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Changes at the Securities and Exchange Commission (SEC)

Significant senior personnel changes will impact the SEC over the second quarter of 2013. Former SEC Chairman Mary Schapiro resigned effective December 14, 2012. At the highest level, her legacy and priorities have been extended by the interim appointment of Commissioner Elisse Walter as Chairman over the past few months. However, at the senior staff levels there has been a mass exodus of division directors, including the agency's General Counsel, Director of Enforcement, Director of Corporation Finance, Director of Trading and Markets, and Director of International Affairs. These departures have created a leadership vacuum at the SEC at the very time the agency is faced with considering dozens of overdue rules mandated by the Dodd-Frank legislation, as well as deal with the legacy issues arising from the financial crisis.

Into this backdrop, the President recently nominated Mary Jo White to be the next chairman of the SEC. Ms White is a formidable white collar and securities defense attorney who, as the U.S. Attorney in the Southern District of New York, had an extensive background as a no-nonsense prosecutor of terrorism, organized crime, and securities cases. She will likely be confirmed and sworn into office in April 2013.

Ms White's background and her testimony at her recent confirmation hearings provide some guidance as to where her priorities will lie.

First, we expect the new Chairman to move quickly to fill the leadership vacuum described above. Ms White is a talented manager with her hand on the pulse of the securities bar both inside and outside the agency. We would expect that she will have permanent people in place within 30 to 60 days of her appointment. These appointments will immediately strengthen her control over the agency.

Next, expect renewed focus and vigor on the investigations stemming from the financial crisis. Those cases present a challenge to the SEC's investigative docket and as time passes even their most promising cases are looking stale. While Ms White no doubt has the fortitude to get those investigations concluded and where appropriate brought in short order, she also has the political capital to close those investigations when the circumstances warrant.

We also expect Ms White to push forward relentlessly the rule making efforts that were mandated by Dodd-Frank and that are now long overdue, although that road may be a bumpy one. Interestingly, if current Chairman Walter resigns from the Commission when Ms White is appointed, the SEC will be evenly split between two Democrats and two Republicans. While the President can nominate another Democrat, we do not expect one to be nominated and sworn in before the summer. While ordinarily this would lead to gridlock, we expect Ms White to actually try to build consensus among the Commissioners on at least some of the rule proposals. Also it would not be unexpected to see her build coalitions with the Republicans on at least some issues as Ms White is arguably less political than some of her predecessors.

Finally, while the tasks described above appear Herculean, Ms White will also likely focus her energies on improving and upgrading the SEC's Enforcement Division with the likely result of more enforcement investigations, especially those focused on financial services firms. Ms White's talents as a prosecutor and as U.S. Attorney will certainly lend themselves to continuing the reform of the most public of the SEC's divisions.

Legal and Regulatory Risk Note
United States