Trump’s SEC pick Clayton points to capital formation, not enforcement

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By Sarah N. Lynch | WASHINGTON

WASHINGTON With his selection of deal-making
attorney Walter “Jay” Clayton to head the U.S. Securities and
Exchange Commission, President-elect Donald Trump is signaling
that the agency will try to reduce regulations that critics see
as burdensome or hindering corporate growth.

Trump announced on Wednesday that he intends to nominate
Clayton, a partner in the New York office of law firm Sullivan &
Cromwell, to lead the agency that polices and regulates Wall
Street.

Clayton specializes in public and private mergers and
acquisitions and capital-raising efforts, and notably worked on
the initial public offering of Alibaba Group Holding Company
.

He also helps companies navigate regulatory and enforcement
actions, including a number of cases that involved mortgage
securities. At least two clients that Clayton has represented –
Alibaba and Ally Financial – have both disclosed in recent years
that they are being investigated by the SEC; it is not clear
whether either review has been concluded.

“Jay Clayton is a highly talented expert on many aspects of
financial and regulatory law, and he will ensure our financial
institutions can thrive and create jobs while playing by the
rules at the same time,” Trump said in a statement.

Clayton did not immediately respond to a request for
comment, but in a statement released by the Trump transition
team, he pledged to ensure investors and companies have
confidence to invest in America.

Many Republicans in recent years have criticized the SEC for
focusing too much on enforcement, especially under outgoing
chair Mary Jo White, a former federal prosecutor, and not enough
on its other missions, including writing rules that promote
capital formation.

Legal experts said Clayton’s background is more in line with
some past SEC chiefs, and points to less regulation and perhaps
a shift away from White’s policy in which the agency fined firms
for smaller violations in an effort to deter bigger ones.

“As a day-to-day corporate transactional lawyer, he’ll know
what these regulations are like,” said Walter Van Dorn, a
partner at BakerHostetler and former SEC official.

INDUSTRY TIES

As is often the case with SEC chair nominees, Clayton has
some close personal and professional ties to Wall Street.

During the height of the 2008 financial crisis, Clayton
worked on major deals involving big banks, including Barclays
Capital’s acquisition of Lehman Brothers’ assets, the
sale of Bear Stearns to JP Morgan Chase, and the U.S.
Treasury Department’s capital investment in Goldman Sachs
, according to his law firm’s website.

He has helped draft comment letters to the SEC that
advocated for less onerous restrictions for foreign public
companies, and also participated in a 2011 article which
advocated for less zealous enforcement of the Foreign Corrupt
Practices Act.

Clayton’s background representing Goldman and other Wall
Street firms is likely to come up during his Senate confirmation
hearing. His wife, Gretchen Butler Clayton, is employed by
Goldman Sachs as a private wealth advisor.

Democrats including Massachusetts Senator Elizabeth Warren
have previously been critical of any potential SEC nominee,
including those from within their own political party, who have
strong ties to Wall Street.

“It’s hard to see how an attorney who’s spent his career
helping Wall Street beat the rap will keep President-elect
Trump’s promise to stop big banks and hedge funds from ‘getting
away with murder,'”, said U.S. Senate Banking Committee Ranking
Member Sherrod Brown.

Like White, also a former Wall Street lawyer, Clayton will
likely need to recuse himself on some matters and divest certain
stock holdings.

Under federal ethics rules, he will be recused for one year
from voting on any particular matter if a firm or individual is
being represented by Sullivan & Cromwell.

Prior clients who have been represented by Sullivan &
Cromwell in SEC cases have included UBS and Fifth Third
Bank.

He will also be recused for a year from working on matters
that involve clients he represented in the past year, and
recused indefinitely if a deal he previously worked on comes up
during SEC litigation.

The length of time could be longer if Trump opts to continue
President Barack Obama’s current policy, which extended the
recusal period by an additional year.

Trump still needs to fill two other SEC vacancies to round
out the five-member panel. Without a full panel, possible
recusals could in certain cases lead to a deadlocked vote on
some enforcement matters.

Perhaps the trickier conflicts to navigate will involve his
wife’s employment at Goldman Sachs, said Richard Painter, a law
professor at the University of Minnesota who served as the chief
ethics lawyer at the White House under President George W. Bush.

“You cannot be chairman of the Securities and Exchange
Commission and have you or your spouse have any financial
interest in Goldman Sachs,” he said.

To manage the conflict, he said, she would need to divest
any stock or stock options in the company and negotiate a flat
salary.

It could not be immediately determined whether Gretchen
Butler Clayton does own Goldman stock. She did not immediately
respond to an email seeking comment.

(Additional reporting by Doina Chiacu in Washington and Karen
Freifeld and Olivia Oran in New York)



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