Investor protection, capital formation and efficient markets. This is the tripart mission of the SEC (Securities and Exchange Commission). It should therefore come as no surprise that President Trump’s nominee for Chairman of the said commission, Mr Walter J. “Jay” Clayton III, an attorney who specializes in mergers and acquisitions and whose many Wall Street clients include Goldman Sachs, Deutsche Bank and Barclays, is likely to face some tough questioning over conflicts of interest.
And so it was that on Thursday March 23, nominee Clayton appeared before the inquisitorial might of the Senate Banking, Housing, and Urban Affairs Committee, chaired by Idaho Republican Senator Mike Crapo.
Clayton’s wealth of experience in financial matters loomed large on the agendas of both Democrats and Republicans. Neither side denied his obvious talents; however opinions differed dramatically about how his knowledge and insight might be put to use. Republicans argued that it made him ideal for the post, while Democrats complained of conflict of interest – the “skunk at the party”, as described by Lisa Gilbert, vice president of legislative affairs for Public Citizen.
Richard Shelby, Republican Senator for Alabama and former chair of the Senate committee, said of Clayton, “He understands capital structure, capital formation, and capital markets.”
The Senator went on to say, “I believe that the nominee before us today represents what we once valued in this country – an individual who rises from modest means to the pinnacle of his profession and then answers the call of public service.” Addressing his words to Clayton he said, “Instead of applauding such achievements, some will seek to minimize your accomplishments and impugn your motivation or ability to serve; I wish it were not true.”
In one of the loaded questions of the hearing, Ohio Democrat Sherrod Brown asked, “In an administration replete with billionaires, many of whom we’ve learned in prior hearings had multiple conflicts of interests and ethical lapses how will you ensure the SECs in his personal business matters and in his administration’s businesses.”
Clayton answered by pledging that as SEC Chair he would enhance capital formation, investor protection, and the maintenance of orderly markets.
Pounding home the Republican argument, Chairman Crapo said, “Mr. Clayton has extensive expertise in our financial markets as a highly-regarded securities lawyer. For decades, he has helped companies access our capital markets, increase their ability to invest in the U.S., and grow and create jobs.”
While questioning Clayton, outspoken anti-Wall Street campaigner and Trump baiter Democratic Senator Elizabeth Warren observed that “If President Trump wanted to make sure that the SEC would have a hard time going after his Wall Street friends, it seems to me you would be the perfect SEC chair.”
Warren also noted that Clayton would be obliged to recuse himself from all enforcement cases that involved his former clients and any other clients of his former law firm, suggesting that this could include practically every firm to be regulated.
Warren said this was a bi-partisan problem, pointing out that Clayton’s predecessor Mary Jo White had to recuse herself similarly from enforcement action involving her former law firm, Debevoise and Plimpton, all their clients, and even clients of her husband’s law firm, Cravath, Swaine and Moore.
Warren noted that after quitting the SEC, Mary Jo White returned to Debevoise and Plimpton, further illustrating the inherent conflicts.
One of the most pertinent observations at the hearing came from Republican Senator John Neely Kennedy from Louisiana when he said, “We’ve got too many undeserving people at the top getting bailouts and we got too many people undeserving people at the bottom getting handouts, and the folks in the middle get stuck with the bill. And they can’t pay it any more.” Kennedy said. “I believe in efficient markets, I believe in supporting capital formation, but I also have lived long enough to understand human nature: some people cheat, they cheat in all walks of life, and they cheat in all professions, but when people cheat in securities matters, a lot of people get hurt. I hope you’ll be mindful of that.”
Though Clayton faced plenty of fire in the hearing, his nomination is expected to sail through. After a vote in this committee his nomination will be voted on by the full Senate.