At the S.E.C., a Revolving Door That Helps the Public

At the S.E.C., a Revolving Door That Helps the Public

David Zaring is assistant professor of legal studies at the Wharton School of Business at the University of Pennsylvania.

Both Mary Jo White, President Obama’s nominee for chairwoman of the Securities and Exchange Commission, and her likely enforcement deputy, Andrew J. Ceresney, had lucrative careers as white-collar criminal defense lawyers after leaving their jobs as federal prosecutors in Manhattan. Now that it appears that they are likely to rejoin the government, people have wondered, here and elsewhere, whether we should worry about picking law enforcement officials from the ranks of those whose résumés include stints prosecuting and defending the same sorts of people.

This issue is particularly acute at the S.E.C. Robert Khuzami, the last enforcement deputy at the agency, also spent time as a prosecutor in Manhattan. He left that job to work at Deutsche Bank, and he may well be headed back there soon. George Canellos, who is serving as Mr. Khuzami’s interim replacement, separated his own Manhattan prosecutor stint and current S.E.C. career with six years at Milbank Tweed. Linda Chatman Thomsen, Mr. Khuzami’s predecessor, spent time before and after her career at the S.E.C. at Davis Polk, where she now represents private sector clients in S.E.C. enforcement actions.

You can see why smart observers like the Columbia law professor John Coffee have characterized the revolving door as “such a dominant fact about the S.E.C.’s culture.”

Dominant does not necessarily mean bad, however. It would be naïve to ignore the flow of regulators to and from regulated industry, but the government has not done that for decades. Congress has imposed “cooling off” periods on government officials, meaning they cannot quit their public sector jobs on Monday and appear in the private sector on Tuesday. It has prevented them from ever working on matters they handled in the public sector when they leave it. Section 968 of the Dodd-Frank Wall Street Reform Act directed the S.E.C. to study the revolving door at the agency, and, if necessary, change its own policies regulating it.

All too often, the fact that government regulators leave their jobs for cognates in the private sector is presented as an unanswerable indictment of the regulatory process and a reason to embrace an increasingly toxic cynicism about what the government is capable of doing.

But the revolving door has some advantages. It may improve the caliber of applicants for government jobs, for example. It probably incentivizes them to perform well in those jobs to show off to future employers. It means that law enforcement officials have some first-hand knowledge of how the industry they regulate works. And it can salt the private sector with government alumni who have come to expect compliance with government requirements.

Moreover, there are democratic reasons to embrace a regular rotation of citizens through government positions, principles that should be familiar to any politician who has praised a part-time legislature. Banning the revolving door, by the same token, would prevent people from working for whom they choose, which is inconsistent with the strong American commitment to free labor, and may even have constitutional implications.

The facts on the ground bear this out. In a recent paper, Ed DeHaan, Kevin Koh, Simi Kedia and Shivaram Rajgopal studied the career paths of 330 S.E.C. lawyers from 1990 to 2007, and found that enforcement efforts “are higher when the S.E.C. lawyer leaves to join law firms that defend clients charged by the S.E.C.”

In my own study of a grouping of Manhattan federal prosecutors on the job in 2001, I found that while the majority of them have left for the private sector today, there is no evidence that the revolving door types regulated more weakly than career officials.

The revolving door indictment, in other words, is not much of indictment than an indication of a varied career path. The mere fact that Ms. White and Mr. Ceresney have gone through the revolving door and come back should not disqualify them for the posts. Rather, it may even strengthen their suitability for the jobs.


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