FORTUNE -- President Obama has nominated Mary Jo White to head the SEC. Here’s the good news: White is one of the nation’s most accomplished and effective attorneys. Known and respected far and wide, she can do pretty much anything she wants to. Here’s the bad news: we don’t know what she wants to do.
White, who was the U.S. attorney for the Southern District of New York for nine years, has a stellar record as an attorney. In the world of corporate litigation, White is a certified rock star, one whose departure may leave an irreparable breach at her firm, Debevoise & Plimpton. She has a solid reputation as being thorough, tough, and fair. White is also known as being tireless – literally a 24/7 worker who often sends detailed emails at 3 AM.
We believe White will be confirmed in short order. She makes an ideal candidate for SEC chairman: she has all the right connections, she has tried major criminal and fraud cases from both sides of the courtroom, and she has an ironclad reputation as being a straight shooter. Some criticize her for not being experienced in the nuts and bolts of rule drafting, but since Congress doesn’t want the Commission drafting rules anyway, we wonder why anybody cares.
How should a newly-confirmed Chairman White jump-start her tenure at the SEC?
The SEC has a severe image problem. People don’t trust the Commission to do the fundamental job of policing the markets, much less nail high-profile financial executives who brazenly commit fraud. The problem comes from (a) a perception of the Commission as politicized; (b) a perception of the Commission as letting the Bad Guys get away with murder; and (c) a perception of the Commission as inefficient.
Chairman White will have to take highly visible steps, which she should do immediately. She should:
1. Force a resolution of the impasse over money market funds – the political travesty that allowed critical money fund reform to be flushed down the Beltway toilet is an insult to the investing public and tantamount to regulatory fraud. Chairman White needs to put on her best prosecutorial full body armor and make the Commissioners sit in a room until they come to a meaningful resolution.
2. Enforcement head Khuzami has attained record settlements. We have been highly critical of this as Business as Usual. But maybe it’s a start. Maybe more cash is the foot in the door to more meaningful legal outcomes. Chairman White must set a high standard for fraud cases. She should push for all fraud settlements to include a requirement that individuals – employees, supervisors, and executives – be named. This can be done in such a way that it limits criminal prosecution – so a lot of people will be disappointed – but it will lead to Bad Actors being weeded out of the industry. The SEC’s mandate is to guarantee the integrity of the marketplace. Punishing bad guys, while emotionally satisfying, is a secondary effect of enforcement.
3. Chairman White is not chairman Schapiro. Mary Schapiro was a first-rate administrator, as was evident in her shepherding through of the merger between the NASD and the NYSE, which created FINRA. Chairman Schapiro was not, however, a street fighter. She was routinely nailed by Nasty Folks in Congress, who often got away with it. Mary is known to be a very nice person. Chairman White should make it her first order of business with Congress to throw a bucket of Ice Cold Reality in their faces. As dismal as the SEC’s reputation is today, Congress is held in far worse regard. White should take Congress to task for blocking necessary reforms, for protecting the Fat Cats, and for petty and nasty tactics that have stymied needed regulatory programs. The reason the Commission is behind in Dodd-Frank implementation is because Congress took away its funding, leaving it without resources to plow through the massive quantities of regulations that need to be written and procedures that need to be implemented. If she can take down John Gotti and Sheikh Omar Abdel Rahman, maybe Chairman White can hold her own with Congress. It would certainly win hearts and minds across the nation.
Obama has paraded his Tough Prosecutor before the electorate – “you don’t mess with Mary Jo!” he crowed – never mentioning her equally tough representation of exactly those Fat Cats she will now be charged with whipping into shape.
We still don’t know how White will behave once she is in office. No one should be shocked if White continues to favor her former clients. Major Wall Street banks paid her lots more during her tenure at Debevoise – up until last week – than We The People paid her when she was U.S. Attorney.
Of all the noise surrounding this appointment, we draw the most confidence from the fact that White is 65 years old. She would emerge at the end of the Obama presidency, at age 69, certainly not eager for twilight decades of shuffleboard and sloe gin fizzes, but perhaps ready to take up some quiet sinecure such as ambassador to the European Union (White is a member of the Council on Foreign Relations) or perhaps take up big game hunting as a hobby. The only hope that White’s considerable skills and deep experience will be brought to bear to truly clean up the securities markets is if she has no desire to return to private practice. That’s a question we hope the President asked before he nominated her.