WASHINGTON Feb 11 Former U.S. Securities and
Exchange Commission staffers who now work in the private sector
may have helped derail last year's effort to reform the $2.6
trillion money market fund industry, a report said.
The case study on money market fund lobbying is part of a
60-page report by the Project on Government Oversight(POGO). It
is one example within a broader review by the non-profit
government watchdog that examines in detail how the "revolving
door" at the SEC may have impacted policy and enforcement
decisions over a 10-year period.
The publication of the report comes a few weeks after
President Barack Obama nominated Mary Jo White, a former
prosecutor and high-profile white collar defense lawyer, to lead
While her nomination has generated little controversy so
far, some have questioned whether her past defense of Wall
Street executives could impact how she does on the job.
"The revolving door is deeply embedded at the SEC and
throughout the federal government," the report says.
"The close linkage between the regulators and the regulated
can influence the culture, the values, and the mindset of the
agency - not to mention its regulatory and enforcement
The report also calls for reforms to help prevent problems
that may be posed by the revolving door. They include requiring
agencies to post disclosure statements online, expanding the
criteria for when staffers must file post-employment statements,
and extending the cooling off periods for employees who enter
and leave the government.
POGO's report analyzes disclosure forms obtained through a
Freedom of Information Act request that were filed by over 400
former employees representing clients or new employers before
the SEC from 2001-2010.
As an example of how SEC alumni can help influence policy
outcomes, the report points to a lengthy list of former
commissioners and staffers, including former Commissioner Laura
Unger, all of whom questioned the reforms proposed by
then-Chairwoman Mary Schapiro for money market funds.
Schapiro was concerned money funds were still at risk for
runs like the one experienced by the Reserve Primary Fund in
2008 during the financial crisis. She had sought to impose
either a combination of capital buffers and redemption
holdbacks, or a switch to a floating net asset value from a
But three commissioners refused to support putting the plan
out for public comment, leading the new Financial Stability
Oversight Council of regulators to try to apply some pressure on
the SEC to act.
Only after Schapiro left the agency in December did the SEC
start to get some traction on a proposal. Currently,
commissioners are reviewing an early-stage concept document and
exploring courses of action.
POGO acknowledges that "it's hard to know how much any of
these alumni contributed to" the temporary derailment.
However, it notes that SEC Democratic Commissioner Luis
Aguilar, who once worked for the money management firm Invesco,
helped tip the balance when he joined his two Republican
colleagues in opposing a vote on the proposal.
"In March 2012, Invesco sent a team to meet with Aguilar at
the SEC and tell him why tightening rules for money market funds
was a bad idea," the report says.
Later, it noted, Aguilar issued a statement opposing
Schapiro's plan "that closely tracked arguments made by the
The report quotes Aguilar as saying that his prior
relationship with the industry did not make him more receptive
to its arguments. He told POGO that he follows the public
interest and also noted that Invesco's leadership has changed
since he left a decade ago.
"I don't think I'm anybody's puppet," Aguilar is quoted
SEC spokesman John Nester also downplayed the impact of the
revolving door on the money market fund debate, telling POGO, "I
imagine you could find alumni on all sides of this issue, but
... matters are decided on their merits."
POGO's report also discusses Mary Jo White as another
example of the revolving door.
It notes that White was previously hired by the Morgan
Stanley board to determine whether its prospective chief
executive, John Mack, had any exposure in an SEC insider-trading
investigation of the hedge fund Pequot Capital Management.
In a 2007 investigative report by the minority staff of the
Senate Finance Committee that looked into the firing of an SEC
lawyer involved in the Pequot case, Senate staff questioned why
Mary Jo White was directly contacting then-Enforcement Director
Linda Thomsen about John Mack.
"By providing prominent individuals selective access to
senior SEC officials, the SEC allowed bits of information about
its non-public investigation of Pequot to leak to a potential
defendant's prospective employer," Senate investigators said.