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Wall Street Agent or Responsible Chair?

The Education Secretary appears uneducated about public education. The Office of Management and Budget nominee didn’t notice his full-time nanny in the house when it came time to account for household employees on his taxes, and doesn’t believe in funding government programs. The Treasury Secretary found treasure in the misfortunes of those he foreclosed upon as a banker. Next to this, the Trump administration may figure it can slip by nominee Walter “Jay” Clayton to chair the Securities and Exchange Commission Chair while the public is rubber necking more controversial nominees.

What there is to see with Clayton isn’t comforting. He works for Sullivan & Cromwell, one of the clutch of K Street law firms who argue that Washington should go easy on Wall Street. Goldman Sachs is one of Clayton’s major clients; and Clayton’s spouse works for Goldman Sachs. He’s also represented several major financial firms guilty of mortgage securitization fraud. As a Goldman attorney, he helps stack the deck of Goldman alumni, (which is starting to look like it should be renamed Government Sachs), joining National Economic Council Director Gary Cohn, Treasury Secretary Mnuchin, senior advisor Steve Bannon, and others.

A rational Senate would ideally advise the Trump administration that it could do better if it truly wants to “drain the swamp.” It could nominate an enforcement veteran or an investor advocate.

What’s tough to see in the Clayton nomination is also discomforting. Why him? Sullivan & Cromwell boasts many notable banking attorney such as H. Rodgin Cohen; was Clayton recommended as a reliable agent?  Clayton has published roughly zero articles exclusively under his name. (He has co-authored a few.) Why the lack of interest in public discourse? Does he think an opinion could antagonize a potential client? Given his relative youth, (he’s a 1988 University of Pennsylvania graduate) will he spin back through the revolving door to a better office at the firm?

What’s seen and unseen makes the Clayton confirmation hearing important. Senator should insist on clear affirmations of key policy goals. Dismissing questions because he needs to study the issue should disqualify him, as the nation can’t afford on-the-job training. Deflections to “work with the committee” on the issues should also disqualify.

Here are some of the key areas senators can ask to decide whether a Clayton-chaired SEC will serve the American investor and hold Wall Street accountable.



Under the previous chair, the SEC embarked on a review of what corporations must disclose to investors, predicated on the concept that investors were burdened by too much information. Yet the only expressions of this burden came from issuers, not investors. In fact, more than 1.2 million investors have sought more information about political contributions by corporations.  Some other investors seek information about the environment, the workforce, corporate tax loophole participation and more. Moreover, search engines along with the emergence of Big Data show the power of analysis to uncover important, revealing trends and information. Scandals abound because of non-disclosure. Will you continue the SEC’s effort to reduce disclosure?

Political spending disclosure

Regarding the 1.2 million investors who have petitioned the SEC to draft rules requiring firms to disclose all their political spending, what are your views? Do you think shareholders should be able to know how their investments in corporations are deployed on political issues?


Disclosure turns on what’s material. The Financial Accounting Standards Board proposes a radical change to the definition of materiality. Under their definition, instead of information that “could” affect an investor’s view being deemed material, materiality will now mean information that “would” definitely affect investor decision making. Further, FASB recommends the standard be a legal, not an accounting, determination. That means the firms’ counsel will referee whether or not a firm should disclose information, not the firm’s independent auditor. In short, this new definition will allow companies to reduce disclosure if they choose to. Do you support FASB’s new concept of materiality?


Instead of increasing investment, corporate America has used more than $3 trillion dollars in the ten years ending in 2013 to purchase their own stock. Studies show that these buybacks may serve to increase the share price just as senior executives exercise their stock options. Do you believe the SEC should collect data on the timing of option exercises and buybacks to ensure that CEOs aren’t undermining basic decisions such as corporate investment so as to gain more compensation?



Waivers from mandatory penalties following findings of misconduct have become the norm. Do you believe that consideration of waivers for mandatory penalties are part of the SEC’s enforcement arsenal that can deter bad behavior? If so, do you think waivers should be the exception, or the rule?

Too Big To Jail

Sullivan & Cromwell defended major banks, such as HSBC, that committed massive misconduct. When defending HSBC, your firm helped convince the Department of Justice, in consultation with the Federal Reserve and Treasury, that indictment of this mega-bank would lead to contagion throughout the financial sector.  After Attorney General Eric Holder used similar thinking in testimony, this became known as the “too big to jail” theory.  Do you think some banks are too big to jail? Will you weigh the size of a bank when you consider penalties the SEC applies after findings of such misconduct?

Individual accountability

The SEC fines companies as its main enforcement penalty. But companies don’t commit misdeeds; individuals do. And penalties aren’t paid by culpable executives at these wayward firms; their shareholders who certainly didn’t conspire in the conduct do pay. What is your philosophy of enforcement as it relates to individuals?


You’ve written about the Foreign Corrupt Practices Act, focusing on the compliance burden. The Chair of the SEC, however, will need every tool including the FCPA to combat serious conflict of interest problems. For example, the SEC found serious bribery problems in China by JP Morgan. Do you favor lightening currently required compliance with this foreign bribery statute?




President Trump signed another Executive Order directing the Treasury Secretary, as chair of the Financial Stability Oversight Council, to identify Dodd-Frank rules that should be rolled back. He cited the law’s impact on loan-making, despite the rise in loan-making reported by the FDIC. In your purview, the Dow has recently hit record highs, signifying some health on Wall Street. FSOC members currently are largely Obama appointees. You would be one of the few Trump appointees. Can you name some Dodd Frank rules that should be eliminated, why, and why elimination would help protect investors?

CEO Pay Ratio

The simplest of Dodd Frank’s rules calls for publicly traded companies to disclose the CEO’s pay as a ratio of the firm’s median-paid worker. It will help investors “unit-price” shop CEO pay to easily check if one firm is wasting money on a CEO relative to a peer. Naturally, CEOs would rather not face that investor scrutiny and the political contest leading to final rule-making spanned many years. In fact, it’s not over, as acting Chair Piwowar opened an informal comment period in February, apparently presaging his intent to nullify the rule. Do you think investor understanding of CEO pay is important? Do you think the SEC should re-open a finalized regulation mandated by Congress?

Conflicts Of Interest

Sullivan & Cromwell’s clients are America’s individual elites along with giant corporations. The firm doesn’t represent seniors evicted from their homes owing to reverse mortgage scams; it represents the reverse mortgage firms. It doesn’t represent shareholders filing resolutions; it represents the issuers contesting them. Your client list means that you have been in constant conversation with an insular demographic of massive banks over the course of your career. The Chair of the SEC requires that the chair understand and represents the interests of average American investors. Trump advisor Gary Cohn recently noted that personnel is policy, a view that many in Washington share. How will you make sure the interests of average investors is central to your decision-making?