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Mary Jo White: Next SEC Chief’s ‘Skeleton in Closet’

Posted by Larry Doyle on January 24, 2013 11:09 AM |

News breaks this morning that President Obama will nominate Mary Jo White to be the next head of the SEC.

Who is Ms. White? A highly decorated attorney at the prestigious law firm of Debevoise & Plimpton. I would expect she might win a very easy approval to be our nation’s next top financial cop. Why so?

The spin on the nomination is that she is a former prosecutor and US Attorney for the Southern District of New York and will hold Wall Street accountable. Is that right?

Before we coronate her, I think we may want her to address what I would deem to be a ‘skeleton in her closet.’ Really? Oh yeah!

Not that many in America might know, but Ms. White is hardly unknown to those on Wall Street. In fact, in studying this skeleton it would appear that Ms. White has some close ‘friends’ — so to speak — on Wall Street, including former Morgan Stanley CEO, John Mack.

Piqued your interest, yet? I would hope.

Regular readers are likely aware of the intrigue, if not outright scandal, surrounding the insider trading case of Pequot Holdings and the aforementioned Mr. Mack. In that case, then SEC attorney Gary Aguirre was pursuing justice in making the case that Pequot engaged in insider trading in which the then largest hedge fund in the industry made a tidy $14 million profit trading in Microsoft.

Where did Aguirre’s work lead him? To the door of one of Wall Street’s most powerful executives, prospective Morgan Stanley chief John Mack. What happened next?

In the course of reviewing The Firing of an SEC Attorney and The Investigation of Pequot Capital Management, we learn a lot about this case. (hat tip to the reader who encourages us to search for “White” in that linked document). An abridged United States Senate expose of events on page 5 of the document details that:

Attorneys for Pequot and Morgan Stanley had direct access to the Director and an Associate Director of the SEC’s Enforcement Division.

In January 2005, Pequot’s lead counsel met with the SEC Director of Enforcement Stephen Cutler. Shortly thereafter, SEC managers ordered the case to be narrowed considerably. In June 2005, Morgan Stanley’s Board of Directors hired former U.S. Attorney Mary Jo White to determine whether prospective CEO John Mack had any exposure in the Pequot investigation. White contacted Director of Enforcement Linda Thomsen directly, and other Morgan Stanley officials contacted Associate Director Paul Berger.

Soon afterward, SEC managers prohibited the staff from asking John Mack about his communications with Arthur Samberg at Pequot.

What did the 108 page report linked above highlight? From Aguirre’s own site we learn:

Senate Finance and Judiciary Committees conclude Mr. Aguirre’s allegations are true: senior SEC officials gave preferential treatment to Morgan Stanley’s CEO and then discharged Mr. Aguirre when he questioned their decision.  The two Committees recommend the SEC make major structural changes.

Perhaps before Ms. White is confirmed as the next head of the SEC, those on the Senate Banking committee may care to learn ALL of the details of this case so she can be vetted appropriately.

I think most people in America, if not the world, would care to learn all the details as to how and why Ms. White ran interference for Mr. Mack in this case. (By the way, Aguirre continued his work on this case after having been fired by the SEC and made the case that shut Pequot down and had that hedge fund pay a $28 million fine. Maybe he should have been nominated to head the SEC!)

Will Ms. White allow others to similarly intervene — as she did — on behalf of Wall Street’s power base?

Will Ms. White also allow SEC attorneys who pursue cases in the manner that Aguirre did in this Pequot debacle to be fired?

Think of the insider trading that could have been prevented if Aguirre was not derailed in 2005.

Think of the investors in Microsoft who were not properly protected from the insider trading that Pequot undertook.

Think of the message that Ms. White’s intervention on behalf of Mack and Morgan Stanley sent to all those who were aware of this case at that point in time.

What does it mean now that our nation’s likely next top financial cop was willing to see an SEC attorney fired while doing his job? That SEC attorney was ultimately vindicated, and then made the case that brought a degree of justice to this  situation.

America deserves to hear from Ms. White and have this skeleton brought fully out of the closet if we are to believe that real justice might ever have a chance to be meted out on Wall Street.

If you agree that America needs to hear more from Ms. White about this ‘skeleton,’ please share this story.

Thoughts, comments, constructive criticisms encouraged and appreciated.

Larry Doyle

Isn’t it time or overtime to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Peter Scannell

    Ms. White, here are a few suggestions:

    1. Seek from Congress increased financial penalties for any loathsome securities fraud that loots the savings of mom and pop.

    2. Seek from Congress a lager allocation of funds to prosecute any of the major players, and the individuals running the show (it’s just a game for many of them), who violate securities laws.

    3. Rein in the high speed trading which sole purpose is to facilitate front running.

    4. Restore in its entirety the Up-tick rule that served our markets well from 1938-2007.

    5. Strengthen, and apply more broadly, fiduciary duty in the Financial Services Industry

    6. Rewrite the prospectus laws that a recent Supreme Court ruling decimated.

    7. Tar and feather a few “too big to be deposed” Wall Street titans.

    8. Error on the side of caution (the unwitting long-term investor).

    9. No longer mandate that the Securities and Exchange Commission’s Office of Inspector General submits their reports or investigation for redaction to the very Commission they are inspecting – no other federal IG submits their the results of their inspections or investigation to the very federal authority they are investigating. Market moving information can be contained in many of the various federal IG reports. The SEC OIG reports should be submitted in their entirety to the appropriate congressional committees – our nation’s ultimate IGs (or they should be any way).

