March 25, 2023

DealBook: Choice for S.E.C. Is Ex-Prosecutor, in Signal to Wall St.

President Obama with Mary Jo White and Richard Cordray.Doug Mills/The New York TimesPresident Obama with Mary Jo White and Richard Cordray.

3:30 p.m. | Updated

President Obama announced Thursday his nomination of Mary Jo White, a former federal prosecutor turned white-collar defense lawyer, to be the next chairwoman of the Securities and Exchange Commission.

In a short ceremony at the White House, Mr. Obama also said he was renominating Richard Cordray as director of the Consumer Financial Protection Bureau, a post Mr. Cordray has held under a temporary recess appointment without Senate approval for the past year. The president portrayed both selections as a way of preventing a financial crash like the one he inherited four years ago.

“It’s not enough to change the law,” Mr. Obama said. “We also need cops on the beat to enforce the law.”

Mr. Obama noted that Ms. White was a childhood fan of “The Hardy Boys,” just as he was. He added that as the United States attorney in New York in the 1990s she “built a career the Hardy Boys could only dream of.”

He noted that she prosecuted money launderers, mobsters and terrorists. “I’d say that’s a pretty good run,” he said. “You don’t want to mess with Mary Jo. As one former S.E.C. chairman said, Mary Jo does not intimidate easily.”

Mr. Obama likewise pressed the Senate to finally confirm Mr. Cordray to the leadership of the consumer agency created by the Wall Street regulation law passed in 2010. The president installed Mr. Cordray as director last January without Senate approval using his recess appointment power, but his term will expire at the end of the year unless he wins approval from the upper chamber of Congress.

“Financial institutions have plenty of lobbyists looking out for their interests,” Mr. Obama said. “The American people need Richard to keep standing up for them. And there’s absolutely no excuse for the Senate to wait any longer to confirm him.”

Ms. White and Mr. Cordray spoke only briefly. Ms. White said if confirmed she would work “to protect investors and to ensure the strength, efficiency and the transparency of our capital markets.” Mr. Cordray said that during his short tenure he has “been focused on making consumer finance markets work better for the American people” and approached it “with open minds, open ears and great determination.”

Regulatory chiefs are often market experts or academics. But Ms. White spent nearly a decade as the United States attorney in New York, the first woman named to this post. Among her prominent cases, she oversaw the prosecution of the mafia boss John Gotti as well as the people responsible for the 1993 World Trade Center bombing. She is now working the other side, defending Wall Street firms and executives as a partner at Debevoise Plimpton.

As the attorney general of Ohio, Mr. Cordray made a name for himself suing Wall Street companies in the wake of the financial crisis. He undertook a series of prominent lawsuits against big names in the finance world, including Bank of America and the American International Group.

The White House expects Ms. White, 65, and Mr. Cordray, 53, to draw on their prosecutorial backgrounds while carrying out a broad regulatory agenda under the Dodd-Frank Act. Congress enacted the law, which mandates a regulatory overhaul, in response to the 2008 financial crisis.

Jay Carney, the White House press secretary, said Ms. White has “an incredibly impressive resume” and that her appointment along with the renomination of Mr. Cordray sends an important signal.

“The president believes that appointment and the renomination he’s making today demonstrate the commitment he has to carrying out Wall Street reform, making sure we have the rules of the road that are necessary and that are being enforced in a way” to avoid a crisis like that of 2008, Mr. Carney said.

Another White House official added that Ms. White and Mr. Cordray will “serve in top enforcement roles” in part so that “Wall Street is held accountable and middle-class Americans never again are harmed by the abuses of a few.”

Ms. White will succeed Elisse B. Walter, a longtime S.E.C. official, who took over as chairwoman after Mary L. Schapiro stepped down as the agency’s leader in December. Mr. Cordray joined the consumer bureau in 2011 as its enforcement director.

The nominations could face a mixed reception in Congress. Republicans had previously vowed to block any candidate for the consumer bureau, leading to the recess appointment. It is unclear whether the White House and Mr. Cordray will face another standoff the second time around.

