Senator Elizabeth Warren
SEC Chair Mary Jo White

In an extraordinary 13-page letter dated June 2, 2015 sent to SEC Chair Mary Jo White, Senator Elizabeth Warren blasted White, whose leadership at the SEC the letter describes as “extremely disappointing.” Warren’s letter goes on to say to White that the Senator is “disappointed by the significant gap between the promises you made during and shortly after your confirmation and your performance as SEC Chair.” A copy Senator Warren’s June 2 letter can be found here.


The letter cites four specific areas in which the Senator says White has fallen short of promises the agency head made during her confirmation hearings or in subsequent communications to Congress.


First, the Senator’s letter takes White to task for the agency’s failure to implement final pay ratio disclosure guidelines. As I detailed in an earlier post (here), in September 2013, the SEC released for public comment proposed rules, mandated by Dodd-Frank, with details regarding CEO pay ratio reporting. The agency has yet to release final rules, and now according to the Office of Management and Budget, the rules may not be finalized until April 2016. (Warren’s letter is particularly critical of “misleading information” White gave to Warren’s office, before the most recent OMB report, in which the SEC reportedly said the final rules would be ready six months before the time the OMB now says they will be available.) In her letter, Warren said that “I cannot understand how and why this rule has been delayed for so long,” adding that she is “perplexed” by the difference between the finalization date now given by the OMB and the information the SEC previously supplied to Warren’s office.


Second, Senator Warren criticizes White for the SEC’s failure to require SEC settlements to include admissions of wrongdoing. According to information the agency provided Warren’s office, as of September 2014, in the vast majority of cases, the SEC continues to settle cases without requiring admissions of guilt. Of 520 settlements through September 2014, the SEC required admissions of guilt in only 19 cases. Of those 19, 11 involved “only a broad admission of facts specified by the SEC rather than requiring that these firms admit to violations of specific securities laws.”


Third, the letter states that SEC continues to provide waivers to the restrictions imposed on companies whose securities laws violations otherwise would have disqualified them from the “Well Known Seasoned Issuer” (WKSI) privileges. The letter states that the agency has granted 20 out of 28 requests for “bad actor” waivers. The letter also states that for the first time since 2005, the agency has granted waivers for companies guilty of criminal misconduct (citing to the waivers given UBS, Royal Bank of Scotland and Deutsche Bank after those banks Libor scandal-related admissions, and the waivers given to the five banks that recently made foreign currency exchange-related admissions). The letter questions whether these banks deserved to “continue to enjoy special privileges under the securities laws despite deep breaches of trust and evident mismanagement displayed in these cases.”


Fourth, the letter asserts that White has failed to address concerns related to White’s frequent need to recuse herself from matters before the Commission because of White’s prior law firm activities or because of White’s husband’s law firm’s involvement. The letter states that White had claimed during her confirmation hearings that potential recusals would lead to “minimal disruption.” White apparently has had to recuse herself from over four dozen enforcement investigations, the impact of which the letter asserts has been “quite damaging.” Among other things, her numerous recusals have meant all too frequent deadlocks at the commission level.


In addition to these four topics, the letter cites other concerns, including “the failure to address undisclosed campaign contributions,” and the fact that that the agency has “backed down” on Dodd-Frank rules requiring asset-backed securities disclosures.


Warren concludes her letter by saying that to White that she (Senator Warren) is “disappointed that you have not been the strong leader that many had hoped for – and that you promised to be.” She also asks that the agency provide additional detailed information responsive to six information requests identified at the end of the letter.


Even in the bizarre, grandstanding universe that political Washington inhabits, this letter is extraordinary. For starters, Warren is a Democratic senator and White was an appointment of the current Democratic president. In addition, the scolding tone would be aggressive in any kind of letter, but it is particularly noteworthy in a letter that was clearly intended to be public. The suggestion that Warren presumes she not only has the right to publicly criticize White but to tell the SEC chair what to do and how to do her job is also striking.


The outraged tone of the letter seems strangely disconnected from the fact that many of the unaddressed matters of which Warren complains are within the purview of the full Commission and not just of the Commission’s chair. For example, the criticisms about the failure to issue final pay ratio rules ignores the fact that the rules as initially proposed were highly controversial and were issued over strong dissents at the time. Whether or not the agency should have by now gotten the final Rules out, it would have been more realistic for the letter to have acknowledged that the controversies surrounding the Rules obviously have a lot to do with the delays.


The more interesting question  is what impact the Senator’s hectoring approach will have. It is pretty clear from the tone and the letter’s final demand for additional information that the Senator will continue to press White. Which begs the question – will the Senator’s badgering affect White’s (and the SEC’s) actions? For example, might the agency in response require more admissions of guilt, or more specific admissions of guilt?


In the end, the letter is a reminder of how tough it is to be in a prominent position in Washington. The fact that the SEC chair has to face this criticism from a politician within the same party as the President that nominated the chair shows just how tough it is getting to be there.


Those interested in some insight into Senator Warren and what makes her tick will want to read the May 6, 2015 profile of the Senator that appeared in The New Yorker. The profile can be found here.