Warren to SEC Chair: “Step Up” (Or Step Down)

Robert Borosage

Sen. Elizabeth Warren on Tuesday released a blistering 13-page letter to Securities and Exchange Commission chair Mary Jo White, calling out her “extremely disappointing” leadership of what should be the chief cop on the financial beat, accusing her of “broken promises” and telling her to “step up.”

The reaction to the Massachusetts senator’s charges demonstrated their validity. Financial lobbyists and lawyers scrambled to White’s defense, howling that Warren had “gone too far.” The White House, in contrast, issued a tepid defense of the president’s appointee: “The president does continue to believe that she is the right person for the job,” said press secretary Joshua Earnest. Consumer advocates applauded Warren’s willingness to expose White’s leadership failures.

The activities of the Securities Exchange Commission seldom make it off the business page. But the SEC is not only tasked with policing markets generally, it was given extensive responsibilities under Dodd-Frank financial reform to crack down on the lawlessness of Wall Street. Warren is exactly right to bring its actions and inactions to public attention.

Warren issued four major charges against the “broken promises” of White’s leadership. Her indictment is detailed and telling.

Broken Promises on CEO-Worker Pay

White has repeatedly promised and repeatedly failed to finalize regulations requiring corporations to report the ratio of CEO pay to that of their median workers, as mandated by Dodd-Frank. White even apparently lied to Warren’s face, promising in a private meeting that the regulations would be out this fall without fail, even as the SEC was announcing a calendar that projected release for next spring.

This is a big deal. Soaring CEO pay is central to the extreme inequality in America. Worse, perverse compensation policies give CEOs multimillion-dollar personal incentives to plunder their own companies. The bulk of their pay comes from bonuses predicated on short-term stock returns. So CEOs press to meet market “expectations,” merging, taking on debt, purging workers, slashing R&D, buying back stocks to lift prices – all designed to lift the stock price and pad their bonuses. Repeatedly they sacrifice the company’s long-term interests for short-term returns. By the time the damage surfaces, the CEO has already moved on.

Publication of CEO-worker ratios, therefore, is an important first step. It gives investors a clear measure of the health of the company. It gives activists and stockholders a measure to challenge excessive compensation packages.

That is exactly why CEOs have fought fiercely to delay issuance of the rules, while working with Republican legislators to repeal it. The repeated delays in issuing the rule are inexcusable, suggesting that White is tacitly conspiring with that effort.

Few Admissions of Guilt, Privileges for Repeat Offenders

Warren noted that White’s much touted pledge to require guilty banks and companies to admit to wrongdoing in enforcement actions has turned out to be mostly hot air. Out of 540 enforcement actions, only 19 required any admission, and 11 of those were general admissions about facts, not tied to violation of specific statutes.

Warren condemned the SEC’s continued practice of giving bad actor banks – repeat offenders – a pass on the automatic sanctions built into the law. Companies in good standing are given privileges to raise capital and bypass various SEC reviews. Those privileges are supposed to be denied to law-breakers.

But despite White’s promises, the SEC regularly continues to waive the sanctions on big companies, particularly big banks. Recently, the SEC commissioners – in a 3-2 vote, with White siding with the two Republican appointees – provided waivers to the five big banks, repeat offenders all, that admitted to a criminal conspiracy to rig the currency markets.

Warren is not alone in her outrage. SEC Commissioner Kara Stein issued a stinging dissent, noting that “the latest series of actions has effectively rendered criminal convictions of financial institutions largely symbolic.”

The Conflict of Interest Dodge

Warren noted that White continues to recuse herself from cases in which clients of her husband’s firm are involved. Without White’s vote, the result often is a 2-2 vote, split between Republican and Democratic commissioners, that blocks any enforcement action. Any company with a clue knows if it hires White’s husband’s firm, it has a good chance of walking free. That may be good for her husband’s career, but not for the Republic.

This suggests that Ohio Sen. Sherrod Brown was right when he voted against White’s nomination: White simply is not in the position to do her job effectively.

Warren also indicts White for blocking any consideration of a corporate political contribution disclosure rule. Since the conservative gang of five Supreme Court justices opened the door to unlimited corporate political spending in Citizen’s United, legislators and citizens have called on the SEC to require corporations to disclose their contributions, a matter of obvious concerns to stockholders. Before White was appointed, the SEC was considering the issue. White has blocked any action, a stunning dereliction of duty for the chief cop on the corporate beat.

No wonder financial lobbyists are buzzing. Warren has taken a stick to their cozy hive. Her indictment of White is measured and devastating. It is time for White to “step up” or step down. Warren is to be applauded for doing what senators should do: holding regulators’ feet to the fire in the public’s interest.

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