When President Barack Obama nominated Mary Jo White to be the next head of the SEC, he said he wanted someone who would be tough on Wall Street, but her past ties to many of the big banks will make that difficult, if not impossible.
President Obama nominated White to be the next chairwoman of the Securities and Exchange Commission Thursday, emphasizing her storied background as a New York prosecutor in the 1990s.
"She helped prosecute white-collar criminals and money launderers," the president said. "In the early 1990s, she brought down John Gotti, the head of the Gambino crime syndicate. You don't want to mess with Mary Jo."
Getting less attention from President Obama was how White has spent the most recent decade – as a defense attorney for Debevoise & Plimpton LLP. There, she hasn't been going after Wall Street's transgressors – she's been defending them.
Her former clients include former Bank of America (NYSE: BAC) CEO Ken Lewis, who was involved in a civil fraud suit over his company's acquisition of Merrill Lynch.
"[She's been] Wall Street's protector-in-chief," former SEC investigator Gary Aguirre told The Wall Street Journal.
Mary Jo White's Relationship with Wall Street
Such a cozy relationship with Wall Street's heavy hitters does not sit well with Money Morning Capital Wave Strategist Shah Gilani.
"How can she be a cop when she's been on the payroll of the crooks she's now supposed to police?" Gilani said. "Her record was good chasing Islamic terrorists over in the Southern District, not financial terrorists. Then she goes private to work for the big New York banks she never went after. As if she's not going to go back into private practice? Let her stay in private practice."
Gilani sees the Mary Jo White nomination as another example of the "revolving door" between government regulatory agencies like the SEC and the law firms that fight them in the courts.
White's proponents argue that her connections to Wall Street's big players will give her an advantage, and that her background as a defense attorney could provide valuable insight into her job as SEC chairwoman.
But Gilani is not convinced.
"It's the same old same old. Why not put in someone who has never been on the other side of the fence? Why not pick someone who is above reproach and believes in protecting the public and the sanctity of the capital markets, and not the bonus pools of the guys who make it their job to end around the rules to rule the world?" Gilani said.
Mary Jo White's Ethical Minefield
Even if it turns out that Mary Jo White can, as her supporters contend, prevent her many connections to Wall Street from affecting her decisions as head of the SEC, those ties pose another, even thornier problem.
Her extensive links to just about every Wall Street firm present a web of possible conflict-of-interest violations.
A 2009 policy implemented by President Obama forbids appointees from participating in any matters relating to their former employers or clients for two years from the date of their appointment.
That could mean that White will have to recuse herself from quite a bit of the SEC's business over her first two years. One less vote on the ideologically split five-member panel carries the risk of creating a 2-2 deadlock, which could cripple or doom enforcement actions.
And in White's case, her past links aren't the only potential source of ethical problems. Her husband, John J. White, is a partner at corporate law firm Cravath, Swaine & Moore and represents many public companies on the kinds of accounting issues that often come before the SEC.
Federal ethics rules would prevent White from participating in any matter in which a client of her husband's had a stake in the result.
"So why would Obama nominate Mary Jo White knowing that she can't do her job and that her husband's job makes it so she has conflicts? Has he lost his mind?" Gilani said.
Finally, some observers are questioning whether choosing someone with White's background even makes sense at a time when the SEC needs to focus on its role as a regulator more than its role as an enforcer.
"The real failure of the SEC under Chris Cox in the run up to the financial crisis was not a lack of enforcement, it was a lack of oversight," writes Senior Editor Stephen Gendel in Fortune. "What we need now, it seems, is someone who can lay down the rules, still not finalized from Dodd-Frank, that will not just hopefully limit Wall Street malfeasance but its propensity for stupidity as well."
For a closer look at Wall Street's latest schemes and to learn how millionaires, traders, politicians and regulators really play the high-stakes game, check out Shah Gilani's Wall Street Insights & Indictments. Learn the ins and outs from a former trader and how to beat the Street at its own game. Best of all – it's free!
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