Mr. Carney argued that there were no substantive objections to Mr. Cordray’s confirmation, only political ones. “He is absolutely the right person for the job,” Mr. Carney said.

Ms. White is expected to receive broader support on Capitol Hill. Senator Charles E. Schumer, a New York Democrat, declared that Ms. White was a “tough-as-nails prosecutor” who “will not shy away from enforcing the laws to ensure that markets operate fairly.”

But she could face questions about her command of arcane financial minutiae. She was a director of the Nasdaq stock market, but has otherwise built her career on the law-and-order side of the securities industry.

People close to the S.E.C. note, however, that her husband, John W. White, is a veteran of the agency. From 2006 through 2008, he was head of the S.E.C.’s division of corporation finance, which oversees public companies’ disclosures and reporting.

Some Democrats also might question her path through the revolving door, in and out of government. While seen as a strong enforcer as a United States attorney, she went on in private practice to defend some of Wall Street’s biggest names, including Kenneth D. Lewis, a former head of Bank of America. She also represented JPMorgan Chase and the board of Morgan Stanley. Last year, the N.F.L. hired her to investigate allegations that the New Orleans Saints carried out a bounty system for hurting opponents.

Consumer advocates generally praised her appointment on Thursday. “Mary Jo White was a tough, smart, no-nonsense, broadly experienced and highly accomplished prosecutor,” said Dennis Kelleher, head of Better Markets, the nonprofit advocacy group. “She knew who the bad guys were, went after them and put them in prison when they broke the law.”

The appointment comes after the departure of Ms. Schapiro, who announced she would step down from the S.E.C. in late 2012. In a four-year tenure, she overhauled the agency after it was blamed for missing the warning signs of the crisis.

Since her exit, Washington and Wall Street have been abuzz with speculation about the next S.E.C. chief. President Obama quickly named Ms. Walter, then a Democratic commissioner at the agency, but her appointment was seen as a short-term solution. It is unclear if she will shift back to the commissioner role if Ms. White is confirmed.

In the wake of Ms. Schapiro’s exit, several other contenders surfaced, including Sallie L. Krawcheck, a longtime Wall Street executive. Richard G. Ketchum, chairman and chief executive of the Financial Industry Regulatory Authority, Wall Street’s internal policing organization, was also briefly mentioned as a long-shot contender.

Kitty Bennett contributed reporting.

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DealBook: Wall Street Scandals Fill Lawyers’ Pockets

NEW WORK Ira Lee Sorkin represents a Barclays trader.Andrew Harrer/Bloomberg NewsNEW WORK Ira Lee Sorkin represents a former Barclays trader.

As Wall Street has faced a string of scandals, bank executives, investors and customers have suffered. But one group is thriving: lawyers.

Called upon to navigate crisis after crisis, the white-collar bar is having a banner year with cases like the collapse of the futures brokerage firm MF Global, a multibillion-dollar trading blunder at JPMorgan Chase and suspicions of money laundering at HSBC.

The global investigation into the manipulation of a crucial benchmark interest rate known as the London interbank offered rate has emerged as the most profitable for the legal profession.

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While many of the recent scandals have been relatively isolated, the scope of the rate-rigging scandal has been vast, encompassing 16 banks. More than 10 government authorities around the world are looking into whether the banks reported false rates, potentially affecting trillions of dollars of financial products like mortgages and student loans.

The investigation is still in its early days, but experts say it is likely to drag on for years. Authorities could arrest traders this year, and more cases against big banks are expected. Earlier this year, Barclays agreed to pay $450 million to settle accusations that it had reported false rates.

Libor Explained

HIGH STAKES Barclays, hardest hit in the Libor scandal, hired Sullivan  Cromwell, which is led by H. Rodgin Cohen.Andrew Harrer/Bloomberg NewsHIGH STAKES Barclays, hardest hit in the Libor scandal, hired Sullivan Cromwell, which is led by H. Rodgin Cohen.
HIGH STAKES Jon S. Corzine, left, former chairman and chief executive of MF Global Holdings, and his lawyer Andrew Levander.Andrew Harrer/Bloomberg NewsHIGH STAKES Jon S. Corzine, left, former chairman and chief executive of MF Global Holdings, and his lawyer Andrew Levander.

