Morgan Stanley needed someone with an inside line to the Securities and Exchange Commission. It was 2005, and the investment banking giant's board of directors was hearing that its top candidate for CEO could be implicated in a probe of insider trading at a major hedge fund. Seeking clarity, the board engaged the lawyer many considered the best in the business: Mary Jo White.
White swiftly lived up to her reputation, setting Morgan Stanley's board at ease. According to a report later prepared by the Senate Finance Committee, she emailed and then spoke by phone with the agency's chief of enforcement and learned that the board's CEO choice, John Mack, was most likely in the clear. The SEC investigation -- which had seemed to be leading closer to Mack -- disappeared, and Mack took the helm at Morgan Stanley.
On Thursday, President Obama tapped White to run the SEC as its next commissioner, a powerful role as Wall Street's top regulator and cop. If she is confirmed by Congress, the agency will have at its helm a well-respected attorney who won high-profile cases against mobsters, terrorists and financial fraudsters over the course of nearly a decade as the U.S. attorney for Manhattan.
The agency would also gain a powerful defense lawyer, one who has represented many of the biggest names on Wall Street -- including former Bank of America chief Ken Lewis -- in cases before the SEC.
As the Mack case shows, White was not afraid to push the SEC to get what she wanted. While there is no evidence that White behaved improperly, the episode is an example of what critics often deride as a too-cozy relationship between regulators and defense attorneys, and it almost certainly will be raised by Congress during White's confirmation hearing. These relationships are often further bolstered by the common practice of lawyers moving -- as White will do, if confirmed -- between jobs advocating for Wall Street and jobs policing it.
"This is nothing more than a continuation of the revolving door," said Larry Doyle, the managing partner at the independent advisory firm DM Income Advisers, in Connecticut. Doyle said White's nomination diminishes already weakened public trust and confidence in the system.
Although other critics share Doyle's broad view that the SEC is too close to the industry it polices, many of those who have been toughest on the agency in the past applauded Obama's selection. White's reputation as a fair and independent prosecutor, they said, make her perfect for the job. Moreover, several noted, she worked in private practice before she became a U.S. attorney, and her reputation there is sterling.
"Mary Jo White was a tough, smart, no nonsense, broadly experienced and highly accomplished prosecutor," Dennis Kelleher, president and CEO of Better Markets, a nonprofit group, said in a statement. "She knew who the bad guys were, went after them and put them in prison when they broke the law. That’s what must happen if integrity and investor confidence is to be restored in our securities markets."
New York Attorney General Eric Schneiderman, who hasn't been afraid to buck the Obama administration in the past, also praised White's nomination. "She is a tough, experienced prosecutor, which is exactly what the SEC needs right now to restore investor confidence," Schneiderman said in a statement.
William McLucas, chair of the securities department at Washington-based law firm WilmerHale, worked alongside White in the 1990s when he served as director of enforcement at the SEC. He praised White and said her status as a Wall Street insider in the latter part of her career would be a public benefit.
"It adds to your perspective. It adds to your understanding. It lends a greater depth and a greater breadth of wisdom to your capacity to serve as a chairman," he said. Looking to benefit those in the industry is "just not the way people like Mary Jo White would approach the job and conduct themselves. She's a public servant first."
White first emerged on the national scene in 1993, when President Clinton appointed her U.S. attorney for the Southern District of New York, one of the highest-profile jobs for a federal prosecutor. On her watch, the office reeled in a series of big wins, securing convictions against the mastermind behind the 1993 bombing of the World Trade Center and against mobster John Gotti. Her proteges at the office include Robert Khuzami, who recently stepped down as the SEC's enforcement chief, and Patrick Fitzgerald, who successfully prosecuted two former Illinois governors as U.S. attorney in Chicago.
After she returned in 2002 to Debevoise & Plimpton, the law firm where she worked early in her career, White put together one of the best teams of white-collar lawyers in the country. In recent years, the firm has often defended those accused of wrongdoing during the financial crisis.
