scorecardresearch

Tangle on rules led to Warren’s fight with SEC

Administration may see more friction

The battle between Securities and Exchange chairwoman Mary Jo White (left) and Senator Elizabeth Warren began because of a discrepancy in deadlines over a long-delayed rule.
The battle between Securities and Exchange chairwoman Mary Jo White (left) and Senator Elizabeth Warren began because of a discrepancy in deadlines over a long-delayed rule.

WASHINGTON — The brawl between Senator Elizabeth Warren and the nation’s top financial regulator has set up another flash point for liberals wary of the Obama administration and has roots in a breakdown of trust in one of Washington’s most dynamic relationships.

That trust frayed just after a May 21 meeting where Securities and Exchange Commission chairwoman Mary Jo White promised that a long-delayed rule would be finished this fall. Just hours later Warren saw a government notice indicating the deadline had really been delayed by six additional months.

Warren didn’t pick up the phone to clear up the discrepancy, according to an aide to the SEC. If she had, the chairwoman would have explained that the commission reports rule-making dates in an odd way that doesn’t indicate the actual due date, according to an SEC official.

Advertisement



In a highly unusual move for clubby Washington, Warren publicly escalated the matter. In a scathing 13-page letter, the Massachusetts senator accused White of providing her with “misleading” information about the date. The letter, shared with the media, also outlined Warren’s displeasure with a series of other long-simmering issues. White shot back that Warren’s “mischaracterization” of her statements was “unfortunate.”

Normally tensions over commission rule-making are expressed in internal e-mails, wonky policy speeches and industry newsletters. The Warren letter, and subsequent rebuttal by White, splashed a soured relationship on front pages of America’s newspapers. It energized liberals to echo Warren’s charge that White is not the reformer she said she would be — and set the stage for another round of discord if President Obama picks an SEC regulator with Wall Street ties to replace a Democratic commissioner whose term expired on Friday.

“There was some expectation that we’d see some change in direction at the SEC,” said Marcus Stanley, the policy director at Americans for Financial Reform, a coalition founded after the 2008 financial crisis. “White has a working majority to go in a progressive direction, but in fact she’s been very status quo.”

Advertisement



This disappointment on the political left in White’s tenure carries a particular sting for Warren because she could have made White’s ascension far more difficult. When President Obama nominated White in January 2013, liberal groups didn’t like that she had worked as a defense attorney at a firm known for its roster of Wall Street clients.

Instead of objecting, Warren voted for White in the Senate Banking Committee.

That left Sherrod Brown, the Ohio Democrat, as the lone voice bucking his party.

“I do question Washington’s long-held bias toward Wall Street and its inability to find watchdogs outside of the very industry that they are meant to police,” Brown said at the time, explaining his ‘no’ vote. Brown declined to comment last week.

Warren and White made some attempt to forge a relationship early on. Just weeks after the new SEC chairwoman was put in place, the two met, according to White’s public schedule. They got together again the following month one day after White testified before Warren’s committee.

An SEC official said they have had two other face-to-face exchanges — including the May 21 meeting. And, in the four times that White has testified before the banking committee, the exchanges with Warren haven’t been testy.

But as White’s tenure progressed, chunks of the 2010 Dodd-Frank Wall Street Reform Act haven’t yet been instituted, causing growing concern among liberals. The commission hasn’t finished 34 rules from the 2010 banking reform package, according to a March 2015 tally by Davis Polk Regulatory Tracker, which follows the law’s enactment.

Advertisement



An official with the SEC said that under White it has promulgated some of the more complicated rules and has picked up the pace from the previous term. The official, not authorized to speak publicly on the issue, asked to remain anonymous.

Warren declined an interview request.

Warren, along with her allies in organized labor, has focused on a rule that would require public companies to disclose CEO pay, the median pay of workers and a ratio between the two figures.

When Warren brought up the rule in their May 21 meeting, White promised it would be done by fall 2015. Then Warren saw a notice from the Office of Management and Budget that showed the SEC had attached a very different deadline to the rule: April 2016.

“You provided me with what appeared to be misleading information,” Warren wrote about the date inconsistency in her letter. “I am perplexed as to how and why you would have provided me with this misinformation.”

An SEC official said that when the commission submits proposed dates for rules to the Office of Management and Budget, as is required by law, it typically will offer the latest possible date in a range. A Globe review of all 53 pending SEC rules found that “April 2016” was listed in all but three. The SEC remains committed to the fall 2015 time frame, the official said.

Advertisement



Warren’s camp maintains that the April 2016 date is consistent with an SEC pattern of delaying the rule.

The larger point in Warren’s letter focuses on the settlements that the SEC reaches with companies that break the rules. Warren wrote that out of 520 settlements only 19 resulted in a company admitting guilt. The SEC responded that prior to White’s tenure, the commission didn’t have a policy of requiring any admissions of wrongdoing.

Lawyers who watch the SEC viewed parts of the letter as an attempt by Warren to buck up one of the Democratic commissioners — Kara Stein — who has been particularly outspoken on an obscure issue of waivers provided to large companies that get in trouble. Armed with their waivers, the companies maintain access to some privileges that their wrongdoing would have disqualified them from.

In this area Warren echoed Stein’s arguments — the SEC should be granting fewer waivers.

White simply disagrees, and has said the waivers were “never intended” to be used “as an additional enforcement tool.”

The most personal attack Warren made in her letter — that White’s vote on the commission could be “neutralized” because of her husband’s job as a Wall Street lawyer with cases before the SEC — is difficult for the public to track. The agency doesn’t post votes online, although they are available in files at SEC headquarters.

Advertisement



Warren’s concern, based on a February New York Times article, is that companies being hauled before the SEC might hire White’s husband, thus forcing the chairwoman to recuse herself and leave the five-member panel deadlocked.

A spokeswoman at his law firm, Cravath, Swaine & Moore, didn’t respond to a comment request. An aide to the SEC said that White has participated in more cases than any other commissioner, but couldn’t provide any data to back up the assertion.


Annie Linskey can be reached at annie.linskey@globe.com. Follow her on Twitter @annielinskey.