SEC Chairman Jay Clayton skipped votes on less than 5 percent of the rulemaking and administrative matters the commission considered during the first five months of his tenure, a rate comparable to his predecessor, Mary Jo White, according to a Bloomberg Law analysis.
The low rate of non-votes for Clayton and White, who both came to the Securities and Exchange Commission from top-tier law firms, suggests their representation of major companies didn’t produce the sort of conflicts that might prompt recusals, and that some government watchdogs and lawmakers expected. The agency won’t publicly explain the no-shows, but they likely were recusals.
The small number of likely recusals didn’t surprise former SEC officials.
“The great majority of commission votes are routine matters on which conflicts are highly unlikely,” Georgetown University Law Center professor Donald Langevoort, a former special counsel in the SEC Office of the General Counsel, told Bloomberg Law.
The infrequency of likely recusals raised questions among government watchdogs, however.
“Given how many conflicts of interest that a reasonable person would think that White and Clayton brought to the SEC, either White and Clayton failed to recuse when they should have done so under law or the law itself needs to be tightened considerably,” Jeff Hauser, executive director of the Center for Economic and Policy Research’s Revolving Door Project, which promotes government transparency and accountability, told Bloomberg Law.
Bartlett Naylor, a financial policy advocate with Public Citizen, another government watchdog, told Bloomberg Law some “big fish” the chairmen represented in private practice could have ties to “smaller fish,” presenting a case for more recusals.
“Given their tentacles, it’s tough to accept that some administrative proceedings against smaller firms don’t also involve the mega-banks where Clayton should recuse himself,” he said. “Any commissioner should err on the side of caution, and the chair should be even more vigilant.”
Spokesmen for Clayton and White declined to comment.
SEC chairmen and other executive branch employees generally are barred from making decisions on issues that directly involve their former clients or employers during their first year on the job, according to federal ethics rules. Matters concerning a spouse’s employer and clients also are off limits.
Bloomberg Law reviewed agency webpages and nearly 5,000 pages of administrative orders, decisions, and rulemakings to estimate the vote tallies for Clayton from May 4 to Sept. 30 and White from April 10, 2013, to Sept. 6, 2013, covering open and closed meetings during their first 150 days in office.
The analysis doesn’t include votes to bring cases in federal district court because the SEC hasn’t released statistics on these matters for Clayton after June. Sometimes, the commission doesn’t reveal the exact date of a vote or that a vote occurred until months or years later, making a precise vote count indeterminable.
Agency staff might delay reporting so-called follow-on enforcement proceedings, for example. Votes affirming matters authorized by a single commissioner known as a “duty officer” also might take months or years to finalize and disclose due to recusals and other reasons.
The commission considered at least 320 rulemaking and administrative actions during Clayton’s first 150 days in office.
Clayton, a former Sullivan & Cromwell LLP partner, didn’t participate in votes on 13 of them, or about 4 percent. The chairman approved all 307 of the other items.
During the same time period for White, the commission voted on at least 319 rulemaking and administrative matters. White, who was chairman between stints as a partner at Debevoise & Plimpton LLP, didn’t take part in votes on nine of the items, or about 3 percent. She supported the 310 others.
Votes the chairmen avoided included actions involving major companies, but also relatively unknown financial industry participants. Clayton didn’t consider orders involving JPMorgan Chase & Co., Swedish telecom giant Telia Co. AB, and investment adviser Platinum Equity Advisors LLC, all of which Sullivan & Cromwell has represented, according to the firm’s website.
Clayton advised Telia on initial public offerings but not on a foreign bribery investigation before the commission, according to a letter he sent to Sen. Catherine Cortez Masto (D-Nev.) in connection with his nomination. The company, without Clayton’s participation, ultimately reached a $965 million deal with the SEC, Justice Department, and foreign regulators to settle Foreign Corrupt Practices Act allegations it paid bribes to secure business in Uzbekistan.
Other votes Clayton skipped involved enforcement matters against Patriarch Partners LLC founder Lynn Tilton, former Nomura Securities International Inc. trader Kee Chan, former Investment Technology Group Inc. managing director Anthony Portelli, and Aaron Parthemer and Sylvester King Jr., who provided financial advice to members of the National Football League Players Association.
He also sat out votes on real estate investment trust New York REIT Inc., investment advisory firm KMS Financial Services Inc., and Italian bank Intesa Sanpaolo SpA subsidiary Banca IMI Securities Corp. He abstained from voting on two matters involving South Korean company CNK Global Inc., as well.
Clayton said during his nomination hearing in March he didn’t think recusals would hurt his ability to act as chairman.
“I have discussed this at length with the SEC ethics office, with the Office of Government Ethics,” he told senators. “This is not a new issue.”
‘Recusals and Headaches’
Even in the chairmen’s absence, the SEC continued to police large public companies and Wall Street’s biggest players, approving $1 million-plus enforcement actions against firms including Nasdaq, Telia, and UBS. However, a chairman’s absence can alter proceedings against an enforcement target, as the New York Times found in a 2015 report detailing some “recusals and headaches” brought on by White.
For example, commissioners that don’t agree on the breadth of charges or the terms of a penalty could be forced to compromise in order to avoid a deadlock.
Right now, the SEC only has three members. If Clayton recuses himself, the matter must have the support of both Democratic commissioner Kara Stein and Republican Michael Piwowar. A no-vote—or the possibility of one—from either Stein or Piwowar could torpedo an action.
Still, it isn’t clear that recusals played a role in delaying or altering an enforcement action to prevent a split vote during White’s and Clayton’s first 150 days.
On enforcement matters, SEC staff “try to negotiate their way through things to keep it all moving” and avoid complications, said Tyler Gellasch, a former Stein counsel and executive director of the Healthy Markets Association trade group.
“Commissioners typically aren’t eager to hold up a case just because they may deadlock on something political that is outside of the case,” he told Bloomberg Law.
Former SEC Chairman Elisse Walter, who was a Democratic commissioner during White’s first four months at the agency, told Bloomberg Law she didn’t recall recusals by her colleague causing serious problems for the commission.
“I think this is an issue that has been exaggerated,” Walter said.
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