President Donald Trump's nominee to head the Securities and Exchange Commission, Jay Clayton, faced questions from the Senate Banking Committee today. Democrats pressed the lawyer about his many Wall Street connections, and his plans to recuse himself from matters related to companies he has had dealings with for the first two years of his appointment. Besides the chair, the SEC currently only has two commissioners, Michael Piwowar, a Republican, and Kara Stein, a Democrat. Reuters described Clayton's firm, Sullivan & Cromwell, as being 'elite.'
As U.S.
Senator from Massachusetts Elizabeth Warren stated during today's confirmation hearing, the chair of the SEC is often the deciding vote. When the SEC chair is required to recuse themselves because of the Conflicts Of Interest, the commission is said to regularly become deadlocked, a situation which Senator Warren took great interest in. She explained that when the commission becomes deadlocked, "major enforcement actions don't go forward."
Chair recusals result in no enforcement
The progressive Democrat stated that it was important for the committee to consider how often the SEC could be deadlocked with Jay Clayton at the helm. Warren noted that under a Trump executive order, Mr. Clayton will have to recuse himself from matters involving former clients and clients of his law firm for his first two years, which she characterized as about "half of his term as chair." The senator listed The Goldman Sachs Group, Inc.
(NYSE: GS), Deutsche Bank AG (NYSE: DB), Barclays PLC (NYSE: BCS), and UBS Group AG (NYSE: UBS) as firms that are former clients of the nominee.
Senator Warren stated that the banks listed have "repeatedly violated securities laws," and noted that if they violate the laws during Clayton's first two years as chair that he won't be able to vote "to punish them." She stated a belief that such a situation would be "a problem." She noted a long list of Wall Street clients Sullivan & Cromwell had served, and confirmed that during his first two years heading the SEC that Clayton would not be able to be involved in enforcement actions against any of them.
Option for companies wishing to avoid enforcement actions
Elizabeth Warren also described a scenario, which she envisions any "reasonably strategic company" could concoct, where a company wishing to avoid action by the SEC could simply hire Sullivan & Cromwell, knowing the SEC chair would have to recuse himself, and that a deadlocked commission would likely result.
The senator imagined a situation where President Trump wanted to make sure that the commission would have difficulty "going after his Wall Street friends," and that Jay Clayton would be the "perfect" nominee for such a plan.
The senator noted that outgoing SEC Chair Mary Jo White was required to recuse herself in a minimum of 48 matters, because of conflicts of interest. Warren described these incidents as causing the commission to become deadlocked "time and time again." She stated that corporations who "may have broken the law," got away without suffering any punishment. The senator told Mr. Clayton that the issues surrounding the matters he will need to recuse himself in appear "even more severe."
