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Jun 14, 2015

Gloves come off: Senator Warren vs SEC chair

Warren's letter blasts White for delays in rule-making, WKSI waivers and more, but former SEC Inspector General lauds White's aggressive stance 

When you see Mary Jo White give her keynote address at the Society of Corporate Secretaries and Governance Professionals’ conference in Chicago later this month, be kind. She’s had a rough time lately.

Actually, the SEC chairman is probably taking some strength from the outpouring of support she has received from certain quarters in the wake of Senator Elizabeth Warren’s heated 13-page letter to her on May 26. In it, the Massachusetts Democrat slams White for not coming down harder on financial services companies and for having achieved very little in her more than two years at the SEC’s helm. As examples, Warren cites delays in finalizing certain rules mandated by the Dodd-Frank Act nearly five years ago – such as the pay ratio rule that would force companies to start disclosing the relationship between their CEO’s annual take-home pay and that of their average employee.

Lots of influential people take issue with the latter charge in particular, noting considerable political dissent among the commissioners on many of these rules and the necessity of sifting through a high volume of comment letters filed in response to proposed rules, which have increased the challenge of moving things forward.

‘It needs to be understood that a lot of these rules are very complex. Dodd-Frank left a lot of issues to be resolved in the regulation phase,’ says H David Kotz, former SEC inspector general and now a director at global consulting firm Berkeley Research Group. ‘To achieve consensus often requires time for different commissioners to evaluate different issues and it’s very difficult for the chair, if there’s a request for a delay, for her to say ‘no’ and still have a harmonious commission.’

Another matter Kotz and others believe Warren unfairly took White to task for is the SEC allowing banks such as Royal Bank of Scotland (RBS), despite convictions for criminal misconduct, to retain special status as a ‘well-known seasoned issuer (WKSI)’, permitting them to waive settlements with the US government and issue financial instruments that don’t require an SEC evaluation.

In April 2014 SEC commissioner Kara Stein – one of the two Democrat commissioners – said in a dissenting statement about the RBS decision, ‘Since the inception of WKSI nearly a decade ago, the commission had not granted a WKSI waiver for criminal misconduct. Last fall that changed when the staff, through delegated authority, granted a waiver to another large issuer despite its criminal wrongdoing. Last Friday the commission compounded that error when it granted a waiver for another criminal wrongdoer.’

But without the promise of such a waiver, many companies would not have agreed to a settlement in the first place, says Kotz. ‘If you have a settlement that’s favorable to the SEC, do you not go forward with it because of a WKSI waiver?’ he asks. In his view, White has made significant progress when it comes to settlements. ‘When I left the SEC [in 2012], nobody was admitting to liability; White has gotten some companies to do so,’ he points out. ‘Before White, all settlements had the standard ‘neither admit nor deny’ clause in them.’

SEC critics, on the other hand, have condemned the commission’s and the Department of Justice's opting for declinations, or decisions to close an investigation without taking further action, and their increased reliance on deferred prosecution and non-prosecution agreements in enforcement actions against companies charged with criminal misconduct under the FCPA, which Corporate Secretary has covered extensively in recent months. The latter trend, however, began 10 years ago, long before White’s tenure.

For Kotz, White has a fairly good record of enforcement actions. ‘I think the SEC still strikes fear into the hearts of companies,’ he says. ‘Clearly the senator thinks the SEC could do more. It’s helpful for Congress to express its views on the agency; it only makes the SEC better.’

Contrary to Warren’s charges, Kotz believes White has been aggressive in pursuing companies for wrongdoing. ‘I don’t think the SEC is viewed as a paper tiger at the moment,’ he says. ‘Maybe this will trigger her to be more aggressive, but her overall record in terms of enforcement is pretty strong.’

David Bogoslaw

Associate Editor and Online features producer for Corporate Secretary