A powerful and well-connected global consulting firm recently announced it had landed another big fish. Mary Schapiro, the former chief of the Securities and Exchange Commission, will become one of its managing directors.

When asked about her move from the SEC to Promontory Financial Group, Schapiro made a curious comment: “In my case, there’s no revolving door,” she told The Wall Street Journal.



Schapiro explained that she will never return to government and has agreed to never contact a federal agency on behalf of Promontory’s clients.

So what’s the big deal?

Even if she steers clear of government, Schapiro’s move to Promontory, a firm stocked with former U.S. and foreign officials, highlights the dangers of the revolving door between government and industry.

She’s now in a position to help the firm’s clients navigate the murky waters of government regulation. For instance, if a company wants to sway SEC policies, Schapiro can offer her perspective as an official who used to vote on those policies — not to mention her phalanx of contacts at the agency.

As long as Schapiro does this work behind the scenes, she can still comply with the revolving door rules for former government officials and honor her own pledge to never contact a federal agency.

She can just leave it to her colleagues at Promontory, such as Laura Unger. That former SEC commissioner met with agency officials last year to discuss one of Schapiro’s top initiatives as SEC chairman — tightening the rules for money market funds, the supposedly safe investment vehicles that played a central role in the 2008 financial crisis.

Like Unger, many of the people who lobbied the SEC on this issue on behalf of the investment industry were its former officials, who typically left for more lucrative jobs in the private sector. Last summer, without even bringing her proposal to a vote, Schapiro acknowledged that her reforms were blocked.

The Project On Government Oversight (POGO) — where I work as an investigator — recently released a report, based on thousands of government records. We showed that SEC alumni routinely try to help corporations influence agency rulemaking, defend companies suspected of wrongdoing, and soften the blow of enforcement actions on the financial industry. They also regularly win exemptions from federal law for their clients and secure the SEC’s blessing for companies to block shareholder proposals on issues such as pay for their top executives.

Consider this example: Less than two weeks after the enforcement branch chief in the SEC’s San Francisco office left to become an in-house counsel at Wells Fargo & Co., she filed six disclosure statements. These documents indicated she would be representing her former employer in connection with Wells Fargo’s pending SEC enforcement matters.

More than 400 SEC alumni filed nearly 2,000 disclosure statements indicating their intent to contact the SEC on behalf of an employer or client between 2001 and 2010. The agency’s own rules require its former staffers to file these disclosures within two years of leaving the SEC. Sometimes they waste no time: More than 20 of these alumni filed their first statement within a week of leaving.

So, how could anyone be surprised that former federal prosecutor Mary Jo White, President Obama’s pick to succeed Schapiro as the next SEC chief, was more recently a partner at the law firm Debevoise & Plimpton? At Plimpton she represented financial giants such as JPMorgan, UBS, and General Electric. Incidentally, GE has now nominated Schapiro to serve on its board.

Will White, whom the Senate confirmed April 8, protect investors and hold Wall Street accountable like she did when she was a prosecutor? Or will she look out for the financial industry she used to represent?

The well-worn path between the SEC and firms it regulates raises questions about the agency’s culture.

And with each new spin of the revolving door, the line separating Wall Street and financial regulators blurs even further.

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Michael Smallberg

Michael Smallberg is an investigator for the Project On Government Oversight. www.pogo.org
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