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. Continue reading