Now the SEC is poised to get his attorney — and Morgan Stanley's too — as its new chairman.
The critical question is whether Mary Jo White can be as zealous in protecting the investing public's interests as she was in defending her Wall Street clients as a litigator at the white-shoe law firm Debevoise & Plimpton LLP. The transition in mindset back to government service doesn't always come naturally for white-collar defense lawyers.
The SEC's penny-ante justice for Wall Street crooks, combined with the Justice Department's willful inability to find top executives who committed crimes at major banks, has left many Americans understandably cynical about the way law enforcement works in the United States.
A recurring problem at the SEC has been the overly friendly relationships between its staff and the people whom the commission is supposed to be policing. A question for senators to ask Ms. White during her confirmation hearing is what she will do to change this culture of coziness, which she has used to her clients' advantage as a lawyer in private practice.
A case in point: An October 2008 report by the SEC's inspector general criticized the commission's enforcement chief at the time, Linda Thomsen, for providing “relevant information” to Ms. White in June 2005 about evidence that the SEC had gathered as part of an insider trading investigation involving John Mack, Morgan Stanley's chief executive. Ms. White had been retained by Morgan Stanley's board to help vet him for the top job, which he got that year.
Discussing e-mails supplied by Morgan Stanley, Ms. Thomsen told Ms. White that the evidence showed that there was “smoke there” but “surely no fire,” according to the inspector general's report.
"USEFUL' FOR A DEFENSE
“Learning the extent of the information the commission had against a potential target could prove very useful in preparing a defense,” the report said. “The information was provided specifically because John Mack was being considered for a high-level position in a large investment bank and would not be available to another potential target of lesser means or reputation.”
The following year, the SEC fired the staff attorney who had been conducting the Mack investigation, Gary Aguirre. The agency in 2010 agreed to pay him $755,000 to settle a wrongful-termination lawsuit.
Mr. Aguirre claimed that the SEC retaliated against him after he complained that his superiors wouldn't let him interview Mr. Mack.
An SEC administrative-law judge in November 2008 rejected the inspector general's recommendation that the regulator consider disciplining Ms. Thomsen and two other SEC attorneys.
There was no suggestion that Ms. White did anything improper on behalf of Morgan Stanley. She was pursuing her client's interests and digging for information.
Now that Ms. White is switching sides, we can only hope that she will make clear that this sort of special treatment for a Wall Street bank won't be tolerated, no matter whom its lawyers are.
Jonathan Weil is a Bloomberg View columnist.