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Messin’ With Mary Jo: She and The SEC As A Whole–Face A Firestorm Of Criticism

“I am disappointed that you have not been the strong leader that many had hoped for and that you promised to be” Senator Elizabeth Warren, D-MA and a member of the Senate Banking Commission wrote in early June - in a stinging 13-page letter to SEC Chairman Mary Jo White: “I hope you will step up to the job for which you were confirmed.”

Among the shortcomings Warren cited; the long  delay in proposing new executive-comp disclosure rules – and a rule, mandated by Dodd-Frank and first proposed in 2013 to disclose the gap between CEO pay and that of the median pay; on the SEC’s failures to require more admissions of guilt in settlement actions; for declining to use penalties that are at the SEC’s disposal – like revoking an offender’s “well- known seasoned issuer” status – and for being too lenient with waivers of penalties on repeat offenders. “These waivers apparently reflect the commission’s view that these banks deserve to continue to enjoy special privileges under the securities law despite the deep breaches of trust and evidence mismanagement displayed in these cases” she wrote.

Meanwhile, the SEC has been scrambling to defend its use of in-house vs. federal judges – which has drawn public criticism from a large number of former SEC officials – like William McLucas, a former director of the Division of Enforcement and Matthew Martens, formerly the SEC’s chief litigation counsel, in a WSJ Op-Ed article – and George Cannelos, who stepped down last year as co-director of the Enforcement Division, and who recently called on the SEC to “end the very grave appearance of injustice” when the SEC commissioners first decide to approve enforcement actions, then decide on appeals against the judgments of their in- house judges. At least seven cases are currently at risk, after a federal judge in Atlanta ruled that the in-house tribunals were “likely unconstitutional” because the judges should be “officials” – appointed by the commissioners themselves – rather than being “employees” hired by lower level staffers.

And Ouch! The SEC’s CAT – or Consolidated  Audit Trail project – supposedly the answer to preventing more “Flash Crashes” – seems to be totally out of control exactly as we’d predicted it would end up when it was first announced, in 2010. The ten industry orgs that were supposed to manage the project – obviously a bad way to manage any large project – have still not chosen anyone to organize, build or run it. There’s no consensus on what it will cost to do so – with estimates that vary from $150 -$500 million for just the first five years…or on how to pay for it…or on when it might be up and running…although the smart money says way more than five years. And now there are serious doubts that a ‘consolidated audit trail” – while it might help to do a postmortem, and maybe assist in cleaning up some of the mess - would do a single thing to prevent future flash-crashes…or help to spot rogue traders, as also promised, back when. (The CAT, it should be noted, was first let out of the bag and unleashed on Mary Shapiro’s watch…but small consolation for M-J we’re sure.)

All of the flak seems to have set off a sudden flurry of activity at the SEC (see our Regulatory Notes and Comments section below)…which MAY prove to be a “good thing” for Mary Jo, and for the markets, so here’s hopin’. And hey! In fairness to Mary Jo, let’s note that this is the most politicized set of SEC commissioners in living memory – who are beset and beleaguered by the most politicized bunch of so-called “legislators” we’ve ever seen, to boot.