The appointment of Walter Joseph Clayton as the new Chairman of the U.S. Securities and Exchange Commission is hardly likely to ruffle any feathers on Wall Street. Clayton, in his previous incarnation as a partner of the law firm Sullivan & Cromwell, is well known to the denizens of that community as an advisor and counsel. However, according to Sen. Tammy Baldwin, D-Wisc., Clayton having represented a number of those banking firms for 20 years certainly raises conflict of interest issues. She told USA Today (http://dtn.fm/P9juC), “To nominate a Wall Street insider to police Wall Street is like having a fox guard the hen house.” It seems the Senator’s reservations are well placed. There were hints of foxiness from Clayton even before he got the job as SEC head.
In the run up to his confirmation hearings on Capitol Hill, his bio, trumpeting a variety of high-profile deals and who’s who clients, vanished from the Sullivan & Cromwell website, as Politico reported in early March (http://dtn.fm/uW79j). A spokesperson for Clayton explained this by saying: “This was simply a function of him transitioning away from client work before the hearing.” Yet it raises the disturbing possibility that conflicts of interest will be resolved by sweeping them under the rug. Why the sudden shyness from the SEC chair?
Hiding stuff was always going to be difficult for Clayton. This is someone who is literally in bed with Wall Street. His wife Gretchen is a wealth manager at Goldman Sachs and has worked there since 2000, according to a Bloomberg report (http://dtn.fm/Fy0lq). In addition, Clayton has also been involved in a number of Goldman Sachs deals and, most notably, advised the investment bank on Warren Buffett’s $5 billion equity infusion and the U.S. Treasury’s TARP $10 billion investment in 2008. Clayton also worked on JPMorgan Chase’s acquisition of Bear Stearns in 2008 and advised Barclays Capital in connection with its purchase of Lehman Brothers’ assets after the latter was declared bankrupt.
He did file a Public Financial Disclosure Report with the U.S. Office of Government Ethics (OGE) listing his assets and liabilities that showed a net worth of around $50 million. The OGE report disclosed the positions Clayton held, such as his partnership at Sullivan & Cromwell LLP (S&C), the adjunct professorship at the University of Pennsylvania Law School, an executive membership of the Metropolitan Golf Association, and two trusteeships, but it required no mention of clients. References to clients that were listed in his bio on the S&C website, as recently as January, were deleted.
Clayton also fired off a letter to the SEC’s Designated Ethics Official, Shira Pavis Minton, setting out the steps he would ‘take to avoid any actual or apparent conflict of interest’. That letter listed a total of 176 investment vehicles.
However, going dark has served no useful purpose. The information no longer available on the S&C website can be discovered by searching the internet archive, the Wayback Machine, which shows that Clayton has worked on initial public offerings (IPOs) for the Chinese ecommerce portal Alibaba, investment bank Moelis, the hedge fund giant Och-Ziff and alternative investment manager Oaktree Capital.
Clayton has also worked for companies under government scrutiny, such as Deutsche Bank, UBS and Volkswagen, according to the New York Times’ Deal Book (http://dtn.fm/o2lWF), as well as Valeant Pharmaceuticals International, which is the subject of an SEC investigation over potential accounting irregularities.
Past records also show that Clayton represented Eni, an Italian oil and gas company that was investigated by the SEC and Justice Department for alleged anti-bribery violations. In addition, his clients include TeliaSonera, a Nordic telecommunications company with ties to Russia and Iran that stands accused of bribery by U.S. and Dutch regulators. Although Mr. Clayton played no role in the bribery case, he has criticized the Foreign Corrupt Practices Act that governs such offenses.
As Senator Catherine Cortez Masto, D-NV, observed in a letter to Clayton, four of his clients ‘have been charged with violations of S.E.C. rules in the last five years’, which brings to mind the old Aesop saw: you are known by the company you keep.
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