March 31, 2017

How the SEC Chair is Selected: A Primer

Before the election, I received this note from a member in reaction to my blog about Senator Elizabeth Warren’s letter to President Obama about political contribution disclosure rulemaking:

I was surprised to read Senator Warren’s letter asking President Obama to exercise his authority under 17 CFR 200.10, because everything in the CFR was adopted by the Commission and how could the Commission give authority to someone outside the agency. It seemed odd to me. But lo and behold, I looked at the Exchange Act and there is no mention of the President’s authority to appoint the Chair, only the authority to appoint the Commissioners. I know you have written about Reorg Plan No 10 of 1950 in the past, which every SEC geek needs to know. As the litigators say, my memory is refreshed. And boy, that was some nasty letter. One needs skin like an alligator to survive inside the Beltway.

So the President’s authority to appoint a Chair among the SEC Commissioners is granted by Section 3 of the Reorganization Plan No. 10 (which itself was created pursuant to the Reorganization Act of 1949).

Think about that. Before 1950, the SEC Chair was selected by the other Commissioners! There must have been some serious campaigning among the Commissioners on occasion to be selected Chair. If that were still the rule today, they’d probably draw straws – and the one who picked the short one would be Chair. Who wants the constant criticism from Congress and the media?

It’s true that the SEC Chair’s authority is far greater than the other Commissioners (review the transcript of our webcast on this topic to learn more) – but they wouldn’t be doing it for the money. Last time I checked, the SEC Chair got paid only $5k more than the other Commissioners. Definitely not worth the added scrutiny & hassle!

The Battle to Become the First SEC Chair!

Thanks to Paul Dudek – now at Latham & Watkins – for help with the above. This also comes from Paul:

The biography of Ferdinand Pecora – known as “The Hellhound of Wall Street” – describes the contentious behind the scenes lobbying in connection with the selection of the first SEC Chair. Pecora was the Chief Counsel of the Senate Committee that investigated the 1929 Crash, while Kennedy was shenanigans that contributed to the Crash.

President Franklin Roosevelt had given instructions to the Commissioners that they select Joe Kennedy as Chair – but Pecora lobbied his fellow Commissioners to override the President’s decision for himself to serve in that role. James Landis, another initial Commissioner, engaged in shuttle diplomacy between Kennedy and Pecora as they sat in separate rooms during a delay in their swearing-in ceremony. And Landis eventually got Pecora to acquiesce to FDR’s choice.

SEC Chair Clayton? Senate Banking Committee to Act Next Week

This WSJ article notes that the Senate Banking Committee will meet on Tuesday to bless Jay Clayton’s nomination to be SEC Chair. Then a full Senate confirmation is the next step – which probably will happen in late April…

Broc Romanek