More than two dozen federal officials who helped enact new rules for Wall Street have decamped from government for lucrative jobs in the private sector.
Many of the officials who were foot soldiers in the Dodd-Frank effort have moved on to law firms, with several now advising clients on how to comply with the complex rules that they themselves had helped to write.
Critics of the “revolving door” between government and the private sector bemoan the trend, arguing it helps financial institutions move the levers of federal policy.
“We’re seeing the revolving door much more frequently in the financial services sector, more so than any other industry I’ve seen,” said Craig Holman, a government affairs lobbyist for Public Citizen.
Dodd-Frank veterans who left government reject the suggestion they are cashing in and say it’s preposterous for critics to think they are helping clients find loopholes in the law.
“While there is this popular notion of there being loopholes in the Dodd-Frank law that are there to be exploited. In my experience, those loopholes are a myth,” said Benjamin Olson, who worked at the Consumer Financial Protection Bureau (CFPB) and the Federal Reserve before becoming counsel at the financial services law firm BuckleySandler.
“People can’t point to anything concrete because it just isn’t there.”
The Dodd-Frank financial reform law set in motion a sweeping overhaul of federal regulations that was intended to crack down on the risk-taking that many argue contributed to the near-collapse of the financial system.
Writing the rules has been an arduous task, and the work remains incomplete nearly four years after President Obama signed Dodd-Frank into law.
But regulators are beginning to see the light at the end of the tunnel, having moved past many of the most controversial portions of the law, including the Volcker Rule that sets new limits on bank trades.
Two heavy hitters on Dodd-Frank are no longer in the administration. Timothy Geithner left the Treasury Department behind to join the leverage buyout firm EM Warburg, Pincus & Co., while Mary Schapiro left her post atop the Securities and Exchange Commission for Promontory Financial Group, a financial consulting firm. She recently left her full-time gig with the firm.
But the Dodd-Frank exodus goes beyond Geithner and Schapiro, and spans a wide range of financial agencies that were involved in writing new rules, including the Commodity Futures Trading Commission (CFTC), the Federal Deposit Insurance Corp. (FDIC), the Federal Reserve and the CFPB.
Many of the private sector hires have come from the CFTC, which was given the mammoth undertaking of writing new rules for derivatives.
Tim Karpoff, who left government to become a partner at Jenner & Block, led the team of CFTC lawyers who gave the agency its first-ever jurisdiction over “swaps,” the complex financial instruments that are used to hedge risk.
“Before I entered government, I liked being a lawyer, and I still like it,” he said.
In 2012, Karpoff went to the Treasury Department to head up the Office of Financial Institutions Policy, where he also advised Geithner and his replacement, Jack LewJacob (Jack) Joseph LewThe Hill's Morning Report - Biden argues for legislative patience, urgent action amid crisis On The Money: Senate confirms Yellen as first female Treasury secretary | Biden says he's open to tighter income limits for stimulus checks | Administration will look to expedite getting Tubman on bill Sorry Mr. Jackson, Tubman on the is real MORE, on the implementation of financial reform.
“Because of the two seats that I got to sit in, I am able to help clients figure out how different parts of financial reform fit in with one another,” Karpoff told The Hill. “And people are definitely looking for that perspective.”
While some of the officials have “revolved” between the public and private sectors, a large chunk of them have spent all or the majority of their careers in government.
Headhunters for the legal industry say companies will pay top dollar to people who were in the room when regulations were drafted.
“They’re dealing with the down and dirty language,” said headhunter Ivan Adler, a principal at The McCormick Group. “Since you’re talking about financial services, changing a couple of words in a regulation could be the difference of millions of dollars for clients. … If most of the T’s and I’s have not been dotted and crossed at this point, these people are walking gold.”
Some former officials argue the value of “insider knowledge” is grossly exaggerated.
Raj Date, the CFPB’s first-ever deputy leader, formed his own firm after leaving government. Date bills Fenway Summer as “a hybrid advisory and venture investment firm.” It’s working on releasing a credit card to consumers with low credit scores.
“Some people apparently think that I left the CFPB with secret and privileged knowledge of the ability-to-repay regulation. That is obviously false,” Date told The Hill in an email. “There is no secret ability-to-repay regulation. There is no secret QM [qualified mortgage] rule written in invisible ink that only I can read.”
Nonetheless, some former officials find themselves walking through familiar marble hallways in their new roles.
Michael Krimminger, a partner at leading financial regulatory law firm Cleary Gottlieb Steen & Hamilton, held leadership roles at the FDIC for more than 20 years before going to the private sector in 2012.
Last year, he attended two meetings at the Treasury Department on Dodd-Frank rule-making, according to federal records compiled by the Sunlight Foundation.
Few details are available about the meetings, except that one dealt with the Volcker Rule and the other with regulations that would allow the FDIC to wind down bankrupt financial institutions.
“The United States has been a leader in developing effective framework domestically; I was an advocate for other countries doing so as well,” Krimminger told The Hill. “Clearly, one of the lessons of the financial crisis was that we needed better insolvency framework. Fortunately, the private sector thinks so, too.”
Krimminger said he doesn’t remember the meeting about Volcker, and it isn’t in his calendar. Treasury records show the meeting included several other participants, including Barclays, which was fined more than $200 million by U.S. regulators for allegedly rigging global interest rates.
“[The revolving door is] not about trading on secrets or anything. It’s about making sure there is a level of understanding for dialogue,” Krimminger said.
Other officials argue they can actually strengthen, rather than undermine, regulatory enforcement in their new roles.
“Some of my CFPB friends think that leaving the bureau means ‘going over to the dark side.’ I remind them that I can achieve the same outcome as a regulator, but a lot more quickly, by advising my clients to change or avoid certain practices,” said former CFPB enforcement attorney Ronald Rubin, who is now a partner at Hunton & Williams.
“Companies often get things wrong just because they’re not sure what the government wants, and they’re afraid to ask because it might get them investigated.”
Karpoff said selling insider knowledge of the administration couldn’t sustain a firm for long. In the case of the Volcker rule, financial firms will eventually set up new internal rules for compliance, and the money to outside consultants will stop.
“Long term, anybody who wants to be in this space is going to have to think about the fact that compliance with a lot of Dodd-Frank is going to become largely standardized over the next couple years,” he said.
This story was corrected at 11:31 a.m. to reflect that Benjamin Olson joined BuckeySandler and Mary Schapiro joined Promontory after leaving government service. A previous version contained incorrect information.