As an experienced litigator with deep knowledge of law enforcement, White, who has her own spokesman at Debevoise, is often sought out by reporters for her views on financial crime. In Interviews, she has characterized of the origins of the financial crisis in ways that put her at odds with many financial reform advocates who have pushed the Obama administration to bring more cases against bank executives. Its possible those views could complicate her selection to head the SEC.
"The financial crisis was so expensive and so many people were injured that one's instinct is to think that there must have been massive wrongdoing from the top on down," she told The Huffington Post in September. But criminal cases must be built on compelling evidence, not suppositions, and evidence of broad-based misconduct that would rise to that level doesn't exist, White said. She made similar statements on behalf of clients.
"Some have looked to assign blame for every aspect of the financial crisis, even where there is no evidence of misconduct," she wrote in a motion defending Bank of America's Lewis in 2010. She referred to then-New York Attorney General Andrew Cuomo's charges against the former bank chief as "a badly misguided decision without support in the facts or the law."
In addition to big-name clients like Lewis, White also became known over the last decade as the lawyer companies hire to conduct an internal investigation -- a probe into possible misdeeds. Many such investigations are never made public.
The Morgan Stanley matter likely would have stayed behind closed doors, too, but for accusations made by a former SEC attorney that the insider-trading investigation into Mack was killed for political reasons. That claim led to hearings by the Senate Finance Committee, and, in 2007, a report critical of how the agency handled the investigation.
In June of 2005, according to the report, White emailed Linda Thomsen, then head of the SEC's enforcement division. The subject line: "URGENT."
Thomsen later testified that she didn't divulge any information about the insider-trading case. That account, however, contradicts what White wrote in talking points used to brief Morgan Stanley's board, according to the Senate committee. Those notes indicate that Thomsen told White there was "smoke" regarding Mack's involvement in the alleged illegal trading, but "surely not fire."
The implication: Thomsen told White more about the status of the case than she let on. Four days after the phone call, Morgan Stanley hired Mack. Soon after, the SEC ended its investigation.
In congressional testimony, Robert Hanson, one of the SEC supervisors working on the case, said Assistant Director Mark Kreitman had told him he knew about the call between White and Thomsen.
"Kreitman also said that it is a little out of the ordinary for Mary Jo White to contact Linda Thomsen directly, but that White is very prestigious and it isn't uncommon for someone prominent to have someone intervene on their behalf," Hanson said.
That such a conversation was "not uncommon," the Senate committee said in its report, "is precisely the problem."
Gary Aguirre, the SEC attorney whose complaints prompted the Senate probe, accused the agency of refusing to pursue Mack because of his "very powerful political connections," an account that emails from Aguirre's former supervisor confirmed, the committee concluded.
In an interview with The Huffington Post on Wednesday, Aguirre said he believes the White phone call to Thomsen also played a role in killing the SEC's investigation into Mack. "There’s no question in my mind that that phone call from Mary Jo White stopped the whole investigation," he said. "The case was like a railroad heading for a criminal investigation. And it got zapped with a call."
The Senate report was also critical of Paul Berger, a current Debevoise partner who at the time of the insider-trading investigation was a senior supervisor in the SEC's enforcement division. In 2005, Berger reached out through a friend to White to mention his interest in joining the private firm. The report criticized Berger for not immediately recusing himself from the Mack investigation when Morgan Stanley hired Debevoise. "When initially questioned, Berger’s answers concerning his employment search were less than forthcoming," the report concluded.
Berger, who later joined Debevoise as a partner, did not respond to a request for comment Thursday.
The Senate report found the SEC "squandered [an] opportunity through a series of missteps" to fully investigate the insider-trading case, but it did not conclude that White's phone call led to the agency dropping the case, nor did it suggest that she behaved inappropriately.
White also did not respond to a request for comment on Thursday, but other defense lawyers said her actions during the course of the Mack case were entirely appropriate. Pushing for information about a matter of interest to a client is a lawyer's job, they said.
"It shows that she is nothing less than an exceptionally skilled litigator," said Ralph Ferrara, a Washington securities attorney who has known White more than 20 years. "She should have knocked on that door hard. That [the SEC] opened it is on them, not her."
Mark Gongloff contributed reporting.
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