Risk & Compliance

Sen. Warren’s Attack on Mary Jo White ‘Unfair,’ Former SEC Inspector General Says

H. David Kotz defends White as a “groundbreaking” chair in getting companies to admit wrongdoing.
David KatzJune 8, 2015
Sen. Warren’s Attack on Mary Jo White ‘Unfair,’ Former SEC Inspector General Says

The frontal attack by Sen. Elizabeth Warren last week on Securities and Exchange Commission chair Mary Jo White’s two-year tenure was “unfair,” former SEC inspector general H. David Kotz told CFO this morning.

Sen. Elizabeth Warren

Sen. Elizabeth Warren

Responding to Warren’s June 2 letter to White, in which the Massachusetts Democrat wrote that the SEC chair’s leadership has proven “extremely disappointing,” Kotz, who served as the commission’s chief internal inspector from 20007 to 2012, had harsh words for what he saw as unusually personal criticism.

Under White, the commission has “tried to be responsive to Congress … They’re not necessarily going to do everything that a particular senator or even a group of senators wants,” said Kotz, now a managing director at Berkeley Research Group.

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“That sort of goes with the territory, and I just think, overall, to criticize [White] personally and state that her tenure has been disappointing is something that is unusual to come from the Senate and a little bit surprising,” he added.

In particular, Kotz found two of Warren’s criticisms “unfair”: the senator’s contention that White had failed to require admissions of wrongdoing in SEC enforcement actions, and that she had too often recused herself from commission’s decisions because of conflicts of interest.

On the contrary, White’s insistence on getting certain corporations to admit guilt has been “groundbreaking,” Kotz said.

“When I left the SEC, I didn’t think that would ever happen. It was always understood that companies would never admit liability in any case. And in the government, when there’s something that’s always been the case, it’s very hard to change it,” he added. “White came in and changed it, and said, ‘We’re going to do business in a different way and require companies to admit liability.’ ”

White “should get credit for the fact that she changed that — certainly that’s something that Sen. Warren thinks is a good thing — rather than saying she’s disappointed that White hasn’t done it enough,” Kotz said.

Convincing even a few companies to acknowledge their liability in financial-fraud settlements is quite an achievement on White’s part because there are “collateral consequences” for companies that make such admissions, according to the former inspector general, who hasn’t been at the SEC during White’s tenure. (He was appointed by then-chairman Christopher Cox and also served during Mary Schapiro’s term.)

Such admissions raise the specter of class-action lawsuits for companies that make them. “Once you admit to doing something, there can be civil litigation — which can be very costly even if you win,” Kotz said.

Like her charge that White hasn’t held the feet of enough erring companies to the fire, Warren’s assertion that White has had to recuse herself from too many cases is “a little unfair,” Kotz says. The issue arose again on Friday when the SEC exacted a  $190 million penalty from Computer Sciences Corp. White had to recuse herself from the fraud case because her husband, an attorney, helped represent CSC in an SE investigation, according to The New York Times.

In her 13-page letter to White, Warren asserted that the SEC chair had appeared to have broken a promise to the Senate made during by her confirmation by being “unable to participate in numerous cases because of recusals related to your prior employment at a Wall Street.”

Further, the senator wrote, “you have been and will continue to be unable to participate in certain cases because of recusals relating to your husband’s ongoing employment at a Wall Street defense firm.” (The Times identified the firm as Cravath, Swaine & Moore.)

Kotz contended that “it was very clear up front when [the Senate] picked her that she would be recused from certain cases.”

If White hadn’t excused herself from such cases, “she would be certain to be criticized for it,” he said, noting that White, like other SEC officials, follows the findings of the commission’s ethics officials. “If Congress didn’t want her, they shouldn’t have confirmed her.”