SEC chairman's past as a defence lawyer haunts former clients

Mary Jo White's past as a defence lawyer for some of the world's largest banks could come back to haunt certain financial institutions, from JPMorgan Chase to UBS.

At issue is whether Ms White, now chairman of the US Securities and Exchange Commission, will recuse herself from impending votes on whether to grant banks important waivers, which they will need after resolving allegations they rigged the foreign exchange markets.

Companies that face certain enforcement actions must obtain a waiver from the SEC to continue engaging in some activities, such as raising capital. In recent cases, Ms White has provided the crucial swing vote on the five-member commission in deciding to grant the waivers.

Like all of President Barack Obama's appointees, Ms White agreed to recuse herself for two years from cases involving her former clients or former employer, the law firm Debevoise & Plimpton. That period ended this month.

But ethics rules still dictate that officials avoid the appearance of impropriety, meaning it is possible that Ms White could still recuse herself from cases involving significant past clients, such as JPMorgan or UBS, according to people familiar with the issue.

When she was nominated to be head of the SEC, she listed those banks in her 2013 disclosure report as clients who brought in more than $5,000 in fees. In September 2013, Ms White recused herself from a vote on an SEC settlement with JPMorgan over the bank's $6bn "London Whale" trading loss.

JPMorgan, Citigroup, Barclays and UBS are among the financial institutions that are being investigated for allegedly manipulating currency markets. Those banks want a sense of certainty that waivers will be granted by both the SEC and Department of Labor in order to close a settlement with the DoJ, people familiar with the case said.

But a recusal by Ms White could lead to a commission deadlocked in a 2-2 vote and delay a settlement, which has happened in the past when she has had to stay out of a vote. A majority vote is needed to grant a waiver.

The SEC declined to comment on whether Ms White would recuse herself in upcoming cases.

Last year, Bank of America's application for a waiver allowing it to sell shares in hedge funds and other private offerings was held up because Ms White recused herself. She represented BofA's former chief executive Kenneth Lewis when she was at Debevoise.

BofA needed an SEC waiver because of its $16.6bn settlement on allegations it mis-sold mortgage securities in the lead-up to the 2008 financial crisis. After a few months delay because of a tied vote, the commission granted a temporary waiver but attached rare conditions, such as imposing an independent monitor on the bank.

University of Minnesota law professor Richard Painter, who was the White House's chief ethics lawyer from 2005 to 2007, said an official should stay out of cases when the person's impartiality could be questioned. But the official also has to weigh up the negative effects of a recusal, such as inconsistent decisions imposed on banks coming before the SEC.

"Merely being a former client may not be enough for a recusal," Mr Painter said. "It's a very sticky situation and there are no clear rules."

Ms White's vote in waiver requests is being closely watched because those cases have become a source of controversy. The two Democratic SEC commissioners and some lawmakers such as Senate Elizabeth Warren have opposed granting such exemptions.

Ms White has argued that declining to grant a waiver was never meant to be an additional punishment for wrongdoing. Instead, securities laws require that a waiver be granted if a company can prove it can responsibly and lawfully engage in the activity for which they need a waiver, and it meets the SEC's goal of protecting the public interest and investors.

"Waivers were never intended to be, and we should not use them as, an additional enforcement tool designed to address misconduct or as an unjustified mechanism for deterring misconduct," Ms White said in a March speech.

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