Senator Warren Versus SEC Chair White

Senator Elizabeth Warren sent a sharp letter to Mary Jo White, Chair of the Securities and Exchange Commission.

“You have now been SEC Chair for over two years, and to date, your leadership of the Commission has been extremely disappointing.”

Senator Warren raises four major issues:

The SEC’s failure to finalize the rules for disclosure of the ratio of CEO pay to the median worker.
The SEC’s failure to curb the use of waivers for companies found to be in violation of securities law.
The SEC has settled the vast majority of cases without requiring the companies to admit guilt.
Chair White’s inability to participate in numerous cases because of her prior employment and her husband’s ongoing employment.

Personally, I believe that Senator Warren and Chair White are both well-meaning individuals who are both trying to protect the American consumer and the American financial markets. Senator Warren is one of my Senators and I voted for her.

I think the CEO pay rule is a useless exercise that will take a great deal of resources at public companies. The actual calculations will be full of assumptions and inconsistencies. The end result will do nothing to curb CEO pay inflation, protect consumers, or bolster the capital markets.

According to competing stories, in a private meeting between White and Warren, White promised the final CEO Pay Ratio Rule would be enacted in 2015. However, the SEC released a rulemaking schedule to the Office of Management and Budget that stated the CEO Pay Ratio rule would not be done until April 2016. I’m not sure the statements are inconsistent. There may be a misunderstanding between when the rule is “finalized” and when it becomes “effective.” I suspect the goal is to get the rule enacted in 2015 but not have it be effective for annual filings until the 10Ks for 2016.

The waiver granting has gotten out of hand. I know many feel that it merely reinforces “too big to fail.” The SEC is liberally granting the waivers to the big firms that allows them to continue operating. However, the true test will be when a smaller firm gets into the same trouble. Will the SEC kill the smaller firm by not granting the same waiver?

Senator Warren cites the statistic that between June 2013 and September 2014, the SEC made 520 settlements but only required admission of guilt in 19 cases. But before White’s tenure, the SEC had never required a guilty admission, according to an SEC official. It’s still a strange legal limbo to settle, but not admit guilt. The problem, of course, is the impact on private litigation such as shareholder lawsuits.

According to Warren’s letter, Chair White had to recuse herself at least four dozen times. Her personal restrictions have expired now that it has been two years since she left her law firm and her clients. Senator Warren raises an interesting point about Chair White’s husband. She sets up a theory that defendants may try to hire his firm to force her to recuse herself from the case.

These are all valid concerns. The letter is clearly setting the stage for the upcoming nominations for the two open slots on the SEC.

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