SEC Chair Tiptoeing Around Questionable Gumbs Nomination

We live in a new financial world order that is, at times, positive and sometimes less than positive, particularly when it comes to criminal activity. This can be seen through several lens focuses, but perhaps most interesting is to note that even Wall Street institutional investors are not immune to the crime wave on several levels. Institutional investors were at one point the most protected class of investor, until, one can argue, both judicial and regulatory leverage switched from the buy to the sell side. Those underwriting SWAPs contracts and bond offerings, more often than not using intentionally obfuscating language with multiple legal interpretations, reign supreme.

Such is the era of regulatory uncertainty and dysfunction.

SEC meeting records altered as sensitivity to Gumbs / White meetings show

Enter into this discussion Securities and Exchange Commission (SEC) Chair Mary Jo White, a woman under fire for not living up to her promise as a financial reformer – or even, at best, not being a neutral observer. Chair White has come under severe scrutiny regarding a “chummy” relationship she has with law firms representing the most influential banks and corporations. The issue of the revolving door between influential Washington D.C. law firms and manipulation of the wheels of justice is particularly a troubling story, but one that must be told in an effort to stop the behavior.

This reputation was further tested recently during the nomination of Kier Gumbs, a story told by ValueWalk. The battle over the now derailed nomination of Keir Gumbs appears to show how concerned the agency is over Mary Jo White’s fate. White has been under scathing critique ever since Sen Elizabeth Warren (D-MA) called her tenure as SEC Chair into question. With the spotlight being directed at Eric Holder’s recent decision to “return home” to what is arguably Washington D.C. most powerful law firm, Covington & Burling, White appears to be distancing herself from the politically connected law firm to a significant degree.

Within 90 minutes of publishing an article on White / Gumbs meeting, SEC documents change

Soon after ValueWalk published a report showing Covington & Burling lawyer Keir Gumbs, then a potential Democratic SEC commissioner nominee, representing oil interests inside the SEC, documents that initially showed White meeting with the lobbyists and Gumbs were altered, according to research from the Center for Effective Government. A ValueWalk article posted at 8:38:52 AM that included links to SEC documents showing White meeting with Gumbs and his oil clients was later changed nearly 90 minutes after the article was first published, at 9:45 AM that same day, the government watchdog noted. The documents then later changed one week later. (The changed documents are here and here.)

“That strikes me as particularly noteworthy,” said a Washington DC source who was involved in tracking the changes made.

For Gumbs, a distinctive and influential former SEC counsel under consideration as an SEC nominee at the time, to be directly lobbying White would be considered yet another sign of an active revolving door at the SEC. Optimism regarding the Gumbs nomination, according to reports, has been lessoned, with some saying other candidates without strong ties to corporate lobbying are now being considered.

Was changing documents so quickly as to cause confusion an accident?

Does the quick document change mean something unusual is ongoing and that the embattled Chair White is quick to distance himself from Gumbs, or was it all just an odd misunderstanding?

An SEC spokesman told ValueWalk the changes made to SEC meeting documents were coincidental and the result of simple mistakes.  The senior SEC staffer who drafted memos for two similar meetings mistakenly included Gumbs on the wrong list of attendees.  After one of the people on the list noticed the mistake, the list was removed from the website and temporarily replaced by the memo from the similar meeting that Gumbs had not attended.  The situation was ultimately straightened out, the spokesman explained.

Does it matter? SEC sensitivity to Gumbs and the revolving door is very real on both sides of the debate

Regardless of the details of this incident, financial reform watchdogs see troubling correlations between those who lobby the SEC on behalf of large corporations and those who formerly worked at the agency.

“The SEC’s reputation for a revolving door in personnel makes it particularly important that the SEC is transparent about what influences their rule making, including who gets access to the SEC’s senior management,” said Jeff Hauser, who leads the Center for Effective Government’s “Revolving Door Project.” The goal or the organization is to, in part, act as a watchdog over undue large corporate influence over government where it disadvantages the general public or small and mid-sized businesses.

Hauser thinks this incident is “worrisome” because “the SEC has offered so many different versions of ‘who, what and when’ for meetings discussing disclosures of overseas corruption.”  The previous ValueWalk article detailed rulemaking on disclosures regarding overseas “payments” involving foreign officials. The more politically blunt term used to describe the issue would one of transparency into bribery payments to foreign government officials. Large corporations, such as those represented by Covington & Burling, have lobbied to limit disclosure regarding “payments” to foreign government officials in a fight over SEC rules in Section 1504, which requires disclosures by companies in extractive industries such as oil, gas and mining concerns.

“It is hard to avoid worry about the ironies attendant to the admitted unreliability of SEC disclosures about their formulation of a rule designed to ensure corporations disclose fully and avoid corrupt practices,” Hauser said.

On April 10, 2015 Gumbs, described in documents at the time as a “representative” with the American Petroleum Institute, met with several high level SEC officials to discuss rulemaking, including White. Those documents have been changed and the links currently represent the new information showing that White did not meet with Gumbs.

“The SEC suffers from an all-too-justified reputation for chumminess between current, future, and past senior management, a reputation that undermines its critical role in protecting investors and the broader economy,” Hauser noted, who said his current life’s work is “to ensure that critical government positions are held by people who view them as public trusts, rather than stepping stools to greater wealth.”