Washington on Edge
|Back to Features|
|Ben Hallman||May 18th 2011|
|SEC Chair Mary Schapiro|
When the Securities and Exchange Commission accused Eric Sieracki of securities fraud in 2009, the former Countrywide Financial executive did what many others in trouble with Wall Streetâ€™s top cop have done: He hired a former SEC lawyer to defend him.
Between 2006 and 2010, at least 219 former SEC staff appeared before their former agency on behalf of private-sector clients in 800 different matters, according to a new database created by the Project on Government Oversight (POGO). POGO obtained copies of the ex-SEC employeesâ€™ disclosure forms through a Freedom of Information Act request.
Senior SEC officialsâ€”particularly those from the enforcement divisionâ€”have long been able to count on finding a home at a private law firm with a hefty raise after a few years of government service. The new POGO data gives the clearest picture yet of just how much corporate America relies on former SEC staff to handle its legal work before the agency.
Sierackiâ€™s lawyer, Nicolas Morgan at the law firm DLA Piper, has been one of the busiest.
From 1998 to 2005, Morgan held several jobs within the SECâ€™s enforcement division, including senior trial counsel. From 2006 to 2008, the disclosure forms show that he represented 17 clients in matters before his former employer.
Morgan didnâ€™t respond to a request for comment. In 2010, Sieracki agreed to pay $130,000 to settle the SECâ€™s case.
The only former SEC lawyer to work on more cases involving the agency was Walter Ricciardi, a former deputy director of enforcement now at the firm Paul, Weiss, Rifkind, Wharton & Garrison. He filed 20 statements in 2009 and 2010, the two years after he left the SEC, according to the database.
In some cases, SEC staffers were barely out the door before telling the agency they would be back to represent private clients.
John Ivascu left his job as a staff attorney in the enforcement division on Jan. 2, 2006. Three days later, he petitioned to represent a client before the agency in a matter involving a financial restatement, the database showed.
Who was that client? As in the overwhelming majority of disclosure forms, the SEC redacted the clientâ€™s name.
Some ex-employees failed to file disclosures
The disclosure forms are required by the SEC for all former employees who appear before the agency in the first two years after leaving. They are meant to guard against a former employee from taking a case related to one he or she worked on while at the agency.
But POGO identified several instances where former employees appeared before the agency within the two-year time frame without filing a disclosure.
The most notable was Spencer Barasch, a former assistant director of enforcement in the SECâ€™s Fort Worth regional office until he left in April 2005 to join the law firm Andrews Kurth.
According to the SECâ€™s inspector general, while Barasch was still at the SEC, he played a big part in delaying and limiting the agencyâ€™s investigation of the $8 billion Ponzi scheme orchestrated by Allen Stanford. After leaving the SEC, Barasch repeatedly attempted to represent Stanford in connection with the regulatorâ€™s investigation, even though he was told by the agencyâ€™s ethics office that his previous involvement with the Stanford investigation prohibited him from doing so.
Nonetheless, the internal watchdogâ€™s reported that in September 2006â€”well within two years of his departureâ€”Stanford hired Barasch to â€œrepresent it in connection with the SECâ€™s investigation of Stanford.â€
Barasch, who was not available for comment, never filed a disclosure form.
After the SECâ€™s ethics office told Barasch in 2009 a third time that he could not represent Stanford, Barasch became upset, Kotz said in his prepared testimony. â€œWhen asked during our [inspector general] investigation why he was so insistent on representing Stanford, he replied, â€˜Every lawyer in Texas and beyond is going to get rich over this case. Okay? And I hated being on the sidelines.â€™â€
POGO also identified several former SEC staff who noted in their disclosure letters that they had some involvement with a related matter during their time at the agency. In those instances, the employees discussed the matter with an SEC ethics officer and were told they could carry on with the representation.
The job cycle that routinely has former SEC staff appearing in cases back before the regulator within days and weeks of leaving has attracted increased scrutiny from Congress and the SECâ€™s own inspector general.
One frequent critic of the SECâ€™s revolving door, Republican Sen. Charles Grassley of Iowa, said the new POGO database shows that restrictions on ex-government workers from other departments â€œmust be made to apply to the financial regulatory agencies. â€œ
â€œAlong with the restrictions, there should be public disclosure of where these former financial regulators are working and what issues they are working on,â€ Grassley said in an emailed statement. â€œTransparency is a proven back-stop to enforce ethics rules.â€
Last summer, Grassley, then the top Republican on the Senate Finance Committee, asked the SEC inspector general to review the departure of Elizabeth King, an associate director in the SECâ€™s markets division, who left for the high-frequency trading firm Getco LLC. The lawmaker said the probe was needed so Congress â€œcan more accurately assess the integrity of the SECâ€™s operations.â€
In a June 15, 2010 letter responding to Grassleyâ€™s request, Kotz revealed that he was already investigating the SECâ€™s revolving door policy. A previously report shows that the Washington law firm WilmerHale, and its star, William McLucas, who chairs the securities group there, was a likely target.
McLucas left the agency long ago, and is not required to file disclosure forms. Indeed, it is very likely that POGOâ€™s four-year database identifies just a small percentage of all former SEC staff who regularly appear before the agency.
The Government Accountability Office, the watchdog arm of Congress, is also looking at the revolving door issue at the SEC, with a report due in July.
The SEC did not respond to a request for comment. But in testimony during her confirmation hearing in January 2009, Chairman Mary Schapiro indicated a willingness to address the revolving door issue.
Schapiro said then that the SEC must seek to avoid the conflicts created by these employees â€œwalking out the door and going to a firm and leaving everybody to wonder whether they showed some favor to that firm during their time at the SEC.â€