Monday, March 23, 2015

Bill Takes Aim at SEC’s ‘Revolving Door’

[This story previously appeared in Securities Regulation Daily.]

By Matthew Garza, J.D.

Congressman Stephen F. Lynch (D-Mass) has introduced a bill that would prevent SEC staff members from seeking employment with companies they recently targeted in enforcement actions until a year after leaving the agency. The bill was introduced prior to testimony by SEC Enforcement Director Andrew Ceresney yesterday morning in front of the Financial Services Committee’s Capital Markets Subcommittee. “As Director Ceresney highlights the enforcement office’s priorities in the coming year at today’s hearing, I want to emphasize the need to end the revolving door at the SEC, which poses increasing risks to the agency’s effectiveness and ability to keep enforcement actions fair and transparent,” said Lynch.

H.R. 1463, the SEC Revolving Door Restriction Act of 2015, would bar staffers for a year from seeking employment with companies against which they participated in enforcement actions in the preceding 18 months. Enforcement actions are defined as court actions, administrative proceedings, or Commission opinions. Former staffers must seek an ethics opinion from the SEC if they wish to seek employment with a recently targeted company within a year of their termination.

Delaying staffers’ employment in the private sector would affect a significant number of SEC employees, who have a long tradition of leaving government service to join the defense bar. At the 2015 SEC Speaks conference, when current and former agency staff members were asked by Chair Mary Jo White to stand, at least two thirds of the room took to their feet. Chair White has been affected by entering the revolving door in the opposite direction, having recused herself from numerous enforcement matters after coming to the SEC from years in private defense practice.

A study on the risk of “regulatory capture,” conducted by the Project On Government Oversight (POGO) and covered in Securities Regulation Daily on February 12, 2013, found that 419 ex-SEC officials and staffers filed more than 1,900 disclosure statements saying they planned to represent clients or new employers in matters pending at the SEC between 2001 and 2010.

POGO makes the data available online in the “SEC Revolving Door Database.” Some former staffers have gone on to successfully seek waivers for companies charged with wrongdoing by the SEC.

POGO’s Executive Director Danielle Brian called for bipartisan support for the bill, saying that “When an enforcement attorney leaves the SEC on Friday, and shows up on Monday requesting favorable treatment for a bank charged with wrongdoing, it can greatly damage the integrity of our regulatory system.” Congressman Lynch said that he believes the proposed legislation “will improve confidence in the agency’s ability to investigate suspected wrongdoing and continue the SEC’s recent efforts to strengthen their enforcement function.”