Every major bank under investigation has hired a major law firm to represent it. An army of white-collar defense lawyers has been assembled to defend individuals. Plaintiffs’ lawyers have filed more than a dozen lawsuits against the big banks, claiming damages on behalf of institutions, pensions and municipalities like the City of Baltimore.

“This is looking like a full employment act for the corporate bar,” said Samuel W. Buell, a professor at Duke Law School. “It’s very hard to see how you draw a tight circle around this issue.”

Over the last few decades, white-collar law has transformed from a boutique business into a major focus for the biggest law firms. As firms expand globally and the federal government makes corporate prosecutions a higher priority, the practice has become a profit center.

Companies do not like to scrimp with civil and criminal cases. The stakes are too high.

In the last decade, a number of major cases have engulfed corporate America — and by extension, white-collar lawyers. The stock options backdating scandal, which emerged in 2006, swept up more than 100 companies and many executives. The cases provided much work for lawyers, including internal investigations at major companies and notable criminal defense efforts. A few years earlier, accounting scandals at companies like Enron and WorldCom generated similarly handsome legal fees.

Not all white-collar crackdowns are the same. Consider the federal government’s insider-trading cases. The charges affect a handful of people and do not require the machinery of an entire legal institution. One former prosecutor in the Southern District of New York who spoke on the condition of anonymity because the conversations had been private said that defense lawyers jokingly complained that the hedge funds and other traders affected by the investigation tended to be low-margin clients.

With the interest-rate-fixing case, law firms started seeing the dividends in 2008. When the investigation got under way, the Commodity Futures Trading Commission, the American regulator, asked a handful of major banks to conduct internal inquiries. The goal was to figure out the extent of potential manipulation, focusing on a crucial benchmark known as the London interbank offered rate, or Libor.

At the time, the banks hired outside counsel to review the e-mails and documents as well as to conduct interviews. Barclays, the hardest-hit institution to date, hired Sullivan Cromwell, which is led by H. Rodgin Cohen. Paul, Weiss, Rifkind, Wharton Garrison is representing both Citigroup and Deutsche Bank.

The firms put dozens of top lawyers to work unearthing the worst of what had transpired, then gave their findings to regulators. Those reports form the backbone of the cases against the banks.

In the midst of the internal investigations, banks began identifying individuals who may have improperly tried to influence interest rates. Those employees are entitled to counsel, paid for by the banks. The bank’s law firm will usually refer the individuals to other white-collar lawyers, since the interests of the banks and the employees may differ. Despite the effort to reduce conflicts, the referrals can be problematic because the banks are paying the bills.

“Sometimes you may be best served by going with a lawyer who has established relationships with the people who represent the company,” said Charles D. Weisselberg, a professor at the University of California, Berkeley School of Law and co-author of a recent study examining white-collar practices at major law firms. “Or sometimes you may want someone more independent of the company lawyers who may not be looking to them for a referral in the future.”

The referral system has been big business in the Libor case.

Dozens of individuals have hired lawyers, according to interviews with lawyers. Andrew J. Levander, the Dechert lawyer who represents former Gov. Jon S. Corzine of New Jersey in the MF Global matter, has been retained by Robert E. Diamond Jr., a former Barclays chief executive. Ira Lee Sorkin, who represented the Ponzi scheme mastermind Bernard L. Madoff, has been retained by a former trader at Barclays.

The most damaging aspects of the case could be traders’ efforts to manipulate the index to squeeze more money from clients. After one exchange, a rate submitter at Barclays told a trader, “Always happy to help. Leave it with me, sir,” according to regulatory documents. Another responded, “Done … for you big boy.”

“The tenor of the exchanges reflects a relentless indifference to the rights and interests of their clients,” said Michael Hausfeld, a plaintiff’s lawyer in the Libor case. He said it could take a long time to sift through the evidence. “There are a lot of nuances here that still have to be studied, but it’s clear there was widespread disruption caused in the market.”

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