Missing in Action: Mary Jo White and the Toothless SEC

“I swear to recuse myself, so help me God” (photo: New York Times)

Over a long and storied career, Securities and Exchange Commission chairwoman Mary Jo White developed a reputation for being a tough prosecutor and litigator, belying her diminutive stature. But she’s not so tough anymore.

As U.S. Attorney for the Southern District of New York, when she wasn’t facing down mobsters like John Gotti, she was putting terrorists like Ramzi Yousef (the 1993 World Trade Center bombing mastermind) under the hot lamps. After her time as a prosecutor, she spent 10 years as chair of the litigation department at Devevoise & Plimpton, a white shoe New York City law firm.

As an unfortunate byproduct of this otherwise fruitful juridical pilgrimage, Ms. White came to know many characters on Wall Street, big business bosses, regulators, law makers, and prosecutors. When one runs in these rarefied circles long enough, you eventually become friendly with many of your “adversaries” and a system of favors and quid-pro-quo’s develops which helps maintain a stasis between the various powers of big business, government, and regulatory institutions.

A fine example of this is found in the story of Gary Aguirre, as well detailed in this Rolling Stone piece.

Aguirre joined the SEC in September 2004. Two days into his career as a financial investigator, he was asked to look into an insider-trading complaint against a hedge-fund megastar named Art Samberg. One day, with no advance research or discussion, Samberg had suddenly started buying up huge quantities of shares in a firm called Heller Financial. “It was as if Art Samberg woke up one morning and a voice from the heavens told him to start buying Heller,” Aguirre recalls. “And he wasn’t just buying shares — there were some days when he was trying to buy three times as many shares as were being traded that day.” A few weeks later, Heller was bought by General Electric — and Samberg pocketed $18 million.

After some digging, Aguirre found himself focusing on one suspect as the likely source who had tipped Samberg off: John Mack, a close friend of Samberg’s who had just stepped down as president of Morgan Stanley. At the time, Mack had been on Samberg’s case to cut him into a deal involving a spinoff of the tech company Lucent — an investment that stood to make Mack a lot of money. “Mack is busting my chops” to give him a piece of the action, Samberg told an employee in an e-mail.

A week later, Mack flew to Switzerland to interview for a top job at Credit Suisse First Boston. Among the investment bank’s clients, as it happened, was a firm called Heller Financial. We don’t know for sure what Mack learned on his Swiss trip; years later, Mack would claim that he had thrown away his notes about the meetings. But we do know that as soon as Mack returned from the trip, on a Friday, he called up his buddy Samberg. The very next morning, Mack was cut into the Lucent deal — a favor that netted him more than $10 million. And as soon as the market reopened after the weekend, Samberg started buying every Heller share in sight, right before it was snapped up by GE — a suspiciously timed move that earned him the equivalent of Derek Jeter’s annual salary for just a few minutes of work.

The case seemed open and shut, but as Aguirre would soon find out, it was mostly shut. In the summer of 2005 when Aguirre told his boss he planned to interview Mack, things “started to get weird”. Aguirre was “contacted” (read hounded) by folks from Morgan Stanley, then an aide to New York Attorney General Eliot Spitzer, then the SEC got a call from one of the firm’s top dog lawyers: none other than, you guessed it, Mary Jo White, herself the former U.S. Attorney for the Southern District of New York- the top cop on Wall Street.

Aguirre was road blocked at every attempt just to interview Mack. In his futile quest to vanquish a corrupt corporate titan, he must have felt coincidentally a bit like the character of the same name from Werner Herzog’s hallucinogenic cinematic tale, Aguirre, Wrath of God, wherein the protagonist, a Spanish conquistador stands alone at the end of a disasterous adventure and declares “I am the Wrath of God! Who else is with me?” Apparently no one was with our modern day Aguirre either. A month after complaining to his supervisors about not being able to interview Mack, he was uncerimoniously sacked without explanation. He had just received a stellar performance review but given he had the scent of Mack’s malfeasance in his nose like a bloodhound, turning over the stones made certain people on both sides of the regulatory fence very uncomfortable. The case against John Mack was immediately dropped. Why would that be? As Rolling Stone aptly describes it:

Criminal justice, as it pertains to the Goldmans and Morgan Stanleys of the world, is not adversarial combat, with cops and crooks duking it out in interrogation rooms and courthouses. Instead, it’s a cocktail party between friends and colleagues who from month to month and year to year are constantly switching sides and trading hats.

As a footnote, the SEC eventually paid Aguirre a $755,000 settlement for wrongful dismissal.

A Senate investigation into the sordid affair later concluded: “At best, the picture shows extraordinarily lax enforcement by the SEC. At worse, the picture is colored with overtones of a possible cover-up.”

Fast forward to 2013 when Mary Jo White was named Chair of the Securities and Exchange Commission, the top Wall Street regulatory and enforcement agency in the U.S. To prove that nothing has changed in the intervening years since the John Mack debacle note the following: As detailed in this NY Times article, in the two years since her appointment and confirmation as SEC chair, Ms. White has recused herself from no less than four dozen enforcement investigations.

Because she worked for so long at Debevoise, and made so many friends and owes so many favors, in order to maintain at least the appearance of ethical behavior and probity, she agreed to recuse herself from cases where there may be a conflict of interest. Those restrictions however, ended in April, 2015. She’s now free to bend the law in favor of all her former colleagues and friends wherever they may be. But there’s one more hang up. Given that her husband is also a high powered attorney at Cravath, Swaine & Moore, she must continue to recuse herself from cases where he or his firm are representing parties of interest to the SEC for as long as she is chairwoman.

The implication of all these recusals is that the five person commission is left to split votes two to two along party lines without Ms. White’s fifth and deciding vote, rendering the commission toothless. The revolving door from big business and big law to government and regulatory agencies is really nothing new. What is perhaps new in this case is the blatant, exploitable ace-in-the-hole every self respecting corporate and hedge fund crook in the country now has in his hand: If the SEC comes knocking, go hire Cravath as your counsel to get the SEC chair out of the picture and chances are you’ll have the commission tied in knots til Kingdom come.

Epilogue

As BFN researched Mary Jo’s trip through the Wall Street-to-government spin cycle, there is one more revolving door to industry where we learned she may move next: Hollywood. Sources tell Bud Fox News that Ms. White is considering among several marquee roles being offered as soon as her stint at the SEC ends. They are: the role of Edna Mode in a new real-life iteration of the popular animated film, The Incredibles; Lord Dark Helmet in a revival of Mel Brooks masterpiece, Spaceballs; and finally, given her odd penchant for wearing a bright red military frocking adorned with a battle shield-sized eagle brooch, she is considering a role in a sequel to The Interview, where the plot calls for her to have a bare knuckle fight with the character of Kim Jong-un.