Democrats criticised Donald Trump’s choice to run the Securities and Exchange Commission on Thursday, saying that Jay Clayton, a veteran securities lawyer, is too deeply entangled with Wall Street to be an effective markets cop.
SEC ethics rules will require Mr Clayton, a partner with Sullivan & Cromwell in New York, to recuse himself for two years from enforcement actions involving his former clients or anyone represented by the law firm. His sidelining could leave the other four commissioners deadlocked and weaken enforcement, said Democratic senator Elizabeth Warren. She was speaking during his confirmation hearing before the Senate banking, housing and urban affairs committee.
“Any reasonably strategic company that wanted to avoid an SEC enforcement action could simply hire Sullivan & Cromwell to represent them before the agency,” Ms Warren said. “If President Trump wanted to make sure the SEC had a hard time going after his Wall Street friends, it seems to me you would be the perfect chair.”
Mr Clayton, who earned $7.6m last year representing clients including Barclays Bank, Deutsche Bank and Goldman Sachs, said he would have “zero tolerance for bad actors”. But Ms Warren, a frequent critic of the financial industry, was not mollified.
“Those banks have repeatedly violated securities laws in the past few years, but if they violate them again in your first two years, you can’t vote to punish them, “ Ms Warren said. “I think that’s a problem.”
Mr Clayton took a dim view of financial penalties imposed upon companies for wrongdoing, saying “shareholders do bear those costs and we do have to bear that in mind”. Individual prosecutions have a greater deterrent effect than corporate punishments, he said.
Mr Clayton refused to take a position on a recent decision by Michael Piwowar, the commission’s acting chair, to strip subpoena power from 20 SEC enforcement officials. In the wake of the 2008 financial crisis, commission staff were granted such authority to speed up investigations.
Ms Warren also challenged Mr Clayton on how he would approach potential financial conflicts involving other Trump administration officials, including investor Carl Icahn, an informal presidential adviser on regulatory streamlining. Mr Icahn stands to benefit as an investor from inside information he learns of administration policies, she said.
Mr Clayton acknowledged meeting with Mr Icahn earlier this year for a discussion of the “importance of activist investors” in improving public companies’ performance.
Republicans uniformly cheered Mr Clayton’s Wall Street background, saying his experience would allow him to improve the workings of US capital markets, and he remains likely to win Senate confirmation. The nominee said he was troubled by a 35 per cent decline since 1997 in the number of initial public offerings on US markets and said he would work to reduce the regulatory costs of taking a company public.
Mr Clayton worked on Alibaba’s 2014 IPO, then the largest in history, and has criticised the anti-bribery Foreign Corrupt Practices Act for imposing an unfair compliance burden on US companies.
“I have a problem with regulations that are unnecessarily complex,” Mr Clayton said. “Reducing complexity, clarity are very important. If people know the rules they can operate more efficiently.”
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