Loyola University Chicago School of Law, J.D. 2018
President Donald J. Trump wasted no time in nominating Jay Clayton, Partner at Sullivan Cromwell, as his pick for the chairman of the SEC. Clayton, a veteran Wall Street attorney, is renowned for his expertise in public and private mergers, acquisitions transactions, capital market offerings, and regulatory and enforcement proceedings. The direction that Clayton will take in guiding the SEC can be most accurately inferred by comparing his history on Wall Street with that of the current SEC chair, Mary Jo White.
Jay Clayton has seen both the glamour and the downside of Wall Street, and his roles in both have impressed upon him the need to ease rules for the formation of new capital. Clayton participated in Alibaba’s $25 billion IPO, the largest-ever global IPO, and has frequently represented Goldman Sachs. However, these experiences are tempered by Clayton’s involvement in the 2008 financial crisis, where his aptitude for skilled deal-making in sensitive situations was cemented. He was also enlisted by Bear Stearns in connection with the sale of Bear Stearns to JPMorgan Chase and Barclays Capital in connection with its purchase of assets of Lehman Brothers out of bankruptcy.
If Clayton has established himself as a deal-maker, then White has cast herself firmly as an aggressive regulator. Nominated in 2013 by former President Obama, White was selected because of her successful history of high-profile prosecutions. White, a former U.S. attorney for the Southern District of New York, placed a renewed emphasis on the SEC’s mission to “investigate to litigate” with an eye towards fines. Indeed, in White’s tenure, the SEC brought in a record-setting 2,850 enforcement actions, achieved sanctions that totaled over $13.4 billion, and charged over 3,300 companies with violations.
Just as their pasts give clues to the compliance aims of Clayton and White, so too do the contrasting nomination statements given by former President Obama and President Trump. Former President Obama compared White to a “cop on the beat” enforcing compliance, calling attention to her past prosecutions, and warning against irresponsible behavior. Obama summarized his selection by stating, “Mary Jo is not someone you (Wall Street) want to mess with.” President Trump’s comments were in stark contrast; he urged that the role of SEC moving forward was to “undo many regulations which have stifled investment in American businesses, and restore oversight of the financial industry in a way that does not harm American workers.” Clayton echoed the sentiments of the SEC’s easing of compliance regulations, adding that “We will carefully monitor our financial sector, as we set policy that encourages American companies to do what they do best: create jobs.”
Further inferences about Mr. Clayton’s aims for SEC compliance can be drawn from a 2011 paper that he oversaw, The FCPA and Its Impact On International Business Transactions. The report casts blame on “overzealous” SEC compliance for “causing lasting harm to the competitiveness of U.S. regulated companies and the U.S. capital markets.” The report also describes the negative effect of overreaching compliance efforts, calling them a potential competitive disadvantage for American companies.
Some critics of the nomination fear that with Clayton as chairman, the SEC’s efforts to scale back regulation may end up being too lax and point to Clayton’s close ties with Wall Street. Rep. Maxine Waters (D-Calif.) called Clayton a “Wall Street insider” and said that his appointment refutes the campaign promises of President Trump to “get tough on Wall Street.” Despite this, former SEC enforcement chief Bill McLucas cautioned against hasty conclusions. McLucas framed Clayton’s experiences with Wall Street firms in a positive light, noting his deep experience in corporate governance, and urging, “It is a mistake to think lawyers that have labored in this area are somehow tainted in their judgment.”
The professed aims of President Trump in nominating Clayton, Clayton’s Wall Street tenure, and Clayton’s past writing all demonstrate the directional change that the SEC is about to undergo. While it is certain that the move from enforcement of compliance regulations to undoing some of these “overzealous” regulations is the goal under Jay Clayton, whether this will “make the SEC great again” remains to be seen.