Is SEC Nominee Jay Clayton the New Harvey Pitt?

By Pam Martens and Russ Martens: March 8, 2017

Photo Image Sent Out Last Evening by Our Revolution, a Group That Includes Senator Bernie Sanders Supporters

Photo Image Sent Out Last Evening by Our Revolution, a Group That Includes Senator Bernie Sanders’ Supporters

Yesterday the Senate Banking Committee announced that the confirmation hearing for Trump’s nominee to Chair the Securities and Exchange Commission, Jay Clayton, will be held on March 23. Expect fireworks in the hearing from Democrats who are mad as hell at the myriad conflicts of this nominee.

When Clayton’s name was first announced by the Trump camp, Senator Sherrod Brown, the Democrat’s ranking member of the Senate Banking Committee, sent out a press release with this statement:

“It’s hard to see how an attorney who’s spent his career helping Wall Street beat the rap will keep President-elect Trump’s promise to stop big banks and hedge funds from ‘getting away with murder.’ I look forward to hearing how Mr. Clayton will protect retirees and savers from being exploited, demand real accountability from the financial institutions the SEC oversees, and work to prevent another financial crisis.”

Last evening, Our Revolution, the organization created by supporters of Senator Bernie Sanders after his failed bid for the Presidency, ramped up the heat against Clayton with an email blast asking Sanders’ supporters to sign a petition against Clayton. The email message read in part:

“Clayton’s ties to Wall Street are deep. His law firm specializes in protecting Wall Street banks, and during the financial crisis he worked as a bailout attorney for Goldman Sachs, where his wife works today…The SEC chair is supposed to referee Wall Street banks, but Clayton has spent his entire career protecting their interests – and more than half of his family income currently comes from one of them. How can he be trusted to suddenly switch sides and put working Americans first?”

The link to the petition called this a “hostile takeover” of America.

Clayton’s wife, Gretchen Clayton, is not a low level employee at Goldman. She’s worked there for 17 years and holds the rank of Vice President, admittedly a rank held by many others but, nonetheless, a high-paying job. Under 18 U.S.C. § 208, the basic criminal conflict of interest statute, an executive branch employee is prohibited from participating personally and substantially in a government matter that will affect his own financial interests, as well as the financial interests of his spouse. This means that the SEC Chair will have to recuse himself permanently from any matter directly involving Goldman Sachs.

In addition, as we reported on February 22, Clayton has represented 8 of the 10 largest Wall Street banks in the past three years as a law partner at Sullivan & Cromwell.

All of this is starting to sound a lot like Harvey Pitt’s tumultuous tenure as Chair of the SEC under former President George W. Bush. Pitt was a law partner for Fried, Frank, Harris, Shriver & Jacobson prior to coming to the SEC. He had represented the biggest accounting firms, the ones who attest to the SEC in filings that their audits of publicly traded companies are sound.

During Pitt’s tenure, which ran a mere 15 months from August 2001 to his resignation in early November 2002, two giant accounting frauds filled the news: Enron and Worldcom. Pitt was under constant fire for insulting the public’s sensibilities with his actions on behalf of the industry. His transgressions included: meeting privately with the CEO of a major accounting firm, KPMG, while it was under SEC investigation over its work for Xerox; he asked that the SEC be elevated to Cabinet status with a pay raise for the Chair; he met with the Chairman of Goldman Sachs while it was under an SEC investigation.

The final straw came when Pitt declined to name John H. Biggs to head the newly created accounting oversight board. Biggs said he had Pitt’s support until members of the big accounting firms opposed him for being too tough. Pitt then selected a candidate, William Webster, who had sat on the audit committee of the Board of Directors of U.S. Technologies, a company accused of accounting fraud. When news broke that Pitt knew of Webster’s audit committee position and withheld that information from the White House and the four other SEC commissioners prior to the vote on Webster, there was a loud public outcry for his ouster.

Pitt announced his resignation with this statement to the President: “Rather than be a burden to you or the agency, I feel it is in everyone’s best interest if I step aside now…”

Clayton should reach that same conclusion before his confirmation hearing. If Clayton is relying on the delicate Congressional handling of his equally conflicted predecessor at the SEC, Mary Jo White, he shouldn’t. There is still that macho thing going on in Congress where its male-dominated chambers find it unseemly to attack a female – especially a pint-sized one like Mary Jo White — whose law partners give so generously to political campaigns.

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