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8 Thing to Know About Recent Appointments of SEC Commissioners

JL Law

Congress recently confirmed the new head of the Securities and Exchange Commission (SEC). Read on for eight things about recent appointments of SEC Commissioners that everyone should know. Let's start with a few basics.

How are SEC Commissioners selected? The President of the United States appoints individuals to serve as Commissioners at the SEC. The President also selects the Chairperson for the panel of Commissioners. The Congress carries the constitutional duty of advice and consent for the nominations. That means that Congress must vet the appointed candidates and confirm or deny their appointments.

Do Presidents always elect SEC Commissioners from their own party? The SEC rules forbid weighting the panel of commissioners toward one party or another so appointments strive for parity. The rules say that no more than 3 commissioners can come from the same party. At the end of 2016, there were only two commissioners left on the panel, one Democrat and one Republican.

How long do Commissioners serve? Commissioners serve for five years. The SEC staggers the appointment terms so only one commissioner's term ends on June 5 each year. Commissioners, including the Chair, can serve an additional 18 months if Congress has not confirmed a replacement by the time their term ends.

How have recent appointments been going? Since the last quarter of 2015, The SEC had two vacant commissioner positions down because Commissioners Gallagher and Aguilar finished their terms and the Obama Administration's two nominations for their replacements found themselves in the middle of the Supreme Court nominee debacle.

Mary Jo White, the previous Chief of the Commissioners under the Obama Administration, announced she was resigning two years before the end of her term. She resigned effective at the end of President Obama's term which meant there was a third vacancy on January 20, 2016. The Chairperson’s resignation gave incoming President Trump the opportunity to make good on a few campaign promises with regard to the financial services industry. It also meant potentially exercising his ability to nominate 3 SEC vacant seats for SEC Commissioners.

One of President Trump's first actions on January 20, 2017, was to nominate Jay Clayton for Chair of the SEC Commissioners. Congress vetted Clayton's nomination, confirmed the appointment on May 2, 2017 and he swore in as Chair on May 4, 2017.

Who is Chairman Jay Clayton? 

Jay Clayton is a lawyer who has worked extensively advising clients about securities, raising capital, and with respect to various trade issues both in the US and with regard to foreign trade. His reputation is as a Wall Street deal maker with experience not only in securities law, but also in cybersecurity and other matters. He has published in these areas as well. Mr. Clayton has a long history of advising financial giant Goldman Sachs and has taught as a law professor.

The SEC defines Mr. Clayton's party affiliation as Independent.

How do consumer advocates feel about Clayton's nomination?  SEC is the government's lead watchdog for the issuance, sale and transfer of securities. The recent confirmation of Jay Clayton makes consumer advocates shudder when it comes to the future for small investor protections. They wonder whether enforcement of SEC policies will fall by the wayside.

Indeed, with Jay Clayton's background, the SEC's focus may very well turn to capital raising and easing the markets with respect to corporate fund-raising. Advocates expect Clayton to favor rolling back the provisions of the Dodd-Frank law (unpopular with Wall Street and the corporate world) and other regulatory frameworks that inhibited Wall Street deal makers in the wake of the recent severe recession.

Where does SEC enforcement stand now?

Clayton's first important assignment is naming an enforcement division Director. In light of the Madoff investment debacle, enforcement at SEC over the past few years was front and center. Large corporate fines were typical, too. The question is how Clayton's confirmation will change all that.

In his confirmation hearing, Clayton told Congress that he felt more good would come out of targeting individual bad actors rather than focusing penalties on corporations. He believes that SEC corporate penalties punishes the shareholders that bear the brunt of paying fines, not the individual bad actor. 

He also indicated that clients had previously been strong proponents of certain elements of the JOBS Act, so it’s likely that he is supportive of the JOBS Act generally.

What does Wall Street think about all this? Wall Street may feel bolder now, thinking they have little to fear from SEC. SEC cannot institute criminal proceedings. So, if Clayton has his way, Sec will levy fines against the individuals and not corporations. Because corporate managers have little to do with day-to-day activities of employees, the corporation may face little adverse punishment under Clayton's reign -- despite encouraging a toxic work environment, such as seen in the Wells Fargo case.

In addition, Obama Administration's outgoing chair had requested increased funding for its enforcement division. The enforcement division is large, consisting of 1,400 employees. President Trump's budget did not mention SEC but with all the across-the-board cuts being proposed, SEC will probably not see a budget increase and may even have to share in the cuts. Substantial funding cut-backs would mean the enforcement division would have to face decisions about what cases to pursue.