SEC’s Mary Jo White wants companies to fess up


WASHINGTON — The woman who indicted Osama bin Laden wants to strike fear into Wall Street.

Mary Jo White, the former U.S. attorney in Manhattan who wanted to prosecute the terrorist mastermind before the 9/11 attacks, has tried to stiffen the backbone of the Securities and Exchange Commission since taking over as the agency’s chairwoman in April.

The SEC, like other regulators, customarily has allowed its targets to settle civil cases without admitting any wrongdoing.


But under White, the nation’s top stock market cop no longer will always let deep-pocketed investors and firms get away with merely writing a check for government penalties.

So far, White’s SEC has prodded JPMorgan Chase & Co., the nation’s largest bank, to admit it broke securities laws when traders lost more than $6 billion in the “London Whale” fiasco. The admission came with nearly $1 billion in penalties.

Hedge fund tycoon Philip Falcone, in a separate case, had to admit he did something wrong too.

But White faces more challenges this year. The agency is still trying to hammer out rules aimed at preventing another financial crisis, three years after the landmark Dodd-Frank law was enacted.

Then there are new crowd-funding rules called for by the Jumpstart Our Business Startups, or JOBS, Act. The aim is to let individuals invest in start-ups via the Internet, but some critics worry about the potential for fraud.

The agency also is struggling to maintain investor confidence in the wake of a slew of technological breakdowns on Wall Street in recent years.

White, however, isn’t losing sleep. She spoke with The Times about her first months on the job. Here are excerpts.

When President Obama announced your nomination, he said, “You don’t want to mess with Mary Jo.” Who so far has tried to mess with you?

I can’t say that anyone has tried to mess with me since I’ve been here.

What caused you to lose sleep when you were U.S. attorney in Manhattan, and what has kept you awake at night so far as chair of the SEC?

I don’t require much sleep, actually, so not much of anything keeps me up at night.… We dealt with, in the Southern District [of New York], the terrorism cases. Here we have very important issues. They don’t keep me up at night, but they’re extremely important. Some of the market structure issues are the ones that get a lot of my attention, as do a lot of other issues. But nothing keeps me up at night. I’m kind of a problem-solver.

Is there any similarity in how this agency goes about investigating Wall Street and how your former office went after terrorists, mobsters and white-collar criminals?

The SEC is obviously a civil law enforcement agency, not a criminal law enforcement agency, so it doesn’t have all the tools that the criminal side does — it doesn’t have the wiretap authority, the grand jury subpoena, that kind of thing. But it’s very, very similar. The investigative techniques that you use are virtually identical.

You recently said you want the SEC to be respected and feared on Wall Street. Feared in what way?

You certainly want to be respected by those that you’re requiring compliance with securities laws from, and I think we are.

I think I said “feared to an extent.” You want to be a powerful force. You want to be able to deter wrongdoing. And so a little bit of fear on top of that respect is not a bad thing.

Having been in the private sector, did you have a sense that the SEC had more clout in these cases than maybe people in Washington thought?

Yes. I think what I brought from the private sector was a real appreciation of how much leverage — respect, if you will — that the SEC has. Major companies, in particular, really don’t want to be at war with their primary regulator. The SEC may not have appreciated just how great our leverage is.

Would the SEC ever take this a step further and require defendants to express remorse and apologize, as in a criminal case?

What we are focused on is the enhanced public accountability and the admission of the conduct, the wrongdoing. That’s the most effective kind of admission, frankly. I know in the past there have been criticisms of other agencies where the admission has taken the form of an apology only.… An apology is easy. We want you to admit what you did.

You’ve said the SEC needs to be ready to go to trial if a company refuses to admit wrongdoing as part of a settlement. What happens if the SEC goes to trial and suffers high-profile losses? Won’t that embolden the wrongdoers and weaken the SEC’s hand?

You clearly have to have what I call trial credibility. I think the SEC does have trial credibility. In the last, I think, three years, there’s an 80% success rate, which is really quite high given the complexity of the cases and the kind of cases we bring. You’re never going to win every case. If you did there’d be something wrong in the system, frankly, and it would mean you weren’t bringing the hardest cases.

So far what do you see as the biggest emerging threat to investors right now?

I don’t know if I would call it “threats.” We all have to be concerned about any kind of fraud that’s present in the marketplace.

We have some new changes that have been brought about by the JOBS Act … and we want to make sure that those changes in the rules of the road — designed to facilitate in capital formation — don’t result in increased fraud.

Plainly, we are very focused on — as are the exchanges, as is the industry — the systems issues in our marketplace.

We always are paying a lot of attention — particularly for retail investors — to make sure that they are getting the right kind of information before they invest. Today’s marketplace has complex products that you need to make sure [are] fully understood in terms of the risks.

Some defense attorneys have complained that the federal government has focused too much on insider trading cases in recent years, saying they are relatively easy cases compared with more complicated fraud cases. What’s your view? Do you think the SEC has spent too many resources going after insider trading?

No, not at all. Insider trading is very important for the SEC and criminal prosecutors … because it essentially goes right to the integrity of the marketplace and an uneven playing field you’re trying to eliminate. It’s also an area where I think deterrence actually works, if you’re vigorous.

Do you think the SEC is doing enough to detect any new Madoffs or Ponzi schemers currently flying under the radar?

We’ve enhanced our systems tremendously in terms of [sifting through] tips, complaints and referrals that we get. We’ve used very sophisticated IT initiatives.… If you look at the cases we’ve brought in the last three or four years, lots of Ponzi schemes have been pursued. So you obviously don’t want to miss anything that’s occurring but I think we’re in a situation now where our systems [are] much, much stronger than they were in the Madoff era.

Do you think financial markets have become too fast, too high-tech and too complex to be safe for small investors?

No, I don’t think that. I think our markets are the safest and most reliable in the world. That’s not to say that you don’t need to figure how to address any harmful effects, if they’re out there, from high-frequency trading, fragmentation of the marketplace.

The SEC has perennially complained of being underfunded. How have you seen the limits of the SEC’s budget get in the way? What are the areas where you simply can’t afford what you want to do?

The SEC has a huge array of responsibilities, and it did before Dodd-Frank and the JOBS Act.… There are almost 11,000 [investment advisors] but in fiscal 2012, we were able to examine only about 8%. Now that’s 20% of the assets under management. We use very smart risk-based techniques to figure out where we’re going to go to examine, but you still want much greater coverage than that.

What’s going to be the next major disaster — the next financial crisis, next Madoff, next major accounting fraud?

You can’t really say when you’re going to have the next major fraud. You can just do all you can to try to prevent it — and be all over it if it happens.