    10. Use as sparingly as possible the plea “neither admits nor denies.” The plea may help in some cases bring restitution more quickly to harmed investors, yet it allows those who orchestrated the looting, to slink off and do it all over again.

    11. When settling a securities law violation, please refrain using in the settlement the restriction that the party agrees not to violate that very law again. That statement dilutes the integrity and importance of the securities law violated.

    12. Reject any communication to you from outside the Commission that does not address your vital role maintaining the security of our financial markets. No informal salutations along the lines of, “Thanks a bunch Mary Jo!”

    13. Bring an end to the ARS debacle!

    14. Fashion some type of “three strikes you’re out law” for entities or persons perpetually violating securities similar to the ones our federal and states prosecutors use against ordinary folks who perpetually commit crime.

    15. Take whistle blowers very seriously – they are one of our nation’s greatest securities enforcement devices; though when ignored – they can come back to haunt you!

    16. And now that you’re considering changing sides again – have loathing in your heart for those who commit the despicable act of looting the hard earned savings of the American investor!

  • Peter Sivere
  • Andrew
  • silver

    “tell the truth, the whole truth, and nothing but the truth, so help you God”

    What is the matter with this country? How did things go so wrong?? How do these people look themselves in the mirror??

  • Sunforester

    Hey, at least Ms. White was actively preventing justice being done, instead of merely being passively derelict in her duty, as her porn-watching SEC colleagues have done in shirking their jobs of watching out for us.

    Looking at all the other candidates for Federal administration posts and their quality, Ms. White
    is actually right in the middle of the pack.

    No Democrat would have a problem with Ms. White, unlike Hillary Clinton did the other night in her testimony
    about her State Department’…

  • Steve

    Larry, I appreciate your piece on MJ. Your illuminating expose’ may be used for Republican fodder because I haven’t seen much on the wire services today on her.

    Although I’m not sure it’s enough to derail her appointment, but based on her persecutory style and Obama’s overall punitive attitude towards big business and Wall Street, it could be a bumping road ahead.

    Thanks for the heads up on MJ.

  • Bill

    Drawing from the film Apocalypse now, I’m beginning to think prosecuting insider trading on wall st. Is like handing out speeding tickets at the Indianapolos 500.

  • Peter Sivere

    Hi Larry,

    Hoping Gary Aguirre will opine here. Would love to send his commnets to my Congresswoman.

  • RB

    Obama’s nomination of Ms. White is intended to assure that the SEC remains a toothless dragon as it has for the past two decades.

    After all, it’s job is no longer to protect the American investing public, quite the contrary, it is instead expected to protect the corrupt on Wall Street from ever really suffering any meaningful punishment for their perpetual crimes against that very same public. The SEC doesn’t even put on a decent “fake dog and pony show” for public consumption any more.

    The SEC now operates as the lapdog of Wall Street, much like the FDA is the obedient lap dog of Big Pharma and since the FDA is run by former honchos of the entities it is supposed to police, why not strive for uniformity in corruption and staff the SEC in somewhat similar manner? [that’s sarcasm for any who may have missed it.]

  • LD

    The Huffington Post picks up on this commentary and writes the first hard hitting piece in the media on this subject.

    “This is nothing more than a continuation of the revolving door,” said Larry Doyle, the managing partner at the independent advisory firm DM Income Advisers, in Delaware (incorrect, that should read Connecticut). Doyle said White’s nomination diminishes already weakened public trust and confidence in the system.

    Mary Jo White, Obama Pick to Head SEC, Pushed Former Enforcement Chief as Bank Lawyer

  • Peter Sivere

    From the Huff Post article above:

    That such a conversation was “not uncommon,” the Senate committee said in its report, “is precisely the problem.”

    Gary Aguirre, the SEC attorney whose complaints prompted the Senate probe, accused the agency of refusing to pursue Mack because of his “very powerful political connections,” an account that emails from Aguirre’s former supervisor confirmed, the committee concluded.

    In an interview with The Huffington Post on Wednesday, Aguirre said he believes the White phone call to Thomsen also played a role in killing the SEC’s investigation into Mack. “There’s no question in my mind that that phone call from Mary Jo White stopped the whole investigation,” he said. “The case was like a railroad heading for a criminal investigation. And it got zapped with a call.”

  • Peter Sivere

    What a crew. Perhaps Mary Jo will bring Linda back.

    • Peter Scannell

      And lastly Ms. White, never rat out a whistle-blower to his employer, it can have a devastating effect on their life; and if they ever really find out how it all went down …well, let’s just see.

    • LD

      Yep, that was the same Linda Thomsen who rolled over like a “you know what” on Gary Aguirre’s efforts so Mack the Knife could skate free.

      Thanks for reminding us.

      Where is Ms. Thomsen now? Back through that revolving door to Davis Polk so she can take another cookie as they get passed around the table.

  • Peter Sivere

    In the banking world, White represented JPMorgan Chase & Co in major matters related to the financial crisis.

    “I have met Mary Jo White, and anyone who knows her at all – extremely capable, competent, bright, tough and a perfect choice,” JPMorgan CEO Jamie Dimon said in an interview on Thursday with Fox Business Network from Davos.

    Give me a break.

  • RB

    If Jamie Dimon thinks Ms. White is the “perfect choice” then it is absolutely certain she is NOT the one we want in that office. Translated into “bankerese” for the uninitiated, that means. The job is hers if she wants it, much to the total dismay of average investors and traders all over this nation.

  • Peter Watts

    She looks rather like Moe from The Three Stooges!!

  • JH

    She seems like a perfect fit for a corrupt institution like the puppet of wall street that the SEC is.

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