Trump drags mild-mannered regulator into political firefight
President Trump’s plan to replace a top federal prosecutor with the chairman of the Securities and Exchange Commission (SEC) has thrust a mild-mannered financial regulator into the middle of a political fight.
SEC Chairman Jay Clayton has largely avoided partisan battles and political controversies during his three years as head of the stock market watchdog. The registered independent and former Wall Street attorney is among the most conventional of Trump’s financial appointees, steering the SEC toward a business-friendly consensus while irking both Democrats and Republicans with stronger ideological tilts.
Clayton’s potential nomination to replace Geoffrey Berman as the U.S. attorney for the Southern District of New York has roped him into Trump’s ongoing purge of Justice Department officials. SEC observers say the position isn’t exactly suited for Clayton, especially under the Trump administration.
“Clayton has been perceived as somebody who’s not very political, not an ideologue, particularly when you put him in the context of the current political environment in Washington,” said Ian Katz, director at policy research firm Capital Alpha Partners.
Some stunned Washington policy minds expect him to spurn the chance at a high-profile promotion amid the swift backlash surrounding the circumstances of Berman’s departure.
“I think this is all probably a surprise to Jay, and my guess is he will eliminate this distraction to his work in pretty short order,” said J.W. Verret, a securities law professor at George Mason University who serves on the SEC Investor Advisory Committee.
“I don’t think [Attorney General] Bill Barr told him the whole story. And I think, frankly, Bill Barr did a disservice to Jay,” he added.
Trump and Barr announced over the weekend that Clayton would be nominated to replace Berman as the chief prosecutor in what legal experts consider the most powerful and elite federal district within the Justice Department. Barr originally claimed Berman decided to resign, but Berman denied that he agreed to step down and challenged the attorney general’s ability to dismiss him.
Before joining the SEC, Clayton represented some of the world’s most powerful banks and financial firms for nearly two decades as a partner at the law firm Sullivan & Cromwell as a specialist in mergers and initial public offerings. Clayton was widely expected to return to practicing law in New York whenever his stint at the SEC ended, likely to Sullivan & Cromwell.
White House press secretary Kayleigh McEnany told reporters on Monday that Trump holds Clayton “in very high regard” and plans to nominate him to the Southern District of New York to “keep him in the government as he returns to New York.”
If confirmed as the new U.S. attorney for the southern district, Clayton would preside over several cases involving some of his former clients, including Deutsche Bank, which is under federal investigation for money laundering.
Though Berman has since stepped aside, the events preceding Clayton’s potential nomination may have already dashed his chances of confirmation if he’s officially nominated.
Senate Judiciary Committee Chairman Lindsey Graham (R-S.C.), a staunch Trump ally, said he would not hold a confirmation hearing for Clayton without the customary go-ahead from the two senators from New York: Democratic Sens. Charles Schumer and Kirsten Gillibrand, each of whom said they will not support Clayton.
“I think it’s over for him,” said Carl Tobias, a law professor at the University of Richmond and an expert on presidential nominations. “There’s just no chance that [confirmation] will happen, and that’s just a measure of the slipshod way in which they put this together.”
The SEC did not respond to a request for comment.
Clayton’s service in the Trump administration began in 2017 on far less partisan terms.
While most Democratic senators opposed his nomination over concerns he would take a hatchet to the 2010 Dodd-Frank Act post-financial crisis reforms enacted by former President Obama, he was confirmed by a 61-37 vote, with nine Democrats and one Independent supporting him.
Clayton’s tenure has not lived up to the worst fears of his critics — nor the high hopes of his GOP supporters.
“While Clayton may not be as ideological as some Republicans would be in that job, Democrats and investor advocates are disappointed he hasn’t done more — and in more high-profile ways — on enforcement,” Katz said.
The SEC has largely avoided high-profile enforcement actions under Clayton with the exceptions of former Rep. Chris Collins (R-N.Y.) — who pleaded guilty in October to insider trading charges — and Tesla founder Elon Musk, who paid $20 million to settle charges related to his incessant tweeting about the carmaker’s stock price.
The SEC under Clayton has otherwise focused on breaking up Ponzi schemes and fraud involving the use of cryptocurrencies as investment products over the white-collar crime that progressives are eager to see prosecuted. Consumer groups also blasted the SEC’s Regulation Best Interest, a 2019 replacement for Obama-era conflict of interest rules for financial advisers and stockbrokers, as too weak to protect vulnerable investors.
Republicans and industry advocates have been less critical of Clayton than Wall Street skeptics and their Democratic allies. Both Clayton and GOP lawmakers have sought to loosen regulatory barriers to filing initial public offerings as a way to convince more companies to raise money from average investors.
But Republicans and investment firms have also expressed frustration with Clayton’s consensus-driven regulatory approach after securing a long-awaited chance to dismantle Dodd-Frank rules with Trump’s 2016 election.
Clayton’s push to limit stock exchanges from raising data access fees has spawned a legal battle between the commission and powerful trading operations. And the SEC’s resistance to approve cryptocurrency-related investment offers and investment guidelines has also irked libertarian-leaning lawmakers and investors.
“They’ve been pretty middle of the road so far. You know, not very aggressive deregulatory, not very aggressive in either direction,” Verret said of the SEC under Clayton.