Will New SEC Chairman Get Tough on Financial Crimes?

by Phil Cannella

Not long ago, I wrote about the appointment of Mary Jo White, the new chairman of the SEC.  At the time, I felt it would be good for the SEC to have a chairman at all, regardless of who it was, since the agency was left without a permanent leader for about a month after former Chairman Mary Schapiro resigned early this year.  I also expressed some trepidation, because of White’s background in the private sector as a lawyer working for Wall Street.  Well it looks like I’m not the only one in the media who has concerns about White; Bloomberg published a piece today about White (click here for the Bloomberg article), in which they examine her track record in prosecuting financial criminals.

The first example provided in the Bloomberg piece is the case of Prudential Securities in the 90s, when White was a federal prosecutor in New York.  Prudential was accused of fraud for the marketing techniques they used to push some bad energy investments.  In this case (which is remarkably similar to the fraud cases against giants like Goldman Sachs brought after the 2008 financial crisis), White opted to settle, instead of truly taking Prudential to task for its criminal activities.  The final settlement levied a fine of $330 million and allowed Prudential to continue operating, and allowed them to avoid any criminal charges.  Sound familiar?

If it does sound familiar, it’s because those are the same types of settlements the SEC has reached with other financial firms accused of fraud after 2008.  These so-called consent agreements allowed big firms to pay a fine (usually in an amount considerably less than what they made from their illegal activities) and continue operating just as they had before the charges were brought.  The kicker is that these firms also avoided criminal prosecution for their crimes because the language of the consent agreements permit them to neither admit nor deny any wrongdoing.  So once a settlement like this is reached, the Department of Justice can’t touch these firms anymore because, after all, the settlement they reached in their civil cases says they didn’t do anything illegal.

White’s track record, and comments she has made in the past, indicate that she might be just as permissive as Mary Schapiro was.  She has made comments showing that she is cautious about being overzealous in prosecuting financial crimes, because of the collateral damage it could cause.  Comments like these, coupled with the fact that White has worked in the private sector defending financial firms since she stepped down as a U.S. Attorney for New York’s Southern District in 2002, leave room for the possibility that Mary Jo White will not be effective in stemming the tide of corruption on Wall Street.

But I will continue hoping that’s not the case.

Phil Cannella is founder and CEO of Retirement Media, Inc.