justice Department where one of your significant objectives in a financial prosecution is to make victims of criminal activity whole,” Neiman said.
If confirmed as SEC chairman, White’s return to Washington would be a homecoming of sorts.
She grew up in McLean, Virginia, a suburb of the U.S. capital, and graduated Phi Beta Kappa from Virginia’s College of William & Mary in 1970.
In 1974, she graduated near the top of her class at Columbia University Law School. She spent two years at Debevoise before becoming a junior prosecutor in 1978. In three years White rose from the general crimes unit to chief appellate lawyer for the criminal division.
White still found time to play as an undersized forward on the office team, which rarely had a player taller than 5-foot-3. It started with an awful record because most of the women had never played full-court basketball, said Neiman.
“She had a good shot,” Neiman said. “She was tiny, but she was good.”
Off the court, White’s talent and drive was just as obvious, former colleagues said. She was headstrong but not pushy, quick to close cases and mixed easily with the roster of courthouse players, including FBI agents.
“She builds consensus and does not come in and muscle in any way,” Moss said. “She builds relationships wherever she goes.”
White returned to Debevoise in 1981. In 1990, she left again after U.S. Attorney Andrew J. Maloney asked her to become his chief assistant. Louis Freeh, the future FBI director, was also considered for the job, Maloney said.
“I was impressed that this was a smart gal drinking beer rather than white wine at the University Club,” said Maloney, who was U.S. attorney for the eastern district of New York from 1986 to 1992. “We hit it off right from there.”
When President Bill Clinton was elected, the position of U.S. attorney for the southern district opened. White, who was not registered with a political party in New York, won the support of Senator Daniel Patrick Moynihan, a Democrat.
Entering office in late 1993, White told interviewers she intended to invigorate prosecution of white-collar crime and Wall Street fraud. Instead, events dictated that she spend much of her time pursuing the conviction of terrorists.
White took office just three months after the first attack on the World Trade Center, in February 1993.
Over the next decade, she oversaw the conviction of three dozen terrorists, including Ramzi Yousef and his co-conspirators in the 1993 bombing. Her prosecutors obtained the indictment of Osama bin Laden in 1998.
White prodded Justice Department officials in Washington to use the Civil War-era seditious conspiracy law to charge Sheik Omar Abdel Rahman, a blind Egyptian cleric who plotted to blow up the United Nations and other New York landmarks, Philip B. Heymann, a former deputy Attorney General, told reporters in 2001.
“She really supervised those cases almost by herself,” Neiman said. “She felt they were so important and there was a lot of top-secret stuff involved.”
Patrick Fitzgerald, one of White’s star terrorism prosecutors who later became U.S. attorney in Chicago, said White inspired hard work because she didn’t balk at devoting resources and supported decisions to use novel legal strategies to try terrorists.
“The way she got involved, she empowered people,” said Fitzgerald, now a partner in the Chicago office of Skadden, Arps, Slate, Meagher & Flom LLP. “There was a sense that our boss has written a check. And come hell or high water, we’re going to make it good.”
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