Nearing comfirmation, SEC chair nominee curbs...

his enthusiasm for Dodd-Frank curbs.

Sullivan & Cromwell partner Jay Clayton, President Trump's nominee to chair the US Securities and Exchange Commission is a step closer to winning confirmation.  With three Democrats crossing party lines, Sullivan & Cromwell partner Jay Clayton cleared the Senate Banking Committee Tuesday on a 15-8 vote to advance the nomination to the full Senate floor for a final vote on confirmation.  Senate Majority Leader Mitch McConnel (R-KY) has yet to schedule the final vote.

If confirmed, Clayton would be required to recuse himself for a year from matters involving Sullivan & Cromwell and companies he represented, such as Goldman Sachs Group Inc. and Pershing Square Capital Management.  Throughout his tenure, he also would be barred from weighing in on specific business deals or investigations he worked on as a private lawyer.  Mr. Clayton contended that his work for financial firms would be a strength should he win confirmation to lead Wall Street’s top regulator.

Senator Elizabeth Warren (D-MA), relentlessly one of the finance industry’s fiercest critics, said Clayton’s potential recusals could weaken SEC enforcement, if remaining commissioners are deadlocked on numerous cases off-limits to him. "The chair is often the deciding vote,” she said at the hearing. “Of course if the chair can’t vote and the remaining SEC commissioners split along party lines, then major enforcement actions don’t go forward and the serious wrongdoing can go unpunished.”

Meantime back at the office, Acting Chair Michael Piwowar has not merely been keeping the seat warm.  Pending the chair's confirmation, he instigated reconsideration of the CEO pay-ratio rule, which requires disclosure of CEO pay relative to the corporation's rank-and-file workers.  Some observers posit that this action signals that a Republican-led SEC aims to drop a series of unfinished Dodd-Frank pay mandates.  These include proposed rules designed to make it easier to determine whether top executives' compensation is aligned with the firm's financial performance and separate requirements that companies claw back, or revoke, some of their top officials' incentive pay if they have to restate financial results.

Not long after taking the reins, Mr. Pinowar also directed the staff to undertake reconsideration of the "conflict minerals" rule, which requires companies to report corporate use of minerals from war-torn regions in their supply chains.  Additionally, he scaled back the SEC enforcement unit's powers to initiate investigations and to issue subpoenas

In a letter dated march 29th, a group of Senate Banking Committee members asked SEC Inspector General Carl W. Hoecker.to look into Dodd-Frank Act and enforcement moves made by the agency’s acting chairman, Michael Piwowar. “We are concerned that Commissioner Piwowar’s actions may lack adequate justification, undermine the SEC’s mission, exceed his authority as Acting Chairman, violate other procedural requirements, and could potentially prove to be a waste of the SEC staff’s precious time and resources,” wrote Senators Sherrod Brown (D-OH), Elizabeth Warren (D-MA), Robert Menendez (D-NJ) and Brian Schatz (D-HI).

During his first appearance before the committee on March 23rd, Mr. Clayton, thought to be a critic of regulatory overreach, throttled back lightly on his intentions regarding Dodd-Frank Act rules.  "Dodd-Frank should be looked at, in particular rules that have been in place as to whether they are achieving their objectives effectively,” he said. "But I have no specific plans to" dismantle the legislation, he said.

For the sake of predictability and stability, the securities industry and the corporate governance community look forward to the new chairman being in place soon.

Robert Stead