Potential Nominee for Democratic Slot on the SEC Troubles Advocates

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Urska Velikonja, a securities law professor at Georgetown University Law Center, is under consideration for an appointment to the Securities and Exchange Commission.

A couple weeks ago Prospect contributors Jeff Hauser and David Segal expressed concern that Chuck Schumer was blowing another appointment for the Securities and Exchange Commission (SEC). For most five-member independent commissions like the SEC, only three commissioners can come from the party of the president. And by custom, the Senate leader of the minority party, in this case Schumer, gets wide latitude to recommend the other two, a considerable power rivaling only the president in how it molds the mindset at federal agencies.

Already in the Trump era, Schumer mistimed a recommendation for an SEC slot that Republicans opportunistically left vacant for months, creating a 3-1 split on the commission. This diminished enforcement capabilities so thoroughly that white-collar defense lawyers were gloating about it. With Rob Jackson, who fills the other Democratic seat on the SEC, slated to soon leave, Schumer appears determined not to make the same mistake. (Jackson’s term expired in June; by statute he could stay until the end of 2020, but he is expected to go sooner than that.)

Names are being floated to replace Jackson, and the recommendation could be made in a matter of days. But advocates for a stronger regulatory posture toward Wall Street have expressed concern that one of the names out there doesn’t have the policy expertise necessary to combat the Republican ideologues on the commission. This is particularly important due to a number of specific rulemaking fights coming up in the near future.

It might seem of minimal importance which Democrat receives the honor of being outvoted by Republicans. But minority-party members can raise issues and carry the flag for the party’s agenda. And when the presidency shifts parties, minority-party members suddenly move into the majority; just ask Federal Communications Commission chair Ajit Pai, who was once merely an outvoted Republican. So who gets installed in those roles matters a great deal, which is why there’s such anxiety within the small community of financial regulation advocates.

Reuters reported on Friday that two people were under consideration for the job: Caroline Crenshaw, an attorney working in Jackson’s office who previously worked for progressive commissioner Kara Stein; and Urska Velikonja, a securities law professor at Georgetown University Law Center. These are not the only two under consideration. But the process has certainly advanced for the two women, and if one of them is chosen it would create the first majority-female panel in SEC history.

Velikonja has been one of the foremost academics studying the SEC’s enforcement statistics. I spoke with her in 2015 about how the SEC artificially inflated its enforcement numbers to look tougher than it really is. She recently gave testimony to the House Financial Services Committee, advocating for stiffer enforcement.

But advocates caution that Velikonja has no known policy views on the many areas of securities law that come before the commission. “The commission does far more than enforcement,” says Micah Hauptman, financial services counsel for the Consumer Federation of America. “It’s not clear to me that Ms. Velikonja has an interest or expertise in these issues. Our view is that it is critical to choose commissioners who have a demonstrated commitment to investor protection and particularly retail investor protection.”

The Democrats already have one enforcement expert on the Commission. Allison Lee, who was sworn in for the other Democratic seat on the commission on July 8, has over two decades of experience as an enforcement attorney at the SEC and as a special assistant U.S. attorney. Given that, it would be a good thing if the two Democratic seats could be complementary, thereby providing expertise in both enforcement and policy.

Some argue that policy expertise is the more necessary. “While the bulk of the SEC staff works on enforcing its rules, the bulk of Commissioners' time is often spent on developing the policies that govern everything from how stocks and bonds trade, to what companies have to disclose, to what rights investors have,” says Tyler Gellasch, executive director of Healthy Markets Association.

Indeed, since coming to the SEC, two Republican commissioners, Hester Peirce and Elad Roisman, have established a thoroughly conservative, anti-regulatory record on policy matters. Going toe to toe with them will require sharp policy instincts. “The SEC has two GOP Commissioners with deep expertise and very well-established records on the broad range of policy matters before the SEC, and we expect the Senate Democrats will try to match that," Gellasch says.

In the coming months, the SEC will look at a number of policy matters, including: whether to regulate advisory firms that recommend voting positions on public company investor votes, known as proxy votes; whether to require stricter environmental, social, and governance (ESG) disclosures for public companies; and how to implement Regulation BI, the “best interest” standard intended to encourage investment brokers to work in the best interest of their clients.

Velikonja could have a perspective on those issues that fits within the mainstream of progressive advocacy for tighter regulations. Or she might not. There’s no public record to examine, no real involvement on those issues. Crenshaw, on the other hand, has a well-established record as an SEC counsel to two Democratic commissioners.

Hauptman, of the Consumer Federation of America, said that his organization would want to work “productively” with Velikonja on issues of investor protection should she be Schumer’s choice. But usually advocates have some understanding of who their putative allies put into positions of power.

Schumer’s office did not respond to a request for comment. There’s been some talk among those close to the process about an interest in nominating Velikonja in part because she’s female and a Slovenian immigrant. Whether the symbolic value of such an appointment outweighs that of putting someone with an unknown policy profile in an important seat isn’t easily determined. The last time Democrats stepped a bit outside the normal pool of potential SEC commissioners, they got Mary Jo White, who was supposed to be a tough enforcer but wound up standing with Republicans repeatedly on policy and even enforcement matters, and then stepping back through the revolving door to her former white-collar defense law firm. That’s a mistake that cannot be replicated if Democrats want to at least signal that they care about the securities laws and regulating Wall Street.

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